Monday, December 22, 2008

Wishes and Hopes for 2009

It’s the time of the year to bestow gifts and wishes on rich and poor, friend and foe, family and others. So here’s my list.

--For the American people—and therefore the world—I wish for a strong Obama presidency, a thoughtful and hardworking Congress, a revived and vibrant national economy providing many new jobs, accompanied by a rip roaring wild bull stock market, and serious work begun on a national health care system and major renewable energy sources.

--For Fannie Mae and Freddie Mac, I wish them powerful friends in high places, ideally a guy soon moving into 1600 Pennsylvania Avenue and others now sitting on Capitol Hill.

--For the nation's large commercial banks, which have received billions of taxpayers’ dollars from their “Uncle” Henry Paulson, I wish them some integrity, corporate conscience, and recognition that they now have a major obligation to their customers and the nation to start lending money, quickly.

--For the Detroit automakers, see previous Christmas wish and the need for car buyers to have access to financing.

--To Governor Rod Blagojevich, I hope he can secure a defense team with the combined skills of Abraham Lincoln, Perry Mason, Alan Dershowitz, F. Lee Bailey, and Johnnie Cochran, because G-Rod’s going to need them all and then some!

--To President Obama and his Cabinet, I wish that they enjoy the sustained and deep support from the American public and that their efforts produce peace and international prosperity which can come from bold United States leadership.

--For Angelina Jolie, I wish that she finally realizes her life long dream to go out with me.

--For the Pittsburgh Steelers, I wish for them the Super Bowl XLIII Championship, to go with the five others they’ve already won.

--I wish in 2009 that the McCarran-Ferguson Act, which cedes to the states regulatory control over the insurance industry, dies and is replaced by a national insurance regulatory regime. Consumers then can look forward to efficiency and lower product prices, which is not the case now. This development could also end the title insurance rip-off which costs new homebuyers $1500 to $2000 for the insurance with almost the lowest claim rate in the industry. (Digitize those local title and sales records and watch how quickly you lose the need for “title search” and even appraisal fees. The savings to homebuyers would be large!)

--In 2009, I hope former President George W. Bush remembers never to accept a hunting invitation from Dick Cheney.

--To the Pittsburgh Penguins, I wish them a Stanley Cup Championship to go with the two that the Marion Lemieux-led Pens won for the city and their fans in the early 90’s.

--For the AEI, Mike House, Peter Wallison, Charles Calomiris, Tom Stanton, and Bert Ely, and the other professional GSE irritants, I hope they can find another target for their rancorous energy, like global warming or world hunger, since Fannie Mae and Freddie Mac can’t carry them anymore.

--I hope the nation’s mortgage insurance companies—which owed their modern existence to the GSEs, but were so rabid with their overheated support of the campaign to kill off Fannie and Freddie—didn’t sow their own industrial demise with the effort. Too much of a good thing is bad! (See title insurance above!)

--For the editorial boards/writers of the Wall Street Journal and the Washington Post, I wish for a lifetime supply of kaopectate and lots reasons to use it!

--To Senator Dick Shelby (R-Ala.), I wish for the United Auto Workers to buy the house next door to his and then entertain the Senator, nightly, with continuous polka and yodeling contests. To aid that move into his neighborhood, the UAW should use the Shelby family title company to do their mortgage search. (To the UAW. I agree that yaks are totally acceptable neighborhood pets. Dick will love them!)

--To the senior Democrats of the House Financial Services and Senate Banking Committees, I wish for less acquiescence to Treasury officials, even in 2009 when they will represent the same party as the committee majorities. Lead don’t follow!

--To the Republican management of the Federal Housing Finance Agency, I wish you good luck in securing employment in 2009 in the fast food industry or at your friendly Wal-Mart store.

--To those investors who keep going “long” Fannie and Freddie, because they are so cheap, I wish and hope that you see and know more than I do about the two companies!

--For the Pittsburgh Pirates, I wish an end to their 15 consecutive losing seasons. Come on guys, it’s called “Major” League Baseball. Try playing some!!

--To Mr. Z, I wish that you stay a curmudgeon in 2009!

--To the Mortgage Bankers Association, I wish that you would drop the pretense and just merge with the American Bankers Association. It just a matter of time before it happens, anyway.

--To the National Association of Realtors (NAR) and the National Huilders Association (NAHB), I hope you never forget that you are the last commercial voices for homeownership and possibly the most powerful. Wear that mantle well and responsibly. Once again, don’t follow, lead!

--To the media chroniclers of Fannie Mae and Freddie Mac, several of which are writing books on the two companions and the economic meltdown. I wish that you successfully separate the truth from the lies and remember that the GSEs didn’t invent/design themselves, with their three-cornered statutory requirement to satisfy housing mission (55% of all of their business going to low-mod homeowners), shareholders, and safety and soundness regulators. That was Congress, reiterated again and again, from 1970 through last year.

--To all of those phony-baloney members of the House and Senate—who uttered those “Casablanca, gambling at Rick’s “ hypocritically hilarious comments about Fannie and Freddie making profits or helping too many poor people--I wish you’ll receive a prompt education and understand about the reality of the GSEs, so you will make some more thoughtful decisions in 2009.

(I hope your holiday gift of wisdom allows to realize that until Fannie and Freddie managers (not the long gone “scorned and evil Democrats”) in 2006 and 2007 succumbed to the need—wrongly—to buy toxic subprime and Alt A product, the companies did a fabulous job, i.e., just what Congress wanted them to do, carrying out their federal mission, supplying trillions of trillions of dollars in liquidity to America’s low, moderate and middle income homeowners. The two birthed and successfully managed a national secondary mortgage market, which now is missing from the mortgage finance system, and is part of the reason why housing still is suffering.)

--I wish that all of the GSEs critics come to realize that the GSE function is desperately needed and that the commercial banks, alone, can’t/won’t serve that “dedicated investor” role.

--I wish Shawn Donovan, the HUD Secretary-designate, a huge shovel and a sharp fat cutting knife, as he takes on the modern Aegean stables which are HUD.

--For Selma Hayak, I hope that she gives me at least a week to recover from my previously noted celebrity date, so that Ms. Hayak can have her much sought after evening with me.

--To my family and family’s family and to all of my friends, thanks for being there. I wish you all good health (which is most crucial), personal and professional success, and a ton of good wishes in 2009. Oh, and for myself, I wish for a typo-free 2009 blogging experience and some more grandchildren to go with our wonderful three we now have!

Maloni 12-22-2008


DWB said...

Happy New Year, Bill. Mostly good sentiments (but, please, the Pirates doing anything but lose?).

I found the Bethany McLean Vanity Fair article on Fannie to be pretty good -- certainly the best story with the most insight so far.

Anonymous said...

Ditto about the article in Vanity Fair. I am going to pay more attention to that magazine from now on.

We are waiting for your opinion on the recent suggestions from Mr. Paulson about the future of Fannie and Freddie.
Blue Agent

Maloni said...

I thought she did an excellent job in researching and writing the VF article.

She did an equally fine piece for Fortune on Fannie in 2005, just after Frank Raines resigned and Mc. McLean also has written a book on Enron.

She told me that she is working on a book on the current financial/economic malaise of which the Fannie/Freddie saga is only a segment.

I like the Paulson idea, think it makes sense, but want to see the details.

I am sure that once a plan emerges, the same old arguments will ignite, but I've said for a long tiem that the mortgage markets need the Fannie/Freddie investor function and the large banks have done nothing, yet, to show that still isn't the case.

Anonymous said...

It is refreshing to hear your comments - your provide a perspective that the media - which generally does a poor job of covering business issues since so many journalists do not understand economics - simply does not bring.

I am pleased to see that you do acknowledge that there ought to be some accountability for the absurd investments in Alt-A and subprime loans. (I don't understand how politicians and mortgage bankers think it a good idea to permit 30 year borrowing commitments to people without the life skills and habits to service them, but that is a philosophic issue best discussed at a later date). But I simply don't comprehend how the GSE's could have put themselves in a position where they were leveraged 60 to 1 (or worse, because tax credits are not liquid assets), with an undiversified (and hence risky) portfolio consisting essentially of only US mortgages? While references to the GSE's as casinos are over the top, no finance business can survive for any non-transitory period of time leveraged to this degree, and worse yet invested in only one asset class. The failure of Long Term Capital - run by a veritable set of geniuses - should have demonstrated just how risky lots of leverage can be. At some level and at some point, I think the GSE's became too enamored of their "do-gooder" mission, too caught up in the internal politics of Washington (e.g., spats with OFHEO/FHFA), and too inebriated with its pull in Congress to look at such a simple thing such as limiting leverage and catastrophic financial exposure. If only the GSE's managed to a 10 to 1 leverage ratio - they might have been to weather this storm. I suspect that you might rebut that the political pressures on the GSE's to grow share in the Alt-A and subprime markets were intense (I am sure they were), but really, at the end of the day levering up to such a degree was (and is always) and invitation to disaster and that disaster now has hurt the American homeowner and taxpayer. The GSE's have thus lost the trust of the people - what is the way forward now for them?

Apologies for the blunt comments - but these are tough times.

DWB said...

re: the buildup of subprime and Alt-a in the 2006-7 period:

there were those (at a reasonably high level) in the company that warned about the credit risk of those loans to senior management but were ultimately rebuffed for two reasons:

1) the HUD goals (which rose every year with no relation to the real market). Even worse, since the goals were stated as a percent of the market, as the market size increased with bad lending, Fannie and Freddie had to increase their activity to make sure they didn't breach the goals. The companies were absolutely paranoid about missing the goals. Probably for good reason.

2) the sense that the companies were becoming irrelevant in the market as wall street firms and private label mbs exploded. it's hard to pull back from a market when your share is falling like a stone -- lots of examples of firms unable to do this in many industries -- and you could argue that management might be replaced by the board if business goals weren't met. in retrospect, very bad. but in real time, i wonder if any company could do that successfully.

Anonymous said...

I am 6:58.

DWB - well stated. I have sympathy with the position that HUD was pushing mightily. It is unfortunate, but our diversity policies to put more minority people (as well as others) in homes have proved to be insane. The credit scores of course mean something, we have known that for years, yet naive people have chosen to believe otherwise, making scores of loans to people without life skills and circumstances to meet 30 year commitments. The easy access to credit for people that should not have had it has: i) created a situation where the is far less affordable housing, not more; 2) we have a mortgage bubble of monstrous proportions, including loans having been to people that even with generous loan modifications would never be able to service them; and 3) has hurt the very people the programs have intended to help, along with the rest of the country.

Don't take this as a monolithic rant against HUD and wrongheaded policies. There are plenty of other actors in this drama, most of whom should have known better than the poor folks that took out these loans. But HUD and Congress' policies were just one more factor that drove this ship aground...I suspect GSE employees are just too shocked and taken aback to mount a charge against the ills of the policies now. A shame.

Your second point is well taken too. But no matter what the pressures, no financial institution should gamble with money they don't have.