Wednesday, April 14, 2010

Amalgam

With Congress gone for its spring break, I have been keeping track of the Financial Inquiry Commission’s hearings on the 2007-2008 financial debacles.

It’s hard not to compare the Commission hearings to what the House Banking Committee has been doing with Fannie and Freddie (in part because both sets of hearings have been conducted in the same room).

The bi-partisan Commission, headed by former California State Insurance Commissioner Phil Angelides, seems to be doing better than the Committee in its inquiry but for explainable reasons.

The men and women on the Commission were chosen for their familiarity with the field of inquiry and bring a little more substance to the game than your basic Banking Committee Democrat or Republican, with the eternal exception of its brainy Chairman Barney Frank (D-Mass.).

That doesn’t mean the Angelides Commission members have no political instincts or agendas, quite the contrary since many them by virtue of their career choices were appointees or public officials. They just manage their personal partisan agendas more smoothly than the Members of Congress.

Most MoC wear their priorities on their sleeves and seldom put away their talking points to listen to what others believe, because they need to get their next point made before their allotted five minutes expire. Then they issue press releases with outrageous charges—designed for back home and re-election consumption—and wait until the next opportunity to do it all over again.

Commission members tend to be more subtle.

One Commission highlight for me, was when Dan Mudd--Fannie’s former CEO--appearing before it and delivered a very forthright acceptance of personal culpability for the decisions made on his watch, primarily the purchase of subprime private label mortgage backed securities (PLS), which went sour and led to huge losses and Fannie (and Freddie which did similarly) being taken over by the federal government.

I thought it spoke well of Mudd that he didn’t equivocate about his corporate responsibilities and his actions.

Barney and the Banking Committee

The House Banking Committee will take up the Fannie Freddie cudgels again and on its plan to demolish the former GSEs.
As an aside, some Washington cognoscenti were a bit surprised at the outrage shown by House Banking Committee Chairman Barney Frank toward a departing staffer, who—after first discussing it with Barney—chose to take a job with a trade group affected by legislation on which the staffer worked.

House rules ban the former Hill employee from lobbying his House colleagues for a year, but not lobbying the Senate. Barney’s laser like anger means the kid may never get a meeting with House D’s even after his 12 month cooling off period. Certainly Banking Committee staff may be reluctant to deal with him or the group which hired the young man. But, then others might, just because Barmy was so publicly angry.

Political observers should not have been surprised because Barney Frank, known for his volatility, did this once before when a Committee staffer left his employment and after a stop or two wound up working for one of the Wall Street firms.

Staffers becoming lobbyists happens all of the time and why the Chairman should have been so irked was beyond most. Just because someone worked on a piece of legislation or issue doesn’t make them all knowing.

As someone who hired congressional staffers to lobby the Hill, it’s never a slam dunk. Some turn out to be great and others never cut it.

Put in its best light, it’s clear that the Chairman values loyalty and must feel that it was not shown to him by those leaving the Committee for financial services positions.

Related Thoughts


I’ve written previously about what I think of the House Banking Committee and its efforts to redesign the mortgage finance system, but they bear repeating since spring is here and hope springs eternal.

As they go about their work, some of the congressional berserkers should dial back the frothy rhetoric and confront the reality of mortgage lending in the post financial debacle era.

They are no silver bullets or magic formulas when it comes to determining the role of the federal government and that of “private lenders,” when designing a national mortgage finance system.

You either feature one, the other, or an amalgam of both.

If you have exclusively private money, with no government involvement, then the rules will be minimal and likely the money not bountiful. If you have government money financing mortgages then you’ll have plenty of money and plenty of rules.

Currently, we have a near total federal system of mortgage finance with the government everywhere, in both the primary and secondary mortgage markets.

Commercial banks, today, don’t want to lend because they fear the risk associated with home mortgage lending and want the government to safeguard their business activities.

If the providers of mortgage money are “truly private” and the feds butt out—which many in the GOP claim is their goal--then the Congress’ ability is stunted when directing those lenders toward who they can serve, how they do that, and under what conditions they must lend.

In that model, which we don’t have but some want, the lenders make most of the decisions and the nation lives with it. And don’t look for lenders to cut anyone any breaks or recognize any social issues which need addressing. That’s not what money brokers do.

That’s the government’s job, assuming the government stays in this business (which would save a lot of federal cash if it didn’t but likely “PO” a lot of would be home buyers, businesses, industries—not to mention lobbyists—since it does represent about a fifth of our national GDP).

If, however, the Congress wants to insure that loans are made in certain ways, sizes, to various demographic groups and umber reasonable regulation, then that’s a “government driven mortgage fiancĂ© system” and the nation should just get ready to live with it, again.

Until 2007, Fannie and Freddie were a successful hybrid of those options and worked well. But, one of the reasons the Banking Committee is holding its hearings is the perception that F&F failed because you can’t “marry profit to public good.”

If that’s the true case, then—when Congress completes its work--look either for private money funding limited mortgage choices or public money, with the inevitable complaints from the Right, doing the job but differently.

Or, as I’ve said, the Congress will go back—swallow all of the hot rhetoric—and create something which functions like Fannie and Freddie and pretend that it didn’t, which is my bet.

To repeat the premise, there just are not a ton of options in core approaches to systemic mortgage finance.

Any one of the options I listed can be effective and even integrated--achieving different business and societal objectives—when you have superior federal regulation and common political purpose.

But, the ugly fact is that we don’t have either.

Maloni, 4-14-2010

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