Sunday, November 30, 2008

Let Me At Those Banks

It looks like this will be shaping up as my “beat up on the big commercial banks” blog. Someone needs to do it and with regularity and force. Oh, and I might as well take a shot at a local newspaper, too.

Last week, the Washington Post editorialized how happy it is that Larry Summers, who will be the new head of President-elect Obama’s National Economic Council, was in a position to deliver some final solution to the Post’s perception of an ongoing Fannie and former Freddie problem? (Aren’t the former GSEs already all but dead and merely servants of the Treasury, which seems to be doing a lousy job at being a “Conservator,” since the Paulson-led Treasury seems to be acting more as “receivers” and liquidators than conserving the companies’ resources for future revival/use.)

Gads, suggested the Post, we cannot have any more of this confusing private/public
partnerships, in which an entity--using private capital and traded on the world’s stock exchanges—carries out some congressionally mandated broad public policy mission, in this case creating a national deep and liquid secondary market for US home mortgages. The newspaper’s hope is that Summers will be their Administration avenging angel.

(I don’t remember the Post in such high dudgeon when the companies were leading the residential real estate markets and helping millions of low, moderate, and middle income families secure a house of their own. Twenty plus years of solid performance in that regard should not get wiped out by business mistakes made in 2006 and 2007, when the company leaders moved away from their traditional financing role and put tons of toxic junk on their books. That’s bad judgment not a structural flaw.)

That editorial, coming from I now call the “Wall Street Journal-South,” located on 15th Street in Washington, DC, generated the following letter to the editor (one of many in the past several months, which the Post never prints).

So, for your edification, here’s my response to the Washington Post’s cheering for Summers to smite the GSEs.


Maloni’s Letter to the Editor

To Washington Post:

You can bash these companies all you want and call for their atomizing, but--so far--you've ducked the real issue and the consequences of someone making that implicit call.

It is not Fannie and Freddie which are vital to our residential real estate market, it is their function, i.e. a dedicated conventional mortgage market investor, the constant market presence of which allows thousands of local lenders to make mortgage loans at all times on a standardized and consistent basis, so that virtually every community in the nation is supplied with available mortgage credit at comparable costs

With Fannie and Freddie consigned to dust, should the banks conduct that mission, since--without significant charter enhancements--they have shown they can't and won't, or should that be a government (Treasury/HUD) responsibility?

The Post fails to explain that fixed rate mortgages--the American loan of choice--likely won't be offered or only offered at huge premiums over bank borrowing costs, if banks become the nation’s mortgage originators and the mortgage investor.

If you advocate for a new mortgage market structure, at least be honest with your readers regarding the likely consequences of that change. And while you are arguing against "public/private" lending entities--and in this instance which had huge affordable housing lending obligations--what have banks become with their huge federal subsidy of deposit insurance and, now, the various Treasury and Fed subsidies added in just the past few months?

(This was not in my letter, but it’ always is important to note that commercial banks and their mortgage banking subsidiaries, which now dominate the primary mortgage market, where consumers go to shop for mortgages, have no numeric or percentage of business affordable housing requirements.)

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In this week’s Barron’s the following observation about commercial activity appeared in Michael Santoli’s column,

AT THIS POINT IN AN UNFORGIVING YEAR, it's worth recalling that the first Thanksgiving at Plymouth Colony in 1621 -- where there may or may not have been turkey on the table and the day's football scores went unrecorded -- was effectively a celebration of having merely survived for a year in an inhospitable environment.
Survival alone as cause for gratitude? Eleven months into 2008 and more than a year into a bear market that has shown a vicious flair for outdoing its antecedents, investors probably can relate to this sentiment.

Banks, the ones still with us, certainly can. They are hunkering down to ride out the year, counting the taxpayer-furnished capital that recently has arrived and sitting on it, earning what for these times is a handsome spread in safe-ish assets and getting healthy enough to fight another day.



What loathsome commercial banking behavior and responsibility shirking!

Excuse me, but are the departing Bush Administration and the staying here Fed telling us that the large banks can’t even be compelled to lend, when the Treasury and the Fed are feeding them billions in taxpayers’ dollars and other forms of relief?

Give me a break. Better yet, stop giving breaks to those financial institutions which seem to feast at the government’s breast, but refuse to help out, until they are ready. Translation: When the government ponies up even more gravy for them.

Aren’t most of those large lending institutions chartered by the federal government?

Citi?

Did I miss something or when the Treasury and Fed did their “thing” for Citi, was the bank asked to stop lobbying Congress? Were any of the senior officers removed or even asked to pick a hurried retirement date, soon?

Talk about disparate treatment.

Fannie and Freddie were treated like town drunks and Citi gets velvet gloved.

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Stiglitz on Treasury


And, while I am bank bashing, for those of you who haven’t read it, seek out Joe Stiglitz’s column of advice to the incoming Obama Administration, which appeared in yesterday’s Sunday New York Times editorial pages.

I think—in addition to a beat-up on the banks for their aforementioned perfidy—his opinion of what the Obama Administration owes the “Paulson Plan” is refreshing.

This is just an excerpt, as Stiglitz discusses the Treasury’s progress.



Stiglitz in the 12-30-2008 NYT

“But what you do with the money counts, too. The money needs to be spent carefully to ensure that every dollar provides as much stimulus now as possible while also contributing to long-term growth. That is why it is imperative to restructure the Troubled Asset Relief Program. Treasury Secretary Henry Paulson has already given away close to half of the $700 billion on very generous terms and without adequate restrictions on the use of the money.
“The intent of the program was not just to give money to banks but to get them to increase lending. It has not worked, so it needs to be changed. If taxpayers pour our hard-earned money into banks, then the banks should not be allowed to pour out the money as dividends to their shareholders or bonuses to their executives. Nor should they be allowed to use the cash to purchase healthy banks, in further efforts to become “too big to fail.”
“The Obama administration should not treat Mr. Paulson’s plan as immutable simply because “a deal is a deal.” The banks knew there pro quo. Besides, the terms of the relationship between the banks and the government (including the Federal Reserve) have repeatedly been adjusted, though almost always in favor of financial companies. The Fed used to accept only Treasury bills as collateral when it lent to banks. Now it accepts risky assets — junk.”

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(Happy 39th birthday, today, to our first born and oldest of four sons, Jason Wynn Maloni. He and his wife, Andi, had their first child-- a daughter--seven months ago, and may Daryn give you guys as much pleasure and pride as Jason has given his mother and me, including that scary but educational “Beach Week” incident, more than 20 years ago!!)


Maloni 12-1-2008

1 comment:

John M said...

Hi Bill,

I've reposted here with some of the links filled in. As I mention in the re-post, it would be easier if you'd add at least the story links to your posts :-)