Monday, January 26, 2009

"TARP, Squared?"

The Troubled Asset Relief Program (TARP)

This past week may be an aberration in the past 15 months which have been filled with them. But, I am beginning to think that the Obama Administration and the Congress may need to double the $850 Billion financial relief package they now are crafting and hope it doesn’t take more.

But, if it does, then the Administration should seek it and the Congress should approve it.

Hopefully, going forward no federal financial support will be given to any company/financial institution without a reciprocal equity position for Uncle Sam in that recipient. The federal government, at some point, needs to pay back all of that borrowing and get paid for all of its support.

President Obama is a popular figure and that is all the more reason for him to eschew questionable spending in his stimulus package. Paying off any Democratic constituencies with initiatives that do not bring the hope of near instant leveraging and jobs is not what I would urge the President to do. And, that goes for giving too much to the GOP, too.

As Obama has pointed out in his meetings with the GOP congressional leadership, he won and they lost. So, while they have a seat at the table, it’s a small one.

There are plenty of ways to spend that money that could insure it gets quickly worked into the national economy and working for all of us. (I’ve always liked giving $1000 checks or more to every family/citizen, which only can be cashed for goods and services at stores or other commercial otulets. Those businesses then can get credited with money from the Treasury, when they deposit them at their local bank.)

There is time for larger Pell education grants, federal arts program, and other good ideas, but that time is not now. The more good will (and down the road revenue) which President Obama can generate from pure stimulus spending will provide the basis for attending to these collateral societal needs sooner rather than later.

And please, Congress and Mr. President save us any tagalong “secret union vote” provision. We do not elect our public officials in that manner and there is no compelling or good reason why our union brothers and sisters need “secret votes” to enhance their numbers.

Alan Blinder

Mr. Blinder, certainly no Fannie Mae or Freddie Mac shill, authored “Six Blunders En Route to a Crisis” in yesterday’s (Jan. 25) New York Times business section. In listing his half dozen reasons why we have experienced this pernicious financial and economic meltdown, try as I might I couldn’t find any reference to Fannie Mae or Freddie Mac, but did see Wall Street mortgage and security originations and lax federal financial regulation prominently noted.

Freddie Mac

Nobody in the “GSE friends” world (both of them!) should take any joy in Freddie Mac’s financial problems. It was reported this weekend that they may need another $35 Billion in federal financial assistance to cover their losses, to go with the almost $15 Billion which they’ve taken already.

Now, the same could soon happen to Fannie Mae, but I have my doubts, since it long has been the presumption that Freddie’s books, portfolio, and back office were a mess, in comparison to the company in DC.

Yet even Fannie is making adjustments, laying off hundreds and beefing up their “Real Estate Owned (REO) and loss mitigation” efforts, headquartered in Dallas.

The surprising thing to me is that when the dust settles Fannie thinks it still will carry about 5500 employees.

What are they all doing? It’s not a thriving business anymore, so all of those formerly busy folks can’t have a lot to do. I am not advocating adding to the nation’s unemployment roles, but at some point I can’t see where that many people can be gainfully employed doing Fannie’s business, unless they get something else major to do.

To the New Senators and Members Serving on the Banking Committees

Few of you have any idea (no matter what you now think) about the issues you will be called on to shape, bless or kill in the coming year. Yes, you’ll get briefing papers and some staff input, but--with all due respect--you are going to be dealing with buzzwords and phrases for a long item, unless you take the initiative to get smart and fast.

Every single financial interest in own is drooling to come in and meet you and your top legislative assistant(s). Let them and now. But make them give you a “ding-dong school” lecture on what they do, exactly how they do it, and where they fit into the national financial economy. Make sure that you know where and how they work back in your state or congressional district. Your political survival may depend on it.
Of course they will spin and possibly mislead, but by conducting the same exercise with multiple and conflicting interests, you will begin to get a sense of what’s really happening out there.

Use the Congressional Reference Service experts and the Library of Congress resources and make yourself aware. Don’t be afraid to ask lots of questions. There are no “dumb questions,” just questions for which you need and want an answer.

While your congressional Rabbis, committee chairs, and subcommittee chairs, will help, you need to help yourself. And, yes, there are elements in town that would have you less knowledgeable than more.

Question everyone and then find your comfort level, but don’t stop questioning, ever. The interest groups—which can be most helpful--preceded you and will be here when you finally leave. Use them to make yourself a more intelligent advocate for your constituents. Just because they brief you doesn’t mean you owe them your vote or support.

And, despite the different names and apparent functions, every single interest you encounter in the financial institutions world has one thing in common. They all borrow money at one rate (from depositors, policy holders, institutional investors, regional and central banks and other credit facilities) and try and reinvest it at a higher one, holding onto as much of the margin as possible for their profit.

That’s the single most important thing to know about financial service companies and you’ve just learned it!

Andrew Cuomo

Why do I feel that the “happiest Democrats in town” are those New York public officials and interests, not to mention the Senate Democratic leadership and the Obama White House, who won’t have to deal with “Senator” Andrew Cuomo?

I just can hear them saying, collectively, “Hello and welcome Senator Gillibrand and thank you Governor Patterson, no matter what your motives. Oh, and Andy, you are a great state Attorney General.”

Cinematic Revelation (to me)

I happened to catch Stanley Kubrick’s “Dr. Stangelove” on TV the other night. That wonderful Cold War black comedy, with the late British comedian Peter Sellers playing multiple roles, had bravado performances by Sterling Hayden and George C, Scott. But, how many realize that the Air Force navigator on the nuclear armed B-52, which doesn’t get recalled and heads alone to bomb “Soviet” targets, is a very young James Earl Jones?

Maloni 1-26-2009

Wednesday, January 21, 2009

President Obama

Obama's Turn at Bat

I can’t improve on the millions of words which have been written about the historic presidency which began on Tuesday, with Barack Obama's swearing in. I merely will add my wish for a very successful and strong Obama presidency and the hope that, shortly, a large majority of the nation—reflecting all income levels, partisan leanings, races and religions--feels our new President has taken on and vanquished the problems they feel beset America.


I didn’t plan on waiting this long, since last year's “New Year’s wishes” blog, to write again. I could cite some minor health matters, but closer to the fact is that for a few weeks--caught up in all that was happening with the holidays and the coming Inauguration—my pen just went cold.

Muse, Muse, where have you gone? Hopefully Muse, you’ve been too busy to visit me while you have been watching the Pittsburgh Steelers fight their way into the Feb. 1 "Super Bowl."

That was Step 1.

Step 2 is for the Steelers to beat the upstart Arizona Cardinals—with more Pittsburgh links on the team than is easily countable--and bring a sixth and unmatched Super Bowl trophy to Pittsburgh.

How can I lead with my creative problems and talk sports when the nation and world just have watched the historic inspiring inauguration of Barack Obama?

Easy, there is a connection. Everyone knows that the new President is a Chicago Bears fan (and all of the other Chicago sports teams), but he also roots for my Steelers. The Steelers ownership, embodied by Dan Rooney and his family, campaigned heavily for Obama in western Pennsylvania and Ohio. The evening before the inaugural events, Mr. Rooney presented Mr. Obama with a game ball from the Steelers brutally hard fought conference championship victory over Baltimore, allowing Pittsburgh to represent the American Football Conference (AFC) against the National Football Conference (NFC) champion Cardinals in the “big game.”

The football gods should never consider upsetting the new President by permitting anything but a Pittsburgh win.

Gaza and Beyond

I agree--as someone cleverer than I put it--“If Hamas disarms, there will be peace in the Middle East. But, if Israel disarms, there will be no Israel.”

Bankruptcy Court

The large financial institutions—which seem to gravitate around the Financial Services Roundtable—should be ashamed of themselves for begging with both hands for more “free” government money and at the same time opposing anything that appears to provide relief for debtor/consumers. Now, they are opposing the suggestion to let bankruptcy courts re-write mortgage details. The big guys, once again, thinking only of themselves, say that would be a mistake.

Why? I always thought that investors wanted to keep mortgagors in their homes and “paying” on their debt, so that the house didn’t sit empty, bringing down itxs value and the surrounding properties (where the bank likely has other mortgage investments),adding to the general community decay.

Greed is a terrible thing!!

Bank Lending

When “author” David Smick joins me in calling on the large commercial banks to begin lending and to help thaw the credit freeze, especially since they have been the recipients of so much recent federal support, I guess I better watch the company I am keeping. But, there was Smick, in a Washington Post op-ed a few weeks ago, calling on the incoming Obama Administration to get tough with the commercial banks and scare/threaten them into lending to family and business borrowers to help jumpstart our economy.

Smick and one time reporting partner (they still may work together?), former congressional staffer Richard Medley, used to play “whack-a-mole” regularly on GSEs. The big banks used to pay big subscription fees and suck up the S/M rhetoric with the same gusto they now are reaching for TARP funds.

I hope the banks enjoy the new meal Smick ladled up. I have a feeling that if they don't change their act and tone, they soon will become very unhappy financial services campers. There are a few new sheriffs in town!

Speaking of Mistakes…..


That link should lead readers to a very interesting report (Jan. 9, 2009) by the two economists from the Paris-based Organization for Economic Cooperation and Development (OECD), Adrian Blundell-Wignall and Paul Atkinson, who identify at least two prominent Bush Administration initiatives—involving Fannie Mae and Freddie Mac—which the authors argue led to the massive subprime lending and other developments which largely facilitated the financial and economic meltdown and now crises, which the world faces.

Numbers one and two on their list of top five reasons why commercial banks started to accelerate off balance sheet securitization—which are major villains in their review, when added to lax US regulation of financial services companies—were the 2004 Bush Administration decisions to lean on Fannie and Freddie to make zero equity mortgage loans, plus OFHEO’s (the then-GSE regulator) insistence on greater Fannie and Freddie capital as well as portfolio controls. The latter two encouraged and incented banks to move in on the GSEs traditional business.

Blundell-Wignall and Atkinson have much more to say and interested readers should review it.


The one question I’ve been asked more than any other in the past month is, “What do you think is going to happen to Fannie Mae” (and sometimes they add Freddie Mac)?

My straight answer is, “I have no idea.”

I’ve noted that the former GSEs would need a huge boost from the Obama Administration.

With current mortgage market needs and the absence of any viable successor “dedicated mortgage investor,” save the US Treasury with regard to government loans, some Fannie/Freddie role or even their functional replacement is needed in the larger and heretofore more popular conventional market.

For Fannie and or Freddie (despite the rumors of merger, with Fannie surviving) to get even marginally resurrected (as part of Hank Paulson’s “regulated utility”??), a number of Democrats on Capitol Hill who made it possible for Paulson to nationalize the two companies--prematurely in Fannie’s case--will have to eat crow, a staple not found on most politician’s diets.

But, to even consider using the second half of the TARP funds to acquire toxic mortgage bonds and not use Fannie and or Freddie to help the government in that task, especially since they are owned by the Treasury, is a waste of resources and expertise.

Those actions came easily to an ideologically driven Bush Administration, which invested so much in demonizing the two companies. I would hope a much more pragmatic Obama Administration and an aware Congress won’t continue those same mistakes.

Vanity Fair

After seeing Brad Pitt and most especially Cate Blanchett, in the “Benjamin Button” movie, I now agree that Cate should have graced the cover of February’s Vanity Fair, rather than someone from the GSE world, calling attention to Bethany McLean’s superbly researched and well written Fannie Mae/Freddie Mac story in that same issue.

To the cynics and GSE critics who continue to pretend that the Paulson’s “GSE Sunday Smashdown” was necessary and deny that the action was the pre-meditated culmination of a 25 year conservative imperative to do away with the GSEs, I call your attention to one observer quoted in the McLean’s article who noted, “My view is (the Bush Administration) said we’ve got four months to remove this thorn in our side,” meaning destroy Fannie and Freddie.

Maloni 1-21-2009