Tuesday, November 10, 2009

Obama Should Have Named Volcker Treasury Secretary…..

Woulda, shoulda, coulda…

If President Obama had named Paul Volcker his Treasury Secretary, instead of Tim Geithner, I believe we would be facing a totally different and far more politically palatable and manageable financial services scene today.

The 82 year old Volcker, who is an economic/financial adviser to the President, may not have wanted the job, which is a hugely demanding and stressful post. But, his sterling reputation and strongly held views-- especially on how to deal with “To Big to Fail” (TBTF) financial institutions--could have saved Congress from committing to this tortuous and likely to fail efffort (after implementing legislation becomes law, naturally) to restructure our nation's federal financial regulation.

Not that disassembling big US financial institutions would have been an easy political exercise, but Volcker’s instincts to reduce systemic risk--by making TBTF financial companies smaller and more manageable--makes more sense than legislatively jamming square pegs into round holes, trying to create new agencies and likely succeeding only in building new DC financial turf wars.

I believe Paul Volcker, with President Obama’s help, could have sold it to the public and Congress as a viable strategy. Especially now that Volcker friend Mervyn King and the Bank of England (the British central bank and corrolary to our Fed) took the first major step last week breaking up risky and ailing large British banks.

I fault Treasury’s Geithner for his lack of political vision and being far too easy on the nation’s major banks, which have taken billions in taxpayer dollars and taken care of themselves, while seemingly forgetting or ignoring the nation’s reeling business and residential real estate markets which was their reciprocal obligation in return for Uncle Sam’s financial largesse.

Besides booking near record profits, has anything bad happened to any of these surviving “robber barons?” With one hand the big banks take taxpayer’s dollars and with the other they fight new regulation and efforts to limit their compensation.

I asked last week and will repeat, why should any employee in the banking industry –whose institution received TARP money—should receive a 2009 bonus, when the segment of the industry’s revenue came not from the market, but largely from Treasury largesse??

Yes, the Troubled Asset Relief program (TARP) started under Hank Paulson and the Republicans, but it was carried forward by Geithner and the Fed’s Ben Bernanke, another relative “softy” when it comes to spanking the nation’s large commercial financial institutions.

Geithner is a young man, relatively speaking. And when he departs the intrigues of Washington, which industry do you think first will offer him his next job?

An unseasoned Secretary Geithner has done a lukewarm job overall managing the banks and their TARP funding; mismanaged the Fannie/Freddie “conservatorship” (see next segment); and offered too little opposition to the various “throw money at it” congressional spending plans, which just add to the US deficit.

You don’t have to be a Republican to see policy shortcomings here.

Paul Volcker would have and still could do a better job as Treasury Secretary, as long as someone tranquilizes and sticks Larry Summers in a large hole.

Treasury/FHFA and Fannie Mae

Let’s repeat the obvious regarding the former GSEs. Neither Fannie Mae nor Freddie Mac do anything which isn’t prior-approved by FHFA, their safety and soundness regulator, and the Treasury, their real regulatory (sorry, Ed DeMarco!).

So, what is the explanation for Fannie Mae’s third quarter report suggesting that their current book of mortgage business is going to suffer about three times the losses which most other mortgage investors project?


Either the Treasury is forcing them to post billions in unneeded loss reserves, which might allow some misguided bureaucrat down the road to say that Fannie’s losses are huge and the company needs euthanized (which works from an anti-Fannie perspective, which still exists even in the Obama Admin) or the company bookkeepers are laying in a ton of loss reserves which never will be needed, but when they come back onto the Fannie books will be a monstrous positive jolt to the ex-GSE’s bottom line.

Remember, nothing goes on without Geithner--or someone close to him--blessing it.

I am sure that there is a thoughtful explanation for this unique accounting, but I haven’t heard one yet. Maybe it’s just Fannie’s way of jerking around the new/old FM Watch crew, which should be catatonic about all of those “ugly loss reserves” showing up as Fannie capital.

The NAR Scores a Possible Huge Pro Consumer Acquisition

The National Association of Realtors, which has been the only functioning Capitol Hill voice for housing (in terms of putting their money where their industry mouth is. no matter what you think of the second homeownership tax credit) announced that it has acquired a major data facility which could help future American families seeking to own a home.

NAR has brought in house a huge informational data base with details on virtually every American property transaction. What a potential boon for housing consumers.

See NSAR news. http://webmail.aol.com/28878/aol-1/en-us/Suite.aspx

I could be wrong and legally there could be some hurdles, but if the NAR has the latest sales data on virtually every US home purchase, it could facilitate for consumers low cost home appraisals, charging say $50 for that info, rather than the $500 charged by most lender appraisers charge (both in house and independent).


Jon Stewart and the 30 GOP Senators Who Voted for “Rape”

Stewart is good and the Republican Senators actions are so transparent. They made it too easy for the comedian/political observer to parody their hypocritical support for Dick Cheney’s old company, while ignoring the real issue. It was quite revealing to see some of these conservatives go after “defunding ACORN than meting similar treatment to KBR and the other defense contractors. Will they never get it??


More Humor

For those who don’t see “John Kelly’s Washington,” in the Washington Post’s Metro section, you need to read his report from the Washington Zoo about the deer which leaped into the zoo’s lion’s den. Funny stuff!


Maloni 11-9-2009


Anonymous said...

As you pointed out both GSEs have posted over 120 billion dollars in losses and are asking the US government for more money to remain solvent. Treasury their truly conservator (not FHFA) is transfering loses from banks and other financial institutions instead of restoring the GSEs to financial health. Yet Berkshire Hathaway is interested in Fannie Mae's stock....currently priced at one dollar. Is this a good investment? or part of a complex agenda?
-Blue Agent

Bill Maloni said...

Never bet against Warren Buffett,

When I was still at Fannie, in one of his annual reports he wrote that the biggest mistake he made--until that point--was unloading a billion dollars of Fannie stock, when it still had plenty of room to grow and did.

But, he and Munger made/make too much money to ignore what they do and say.

As noted in my blog and elsewhere, there has been a lot of interest in both F&F preferred, but not either company's common, which might be why BH sees it as a "buy."

Just one quick personal analytic note. While serious investors always should be concerned about a company's debt load, if F&F got the Obama's Administration green light for some type of political/market resurrection, what they owe Treasury would be spread out over years and that 10% borrowing rate reduced.