Tuesday, December 28, 2010

Some Observations in the Week between Christmas and New Year’s


The White House and the Congress have done the hard part, which is getting majorities in both chambers to pass “Don’t Ask Don’t Tell.” Now they should undertake something easy, inviting all of those former service men and women--who were booted from the military services, when they disclosed their sexual orientation—to rejoin the Armed Services and bring their skills back into the fold.

I have no idea how many individuals are involved, who they are or where they served, but I remember hearing how enforcing DADT—and discharging gay men and women--cost the military lots of their interpreters including their Middle Eastern language specialists.

That’s a good place to start fixing skill gaps with a retroactive “DADT” amnesty approach.

If that is/was the situation, let’s get that talent back, since the obstacle to those men and women serving now has been removed by an act of Congress.

“The Dream”

In killing “The Dream Program,” in the Senate, how does the GOP hope to erase its consistent sorry record on Hispanic priorities? (To be fair, a Democrat handful voted “no,” making it easier for the Republicans to scuttle the plan.)

The GOP can cheer the latest census numbers but Hispanics are the fastest growing ethnic group in the nation and the Republicans keep dissing them and politically handing them to the Democratic Party on a platter. Those new “Texas congressional seats” might produce new Democratic congressmen rather than GOP.

I wonder how all of those GOP business groups—who manage to hire so many immigrants—would be supportive if the GOP seriously advanced some of the more outrageous anti-immigrant proposals, especially of the Tea Party variety. Lots of American businesses thrive on that source of high quality but low cost labor.

The “Dream Act,” which would permit children of “illegals” to automatically qualify for citizenship if they have managed to get into college and meet other minimal age and character criteria.

President Obama vows to bring it up, again, in the 112th Congress and he should.

Good Duck

As a citizen, I would love to see the sprit and record of the “Lame Duck” congressional session move forward, where the Congress did so much in so little time and with obvious political concession on both sides producing that success. I just can’t believe that the ascending GOP will want to give President Obama too many opportunities to look successful and statesmanlike.

They want to tarnish him so that he loses interest in seeking a re-election or marches on as a much weakened candidate. As I’ve written, the Republicans are going to have to accommodate, if not overcome, the very conservative slug of new Senators and Members who won in November’s elections.

We’ll quickly see if that group is a “fresh breath” voting on spending and budget issues as they campaigned or just more warmed over “same-o, same-o.”

Cut the Money, Kill the Regs

The Republican plan to attack, in 2011, legislation they failed to stop in 2010, by trying to deny appropriations and stymie the necessary regulations need to go with the new laws, is an understandable strategy, but could be short sighted.

While they may be targeting lots of different issues, the GOP announced that definitely they are going after the new independent Consumer Office set up in the Fed and regulations association with the new healthcare law.

Once again, the beneficiaries of the proposed Republican attacks are the big financial institutions and the big insurance companies. Surprise, surprise!

I am sure the GOP will wrap their assaults in rhetoric chastising big government and claiming they are helping the American people. But a good slug of the American public will get medical insurance when none existed before and potentially have their health care costs drop. There also is a good chance that the vipers on Wall Street and the banks on Main Street could see some of their predatory actions blunted by the Consumer Affairs office initiatives.

Maybe the “public” will wake up before November 2012, to who seems to benefit most from the GOP’s actions.

Good Drones

I don’t know about others, but I wouldn’t care how POd Pakistan’s North Waziristan gets over CIA drone weapon attacks. Those targeted missiles seem to be a very effective against Taliban Terrorists. The fact that they complain about the bombing campaign shows me it’s having the desired effect.

Bad News for Fannie Bashers

I just had an opportunity to review some Fannie Mae (and Freddie Mac) lending data, from public sources (most importantly a recent St Louis Fed study), which details the types of loans that were in their portfolios in the period that the GOP and others excoriated them for being loading up with anti-consumer subprime mortgages.

The facts are that neither company had large holdings of the 2-28 and 3-27 “killer mortgages,” or Hybrid Adjustable Rate Mortgages (ironically nicknamed “HARMS”), which had very small initial interest rates but leaped to market rates in 2 or 3 years, depending on the version the borrower chose (or talked into).

The new loans with much higher interest rates led to record numbers of defaults and foreclosures.

These crippling mortgage loans were originated in the hundreds of thousands by Wall Street and others. Fannie and Freddie didn’t buy or securitize many of them. The former GSEs “crimes” were buying other Wall Street subprime securities.

Speaking of Fannie and Freddie, “All the Devils Are Here,” the Bethany McLean and Joe Nocera book about the financial meltdown—which spends pages showing why Fannie and Freddie hardly were in the forefront of originating subprime loans—has jumped to #2 on the New York Times “Business Best Sellers” list.

I’ll have more to say on the St. Louis Fed study in coming weeks.

Maloni, 12-28-10

Sunday, December 19, 2010

Poutrage, The GOP and Fannie & Freddie, Redux


The New York Times on Sunday produced a list of new words and phrases coined intentionally or unintentionally by Americans in 2010.

One was “poutrage,” which the paper defined phony outrage usually offered up for personal, political, or financial, gain.

I was taught “use a new word three times and it’s yours.”

Did you see all of the GOP “poutrage” when the Senate voted to extend the Bush tax cuts to all tax payers, including the nation’s wealthiest, which was a non-negotiable demand by Republicans.

The “poutrage” was accompanied by more spinning than a top about why it was a bad bill for budget and other reasons (never mind the GOP leadership fashioned it), and you wondered why—if it was so-bad—the R’s would put it over the top with their votes? (Hint, hint, because it, unlike earlier bills, included tax cuts for the rich guys, their core constituency.)

Ludicrous “poutrage” seems to find a ready home in conservative circles.
It’s mine!!

Yay President Obama

And while I am at it, kudos to President Obama for winning this vote and a second one with the Senate repeal of “Don’t Ask Don’t Tell.”
Will Obama enter 2011 poised to discover his “inner lion” and lead the nation and the next Congress onto serious bipartisan policy successes which the American people seek?

Not bad for a kid born in Peru! Opps, I mean……

And So It Begins…Again.

The GOP dials Fannie and Freddie into its crosshairs, and then…”fire, ready, aim!”

This time the four Republican members of the President’s Financial Crisis Inquiry Commission (FIRC) seeking answers to the 2008 financial collapse, decide to front run the group’s planned report, issue their own and—surprise, surprise—blame Fannie and Freddie--and, naturally, the government's support of low income housing—for all of our financial woes and the 2008 meltdown.

This behavior, reflective of previous Republican rushes to judgment, is easy for folks who don’t bother with facts, but crave the sound bite. “Fannie and Freddie” sounds so “inside the Beltway” kinky and nobody knows what they do or did—other than something “bad”—so the Grand Old Party can beat the hell out of them and expect to get away with it.

Why not, the conservative Right has been doing it for years?


The party of phony “death squads,” weapons of mass destruction” in Iraq, the imperative to give “tax relief to the rich,” which labels healthcare for those who can't afford it "socialism and un-American," and the believes that bank regulators should be industry cheerleaders not scrutinous, now hopes the public will buy the fantasy that federal affordable housing programs (with the implicit racist suggestion that poor black people should not have help to finance mortgages) caused all of the financial failures and losses of the past three years.

The R’s report’s own words takes a great flight of fancy and fantasy because it nowhere mentions “Wall Street,” “derivative securities,” or financial executive compensation.

These truth-slayers expect the American people to believe that government’s affordable mortgage efforts --and especially low income families securing homeownership needs--was what caused Wall Street to go medieval-crazy and rape and pillage not only the American financial system but those of every other major country in the world.

Puh-leze, Speaker Boehner, Chairman Bachus, and Senator Shelby keep hewing to that hoary line.

I can’t do much but point out your village skewed financial perspective, but maybe some of those Democrats in DC and elsewhere will see the calumny of your position and make you pay politically for this kind of narrow minded scapegoating and whoring

How can anyone seeking to explain what happened to the American people, look at the past several years and refuse to mention Wall Street or derivatives? Did the millions in Street political contributions flowing into Republican coffers last month purchase your honestly and blind the GOP to objectivity and reality? If so, how cheaply you sell out, although I assume that last election’s spending just was a political down payment on 2012.

I’ll repeat it, how can anyone seeking to explain what happened in this nation, not even mention Wall Street and derivatives.

Who is behind this bit of chicanery?

The FIRC Four

Lets see, the four R’s on the Angelides commission include two long time GSE haters, Peter Wallison and Keith Hennessey, two GOP operatives who have spent years inside and outside of Republican administrations trying to “get” Fannie and Freddie. The other two are former GOP congressman Bill Thomas and Doug Holtz-Eakin, former head of the Congressional Budget Office (CBO), when the R’s were in power and who presided over several anti-GSE CBO reports.

Why did they release now their observations, report, views or whatever they call them?

Simple, the FIRC’s final report wasn’t going to pin all of the blame on the former GSEs and the Republican members figured they better get out with their same old story and try to prep the terrain. The dozens of stories that will put F&F in a bad light will dig the whole deeper regarding the truth and might cause the other Commission members to fight other issues rather than the GOP distortions of the Fannie/Freddie history.

Having been abused by their former colleagues, the Commission’s majority just might try and set the record straight regarding how F&F fit into the picture in the years leading up to 2008 and afterwards.

The seeds of the 2008 debacle were sown starting about 6 or seven years ago and reached a crescendo in 2007 when Wall Street firms led by large banks, investment banks, and rating agencies---whose unparalleled greed, in creating, packaging and selling high risk and poorly underwritten subprime mortgage loans”---was the single greatest source of blame in the downward financial spiral which attacked financial institutions all over the world.

Psst. PLS Came From New York!

Fannie and Freddie neither created, guaranteed, distributed nor sold “Private Label Subprime” mortgage securities, but did buy them for their portfolios, succumbing to the same damning fate as dozens of other financial institutions in the United States and other countries.

Let me leave right there, except to say that Democrats are going to have their hands full, unless they do a Pontius Pilot, and ignore the GOP perfidy when it comes time to legislate a new national mortgage finance system,

They may not want to say nice things about Fannie and Freddie, but they can and should rebut—with the ton of available facts—how wrong the GOP view, as reflected in this FIRC “minority” report. (See the debate over just what the sponsors call this document.)

If people want to get an objective and less politically biased view of what started the market’s 2008 disassembly, I recommend the following articles, documents, and one book, which should help those seeking to understand what truly caused the downfall, contrary to what the FIRC Republicans (who deserve to be called the “FIRC Four”) wrote.

Some FIRC FOUR Rebuttals

Let’s start with the book, “All the Devils Are Here,” by Bethany McLean and Joe Nocera. The pair follows their “Enron” book with a solidly researched explanation of what caused the 2008 breakdown and the history leading to it.

Fannie and Freddie hardly escape responsibility in the McLean-Nocera tome, but the authors make crystal clear—in the current best seller and independent article each wrote this week (see list)-- that neither Fannie nor Freddie created subprime financing, was in that segment of the mortgage business when it got started, nor sold the poisonous and failed securities throughout the world.

Shhhhh! All of that belongs to the Street, “which shall go unnamed.”

The next item is the wonderful Harvard student paper written Anna Katherine Barnett-Hart more than a year ago, a young women who later went onto to work on Wall Street, but objectively penned a stunningly accurate paper—as time has shown--for her Harvard honors Economics course.

In sharing her opinion of what happened, the reader won’t find one single reference to Fannie Mae or Freddie Mac.



mortgage-meltdown.html?s_cid=rss:scott-galupo:government-not-solely-to-blame-for-subprime-mortgage mortgage-meltdown





These won’t shut down the GOP’s anti-GSE distortion machine, but should give people looking for fair analysis an option to the the Republican bull pucky.


Happy holidays and Merry Christmas to all of my friends, family, and readers. Here’s wishing you a healthy and happy New Year. Yes, even some of you GOP rascals!

Maloni, 12-20-10

Sunday, December 12, 2010

Tax Deals and Oinks!

The Obama GOP Tax Deal

I am disappointed, but will withhold my final opinion of the President Obama’s willingness to extend all the Bush tax cuts, which at least he packaged with additional unemployment compensation for the jobless.

Barack Obama might be a seer, but he easily could be a GOP foil who was snookered.

No, it doesn’t make sense during a recession with high unemployment to take money out of the middle class’s hands, but the highest earning US tax payers don’t need greater tax benefits.

Therefore, the key for me in evaluating how good this deal is for the nation won’t come until next year, when we see—in return for the President’s tax package endorsement-- how much the GOP works with the Democrats in 2011 on deficit reduction involving historic GOP sacred cows, i.e. agriculture subsidies, business tax breaks, Pentagon weapons systems, etc. etc.

I am politically uncomfortable with how quiet the GOP has been since President Obama announced his acquiescence to the extension package, which White House and some D’s call an “economic simulative.”

But, anyone who ever has negotiated, played cards or figured out the answer to a difficult puzzle--before anyone else--knows how much you want to announce your good fortune on your own terms.

I think the GOP has been flabbergasted how easy and how much they came away with in its negotiations with the White House: a two year across the board delay in tax cuts; a large estate tax “safe harbor” and a reduction in the estate tax rate; and other enhancements to business tax breaks.

If the R’s said anything now, it would sound like a victor’s chortle. That’s the stuff NFL referees call “excess celebration” and throw a yellow flag.

A round of GOP high fives also will encourage opposing Democrats to dig in their heels and stop final action, which still is needed before the end of 2010.

But for now, despite the Administration rhetoric, President Obama continues to look directionless and in need of a backbone, which is not what most of us who campaigned and voted for him in 2008 thought would be the issue two years after he was elected.

What’s Up with Wells??

“Oink, oink,” said the big bank, “Oink, oink.”

In public comments on proposed federal regulations, Wells Fargo Bank is out to get rid of consumer loving low down payment loans (and the MI industry which exists to support those small money down arrangements) and—separately--suggest that Uncle Sam create a new secondary mortgage market structure which would—despite all the banking industry’s talk about returning “private capital to the mortgage market”—still has the federal government on the hook for risky mortgage finance, which I assume the big banks will provide.

“Oink, oink,” said the bank……

Wells has taken an extreme position on what it believes is a lower risk “qualified residential mortgage” (QRM). Federal regulators need to define this term in the context of what constitutes riskier mortgage loans, as per this year’s Dodd/Frank bill.

The idea is the riskier the loan the more capital needed or more of the loan itself, lenders would have to keep on their books. The still-to-be-defined criteria will constitute the elusive “skin in the game” element regulators believe lenders must have to make them safer and more responsible.

The industry agrees on the general point, but Wells is freelancing away from the herd and hoping that a “QRM” should have at least a hefty 30% of the sales price as a down payment.

Many smaller lenders believe—if Wells convinces the Administration on this large a down payment--middle income borrowers and their mortgages will be left behind, while Wells and other lending behemoths skate on capital and risk because they made “jumbo” loans to people who usually can and do put down more than 30%.

It also hasn’t escaped most of the smaller lenders—which compete against Wells-- that those higher down payments are not uncommon on large “jumbo loans” where borrowers generally move out of expensive houses into more expensive houses, thereby making it much easier to come up with a major down payment lowering the effective loan to value ratio (LTV) of the mortgage and—in Wells view—making additional (and costly) bank insurance/protection unnecessary.

“Oink, oink, oink……!”

Wells, Again

Several weeks ago, Wells Fargo also weighed in on what the successor national mortgage finance system should look like, if Congress decides to limit, diminish, or totally disassemble Fannie and Freddie.

It was Wells idea, which they then submitted to the Obama folks, but it also was advocated by the Financial Services Roundtable and its Vice Chairman John Dalton.

I critiqued the Dalton (and Wells position) in October, noting that their scheme still relies on “federal reinsurance,” which means Uncle Sam still is on the financial hook, no matter how much the banks claim their plan will attract “private capital” (which banks' FDIC deposits is not!).

The proposal also may be redundant, because it looks mirrors powers banks have now to issue “private label mortgage backed securities,” which—in my October review--I reminded all was the major element in the 2008 financial meltdown.

Another day, another oink at the trough!

FHA Versus FHFA (Fannie and Freddie)

News broke this week of an internecine struggle between Fannie’s regulator, the Federal Housing Finance Agency (FHFA), and HUD’s Federal Housing Administration (FHA).

The dispute is over whether Fannie and Freddie should join in the FHA’s new underwater mortgage restructuring program, which would rewrite “performing” conventional F&F loans—coming from F&F--where the principal is higher than the home’s value but the mortgagor is paying their note. These formally non-government insured mortgages would then be turned into new government insured FHA mortgages with lower interest rates and principal amounts.

Normally that would make sense and show inter-government cooperation but—like it or not—the federal government is running the former GSEs in a “conservatorship” mode, which means nobody should knowingly leap into an arrangement guaranteed to produce losses on restructured conventional mortgages, meaning more guaranteed red ink for Fannie and Freddie.

The losses can’t be hidden, the ‘hot potato” has to rest somewhere.

That is not “conserving” corporate assets and likely would open the companies’ conservator to legal actions from somebody, if not the existing common and preferred shareholders.

The FHA push, which must be coming with the blessing of the Treasury shows that a near term positive for mortgagors could hold long term financial damage for the former GSEs, with Uncle picking up that tab. I hope soon to be Senate-approved FHFA Director Smith realizes that conserving Fannie and Freddie assets is one of his core objectives.
The frustrating thing here is that I believe that F&F can do a much better job than others in the general restructuring of underwater loans, but to help the FHA they would be sacrificing themselves.

(Also, see Gretchen Morgenson’s Fannie-Freddie column in yesterday’s NYT Business section.)

GSE Cutbacks

BTW, the rumor of thousands of jobs leaving the former GSEs is more about how contract employees have been classified as “Full Time Equivalents (FTEs).” So, when it is reported that Fannie and Freddie will shed thousands of positions, that news gets means losing lots of recently added “contract” FTEs.

It may be a distinction without a difference, but both companies, after 2008—especially Fannie—ballooned their ranks with contract employees and most of the early 2011 departures will be these superfluous jobs. But, they won’t be the last, as both managements try and save major overhead costs.

Sr Championship Post Script to Last Week

Here is why we are lucky that FIFA chose Qatar and the Russians to host the next two world cup soccer championships.


Too Delicious to Ignore

"But obviously, we've got to stand with our North Korean allies." --Sarah Palin, after being asked how she would handle the current hostilities between the two Koreas, interview on Glenn Beck's radio show, Nov. 24, 2010.

Maloni, 12-13-10

Sunday, December 5, 2010

It’s Beginning to Look a Lot Like Christmas

If I was President Obama……

I’d be far more interested in taking the recommendations of the Bowles-Simpson Deficit Commission—which did a good job of bursting economic balloons on both ideological camps—fashioning them into a comprehensive deficit reduction plan and using the next year and a half to push and fight for it in toto or in pieces (and maybe saving his own candidacy in 2012) then fretting about losing the hosting of a soccer tournament!

BFD. If a sports tournament is played elsewhere in the world. Does the aggravation, security and cost of hosting all of those countries, their teams and fans equal whatever goodwill or praise the tourney generates?

I say “no.”

How many Americans really care whether the Internationale de Football Association (FIFA) recently voted to send the next two soccer world championship to hosts Qatar and Russia?

Hasn’t the President learned not to get involved in these matters since his maiden effort on trying to get the next Olympics sent to Chicago? George Bush ticked off the world with his tin ear and hardheadedness and now Obama reaps his share because his political influence is waning. Stay away Mr. President, your help doesn’t help!

Most of the FIFA voting countries and their citizens will run to the US for assistance when their chestnuts really fall into the fire and in the coming era of strained budgets and curtailed government spending we’ve likely saved ourselves from all of that phony hype and soccer “hooliganism.”

We should thank FIFA!!

Alan Simpson

Speaking of the deficit Commission’s recommendations. Its co-chairman, former Wyoming GOP Senator Alan Simpson, is one of the most cynical and funniest men you’ll ever meet or hear. He has a favorite story, which he’s probably told a thousand times but which still makes his audiences laugh.

It seems that an old Wyoming rancher had married a very comely young wife. One morning, at about 3 AM,the farmer answers his phone, listens, and then screams into it,
“How in the hell should I know. That’s a thousand miles away!”

His bride asks him who was calling and the farmer said, “I don’t know, some &^%$# guy asking me if the coast was clear.”

It Might Happen, but I Am Not Holding My Breath

Back to deficit cutting and our President. I desperately want President Obama to be less laid back, tougher and more inspiring. Yes the November elections were a setback, but not one without political precedent and not one that a strong leader can’t overcome (see Bill Clinton).

I can only speculate at how a Lyndon Johnson or a Ronald Reagan would have responded to this red ink era. Johnson, personally, and Reagan through surrogates behind the scenes but upfront nationally in the media, would have tried to forge a political coalition to achieve as many of the deficit cutting proposals they could, while ostracizing their opponents, political party friend or foe.

Put in a political context, I believe they would have seized on the deficit and the public’s unhappiness to force policy changes and establish a stronger foundation for jobs growth. (For Obama that might mean screwing the trial lawyers, labor unions, and some senior citizen advocates, but so what?)

His own tax and spending priorities would get a far better reception, if he shows that he can kill some Democrat sacred cows as he prioritizes.

That’s what a leader does and that—to me—is Obama’s key to winning in 2012, unless he opts to not run for reelection (which wouldn’t surprise me).

Playing patty cake or political volleyball with the Republicans is not where victory will be for this man. He needs to discover or rediscover his “inner Lion” and ROAR on behalf of those he wants to lead.

I believe there will be an end of the congressional session deal to extend the Bush tax cuts. I hope President Obama gets something in return from the GOP for his support.

“North Korea is Too ‘Nuclear’ to Fail!”

Harrowing thought, but that whacko country--led by a very reclusive and bizarre man, Kim Jong-il, who seems intent to hold onto power through his son, even after the father croaks--likely has nuclear weapons, the means to deliver them widely, and a neurotic willingness to unleash them if pushed one inch the wrong way.

Kim,no matter how provocative his country’s actions, never seems to incur the wrath of China, the only nation which might influence him.

While the Chinese may dislike Kim and his tantrums, they certainly don’t want a democratic and western- leaning South Korea running the North, if a reunification ever occurs. But, the Chinese government seems reluctant to exercise any restraint on its neighbor client.

The North which starves and denies its own citizenry basic freedoms seem to have little concern for its populace save keeping it controlled.

The United States speaks loud and seems to carry a tiny stick, while South Korea only speaks loud but waivers because its modern society has too much to lose in a shooting war with the backward North.

Options are few when dealing with aberrant nations.

Here’s one thought. The next time North Korea kills a southern soldier or civilian in an obvious act of war, the US should drop enough nukes on the North to break Kim’s—or his son’s--control and then let nature take it’s course when the northern and southern Korean population mingling. Some of the North’s citizens will try and flee to China and we then should let the Chinese worry about them, reflecting the nation’s early indifference to the monster is harbored.

That should take care of the United States’ “North Korea” problems for a generation or more and also send a strong signal to other bellicose nations (see “Iran”), that even President Obama has a tipping point. It probably gets Barack re-elected in 2012, too.

“So That’s Where the Money Went,” Gretchen Morgenson

One of my favorite financial columnists is the New York Times' Gretchen Morgenson, who does a fine job of getting to the heart of most issues and pointing out fascinating and often embarrassing things about her topics.

She didn’t disappoint in her Sunday column’s discussion of a slightly tardy Fed report--issued last week--detailing which firms, foreign and domestic, got most of the money distributed by the Fed when it was bailing out the US’s financial services markets in 2008-2009.

Naturally, Morgenson suggests that the very large financial conglomerates, commercial bank/investment banks, took down most of the funds and returned the least for the Fed’s help.

Here is an excerpt from her commentary and a link to her Times column.

Better late with the data than never, of course. And the release of these figures just ahead of Friday’s grim employment data — the jobless rate rose to 9.8 percent in November — makes them even more compelling. Clearly, the federal government was much more willing to deliver mountains of money to big banks that made big mistakes than it was to lend a financial hand to rank-and-file Americans struggling through foreclosures.

Federal officials have always argued that plowing money into errant banks and trading shops was the best way to rescue the economy, but to Edward J. Kane, professor of economics at Boston College, details of the Fed’s largess are reminiscent of a famous Winston Churchill quotation.

“Never have so few owed so much to so many, and given them so small a return,” Mr. Kane said. “We see, for example, how little these institutions have given back to troubled homeowners whose houses are threatened with foreclosure.”

Mr. Kane’s point is important. Certainly, the low interest rates the Fed charged to institutional borrowers during the disaster translate into a significant subsidy, indeed a gift, to many of the firms that set the financial collapse in motion.


Maloni, 12-6-10