Tuesday, November 17, 2009


The Obama Administration and congressional Democrats next year should take a page from President Lyndon B. Johnson’s playbook.

In 1968, President Johnson—in the middle of a very expensive war in Vietnam—did not want to be the first President to send a $100 billion federal budget to the Congress. So LBJ turned to one of his bright young assistants, Joseph Califano, and told him to “make it happen.”

Califano put together 26 specific cuts or related steps to keep the budget below the President’s $100 billion target. Ironically one of those items was selling off Fannie Mae to private investors (for $235 million).

Califano later told me that he put a “stinker” into the package, hoping that it would draw so much congressional heat that it would be taken out, while the balance of the items saved. That stinker/lightning rod was the sale of Fannie Mae, but not only did Congress not balk at “privatizing” Fannie Mae, they went along with every one of Johnson proposals.

President Johnson got every saving he sought from the Congress.

Next year, the Obama Administration and the Democratic congressional leadership might want to assemble a serious list of cuts and program changes that do nothing but save federal budget dollars.

Whether it is ending certain subsidies (sugar?), selling assets (maybe Fannie Mae, again), Democrats need to show America that they are more than “spenders” and can be cutters, savers, and serious policy makers.

Drafting a package of cuts won’t be enough, the Democrats need to pass it, every item, and win back the confidence of the American voter which largely has been lost in 2009, by the feckless health care packages, weakness in the face of commercial bank obstinacy, and nagging questions about jobs, Iraq and Afghanistan.

Dodd’s Federal Financial Regulatory Proposal

Politically beleaguered Senator Chris Dodd (D-Ct.), Chairman of the Senate Banking Committee, last week proffered his regulatory restructuring proposal, with only eight committee members as co-sponsors and no committee Republicans.

In a legislative mish mash which gives more power to the Fed but then takes away others from the central bank, Dodd appears to have produced only a vehicle for Committee restructuring necessary to get a majority of votes, including a GOP vote or two.

Supposedly, the “wily” ranking Republican Sen. Dick Shelby (R-Ala.) dislikes the Dodd bill because it contains nothing about restructuring Fannie Mae and Freddie Mac.

One wonders where was the senior Senator from Alabama--demanding strong financial regulation--when George Bush ran the White House and Shelby was Chairman of the Senate Banking Committee?

In that era, the GOP federal financial regulators swallowed their referees' whistles and weren’t signaling any transgressions, but I don’t remember Shelby doing any “kvetching or kvelling” then.

Does Shelby support good public policy or he just interested in sticking partisan sand in the gears of financial regulatory restructuring?

Well, here’s an idea for Chairman Dodd and the ranking Republican Senator which might bridge that gap and let them “fix” Fannie and Freddie and make the Dodd bill far more acceptable and appealing to the voting public.

Take the ideas of Paul Volcker and the Bank of England’s Mervyn King and give the Fed “systemic risk” oversight authority. The goal would be to require the central bank immediately to disassemble worrisome large financial services companies (defined as at least $500 billion in assets) and reduce their financial risk to the nation. Add Fannie Mae and Freddie Mac to that category and satisfy the Alabama Senator’s blood lust.

Don’t create any new agencies to carry out this new power, but give it to the biggest cop in town and oversee the Fed’s follow through.

I wonder if “Senator Wily” will go along with that simple fix, backed by some sterling minds, and apply it across the board to the institutions he seems to dislike, the former GSEs, but also to the equally “Too Big to Fail” large commercial banks and investment banks.

(Read my friend Ken Guenther’s comment about the Dodd bill, in the right hand column of the attached.) http://www.fcmalert.com/


Early this year, I wrote a blog suggesting that most of the existing regulatory power be given to the Fed, rather than creating new agencies and generating new regulatory turf wars.

Let me amplify that suggestion. The FDIC should stay intact with its responsibility for the smaller commercial depositories, while the OTS, the Comptroller of the Currency and FHFA-- the former-GSEs regulator-- should be vaporized.
We’ll survive as a nation with less regulators doing more and better work.

Berkshire Hathaway and Fannie Mae?

Last week, someone wrote to my blog site (see “comments section”) and asked if I had heard the rumor that Warren Buffett/Berkshire Hathaway was looking at acquiring Fannie Mae common stock?

I have had heard nothing at all and told that to the writer.

But, as I thought about it, it would not be totally out of line for the man from Omaha, who just paid $25+ billion for a railroad. (Yes, Virginia, there once was a time when we road in cars on tracks, which were hooked together and…...!)

Again, I know nothing of this possibility, but a few reasons why it would not be surprising.

There are about 1,000,000, 000 public shares of Fannie shares outstanding. (The Treasury owns 80% of the company as part of their December 2008 “nationalization.”) The “common” is trading for a little over a buck, which means Buffett could get most of it for under $5 billion, depending on how quiet he kept his acquisition effort.

Buffett loves a bargain. He’s a “friend of President Obama’s,” a reputable businessman who once owned a lot of Fannie stock and lamented (before the fall of Fannie) that his worst mistake was selling the company stock too soon.

So, the Administration wants to run the companies for a bit, trying its hand at managing the residential mortgage market and hoping it can do a better job than it has shaping health care policy, immigration, budget cutting, Afghanistan, etc.

Now, flash forward to today or early next year. As part of a planned transition, Buffett gets a chance to buy most of the company for pennies. He’s assured by the White House that it will support a transition back to private ownership and Buffett is just the guy with whom to partner because he knows the company—has invested in it before—and has the resources to help recapitalize it, if that became necessary.

Remember, this is just me “geezing.” There is nothing I know about the Buffett rumor,et.

But, new/old FM Watch, contemplate that possibility!

Maloni 11-17-2009


The Progressive Pragmatist said...

As for the Buffet speculation, could you "show your math?"

Bill Maloni said...

At this point its a no-facts fantasy as I tried to point out.

I merely speculated that Buffett would be a good choice for a transition partner, given his history with the company, relationship with the Obama Administraion, and resources.

How much common he would have to acquire--on his own--could run from very little to almost all.

If today's price is roughly a $1 a share, news of a single buyer's interest in accumulating would drive the price up, so I suggest $5billon.

Before anyone runs out and tries to get ahead of this mythical sale, let em say--again--in trying to run down this rumor, I have found no substance to it and plenty of smart people telling me why it never will happen.

The Progressive Pragmatist said...

Why would anyone want to own 20% of FNM when the majority shareholder runs it as an instrumentality to promote dubious public policy and with total disregard for the rights of minority shareholders (including the First Amendment) and prudent business practices.

Bill Maloni said...

First off, let me reiterate, this is not my rumor nor my idea.

But, to answer your question, I would offer the following:

The Administration is going to have to plan some type of transition, since I believe that the Fannie/Freddie dedicated mortgage investor function is necessary to our real estate markets. (So must the Treasury, since they are running them for that reason.)

Buffett has a history with the company and at one time admired it.

He has the resources and reputation to run it at a high standard.

I continue to believe that it is an "excellent franchise" and Buffett would be acquiring Fannie as a favor to the Treasury and getting a good price.

Now, I am going to try and not say anymore about this issue, since I don't want people thinking I am providing truly inside informatioon and stimulating a phnoy buy on the stock.

Also, for the record, I own no Fannie Mae common stock.

Bill Maloni said...

That's "phoney" for you unfamiliar with my typos!!

Anonymous said...


Are you long the preferreds?