Thursday, September 13, 2012


Decisions The Maloni blog flame has been dark this summer. But now with Labor Day and the two national conventions behind us—not to mention professional football underway (I am afraid this year won’t be kind to my Steelers)—it’s time to rekindle that blog beacon. What I did this summer instead of blogging? In the past several weeks, I’ve enjoyed the four Maloni grandchildren—under age seven—who stayed a month with Grammy and Grandpa and learned that each brother and sister set (west coast/east coast) will welcome a sibling around Christmas; the annual summer camping trip with the “grands” produced our first sighting of bears in the wild in 40 years of tenting; I lost some more useless appendages to the Georgetown surgeons; and attended my 50th high school reunion in Pittsburgh. My wife and I had a blast but, man, it's a shame my fellow grads aged so much!!! Fannie Mae and Freddie Mac As predicted here, both companies seem solidly earning money (black ink scares bureaucrats) and the Obama Treasury decided the best thing to do with that development was, first, do away with the 10% dividend which the former GSEs were charged when paying off Uncle Sam and, then, just take all of the income the two produced. As politically radical as that sounds, it’s more a good than bad, although the Fannie and Freddie preferred stock holders were all but wiped out, much as the common stock holders were three years ago. In this man’s humble opinion, the positive part of this change—reflecting the fact that neither party yet knows what to do about insuring the existence of a national secondary mortgage market—is that it keeps Fannie and Freddie alive and involved daily in the mortgage market, albeit run by regulators who don’t often show any creativity or market savvy. Now, part of this reality (play close attention policymakers) is that large numbers of mortgage lenders must still rely on the two to purchase or securitize their mortgage loans. This allows lenders to transfer the interest rate and credit risk to F&F security investors and also keeps the 30 year fixed rate mortgage alive. In short, the White House kicked the GSE can down the road, gutlessly ignoring the most obvious solution. There are only two options for a future secondary mortgage market, unless the federal government chooses to underwrite or guarantee every mortgage loan made. Either the commercial banks (which aren’t really “private” given their deposit insurance federal subsidies) step up and do the job without Fannie or Freddie or the next Administration and Congress turn to some hybrid like…..well, Fannie and Freddie (change the names, if necessary). I’ve stated my preference and will repeat it. As currently regulated by the Federal Housing Finance Agency (FHFA), neither Fannie nor Freddie can acquire shoddy low quality loans which gave the Bush Administration the excuse to take them over. In fact, the two companies’ financial success, since 2008,in part reflects that strong regulatory filter. But today Fannie and Freddie are more relied upon than ever, which is both mortgage market and political reality. With that said, there is no reason that the F/F secondary mortgage model, which now supports the entire US secondary mortgage market for conventional loans, easily could continue for many years into the future. Below is a link to an interesting and recent Fannie Mae/Freddie Mac article. Democrats and Republicans and the Presidential Election For most of this year, I’ve been grumbling “a pox on both your houses” when it comes to Democrats and Republicans and the looming elections. Barack Obama disappointed me. I found very little, save his help for the auto industry, which argues for his re-election. I though he accomplished very little with his financial reforms and I still don’t understand all facets of his health care, which suggests lousy messaging. The President and his early congressional Democratic majorities squandered important governing opportunities because they couldn’t agree on policy or tactics. President Obama let himself get rolled by the Republicans and their allies, let the GOP bully him and force their way on him. Consequently, I was talking myself into the need for a “change” in the White House—hoping a Portman or Pawlenty might emerge from the otherwise smarmy GOP presidential candidate pack. I rationalized that the R’s might try something new and energize the economy, and if they resorted to form and just lined the pockets of the rich, then Democrats would cruise in 2016, including taking back the Congress. I lied to myself and thought maybe I even could like Mitt Romney? Romney and the GOP But the GOP nomination politicking, where each candidate tried to get farther to the right than his party colleagues, the internecine warfare when they tried to out “extreme” one another, all capped by the Tampa Republican convention phoniness, drained me of my whimsy and naivety. The constant blaming Obama for everything under the sun—including much of which was birthed by “W’s’ service—was my cold water in the face. Then I asked and answered myself, "To whom does this GOP candidate turn to future executive appointments but to the Koch brothers, Sheldon Aldelson, or Karl Rove or their ilk?" I can't support, even by default, a return to Washington of the George W Bush mob, which is all the GOP has to offer, since there are no more Republican moderates anymore. I can’t support a party of rich folks and religious fanatics, who yearn for the 1800s and choose to ignore the fact that this country is increasingly a black and brown nation. I can’t support people who lie and bray that they won’t let “fact checkers” run their political campaigns and brag (see Senate Minority Leader McConnell) that his primary goal is to deny President Obama any legislative success which could support Obama’s re-election this November. I hope Americans look closely at how McConnell responded to their needs and crossed them off his priority list when the White House went looking for GOP support on jobs and deficit reduction legislation. “Yes we’ll help” (paraphrasing) “but you can’t tax the wealthy.” Why haven't those same Buch tax cuts helped our economy since they've been in place for years? I can’t be for a man who builds elevators for his cars, who has flipped flopped more than newly caught fish in a rowboat; a man who speaks in rhetorical generalities and refuses to provide any specifics on what the Romney economic reforms would look like; ditto his health, financial, foreign policy, military and tax reform proposals. Romney’s campaign has been about why Obama is bad. The Republican presidential nominee has offered nothing tangible which he might undertake to ameliorate high unemployment. Lies and Damn Lies After earning GOP political points by insisting, “On day one I will undue Obamacare,” Gov. Romney flipped on that, too, just this past Sunday, citing the elements of Obamacare he likes and would embrace. Just what does Mitt Romney believe? Does he think the average American family can relate to dressage? Mitt Romney’s tax returns contain what? He refuses to share them, as most presidential candidates have, including his father. (Could Mitt have one of those UBS Swiss accounts which display US tax avoidance maneuvers?) On Wednesday, Mitt used the murder of US Libyan Ambassador Chris Stevens to once again assail Obama. I can’t support a candidate who succors the congressional tri-corner reactionaries now representing the GOP in Congress and feeds red meat to them. If Barack Obama wins re-election and the GOP controls Congress, it will be up to Republicans to move towards reconciliation and support budget cuts and other initiatives needed to solve our nation’s financial problems as well as stimulate hiring. The rich can wait a bit to get richer. There still is a ton of money in those big banks that would look much better invested in American communities and states--facilitating new business and job growth--rather than sitting on the sidelines. Besides giving tons of campaign money to the GOP, is paltry lending how the large financial institutions are trying to dim Obama’s political future? As the election nears, we’ll see if the instincts of core Republicans, who seem to dislike and/or distrust Mitt Romney, manifest themselves more broadly. Maloni 9-12-2012


Anonymous said...

Welcome back!

Thomas Lawler said...

Long post! I understand about wanting to spend time with grandkids; have two, one is 11 years old getting close to 12, the other is 7 getting close to 8. I was amazed that you could do such a long post and not mention the irresponsible chicago teachers' srike. I follow that because my youngest daughter, 21 and in college and living there but not directly impacted by the strike (doesn't affect colleges there) might still be impacted by what appears to be a totally irresponsible action by the teachers' union (regardless of the issues; you don't strike at the beginning of a school year; that should not be allowed)
Love to hear you view on this (and would you view be the same if you grandkids were in public school in chicago?)

Bill Maloni said...

Tom--Hope all is well.

Truth is that, for me, the bloom is off the rose regarding many unions.

No question when the worker was getting screwed collective action was a necessity. Not sure any more.

As you know, union membership often provides expensive cover for dead wood.

It will be interesting to see how Rahm, whose toughness I always appreciated (too bad he didn't leave more behind him in the WH), is
going to handle this.

And, thank you, Anonymous.

Bill Maloni said...

I thought the timing of Federal Open Market Committee's decision today to buy $40 Billion of months per month until the economy perked up and unemployment came down was remarkable, given the obvious Obama benefit it will have.

While historically the Fed has given most presidents the monetary policy they want/seek, the Fed tries to bury that in non-dramatic ways.

Today's announcement could nto have been less non-dramatic.

A very good friend--like me a former Fed official--suggested that today's FOMC decision was a major blow to the Romney campaign and the timing might have something to do with Romney's broadly announced plans to fire Ben Bernanke, if Governor Romney wins the presidency.

Bill Maloni said...

One of these days, I will learn how to type and spell.

Obviously, the FOMC today announced its plans for the Fed to buy $40 Billion of mortgage bonds per month to keep rates low and boost the economy.