When you look at the US’s unemployment numbers and economic malaise, and then at w has the money ameliorate some of the problem--over and above what they owe--it’s the nation’s banks, not the US Treasury.
When I was a lobbyist I would strive for “two fers,” initiatives which would produce benefits which helped multiple industry or political interests. It was not original thinking on my part merely a good way to build support, add momentum to my objectives, and improve the chances of winning.
I believe the nation’s big commercial banks, complete with their honking large investment banking subsidiaries, have a golden opportunity to achieve the “Trifecta” of doing good, doing well, and winning public and government support by funding commercial and municipal public works efforts around the nation, using new construction to put lots of people back to work and generating even greater bank earnings. (Sorry, Ron Klain, I disagree with you re the jobs impact of this type of activity, no matter who funds it.)
Four years ago, federal officials didn’t tarry (maybe they should have) when the banks “appeared” on the ropes and needed financial and regulatory help. The Bush and later the Obama administrations quickly infused the depositories with hundreds of billions in taxpayers dollars.
That cash came unencumbered by reciprocal demands on the banks and allowed those recipient financial institutions to improve their bottom lines---which they then arbitraged earning more and paying themselves wonderful bonuses or just increasing their overall compensation with Uncle Sam’s cash.
Now they should return the favor. Why aren’t the ABA and the Bankers Roundtable taking advantage of this opportunity to make money and help the nation?
The banks should find a way to give back to the nation, as well as their investors, and employ their ample resources in the most job creative, intensive manner?
There are no major legal or regulatory barriers to this arrangement and if there are, they could be handled easily, by a gracious Congress and Obama Administration. House.
If the banks occasionally wandered outside the liens of supporting job creating and revenue returning projects, I am sure that the federal and state regulators will be thoughtful about the added risks they are taking because of the greater good in the broader lending effort.
Maybe Republicans reading this, who still believes that the banks represent the “private market,” might embrace this not so bold proposal to have that financial segment elbow Uncle Sam out of the way and do their thing for America, bringing their private sector efficiencies to bear. It doesn’t involve raising taxes.
How much worse can this be than the thumb twiddling and the partisan hot air going back and forth now on Capitol Hill and in various state houses and governors’ mansions? And, when it works, let the banks get the credit for it.
Do What I Say Not What I Do
The United States sits here chastising and cheering on the Irish, the Greeks, Spain, Italy and Portugal, screaming at them to fix their economies, while we engage in partisan hyperbole and do very little to repair our own leaky financial house, White House media hints today, notwithstanding.
And, we want the world’s respect? For what?
We can adopt this hypocrisy because it boils down to the fact that we have a larger economic engine—not sure whether anyone can galvanize and channel it—and ultimately, our armies and guns are bigger and more plentiful. So, somewhere along the line is the implicit, “If you don’t do what I say, I’ll smite you!”
I think we have been woefully negligent as a political society, meaning the White House and Congress, cowardly hiding behind this disastrous kabuki dance of “Let’s put off this reckoning until as many of us as possible come back 2013.”
For what it is worth, I have “unsubscribed” from every political fundraising group which virtually daily send me fundraising messages, in the process telling them how disappointed I am in their lack of leadership in deficit reduction and other crucial matters.
People and institutions need greater leadership in hard times and not as much when the sun is shining and everyone is drawing paychecks.
I’ll repeat what I’ve been saying, both parties are negligent in their respective stewardships, but it’s President Obama, for whom I voted, who disappoints me most.
The nation—and the world—are looking to him, not John Boehner (R-Ohio) or Harry Reid (D-Nev), to get in front, project power, and produce some practical economic solutions.
Maybe that’s about to change, but I’ll believe it when I see it.
What Others Say?
People know my views on the works of the AEI’s, Peter Wallison, Ed Pinto, and now, after her book, Gretchen Morgenson.
They each have argued that Fannie Mae put lousy loans on their books for years prior to the Wall Street subprime driven financial meltdown which affected financial intuitions and societies across the globe. These critics have been unrelenting in their excoriation of the former GSEs.
I’ve cited official rejection of this political indictment and baseless political rthetoric, which is what it comes down to. But, as long as they persist, more rational and reasonable will try and expose them and their agendas.
Recently, I came across some additional views extremely critical of Wallison and his man Pinto’s efforts to con the President’s Financial Crisis Inquiry Commission and others.
The juicy one is from the Daily Kos, written by Peter Architect, who has commented before on Wallison’s effort. (Bear in mind, much of what is in Morgenson’s books tracks the Wallison/Pinto fictions.)
The next piece, on the same issue, was written by David Min for the Center on American Progress.
The most recent comes from a former major league baseball player and now real estate veteran, Broderick Perkins, who was a first baseman for the San Diego Padres.
Perkins’ work appeared in the “Examiner.com,” which describes itself as, “The fastest-growing local content network in the U.S., powered by the largest pool of knowledgeable and passionate contributors in the world.”
Thanks to the friends who sent me these articles. I hope my blog readers enjoy them as much as I did.
Monday, June 6, 2011
The White House and the Congress deserve a heap of scorn for what they are not doing, which is not passing debt relief and a federal budget which cuts our too fat federal budget.
Why are they waiting until 2013, as seems to be the bi-partisan rallying cry?
“Answer, answer, class, class?”
Because most of these craven public officials will have faced the electorate in 2012 with no tough votes on their record and an ability to spin and blame the “other side” or somebody else for Washington’s spineless foot dragging.
Look, my Democratic stripes have been slowly fading as I watch this obscene Senate choreography with no real votes scheduled by Harry Reid, who’s trying to “protect Democratic seats.”
If the barely D controlled Senate fails to act on these vital issues and just “turtles,” because they can’t read the political winds correctly, what the hell good are they?
They all should lose their elections, as well as the waffling R’s, so we get enough people in office who will act.
Frankly, I was hoping that Speaker John Boehner could control his gaggle extreme righties, channel their energy, and get them to support some serious cuts, yet stay within some modicum of reason. That story has yet to be written. But—for now—JB’s on the run, not in control.
That leaves President Barack Obama. BTW, good job Mr. President on the “execution” of the Bin Laden plan, literally speaking.
The President’s support is up. While there always will be 40% of America who never will like or back him, that still leaves a big swath of the country and its voters who will rally behind a plan that fairly cuts the budget (yes, including the entitlement programs D’s love) but also ends the Republicans’ favored tax giveaways.
Lead, President Obama, please lead!
Someone has to try and expose this “getting reelected is the only thing that matters” horse manure, which both parties are displaying to the nation’s disadvantage and produce someone substantive federal policy changes and needed savings and it looks like you’re that person.
Oh and Then There Are the Big Banks!!!
Gretchen Morgenson writes a sophomoric book about Fannie Mae, Jim Johnson and the 2008 financial debacle.
The AEI’s Peter Wallison and, now, Ed Pinto kill hundreds of trees with their ranting about Fannie Mae and mysterious subprime loans, which turn out to be loans of their own invention and categorization. And I try and call attention to how the Bush and Obama Administrations, as well as the Congress, are serving the ultra large financial services companies, which haven’t done squat for the American people, but have done much “to” the American people.
Who is keeping and eye on the Banks?
Thanks to my friend and former colleague Gwenn Hibbs, the now retired financial services lawyer, who I once praised as someone who “can do more with two commas than most lawyers can do with two sentences,” I have some corroborating intel which argues the public is getting screwed by the banks.
The big banks are being aided and abetted by all of those congressional folks who think that unbridled bank authority to lend--and control whatever aspect of our national economy they can reach--is good public policy.
How can anyone who claims they are upset over the former GSEs not go catatonic when they read some of the work from—of all places--the ultra boring and conservative (not ideologically) Congressional Research Service (CRS), not exactly some left wing or right wing nut factory, which recently opined on bank perfidy.
I’ll just link the b-o-r-i-n-g CRS report and reprint some juicy comments from the blog world, commenting on the CRS findings.
Maybe this will wake up some of our blinkered congressional bank lovers, who think these huge subsidized financial beasts are somehow “private sector” and impervious to wrong doing.
As Gwenn Hibbs put it succinctly: "The points made by a number of bloggers and Fox Business News (!!) re: the CRS report is the inescapable conclusion that banks made huge trading profits by arbitraging the various credit facilities and then purchasing govt. bonds and MBS. That money did not go to promote economic growth or help underwater homeowners, or to address massive fraud by banks in the foreclosure process – it went straight to the banks’ bottom line in order to help them grow out of their toxic asset problem and give the appearance of having adequate capital. Not to mention huge executive pay packages."
Congressional Research Service Confirms Big Banks Borrowed Cash For Next To Nothing, Then Lent It Back to the Federal Government at Much Higher Rates
Here is the link to the CRS report.
And, here are some blogosphere comments on the work.
Via The Big Picture by Washington’s Blog on 6/4/11
As Shahien Nasiripour reports, the Congressional Research Service has just confirmed what As I’ve noted for years, the government has been guaranteeing that the big banks make money at taxpayer expense by loaning money at very low interest rates, and then letting the banks loan the money back to the government at much higher interest rates.
“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.
The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.
Harry Blodget explains:
The latest quarterly reports from the big Wall Street banks revealed a startling fact: None of the big four banks had a single day in the quarter in which they lost money trading.
For the 63 straight trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) made money trading for their own accounts.
Trading, of course, is supposed to be a risky business: You win some, you lose some. That’s how traders justify their gargantuan bonuses–their jobs are so risky that they deserve to be paid millions for protecting their firms’ precious capital. (Of course, the only thing that happens if traders fail to protect that capital is that taxpayers bail out the bank and the traders are paid huge “retention” bonuses to prevent them from leaving to trade somewhere else, but that’s a different story).
But these days, trading isn’t risky at all. In fact, it’s safer than walking down the street.
Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.
The government’s zero-interest-rate policy, in other words, is the biggest Wall Street subsidy yet. So far, it has done little to increase the supply of credit in the real economy. But it has hosed responsible people who lived within their means and are now earning next-to-nothing on their savings. It has also allowed the big Wall Street banks to print money to offset all the dumb bets that brought the financial system to the brink of collapse two years ago. And it has fattened Wall Street bonus pools to record levels again.
Paul Abrams chimes in: To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives…for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer’s voice has entertained a packed stadium. No batter has hit a walk-off double. No “risk”has even been “managed”, the current mantra for what big banks do that is so goddamned important that it is doing “god’s work”.
Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.
Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.
In the next blog, more evidence and outside commentary that further bury the Wallison, Pinto, Morgenson “Fannie fantasy” lending theories.
(Happy 74th birthday to the late Louis G. Maloni, my only sibling.)
Friday, June 3, 2011
Bill, a pyramid scheme always results in rising asset prices (for a while). As long as a new sucker joins the game the prices rise. Add falling interest rates so troubled borrowers can refinance and defaults stay low. This was the reason JJ was able to walk away. By the way... they didn't have SEC filings while JJ was there... he made sure they were exempt from filings. Keep talking your book though.
The above is a “comment” sent to my blog this week, signed “Anonymous,” which most have been since that option is available. I started to answer, but my response quickly became blog-length, so I thought I just would put it out as a separate blog. My answer to the commenter follows.
So, let me see. Using your paradigm, Jim Johnson was responsible for what you call a housing “pyramid scheme,” which single handedly increased America’s homeownership rate to the 65% range, supporting the economic activity and all of its related facets, which generated 25% of America’s gross national product during Johnson’s years.
Ergo Johnson was responsible for a strong economy which kept people working and juiced their desire to own homes. Then he—not Fed Chairman Alan Greenspan (no friend of Fannie Mae)—managed to keep interest rates low so millions of middle income families, not to mention low income families, could afford those houses. (Could have fooled me and most history writers about who controlled rates.)
Apparently, federal financial regulators say Johnson did do such a superb job of those two things—quantity and quality of home mortgage financing-- that most of those families stayed in their home, never defaulted, and Fannie Mae (and Freddie Mac), created by the Congress to foster affordable homeownership, succeeded fabulously.
The Johnson era loans originated in the 1990’s—according to those same federal regulators--not only performed well while he was Fannie’s Chairman but also logn after he left (again, as reported by federal regulators).
That’s what you have??
Oh please, don’t throw me into the briar patch.
Regardless of when Fannie began filing with the SEC (prior to that time, its corporate disclosure were the near equivalent of what companies gave the SEC), the current SEC filings show that most of Fannie’s truly bad loans were worthless private label subprime securities, originated and sold by Wall Street—which Johnson’s successor, once removed, bought by the buckets full.
None of that computes with Gretchen’s book or the similar AEI attacks.
As I’ve written, I think much of this animus comes from business and political enemies, who failed where Johnson and Fannie succeeded.
The same fellows were jealous of the attention he generated personally and which he brought to Fannie Mae, a company that for years earned awards and achievements for the “Best Place to Work” for any number of groups, including women, African Americans, Hispanics, couples who wanted to adopt, adult children with the responsibility for elderly parents, etc. etc.
Recognizing where many moderate income families came from, literally, Johnson directed that all Fannie Foundation homeownership information needed to be printed in about a dozen foreign languages, including two dialects of Chinese. He then charged Fannie’s outreach efforts to conduct homeownership fairs all over the nation to spread that word.
Johnson reached out to everyone in the industry who could help, including lenders of all stripes (large banks, small banks, mortgage companies, thrifts, credit unions, and state finance agencies), Realtors, builders, community groups, Governors, Mayors, and state and local officials.
Fannie’s Foundation supported dozens of national and local efforts to help the homeless and a variety of other homeownership initiatives, including an immensely successful national advertising campaign which began on National Basketball Association games, because the league’s “fan demographic” matched the would be homeowners Fannie was trying to reach.
Johnson brought an energy and verve to Fannie’s effort, which sometimes embarrassed other providers and turned them negative.
If the American people could grasp that concept—called “jealousy”--they would better understand a lot of the political grief Fannie encountered during the Johnson years and later.
Frank Raines left Fannie Mae in 1998 to serve President Bill Clinton as head of OMB and in 1999 and 2000 produced the last two balanced budgets (consecutive years) in America’s history. After that government service, he rejoined Fannie.
Johnson was gone in 1998, succeeded by Raines, who was gone in 2004.
The financial meltdown hit in 2008.
In my humble opinion looking at the pre-2005 years, the worst that critics can claim is that the Fannie’s work to stimulate interest and the means to homeownership in the 1990’s--which later was copied, distorted, and suborned by voraciously piggish Wall Street forces, who bypassed the Fannie and Freddie standards and underwriting systems--gulled borrowers and mortgage securities investors by creating and heaping onto world market billions in poorly documented and soon to be worthless mortgage backed securities.
Depending on your values (and politics), there are plenty of Johnson and later Raines initiatives which their detractors could attack, but geometrically those were dwarfed by more accomplishments, realized best by those who understand mortgage finance and the obstacles to make it broadly available. Both of which Johnson and Raines, as former Fannie chairmen, overcame to achieve their national successes.
However, as I’ve noted, all of the effort, goodwill, and most of the positive personal and institutional opinions were wiped out by the foolish post-2005 Fannie subprime purchase adventures which occurred after Johnson and Frank Raines were gone from Fannie Mae. Both men, being Democrats with political profile, along with the company paid a steep price with the GOP and the Right.
When that story is finally written and not just hinted at, as some magazine articles and books have done, then that author will have a block buster best seller.
Maloni, 6-3, 2011