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


John M said...

I suppose that TN politics is still dominated by the long shadow of one D. Crockett, Congressman of their 9th District (1827 - 1831). In the course of flaming against Geithner, Sen Corker on Monday asserted one obvious truth that one one was supposed to say, that agencies now enjoy an explicit US government guarantee. Thus he contributed to one of our blog's busiest days ever, yesterday.

I should mention my Canadian prejudice that I always thought the 30-year fixed was totally insane, and I believe we are in the process of demonstrating that as we speak.

John M said...

oops -- "no one" not "one one" of course

Bill Maloni said...

John--It's the political transition from here (readily available FRMs) to there (scarce and/or costly FRMs and near exclusive ARMs) which is so sticky in our country.

Conventional, non-government guaranteed, fixed rate financing has almost always been available, since mortgage bankers got the ability to sell those loans to Fannie and later Freddie. This preferred (by borrowers) form of home financing could--someday--become a casualty of the recent real estate debacle. But, for now, it is still very much a part of the "American Dream."

Nobody will talk about the implications of US banks/lenders only offering ARMs, let alone what that means for consumers (which is one of the reasons I do).

The D's are ignoring the issue and the R's want to pound Fannie and Freddie, the "old bad guys," which--as I noted--aren't even running their own organizations.

IMO, for the foreseeable future, long term fixed rate mortgage financing only will offered to US families with some federal government assistance, via the loan (FHA/VA and MID) and/or the investor (Fannie/Freddie).

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