Thursday, October 28, 2010

“Speaker Boehner?”

Steeling Myself for Major Setbacks

It’s hard not to anticipate major Democrat losses on Tuesday given both the poor job that Democrats have done at all three levels of government and the amount of distorting ads aimed at congressional Democrats which the GOP and the Supreme Court purchased third party money have produced.

But opposition to those in power always will be there in our nation and Republican/Right Wing money generation is well understood.

Democratic Party policy and political mistakes—in my opinion—have fueled the Tea Party and other right wing efforts far more than Karl Rove and his posse’s money raising.

Can anyone really explain where the “health care savings” are or will be?
How about how the regulatory reform law will help consumers and rein in Wall Street avarice or financial industry remuneration?

Those are just two examples or bad messaging and weak statute, both D responsibilities.

No matter what Tuesday brings, Democrats need to look in the mirror and, like Walt Kelly’s Pogo, realize that “The enemy is us.”

Democrats need to learn how to govern, not just win a lay-up election in the wake of a crappy, crummy GOP President.

Apparently, the Democratic Party hasn’t mastered that governing art, yet.
We’ll know on Wednesday if it will be “Speaker Boehner.”

Privatizing Gains

I have never understood the right wing allegation against Fannie Mae and Freddie Mac that they “privatized their gains but stuck the federal government with their losses.”

I challenge those who hurl that falsehood at Fannie and Freddie. Offer one example of that behavior, before the government slapped both companies into "conservatorship,” effectively federalizing them, and all but stopping any entrepreneurial behavior at the formers GSEs.

It’s a myth and great hyperbole which appeals to the Tea Party types, but when, where, how did it happen and what’s the evidence?

Having been in the “beast’s belly,” as one national newswoman described my time at Fannie, I cannot remember one company officer saying or acting on, “OK we can take these risks because Uncle Sam stands behind us and it won’t matter if we fail, because we will get bailed out.”

The truth was that any corporate official who ran his or her division on the assumption of a federal bailout would have been canned, since the business never worked that way and no rational executive officer would have permitted business plans based on that shaky contingency.

Not the Full Faith and Credit

Quiet the contrary, we operated on the opposite premise—because that’s what the charter said and that’s what was printed on all of our securities—that we were not the full faith and credit of the US government (which our higher than Treasury borrowing costs everyday re-enforced).

While many of us understand that the federal government had the authority to virtually do whatever it wanted in an economic or financial free fall, only a few of us had any direct experience working on the federal bailouts of non-government entities, Continental Illinois bank, New York City, Chrysler, or the Lockheed corporation, actions (which were far smaller than the TARP or picking up Fannie and Freddie’s tab).

Ironically, NYC, Chrysler, Lockheed, and CI all occurred when I worked for a senior Democrat on the “House Banking and Finance Committee,” its official title then.

In its pre-Paulson takeover days, Fannie incurred losses every year. Those weren’t magically passed on to the federal government but were consigned to the corporate balance sheet and outweighed by larger gains.

So, let me reiterate my challenge request or whatever you call it for anyone who has some specific example of Fannie Mae (forget Freddie for the moment) “privatizing gains while passing losses onto the government” to please show that evidence to me.

Too Much Housing and You’re Guilty?

I also am trying—desperately—to grasp the point now being made by some critics that the nation is over housed and that housing principals in the political, policy, media and housing industries (production and real estate) intentionally and for selfish and self aggrandizing reasons drove an unsustainable interest or desire to own a home, especially among those perceived as not financially able to afford a mortgage.

Wow, that is a major indictment—and mouthful—but that’s what some claim today.

Let me remind the Republicans—who generally, but not always, oppose federal homeownership efforts—that they are speaking about one fifth or more of our national GNP, each tiny element pursuing its own private market business interest. That hardly was some monolithic Democrat generated tsunami.

“Housing Mission” Was Not Subprime and PLS

It’s necessary, too, to call to the attention of current Monday morning quarterbacks that many conflate Fannie’s (and Freddie’s) low income “housing mission” --statutory requirement that 55% of its business must got o finance low, moderate, and middle income families living in central cities or other underserved areas”--with a different scenario, the subprime debacle, when senior GSE management brought billions of dollars of “Alt A” and Wall Street originated private label subprime securities (PLS).

Two different acts, albeit in same companies.

We know the subprime extravaganza went on to fail horribly, costing the GSEs and dozens of other companies who acted similarly—and those that pioneered the garbage—to cost the companies and the government billions.

But those who employ hindsight’s 20-20 backward look need to appreciate that GSE PLS subprime purchases was about market share and greed, not affordable housing missions.

Those actions deserve to be measured and evaluated separately.

From 1992 (when the housing goals became law) to 2005--roughly when Wall Street subprime sales to the world kicked into high gear--the GSEs low income housing mission work not only was the law of the land but it was lauded, expanded, and warmly welcomed by Presidents Clinton and Bush and Congress controlled first by the GOP and then later the Democrats.

Aberrant GSE behavior? Hardly!

Everybody was supporting more homeownership for the nation and greater inclusion of minorities in the owners group.

Yes, there were some skeptics, but when aren’t there? For those 14 years or so, Fannie believed in—and was encouraged to support—greater homeownership and to lead efforts to achieve that desirable national good. At least every time it did so, it heard wonderful things from those in charge of them, their charter, and their public support.

Don’t Forget: Homeownership is a Positive

I get tired quoting all of the studies which show the economic and social benefits of home ownership, but they exist in droves. (See link below to a recent National Association of Realtors study on homeownership and parenting.)

If you lived and, more importantly, worked "in the housing business” in that era—roughly the five or ten years preceding the economic fallout of 2008—you were part of expanding the American dream for all comers.

Fannie's and Freddie’s financial losses in those years were negligible, because the loans they underwrote, acquired or securitized were high quality “prime loans,” not the marginal variety which correctly earned the name “subprime.”

Which is why thoughtful need to distinguish between the early more positive GSE experience and afterwards, when they purchased large amounts of Alt A and PLS subprime securities.

I know that’s like asking Redskin and Steeler fans to pray for Dallas’ and Baltimore’s NFL success, but miracles do happen?


It doesn’t take much to be a GSE critic, just access to the Internet and some extreme opinions.

When you aggressively self promote, possibly overly so, you can add to your allure.

So, who is Craig Whalen and why are people reading him? (See preceding sentences for the answer.)

I noticed that Craig Whalen is associated with more unknown entities and their task forces or boards than any two Fannie critics. I guess I missed his “Croix de Guerre in MBS” or the “Iron Cross in Privatization”—awarded by Heritage or Cato--but I am sure that they are somewhere on his resume along with several University of Phoenix degrees or the equivalent.

There might be a group of more obscure institutions out there with which he could be affiliated, but it will be tough finding them.

Like others, he wants to do away with the GSEs (and the Fed?).

The GSEs and MI

He accuses the GSEs of perpetuating mortgage insurance and forcing people, who only can put down 5% or 10% on a mortgage loan, into an “Orwellian world” where F&F make profits by charging borrowers—through the lender network—too much money.

Hose this boy down, read him some history, and also remind him that the companies currently are being run by the regulator not management, so his complaint is with the Treasury.

Whalen should know that Fannie didn’t invent mortgage insurance. It was part of Congress’s plan in 1970 (long before Fannie had the “lobbying army that “won all Washington wars”) to help borrowers with meager savings afford a down payment.

The truth is that F&F didn’t like the MI industry and thought it was inefficient and costly.

Freddie went so far as to legislatively advocate a non-MI option for low down payment borrowers—which would have been far cheaper for them--which failed in the Senate, after initially passing. (Fannie, while sympathetic, stayed out of that fray. Ergo, only Freddie’s charter would have been changed.)

Craig, while I may disagree, I think your fanciful writing has earned you consideration for an award from the “Order of the Merkin” and I will gladly submit your credentials to that august society?

Russians in Afghanistan, Again?

Do I really want the Russian military back in Afghanistan and as part of a broader NATO effort??

No and no. “They’ll steal your eye teeth, if they are rooted in your mouth.”

In my narrow view, the Russians taint almost everything they touch and they
can’t see or work for anything resembling a “common good.” Plus, I suspect that, in Afghanistan, part of their security operations will be stealing US military and commercial secrets and suborning the Afghans, so they later dance to Moscow’s drummer, which no doubt will employ stolen US dollars to pay for the perfidy.

Sure Hamid Karzai would welcome the Russian, because that’s one more potential “donor” to his executive slush fund

I realize that my Russian views consign me to near John Birch thinking but so what, if that’s what my experience and instincts tell me.

How many times do we have to be hoodwinked by Putin and his thug homies before we wake up?

Anyone tired of seeing the long time “sleeper” Russian spies we arrested and deported being honored in their homeland. And does anyone think there still aren’t more in the US?

Although spy “Anna Chapman’s” (sic) cover photo on the Russian version of “Maxim” was revealing, so to speak!

Maloni, 10-28-10


DavidM said...

Bill, Thank you for the atricle and I am a realtor also but I have to scratch my head because of your use of "Right Wing". I am part of the tea party, I am conservative. I want to find homes for peope who canafford them, not be forced to provide a home for every person in the US.

Wall street did not "start the sub prime debacle" it was a victim of the Democratice leftists like Maxine Waters and barney Frank along with Obama's ACCORN, who were forcing banks to give out mortgages to ANYONEusing the excuse that "Red lining" was rampant. I am sure you agree that everyone deserves the chance to own property but not everyone can afford property. That Sir, is the problem with Fannie and Freddie, the top brass there were making as much as the Wall Street fat cats and we were, and still are, paying the bill.

Bill Maloni said...

David--I hope your business is doing well and that you benefit, personally, from an economic turnaround, when the real estate market comes back (as it will). Let me give you a detailed answer.

I do a good bit of work (not paid, pro bono) with the NAR and believe it is the largest positive industry factor in DC for supporting homeownership. So your dues are getting well spent.

You have every right to join or identify with Tea Party objectives, but my experience--with reading lots and lots of what it and its candidates are saying--makes little sense. The nation can't move back 50 or 75 years and if you want to undo all of the federal subsidies for housing, roads, fuels, cotton, sugar, other agriculture commodities,clean air and water, infrastructure, talk to the R's since most of those industry groups support their party.

You are mixing events and "heroes."

"Red lining," where once the mortgage business (lenders and Realtors) keep certain individuals out of middle class and better neighborhoods was a 1980's problem that got answered by aggressive federal action requiring lenders and others to stop discriminating. Not every black, brown, and yellow American lacks the credit or financial capacity to afford a mortgage. (I hope you agree with that.)

That issue has almost nothing to do with the Private Label Subprime (PLS)disaster, which began in this century, roughly in year 2000 and exploded in 2005 through 2007, when Wall Street, stepped outside of the "prime" F&F market and began originating poorly underwritten loans through their own brokerage level--sensing huge profits to be made in their own guaranteed (again, no F&F) securities, which they sliced and diced into exotic securities and sold all across the world. Also, see the role played by the rating agencies.

I will refer you to a previous blog (September of this year), in which included a link to a paper written by, then, a Harvard economics honor student, in which she details how the "subprime business" started and evolved and who the players were.

Read "Youth Not Wasted on This Kid" and assuming you don't reject the source because she went to an Ivy League school, see if you still believe where subprime originated.
If it matters to you, I am told that she now works for Morgan Stanley.

Barney was an ally, but a tough SOB to work with and everyone overestimates Maxine Waters role. She was a member of the Financial Services Committee, where Fannie and Freddie built lots of allies. If I had one office to lobby to get an influential, detail oriented Member to support my position, that visit would not have been to Ms. Waters, even if I was limited to Black Caucus offices.

Lastly, it is a major error to confuse the GSE community lending activity, which started heavily in 1993, with PLS subprime lending, which is a far more recent phenomenon.

Before F&F bought the PLS crap in 2006 and 2007, the business they did to meet their HUD low income goals
was solidly underwritten and behaved under stress three to four times as well as the later acquired Alt A and PLS crap.

When one views it from systemic value--and the volumes of solid mortgages financed--as well as the fact that banks often walked from markets (jumbo) which they refused to serve, whatever F&F paid their employees (which never reached the Wall Street compensation levels, which is just more hyperbole) was insignificant.