Sunday, August 7, 2011

I Know What I Would Do!

The S&P downgrade is not surprising and was telegraphed a week ago or more. It will cost Americans more, as some lenders will use it to justify upping borrowing costs. But, maybe it also will shock the nation into a shared awareness that the job of cutting back needless federal spending (and jettisoning unneeded tax expenditures) is the paramount political problem for us all.

Despite the unhappy rating news (and the coming downgrades of Fannie and Freddie), if I was President Obama and the GOP controlled Congress, I still would invest in two ideas, one old school the other newer, which I think would produce multiple benefits ( assuming the feds could implement one or both, quickly).

Come on guys, roll the dice and go for it. (Now you’ll begin to understand why I am such a hit in the casinos I visit.)

As a down payment on the future savings implicit in the budget deal, I’d approve a massive public works program, with the money going to cities and municipalities which have “shovel ready” projects to remake their infrastructures (streets, roads, water and sewer project).

The goal of this federal economic stimulus is be to create new jobs as well as fix some pretty shoddy and worn public facilities on which our communities rely.

(The satirical publication, “The Onion,” last week ran a story about a fallacious Al Queda video declaring the terrorists now refuse to bomb United States infrastructure until we repair/upgrade our nation’s crumbled, antiquated highways and byways, making them more worthy targets.)

Distribute the stimulus funds in every state, based on the ready to go now principle, but withdraw the money—shifting it elsewhere—if construction work does not begin in 90 days from the original grant.

Before the screams of “profligate spender” rain upon me, I would mandate that the newly created “Joint Select Committee on Deficit Reduction” (JSCDR) must recapture at least the amount invested from existing federal spending, so that this job-generating public works effort does not increase the near term deficit.

I’ve said and written that the Tea Party and others are correct that we waste hundreds of billions of dollars in federal spending which must end, but federal spending per se need not dry up, since much of it drives “private spending.”

Where the Teasies are wrong is to suggest that you cannot create jobs with federal spending going through local governments and private contractors.

The Select Committee is a rare opportunity to set a bunch of things “right,” end wasteful spending and useless subsidies. Already competitive interests and their lobbyists are setting up shop to try and tilt the results to their clients’ benefit.

But invasion of the lobbyists” is a realization that any thoughtful group of 12 Americans could come up with $4 trillion in savings and revenue over the next 10 years, which now seems to be the minimum magic number.

My Select Committee Canidates

Who should sit on the new committee?

The best situation for the congressional leaders--charged with naming the powerful new dirty dozen--would pick six Democrats and six Republicans who are not seeking re-election, but that can’t happen.

Next best is to name the half dozen D and R Senators who worked well together on a similar exercise, the “Gang of Six”: Senators Tom Coburn (R-OK), Saxby Chambliss (R-GA), and Mike Crapo (R-Id), and Mark Warner (D-VA), Dick Durbin (D-Ill), and Kent Conrad (D-ND).

As for the six House appointees, I would go with Budget Committee Chairman Rep. Paul Ryan (R-Wisc.) and his ranking member Reps Chris Van Hollen (D-Md.). Speaker Boehner and Minority Leader Pelosi then should appoint their two Members with the greatest intelligence, integrity and harmonic skills.

Needless to say, the above never will happen because it makes too much sense. The House likely will get into a “one from Column A, one from Coolum B” approach and bend out of shape a lot of the faithful ebcasue there just aren’t’ enough slots. While the GOP already claims it won’t name anyone willing to raise revenues, which means no Republican brave hearts like Tom Coburn.

Make the Banks Work, as per Wm. Sutton, “That’s Where the Money Is”

The second initiative I would undertake is to figure out a way to mandate the nation’s large banks—which are sitting on just a ton of money (most of it originally taxpayer-provided)—to lend in the context of the above public works projects or in a complementary manner.

As 1950’s bank robber Willie Sutton answered, when asked why he robbed banks, “Because that’s where the money is!”

Come on big guys, give back to the nation. Help your country, earn major kudos and make money doing it. How’s that for a winning Trifecta?

If conservatives and the GOP are correct that the key to economic recovery is small business growth and investment, let the big banks wade in—big time—lend to small and medium size businesses or entrepreneurs and help make a recovery happen.

What could have a higher priority than the United States’ economic welfare and why do the big financial institutions even need to be asked or begged?

It’s the least the banks can do given what the taxpayers gave them, with no strings attached.

When the Bush Administration said the banks were hurting, hundreds of billions flowed into big bank coffers and nothing, literally nothing, was demanded of them regarding reciprocal investments in their communities.

The Congress should reverse that!

Fannie and Freddie

A Maloni blog without an F&F reference is like a “fish without a bicycle.”

So, let me share a few germane items, via links with you.

The first is from Phil Angelides, who chaired the President’s Financial Crisis Inquiry Commission (FCIC), and wrote this week in Bloomberg.

Angelides takes on the critics and GOP public officials who absolve Wall Street still try and blame Fannie and Freddie for entire crisis, while often relying on specious information supplied by the "AEI twins," Ed Pinto and Peter Wallison.

It is noteworthy that even Federal Reserve economists—in a confidential memo to the Angelides Commission—dumped on the AEI proposition which the acolytes still sell to sell the right wing (see Gretchen Morgenson’s book).

The next is a critical review of the Morgenson book. Bill Berliner, a former mortgage banker, originally reviewed the Morgenson and Josh Rosner tome in the Asset Communication Report (August). The review then was picked up by Mortgage News Daily.

Berliner--as several previous book critics also suggest—notes Morgenson’s and Rosner’s poor writing quality, shaky fact base, and erroneous descriptions of how the nation’s mortgage market works.

“The authors are clearly trying to stoke anger and outrage at the various players that they view as being responsible for the financial crisis. However, their arguments and credibility are undermined by a large number of errors and misconceptions that betray a limited grasp of the mortgage market and securitization practices…”

Bank Attacks

The large banks keep hammering away at the existing secondary mortgage market structure—which alone should make Congress leery—and Security Industry and Financial Market’s Association had Barclay’s Tom Hamilton tell the Senate that the nation needed to turn to “covered bonds” as the answer.

Hold your wallet and gird your loins, Congress, anytime someone tell you how to solve a problem by utilizing his/its idea.

Covered bonds are used in Europe and have never been successful here (ask former WAMU officials) are a product in search of an investor.

Of course, Hamilton suggests ways to tighten down what’s left of the conventional mortgage market to tilt it even more toward large banks. No surprise there.

One last item. If the Federal Housing Finance Agency, F&F’s regulator, has its way, the two companies/agencies/entities/things—whatever they are today--will be charging up to 25 basis points (.25%) on large loans they might process, if their mortgage ceilings do not fall, as now is planned.

Higher costs to the consumers in high cost mortgage areas, more money for the Treasury, and maybe a faster return to black ink for F&F, but bad public policy.

Movie Review

Go see “Cowboys and Aliens.” It’s a fun watch. Daniel Craig, Harrison Ford and other familiar faces are great!

Maloni 8-7-2011

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