Monday, January 25, 2010

Peanuts, Popcorn, Crackerjack…!

Lots of things worth blogging about

The Brown victory in Massachusetts; the President seeking to implement some of Paul Volcker’s financial regulatory proposals; Chairman Barney Frank (D-Mass) announcing that he plans hearings, hopes to abolish Fannie and Freddie and replace them with something else, and many others.

Senator Scott Brown (R-Mass)

If losing the Massachusetts Senate seat wakes up the arrogant Democrats (yes, you read that adjective correctly), then it was worth it. How many presidents have enjoyed 60 senate votes? What could LBJ or even Bill Clinton, pre-Lewinsky, have done with the 58 or so Senate votes President Obama now has or the Democrat majority in the House?

The Democrats are still in major control, if they only would act like it. They need to stop the dumb in-fighting and try legislating/governing. If they soon don’t, they deserve to lose this year’s congressional elections, which likely means losing the 2012 presidential set.

I don’t give the Administration much credit for what/how it has advocated and the same for the D’s in Congress. They both need to learn from this past year’s errors and get off their high horses and do some serious work.

Having said all of that, the Democrats still are trying to dig out from the 8 years years of the Bush trauma and humongous policy errors. Can any party do so in one year? That’s doubtful, but the harsh political reality is that Franklin Roosevelt’s party needs to do more and better.

The Democratic Party made too many promises to gain control of both ends of Washington in 2008; now they need to produce, if they want to maintain that grip.

I’ve always counseled public officials that you are known in this town either as a wolf or a sheep. If the political bell is going to toll for them, it’s better for the D’s to go out as wolves than lamb chops!!

Paul Volcker Rules!!

As someone who long has blogged that President Obama should listen more to Paul Volcker and less to Tim Geithner and Larry Summers, I hope last week’s flurry of statements about new Obama financial service policies—and Volcker’s role in shaping them--are correct.

Nobody should look for banks (or many other commercial interests) to do anything but what they were created to do...make money.

You keep them directed toward the public good and constrained by strong regulation, not through wimpy calls on them to be “good citizens.”

Volcker knows the big bank beast and understands better than many what banks should do as taxpayer insured depositories and what they must be denied as they seek other major revenue options.

Geithner might mouth those words, but I doubt if he “walks the walk,” since--when his time in Washington ends--he’ll almost naturally turn to the big financial institutions for his next portions of bread and butter.

Don’t underestimate Volcker’s wisdom and experience. It’s one of the benefits of age; a shame he isn’t 20 years younger and could then take on a fulltime job as Treasury secretary. He might turn it down, if offered, but—today--he still would be the best man for that job.

Barney Frank and GSE restructuring Hearings

I am constrained by blog space limitations to write everything I want on this subject. So consider this the first of many installments on the matter.

The political reality is that in an election year (yep, here it comes that old “saw”), the House is unlikely to restructure the former GSEs. Nor--with Senator Chris Dodd’s (D-Conn) pending departure --is the Senate ready to consider such far reaching legislation, despite the howls from certain GOP Senators about how badly Treasury is running Fannie and Freddie.

And, what might be surprising to many but not to all, is--if there was a serious move on Fannie and Freddie —one sound the Hill would hear loud and clear is the metallic “clank” of so many Wall Street and commercial bank anuses slamming shut!!.
Those bad boys, right now need F&F, more than ever, to take from their books the interest rate risk represented by the few (conventional) mortgage loans they do make.

THERE IS NO CONVENTIONAL SECONDARY MORTGAGE MARKET IN THE UNITED STATES, SAVE THAT WHICH IS BEING PROVIDED BY THE TREASURY--CLUMSILY-- EMPLOYING FANNIE AND FREDDIE.The challenge for Barney Frank and anyone else who delves here is producing a mortgage model that had all of the pluses of the Fannie/Freddie design and few of the problems and conflicts.

Any new structure must be able to deliver long term fixed rate financing to consumers, no matter the rate environment; do so in a way that every market in the nation can access the same mortgage products and prices as the others; and offer systemic standardization and efficiencies, which allow mortgage money to flow easily across the nation and attract overseas investors as funders.

If the new scheme doesn’t do those things—not to mention insure that lower income families and minorities get access to the mortgage goods and services—then it makes no sense to shuck what you have.

The “abolish them” mindset of Chairman Frank seems to suggest some unhappiness and I will bet that more than a majority of the Banking Committee feels the same way, without them quite knowing why.

Some of these critics are many of the same who actively helped legislate more than 50% of Fannie and Freddie’s business going to low income families and those not living in “underserved areas” and silently cheered when HUD officials drove that number to 55%. Many of them stood with the GSEs and cheered the new homeowners or those multi-family buildings, but now would they would vote to level the credit providers.

That is their option, as long as they responsibly create a replacement.

Up until 2005 when their managements failed F&F, the model worked well—with no federal dollars ever being spent on/for Fannie and Freddie-- but the subprime debacle caused self-inflicted mortal wounds at both former GSEs.

The task facing Mr. Frank is how to re-create the “implicit” federal relationship in some institution(s)—and keep alive long term fixed rate conventional mortgage funding-- or default and go to all private funding and risk the country only being offered adjustable rate loans (ARMs) and at premium prices because lenders will not keep even those assets long on their book (because they are no F&F’s to buy and hold them).

Anything in between will look much as F&F did before the “conservatorship” and beg the reasonable question, why abolish what we have unless it is to engage in some twisted form of continued outrage?

The substantive choices are pretty few for Congress or anyone else trying to come up with something “new” to avoid whatever are seen as Fannie’s and Freddie’s structural problems.

Just because Congress delays and stumbles doesn’t mean the market will or that people will stop seeking mortgage finance. So policy in this area needs to be deft, effective, and creative. Things which don’t come to mind when you think of Congress legislating.

What could be the hearings’ saving grace—as they explore alternative mortgage finance systems--is if they dispel some of the “BS” that surrounded what happened at Fannie and Freddie and if the Committee identified some of the strengths of the F&F mortgage system model. As dedicated mortgage investors, those companies help responsibly finance millions of new homeowners while creating new products for lenders to offer consumers, modernizing and making efficient the mortgage process.
Do away with Fannie and Freddie, without immediately providing a viable alternative, and the housing market, what’s left of it, would near crumble.

The House Banking Committee needs to approach this issue rationally, not like a torch carrying mob.

The F&F secondary mortgage market model worked and largely can still work, although there is no denying that the last three years have created a bunch of mortgage lender eunuchs, which won’t extend credit unless Uncle Same wraps his arms around every loan.

The hearings should be more about preserving the Fannie and Freddie function in the best manner possible.

Given what individual committee members know and don’t know--unless Chairman Frank and his staff take a whole new approach to the topic--these hearings could just become what many previous Banking hearings became, the blind leading the blind while kowtowing to every special interest group sending campaign contributions to the Members, i.e. “the best free circus in town.”

I wish I had the popcorn and peanuts concession!

Maloni 1-25-2010

Tuesday, January 19, 2010

What me worry??

Not everybody was concerned about Wall Street indifference and chutzpah over the Street’s compensation schemes and post financial crash behavior.


Fast forward a few years. The following is a mythical scene from “Hell,” you know the place for condemned souls and eternal punishment. It is a figment of my imagination and not meant to reflect anyone living or dead!!

“Where am I,” said Floyd Cashfind-Keep, late of Wall Street, USA.

A voice responds, “Uh, you are in Hell, young man, Purgatory, you know and it’s a real bitch, having been here almost 240 years myself.

Who are you babe?” said a slightly flustered Cashfind-Keep, ”And, um, nice neck!”

“I my dear young man am Marie Antoinette, the mistress of this particular Hell
neighborhood. We call it the ‘food court.’ It’s you-know-who’s idea of humor, since it relates wickedly to why each of us wound as his guests.

“Really,” said Mr. CK, “Uh, do they have good grub here?”

“Not unless you like the entrails of dead goats, rodent parts—which don’t’ make it into the bologna—vitreous humors from eyes of newts and that’s just for breakfast, “smiled Marie.

“Yucko,” gagged Mr.CK, “Can I call out to my club or the deli?”

“No, no,” chastised Marie A, “ But, tell me young man, given all that I’ve read about you and your exploits—especially since you strongly implied publicly what I specifically said 300 years ago--I have to ask, do you have any cake?”

The Financial Meltdown Causes

Yep, Lloyd Blankfein (repeat: not depicted above) didn’t help his case or that of his fellow Wall Street big wigs, with his defensive statements about Wall Street behavior or its compensation schemes, when he testified before the Angelides Commission, which will report on who and what caused the greatest financial debacle in the past 70 years.

In playing “Defense,” Blankfein was pretty offensive.

Hey, risk and making money go hand-in-hand on Wall Street and elsewhere. That doesn’t bother me as much as the “rewards” being handed out by financial services companies which received massive federal support.

That’s where the Obama Administration should direct its ire, because at some point, Obama and the nation will want to take advantage of the entrepreneurial Wall Street spirit.

Drop the trial balloons and let’s hear some "recover the cash" details, Mr. President. You should have a relatively clear path on this one.

GSE Hearings

The House Banking Committee soon will begin a series of hearings on Fannie Mae and Freddie Mac, the former Government Sponsored Enterprises (GSEs).

The Obama Administration once promised a substantive plan to restructure the GSEs in the coming budget, but that seems to have fallen a bit behind schedule. In the meantime, the Administration continues to employ the two companies as the nation’s major conventional secondary market investor, but with no indication of what it hopes to do with F&F when that role ends.

I hope the Treasury legal beagles know what”conservatorship” means and something tangible is left after their (mis) management.

One idea—which I don’t support—surfaced this week and a link to the suggestion appears below.

Chairman Barney Frank (D-Mass) could do worse than conduct a primer session for all of his members, both sides of the aisle, before these hearings begin. There continues to be a lack of real knowledge about mortgages, mortgage markets, trading of same, and what the market looked like before the real estate debacle forced a restructuring which has the federal government—in one form or another—as the only mortgage game in town. That should not be a tenable situation for either political party.

I suspect this “education session” won’t happen, institutionally, because Members/Senators don’t like to acknowledge that they don’t understand the issues on which they are called upon to legislate, whether it’s mortgages or healthcare.

But, there has been so much “misinformation” spread in the years prior to and following the federal takeover of the GSEs, that it behooves the Committee to enlighten the membership and staff, with more than just handing out one-pagers on the eve of testimony..

You can bet the recently re-created FM Watch will do its best to confuse, bewilder, and demonize the subject.

Who will set the record straight, this Administration which refuses to hire anyone who worked at those two companies or pretends those it did hire didn’t really spend any time there?

Senator Chris Dodd (D-Conn)

I always found him to be a stand up Senator, never arrogant, and someone who would listen to your position on a variety of issues. It’s a shame the Senate will lose him. I always thought his first love was foreign relations and there, not financial services or Healthcare, was where he could make his historical mark.

There will be a financial reform bill this year and it will have his name on it, but I have no idea what the content will resemble. His likely successor Tim Johnson (D-SD), is another solid public servant, whose political clout will grow as Dodd’s lessens, simply because one is departing and the other is the presumed successor to the Senate financial services throne.

Smart lobbyists are spending time with Johnson and his staff.

Lazio versus Cuomo??

Could that be a future Senate race in New York? Rick Lazio (R) is raising money here and elsewhere for the race.

Andrew wants higher office but is it the Senate or Governor?

If AG Andrew Cuomo (D) runs and wins the Senate seat, first challenging the weakened Governor’s chosen replacement, Sen. Gillebrand, I suggest that we all quickly invest in companies which make TV cameras, since the current senior Senator from New York and the new junior Senator will be rocking the airwaves and there won’t be enough video equipment on the east coast to provide coverage.

Maloni , 1-19-2010

Wednesday, January 13, 2010

Harry Reid

Harry Reid is a knucklehead and that was before his insensitive comments about Barack Obama were made public.

There are bright and capable Democratic Senators and bright and capable House Democrats. Unfortunately, those qualities seem absent in the very top Democrats in both chambers (not a “Nancy fan”).

It would be nice to hold the Nevada Senate seat and lose Harry, but the game doesn’t work that way.

Dull Bulbs

GOP Senators Bob Corker(R-Tenn.) and David Vitter (R-La.) wrote to the Treasury Department demanding to know why the department extended funding for Fannie Mae and Freddie Mac, keeping the two under tight federal control and committing more tax dollars to cover the companies’ losses.

I am sure those senate solons would quickly admit that their motivation is disgust at federal control of the mortgage giants and a demand to “let the private market work,” which presumably means letting the former GSEs become commercial history.

Except that their version of “the market” ain’t working. Large commercial banks and investment banks have not moved to take over the Fannie/Freddie role of dedicated mortgage investor. Many of those institutions haven’t even continued an active underlying role lending for home mortgages, let alone investing or securitizing those loans.

It is the dedicated investor function which is the conventional residential mortgage market’s crying need.

I know Treasury’s eventual answer won’t be explicit, but the Senators should be told by somebody that Fannie and Freddie—even being as poorly run as they are by the Treasury and like it or not—are America’s conventional secondary mortgage market today. It’s a truth that Geithner’s Treasury has grudgingly come to acknowledge as opposed to reflecting some love for the organizations or their history

In the likely view of the two inquiring senators and many other conservatives, the two companies should be bulldozed and “private interests” (whatever that is) fill the financing void.

Maybe, but those private interests—if they really eschew government support, a very doubtful proposition (see the Mortgage Bankers plan to recreate Fannie and Freddie but with federal guarantees)—would only want to make adjustable rate mortgages or offer fixed rate loans at exorbitantly high rates. The commercial banks have displayed historic inability to manage interest rate risk. Their most recent experiences, with hollow/bankrupt private label securities, only has made them more chary of any big time role funding or holding in portfolio non-government backed mortgage securities.

It all underscores the fact that, yes, the nation can do without Fannie and Freddie or something similar. But, if policy makers just tank the former GSEs, they then must accept euthanizing what housing consumers still crave, reasonably priced (to the cost of funds) long term fixed rate conventional mortgage loans.

This year is a congressional election year and 2012 is a presidential election year. Which heroes in which party are going to tell their constituents, “We are going to obliterate Fannie Mae and Freddie Mac and do the same to fixed rate home loans and let you all borrow adjustable rate mortgages, where rates change periodically?”

I don’t see enough congressional “profiles in courage” for that to happen.

The Banks and President Obama

Of course the President should tax the banks or their officer bonuses. It is obscene that the banks are paying bonuses and running record profits after many of them have been bailed out with federal funds, yet they still are reluctant to make small business or mortgage loans unless one has superlative credit.

The Fed just reported last week that consumer and commercial credit both contracted last quarter, yet the banks are paying gazillions in bonuses.

And, once and for all, someone should wake up and blow holes in the phony financial services argument, “If we don’t pay these salaries and bonuses, our employees will leave!”

Bull pucky!

Where are they going to go? There are thousands of financial services execs still out of work, who would take those bank and Wall Street jobs in a minute, if given an opportunity. Those current employees are not leaving if they don’t get record bonuses. Call the banks’ bluff, Congress.

The President should move with dispatch to recover the costs of the bank bailout from recipients. He will get no flack from the Hill if he claws back some of those federal dollars from the banks which took the most and did the least.

Who is afraid of the banks politically? Outside of their paid lobbyists and trade associations—and naturally many in the GOP—what policy makers really want to stand up for the commercial banks, when their own constituents lack jobs let alone bonuses?

More so in the past year than ever before in most of our lifetimes (I’m excluding the Great Depression), the large commercial banks and financial services companies have personified their “Snidely Whiplash” stereotype.

Go get ‘em, President O. You’ll earn revenue for the Treasury, cut the deficit, and win political kudos.

Maloni 1-13-2010

Tuesday, January 5, 2010

Hello 2010!!

(I'm a little verbose, perhaps, but too much has happened recently.)

I was all set to share my opinion on whom/what President Obama should be listening to in 2010 (you’ll still find much of that in the following blog segment). But then the Washington Post yesterday chose to editorialize on its view of the future of Fannie and Freddie, so I couldn’t help but to take on that matter first. (I won’t even comment on the continued right wing editorial out pouring in the WSJ, this past weekend.)

I don’t respect the Post editorially and, as it has done consistently, yesterday it took shots at the “old” Fannie and Freddie, as well as their current leadership, as if either group actually chose the laws under which they operated 15 years ago or today.

The Post—as it usually does--ignored whatever good things the “old Fannie and Freddie” did for 20 years, like dramatically expanding the home ownership base, especially among minorities. In one revealing “let them eat cake” editorial reference, the Post relegates all low income families to the Federal Housing Administration’s (FHA) programs, something many in both parties sought to avoid, insisting that Fannie and Freddie help finance home loans for that family demographic.

But, on Monday the Post—which in my opinion editorially still reflects the “preening Georgetown cocktail clubby set”--and whose editors I suspect never had to grapple with the FHA rules and inefficiencies, because they can afford better— endorsed some ersatz version of a new Fannie Mae and Freddie Mac, produced by a “liberal think tank, with ties to the (Obama) administration.” Gee, that proposal will sail through the Congress!!

In championing “chartered mortgage backed securities issuers,” the Post backed a scheme that the Mortgage Bankers Association championed months ago. The trade group issued this idea as part of an “independent market review.” The idea merely has the federal government (the guarantors of these Post-blessed securities) doing what F and F did, but not likely as well or efficiently, yet with Uncle Sam’s dollar and imprimatur. Is anybody surprised at the MBA’s desired approach?

Thank you Washington Post. Those mortgage bankers—now mostly owned by large commercial banks—are superb foxes to watch the nation’s mortgage chicken coop and with Uncle’s money. They’ve done such a good job with the FHA, whose “guarantees” on FHA and VA mortgages they control. Or, maybe your wine and cheese eating editors don’t realize that fact?

The Post editorially damns any public purpose for the new entities it touts, which was a crucial part of the rationale for Fannie and Freddie taking on a very specific percentage-of-business housing goals in 1992 legislation. (Goals which rose to cover “55%” of their annual business, which had to serve “low moderate and middle income families and families who lived in underserved areas.” Despite seldom failing to meet those onerous goals, before they were put into “conservatorship,” the Post never opines on those facts.)

And decrying editorially how easily Fannie and Freddie borrowed in the private debt markets for their working capital, the Post fails to explain how these “new” entities--authorized to issue federally guaranteed mortgage backed securities--would not be afforded similar lower borrowing costs by a market, which has just been stung by a world of worthless “private label Wall Street mortgage backed security guarantees?”

And just wait until the Congress—especially the House of Representatives—gets this Post-endorsed legislation. Do you think the interest groups making huge industry and personal contributions to those Members will sit back quietly and let those august committees just rubber stamp such legislation?

Ho, ho, ho!!

GOP conservatives, the Black and Hispanic Caucuses, and the Blue Dogs, all well represented on the House Banking Committee managed to get many concessions for their constituents/interests on the recently passed financial reform bill. That ain’t going to stop.

I continue to maintain my core point and the Post--almost implicitly but unknowingly does, too—when Congress gets around to really examining how the resident mortgage market works and what is needed to re-tool it, Fannie and Freddie in their current form need a lot less “refining” then starting de novo and creating something out of whole cloth, expecting to produce the same results as the two former GSEs did before their managements got greedy in the 2005 and 2006 years.The GSE model didn’t fail, their housing missions didn't destroy them, but those latter day GSE managers sure did, aided and abetted by the lame Republican regulators (sorry GOP friends), and the disingenuous, smarmy, faithless GSE-hating Bush Administration did. (See Ben Bernanke’s weekend rant about insufficient federal financial regulation and what I later say about the D’s and federal regulation.)

But, keep on editorializing against Fannie Mae and Freddie Mac WP; you still have a few more readers in Georgetown you haven’t totally alienated, yet.

How Soon We Will Forget

Today we are living the through the unfortunate fallout from the George W. Bush financial failures.

From 2000 through 2006, GOP congressional budget hawks morphed into the worst of the big spenders, creating monstrous deficits from tax cuts for the wealthy and mountains of red ink from fighting at least one seriously questionable war. Those former savers, who quickly became spenders, also presided over an almost non-existent federal financial regulatory environment, which encouraged mindless and disastrous financial industry risk taking.

Yet, next year, when every seat in the House is up for re-election and a third of the Senate runs, few people will tag Bush and the GOP congressional survivors for those excesses because Obama and his economic policies are too convenient a target.

Voters will need to be reminded that it was the Bush Administration which spent billions we didn’t have; blessed the tax cuts for the rich, let Wall Street and the big banks run amok, and started shoveling money to large failed and failing commercial banks and other financial institutions which repaid that support by ignoring countless calls—mainly by the recently elected Obama Administration--to increase lending to small businesses and to clean up its part of the mortgage mess.

No, it will be the “Obama bank bailouts”—since they continued under Tim Geithner and crowd—and the Obama aid packages to GM and Chrysler, and on and on.

This is why the Democrats need to get the hell out of trying to run businesses and dramatically improve and strengthen their federal regulatory regime, across the board, and allow our economic system to work.

Let business be business, which means Republican-leaning, profit seeking, risk taking, and greedy, and let government regulation be strong, consistent, and applied regularly and evenly. It’s a much better relationship for the Democrats to be in—and for the country, too--than letting naïve and ineffective government employees try to match wits with the market piranha as peers rather than federal overseers.

Get the hell out of the way—except in a strong regulatory sense—and let those businesses do what they were born to do, pursue profits, create real jobs, and produce more revenue which will cut our stream of red ink.

(In my dreams, I see President Obama, arming Rahm Emanuel with the authority to visit each and every prominent federal regulator and read them the political riot act, which reminds them their job, is not to coddle their regulated entities but to make sure the companies under their control play fairly and by the rules. Emanuel should keep it simple and say, “Fail to do this and not only are you the ‘next one off the boat,’ but I’ll have your senior deputy crush the offenders because you couldn’t.”)

George Bush created much of this mess, at least his “team” did. The Democrats inherited it, but the party’s responses, IMO, have been only partially successful.

The Obama major effort on health care will take a few years to prove that it was the right step and more efficient than the health care model that we have now. Only a few voters will give the Democrats any benefit of the doubt for taking on what heretofore has been undoable for Republican and Democratic presidents, alike.

The Democrats need to change their modus operandi in 2010.

Your Administration, Mr. Obama, has been soft, soft, soft on the large banks and financial service entities in this nation, giving them too much money and demanding too little from them.

Force the big money guys—who still are despised by the electorate--to do the people’s will, as you define it, and you will be a far better leader and far more successful politically, than if you just plead with the banks to help out.

Tune Out Your GOP Detractors Mr. President

Dick Cheney, Karl Rove, Rush Limbaugh, Sarah Palin Glen Beck and that ilk have no good advice for you, President Obama, despite how they have couched their diatribes over the past few weeks.

The disgruntled R’s seek only political advantage, while virtually every congressional Republican, looks to score points for the coming elections. It’s a shame that it has become such, but while there once may have been more inter-chamber and inter-party comity between D’s and R’s, the divisive politics that is being practiced now goes back to ancient Greece and hardly is without precedent in the US Capitol.

Just tell them to “stuff it” and then go kick some ass, in your party as well as among Republicans.

The GOP in Congress has shown you it doesn’t want to work with you and your congressional colleagues in a bi-partisan way. So, drop the exercise
Get business done any way you can. Do you think the American public cares if the Senate resorts to “Reconciliation” to produce desirable legislation? The citizens want action on troubling policy fronts. It’s time to drop the “nice guy” approach and give the public what it demands. That’s why they elected you President.

Do this and the 2010 and 2012 elections will take care of themselves.

Maloni, 1-5-2010