Sunday, March 20, 2011

Libya, Japan, and the US Mortgage Market


I was going to concentrate on “mortgage stuff” this week, until the French—quickly followed by the US and Britain-- acting on the UN resolution sicced their jets on Libya. Now, if they all would continue blowing up s*** and not watch from 30,000 feet while the Gadaffi’s army overwhelms the rebels, I’ll feel much better.

Italy, Spain, Canada, Denmark, Qatar, and the United Arab Emirates now are part of the UN effort.

I still hope that some of these US arms sitting in Egypt to find their way into the hands of Libyan rebels, along with some necessary “weapons instructors” and maybe a few Special Forces operatives, just to give this movement a chance to oust Muammar.

About two thousand well armed French Foreign Legionnaires would also help.

Oh and, naturally, the opportunistic Russian leadership is staying on the sidelines speaking out of both sides of its mouth regarding aggression.


Has the world in recent years ever faced such simultaneous disasters--each pregnant with horrific consequences--than the earthquake and tsunami in Japan and the UN response Gadaffi murdering his own?

I know the US and its people will do that is possible to help Japan and its brave citizens in their hours of need and I only can hope that China, with its wealth but ugly history with Japan, will offer maximum support to its neighbor. You help people when they need help, not when it’s convenient for the helper.

Mortgage Finance

There were a plethora of “Hey, Wait a Minute on Fannie and Freddie” articles recently, links for which I add at the end of this segment, But almost as interesting was Gretchen Morgenson’s article on the department SIGTARP,” Neal Barofsky, who was the federal government’s watchdog on Treasury implementation of all of the major deals with financial institutions wracked by the 2008 financial debacle.

As someone who believes that Secretary Geithner has erred on being too bank-friendly and working out sweetheart arrangements for these institutions, I call your attention to the problems that Barofsky had with that situation, detailed in Morgenson’s column.

And, now, Geithner wants to turn over the nation’s mortgage finance system to the large commercial banks. Tsk, tsk!

GSE Legislatio

I was a bit intrigued by a new GSE proposal from Randy Neugebauer (R-Tex), a senior Member of the House Financical Services Committee, which he claims is designed to “totally privatize” Fannie and Freddie, in four years or so, and allow them to compete in the mortgage market on their own financial strength, probably against some large commercial banks on steroids, thanks to new Obama Administration proposals,

His “privatization” might be a desirable objective, if the Congressman sincerely want a national secondary mortgage market which features viable major non-bank players. Although I suspect that some of his colleagues--and maybe even RN, himself--would want to clip some of the GSE business capacities before setting them free.

Not Private Cash and Still TBTF

But Congress better realize—as I’ve been writing—that, no matter what some on the Hill pretend or even believe, banks only are another form of federally subsidized financial institution and most of their working capital comes via federal appliances, so don’t get too caught up in your rhetoric about "private capital" because it might turn around and bite you in your sensitive rumps.

The "federalization" problem that Neugebauer and others in Congress want to conquer is twofold. Claiming (wrongly) that they are bringing in all of this “private capital” and getting rid of the federal presence in the conventional mortgage market is almost beyond their ability to manage. Since banks are not going to give up their federal benefits and the congressional conservatives can't erase the very recent memory of the Bush Administration--and later the Obama crew—writing checks on the taxpayers because some financial institutions just are “Too Big to Fail.”

Yes in future financial secrecies legislating, Congress will write into law some version of “nothing in this statute should assume that (fill in your list of favorite financial services companies) are backed by the full faith and credit of the federal government,” hoping to erase the TBTF residual. But saying or writing it doesn't make it so.

Good Luck Congress; Markets Are Smarter and Faster Than You Think

I suspect, if Neugebauer has his legislative way, that hard economic erasure of TBTF will apply to the newly “privatized” Fannie and Freddie and others. But remember, old F&F had “not the full faith and credit” reminder clause in their charters but that didn’t stop Paulson and Bush, for the first time in the GSEs history, from infusing real federal cash into the companies. And, it certainly didn't limit the Bush Administration from doling out major bucks to the banks.

No sane Administration will be bound by that cautionary restriction if the failure of a behemoth internationally connected bank holding company might bring down the US banking system or the world’s financial network, especially after the unprecedented federal government actions in 2008.

Good luck Congressman Neugebauer.

Who’s talking About GSE/Mortgage System Policies?

Are Fannie and Freddie beginning to earn some business respect and, if so, does that translate into political success?

Tom Vartanian, well know DC financial services attorney, thinks the 5-7 years which most people claim is necessary to unwind the mortgage finance system from Fannie and Freddie might, in reality, be 10 years or more.;_ylt=AithvdiYAEyF9xkpGXB5cnG7YWsA;_ylu=X3oDMTE2bGVza2ZzBHBvcwMxMARzZWMDdG9wU3RvcmllcwRzbGsDZmFubmllYW5kZnJl?x=0&sec=topStories&pos=7&asset=&ccode=

Paul Muolo

After scoffing at congressional efforts to restructure the GSEs, the National Mortgage News executive editor’ Paul Muolo suggests that Fannie Mae and Freddie Mac are too crucial to the national mortgage finance system, the economy, and to lenders to do away with them and that Congress won’t take any action until after the 2012 election. Muolo also notes that both companies are “profitable on an operating basis," meaning before they pay Treasury the unusually high 10% annual dividend which was a condition of the 2008 federal F&F takeover. (I never get tired of pointing out that Paulson and then Geithner charged the big banks 5 % on their Treasury borrowings.);_ylt=Al.5T2MisJZxRcv8IJ7kycDeba9_;_ylu=X3oDMTFnbzdocmZpBHBvcwMyBHNlYwNjb250ZXh0dWFsLXRlY2h0aWNrZXIEc2xrA2Zhbm5pZW1hZWZyZQ--

Mark Olson

Minnesota small banker, Mark Olson, discusses why the Fannie and Freddie based secondary mortgage market is crucial to the future of small bankers and small lenders.

Robert Schiller

Yale’s Robert Schiller, of Case-Schiller fame, appearing in a Bloomberg News interview, says that getting rid of Fannie and Freddie only would weaken the US housing market.

A Question?

Why are the big banks and their allies so frightened of Elizabeth warren and new efforts in Washington to protect consumers? I realize that the GOP and most in banking want to kill any remnants of the Dodd-Frank bill which established minimal controls on bank operations, but Ms. Warren seems to have a bulls eye on her back,

It couldn’t have anything to do could it with the fact that some/many banks know that their product and marketing efforts are designed to gull consumers and therefore Warren might be able to stop that assault?

Maloni, 3-21-11


John M said...

Did you know that there's a tenth Fukushima facility (besides the three reactors and six in-building storage pools) that is holding about as many (spent) fuel assemblies as all the other nine combined? NYT reported on that last Thursday, then redacted the relevant paragraph a few hours later. Today there was a mention in the WSJ, and we'll see how long that stays up.

I've documented the above here: "Fukushima Strategic: Common Storage Pool Mention in WSJ"

All I've got to say is thank heavens for the heroes at the facility who are fighting at great personal peril to keep things more-or-less under control.

Bill Maloni said...

John--I agree with you, but I get a little static from some when I go too far out on non-mortgage issues. But, you are dead on regarding the Japanese facility workers and safety teams.

It's best written about often--and it is a starkly different culture--but if that calamity had occurred in the US I am afraid the vandalism and looting would have been widespread.

I pray that the Japanese are saved any additional carnage and destruction from aftereffects of their nuclear power plant problems.

Bill Maloni said...

Major Apology and Correction!

It was Rep. Jeb Hensarling (R-Tex) who introduced the legislation to "privatize" Fannie and Freddie over a period of years, not Rep. Randy Neugebauer (R-Tex).

Rep. Hensarling is vice-chairman of the House Financial Services Committee, on which Rep. Neugebauer also serves.

Apologies. It probably won't be my last mistake!