Monday, February 25, 2013


No David Fiderer This Week
Just Me and...the Sequester

All of you David Fiderer groupies, mobbing my website hoping for more DF will have to wait a bit.

The “Hebrew Hammer”--my nickname given his powerful writing, not his chosen one--is at work on other projects which soon will reach fruition,. But don't worry they seem to involve the same deserving and well known targets.

It's great that readers like his stuff and—he's assured me—that he'll be producing much more.

But, the “Sequestration” or “Sequester” seems to be on most everyone's mind these days, not mortgage finance.

What is the “Sequester?”

Here's Huffington Post's generic explanation of the 10 fiscal year $1.2 trillion “Sequestration” or federal spending cuts, to which Congress and the White House handcuffed themselves when they failed to agree on a package of budget cuts and/or additional revenues to meet the deficit reduction numbers on which each side had agreed.

The sequester stems from the Budget Control Act of 2011, which mandated the budget cuts if a congressional "super committee" failed to reach an agreement on how to reduce the deficit. In November 2011, the bipartisan group announced it hadn't reached a deal, meaning the cuts to defense and domestic spending would go into effect in January 2013. The sequester was later delayed to begin March 1 as part of the "fiscal cliff" negotiations.

As lurid as recent headlines have been, I suspect that many knowledgeable observers could slice $90 billion or so annually from the federal budget, each year for the next 10 years, without great difficulty, especially if they were permitted to achieve deficit reduction through changing tax laws which the current exercise doesn't permit, but easily could be changed.
Of course the GOP opposes any more revenue raising, despite the fact that its principals claim they've identified dozens of tax loopholes which should be closed and bring in revenue.
Who is Stabbing Whom, Who is Committing Hari Kari??
The Sequestration headlines also have all been about Democrat and Republican chicanery, bipartisan political maneuvering all designed to blame the other party or the White House for the forced budget trimming.

Few can understand why each side isn't panicking over the pending cuts which many observers feel will cause greater economic dislocation and drive unemployment rates higher.

No doubt it will hurt; no doubt it will boost unemployment and hurt tax revenues; and in an ass backwards way also be deficit reducing, but if you are knocked out of work, can't get federal benefits, or stuck at an airport, you may not be too happy.

The question is will the associated pain and suffering be worth whatever it is we achieve with this cowardly approach to budget prioritization, since the gutless Congress—torn by political gamesmanship—did not and does not seem up to the job which most citizens claim they want Congress to perform?

Over the weekend, one observer wrote “head lice” have a greater national popularity than the Congress!

Besides taking two weeks off in the middle of the action, I have no definitive answer for the apparent political quiescence, but let me speculate.

There has never been a time in Washington when proposals to reduce federal spending or raise revenue (taxes!) has not been accompanied by the most cacophonous threats and warnings of frightful impact and end of the world scenarios.

Those complaints—which always are heard—don't move votes like they once did.

It goes with the “inside-the-Beltway” turf. It's the #1 refuge/hideyhole/CYA position of politicians, lobbyists, interest groups, media and anyone else seeking to influence a broader audience.

Crying and Whining but Not Legislating

“If you take away funding for (fill in your favorite federal program), it will devastate (fill in your favorite interest or demographic group), and it/they will cease to exist as we know it/them today!”

Our media has been filled with factoids about how many federal workers will be furloughed or fired; how many elderly will lose this benefit or that; how many children won't get needed injections; how many airport won't have air traffic comptrollers, which states will lose how much, etc. etc.

Yet, the clock is ticking and despite President Obama offering a less dreadful set of tax changes and program cuts, as a substitute, neither side seems to be moving or really worrying.

And yet, in the past year, most every Member of Congress, the President, networks, newspaper editorials, etc, have called for deficit reduction, which policy makers all but ignored or fudged.

Last year D's and R's took a tiny step when the Congress agreed to shut down the old Bush tax rates for those making more than $400K annually, but it threw in some tax relief for their buddy industries.

So, Congress has failed at the broader deficit reduction  job and the President doesn't have the executive power to cut spending and do tax tax, absent GOP help.
The political loggerheads haven't disappeared and neither side trusts the other, no matter what the electorate and the electors said last November.

Don't Blame Me, Blame....?

Maybe, just maybe, all of these Senators and Members see the “Sequester” as the only way to get spending under control—even if it means economic dislocation—and are willing to have the cuts hit and hurt where they may, while blaming the dislocation on the the other side.

In a slight variation of Louisiana's infamous Senator Senator Russell Long's recipe for avoiding responsibility for tax reform—substitute the word “tax” for “blame”--“Don't blame you, don't blame me, let's blame the fellow behind the tree.”

It looks like federal pols might just believe that is is easier to let the Sequester hit--and then lament the impact—rather than to stand up collectively and make scalpel like revenue (tax) changes and federal program cuts to realize savings.

For more than a year the GOP has discussed tax proposals which would close loopholes and act as deficit reduction, but nobody has seen any details. (Does that sound some of the Romney-Ryan campaign rhetoric?)

I also suspect, in both parties, there are those in Congress--not just the Tea Party contingent--who believe that the federal government is fat, inefficient and needs cutting, even using the clumsy across the board meat ax approach (which really isn't across the board because several federal programs are exempt).

The US Will Survive Major Budget Cuts, But Watch for Tricks

The country just may need to get by with less federal support, but not a great deal less. The nation won't crumble. If we are as tough, resolute, and creative as we believe we are, then we will survive doing what our policy makers for the past few years have been telling Portugal, Italy, Greece and Spain, “spend less.”

Despite getting the smaller federal foot print it claimed it wanted, the congressional Republicans have balked at being reasonable (all cuts no tax changes) and, once again, I believe that party will get blamed for much of the Sequestration fallout and—no matter what they do on immigration—will lose seats in the 2014 mid term elections, and likely in 2016 to Hillary Clinton or whomever the Democrats run.

If the Congress and the White House this week don't dance away from Sequestration, with a choreographed last minute delay, some head fakes, and a new deadline—as they did two months ago with this deadline-- federal domestic and military spending both will suffer cuts, albeit at different levels.

Any Republican or Democrat who complains about the painful impact-- unless he or she actively has supported alternatives to reduce the deficit--is a hypocrite since this will be the smaller federal government, they have been demanding since President Obama first was elected.

But, never fear, Congress always has tricks and games to avoid deadlines and unpopular actions.

I suspect the nation will see some unveiled this week.

Sally Quinn on Vatican Choices

Very thoughtful column by the former Washington Post reporter, Georgetown hostess, and current  Post religion columnist.
(Sorry, folks, with all of the Catholic Church hubbub, I am allowed one Vatican centric link.)

Fannie Mae $$$$$

Fannie Mae likely will report “earnings” very soon, possibly this week, all of which are headed to the US Treasury (and technically—thanks to Hank Paulson's machinations--won't count against money that the company “borrowed from Treasury”). Several sources suggest the Fannie's black ink will be significant and large. Whenever Freddie's earnings are announced, expect the same.

As I suggested a few weeks ago, that positive news only will trouble/confuse congressional policy makers trying to figure Fannie's and Freddie's future. When you are seeking revenue and clueless, the last thing you want to do is strangle a “golden goose.”

Maybe our national legislators will get some answers in this week's issuance of a major housing report by the Bipartisan Policy Commission.
The commission is co-chaired by former Senate Majority Leader George Mitchell; former Senator and HUD Secretary Mel Martinez, former HUD Secretary and San Antonio Mayor Henry Cisneros, and former Senator and Missouri Governor Christopher Bond.

Maloni, 2-25-2013

Monday, February 18, 2013

Let's Watch the AEI and Them Fight
But The “Them” is Growing Larger

There is juicy squabble emerging between the friends and foes of the Federal Housing Administration (FHA).

Historically, a fight between conservatives and “housers” meant war over Fannie and Freddie. That was yesterday and still might come the day after tomorrow, but the current scrap pits the energized Right against the more mundane FHA program at HUD and it's defenders.

With a bit of license, I'll set up the dispute—metaphorically, as a prize fight announcer might--and later note how it's beginning to attract some media heavyweights.

Ladies and gentleman.

In the “veddy, veddy black” corner, wearing black trunks, you have Ed Pinto of the American Enterprise Institute (AEI).

In full pugnacity, Ed has been snapping, snarling, and feigning punches all evening and that just was in the AEI van ride to the arena. Ed recently testified in the House and has been quoted in numerous articles objecting to various FHA activities and operations and has been living large in the limelight.

Pinto is managed by AEI's now restrained Peter Wallison, himself a veteran of many contentious bouts, including a vainglorious stint on the President's Financial Inquiry Commission (FCIC) where he riled commissioners and staff trying to jam Pinto's Fannie/Freddie research down their throats.

In it's final comprehensive report the Commission rejected Pinto work and did so by name, so nobody could misunderstand its resistance to Pinto-thought.

Wallison, reportedly contemplating self-immolation, just leaked the Commission report early and issued (natty, natty, boo, boo”) critical comments.

Peter apparently has chosen, temporarily I am sure, to stay away from Pinto's jihad and ease into lower profile Pinto-management.

Pinto's trainers include the many House Republicans, “Jed-led” by House Financial Services Chairman Hensarling (R-Tex), some adoring think tanks, and a few gullible media.

The FHA is the rather dull gray humdrum target, which most people ignore, save some GOP antagonists. But its battles are being fought, by a broad housing industry coalition.

The National Association of Realtors (NAR) leads this phalanx, which includes the National Association of Home Builders (NAHB) , the Mortgage Bankers Association (MBA) and a variety of small association and interest groups which believe that lower income American families, with less pristine credit profiles, still deserve a shot at owning their own home.
It's not a coincidence that the AEI onslaught forced the pro-FHA forces to gird their loins and find a willing “David” to battle the conservative Goliath.
For this latest brawl, the coalition's veteran hard puncher is David Fiderer, a wizened New York international financial analyst, whose work on Enron, Fannie and Freddie, and now the FHA has begun to catch fire with readers everywhere, as I'll soon note.

Fiderer will wear red-white-and blue, fight out of the white corner, likely with the sun rising over his beefy, broad shoulders.

Fiderer is desperate to rumble with the supremely well funded  AEI (think Koch brothers money),  itself desperate for a win over advocates of an ongoing federal mortgage finance role.

As a backdrop to this fight, Fiderer volunteered and chose to take on Pinto--the AEI punching machine--in the only way the AEI understands, nose-to-nose, lightning bolt for lightning bolt, and armed only with  “David's sling of truth,” full of deadly and irrefutable “smooth stone facts,” gleaned from federal sources.

Pinto is pugnacious, fears nobody, and boldly has twice publicly ridiculed major full page NAR ads in which the milion member trade group believes are the FHA's signature mortgage guaranty program positives. (Psst, Ed, we used to say that every congressional distriict seemd to have at least a thousand Realtors in each, likely more.)

Fiderer's  posse claims their man intends to pummel Pinto, or as they say in some of FHA's urban neighborhoods, “He wants to *&^%$* over that ^#%$#!”

Okay, metaphor ends.

In last week's blog, I suggested that Ed's high profile attack on the Realtor's ad brought way more focus to his opponent's ad and could bring unwanted attention to him, since he was well know for his slipshod Fannie and Freddie research, which earned him and intellectual/policy beat down.

That same predictable effect seems to be coalescing now--only faster--as Pinto last week generated major rebuttals from folks not traditionally associated with home building, home sales, or mortgage finance camps. (Links following this segment).

It's not a good week for Pinto or the AEI when your arguments and positions get attacked or ridiculed directly and indirectly by David Fiderer in Op Ed News, the NYT's Paul Krugman, the Wall Street Journal's Nick Timiraos, syndicated financial writer Barry Ritholz, the Roosevelt Institute’s Mike Konczal in the Washington Post's “Wonk Blog,” ProPublica's Jesse Eisenger's, and syndicated real estate writer and W Post columnist Ken Harney, and editors of the Columbia Journalism Review.

I may have missed one or two, but, somehow Pinto's Jeb Hensarling kudos don't balance being shot down by this many media heavy hitters.

Links to last week's critical commentary on Pinto/AEI Positions, starting with David Fiderer's attention getting  posting.

-David Fiderer (Pinto is “bat shit” crazy!!)

Read this piece by David Fiderer, who calls out the American Enterprise Institute’s Edward Pinto, who along with Peter Wallison, has been the primary force behind the Big Lie, noting how he has recently taken in The New York Times, the Los Angeles Times, and others with misleading claims about the Federal Housing Administration.”
--Mike Konczal, a fellow with the Roosevelt Institute
Wonkblog: No, Marco Rubio, government did not cause the housing crisis

(Maloni note: Konczal's piece also references previous rejections of the AEI/Pinto/Wallison charges.)
--Jesse Eisinger
--Barry Ritholz    

--Ken Harney

Nick Timiraos, WSJ

Mortgages, Ed Pinto, and a vast conspiracy of silence: … “Check out that first chart. Hilarious stuff.”

Maloni, 2-18-2013

Sunday, February 10, 2013

Housing Hearings

The House R's Go After FHA;
Are Fannie and Freddie Next?

New Chairman of the House Financial Services Committee Jeb Hensarling (R-Tex) opened the hearing season with the first of a series of Committee reviews of federal mortgage support programs, kicking off with the media-battered Federal Housing Administration (FHA) programs. A witness panel featured mostly conservative FHA critics, including Ed Pinto from the American Enterprise Institute (AEI) (more on that hearing a bit later).

There also have been whispers and media speculation about future Hensarling hearings on Fannie Mae and Freddie Mac, those old devils we now know weren't such demons, but which many conservatives still hope to atomize and draw more “private capital” into the residential mortgage market,

More House bread and circuses and a colossal waste of time, only a bit of which is because the Senate will buy nothing “Hensarling” this year or maybe any year.

What Fannie and Freddie transgressions will House Republicans and their media and right wing allies claim and argue which they haven’t highlighted before?

Still Doing Business (And Lots)

The Committee should look around and note both shops still are standing, still are functioning, and—once their earnings are announced--both will send billions to the Treasury, suggesting many billions more.

How long will the GOP continue to fool itself that Fannie’s and Freddie's existence is stopping “private capital”--meaning cash from large commercial banks and their investment banking subs--from returning to the mortgage market?

Republicans at least should admit “private capital” largely is a misnomer when discussing US banks because most bank working capital comes from deposit insurance and other federal subsidies.

Chairman Hensarling, sir, you are asking the wrong questions and pointing to the wrong problems.


The US has dozens of commercial banks with rich deposit bases and broad mortgage loan demand, but the lenders only make loans they can sell to Fannie and Freddie, because they want to put those mortgages in safe F&F guaranteed securities for sale or to hold in portfolio.

BTW, Mr. Chairman, that bank behavior is why Fannie and Freddie still enjoy such robust business and will bring billions into the Treasury this year now that all of their net earnings are swept into the General Fund.

Within a few weeks, you'll get a hint of how much that mother load will be. And remember, each quarter their business books mature and produce more net profits.

In a time of budget tightening—as the GOP seeks--how will you replace those multiple billions which the two entities will provide this year and going forward, based on growing high quality business volume and marginal credit losses?

Reminder: Fannie and Freddie do not/cannot originate loans. All of their business is brought to them by banks and other lenders.

So, if you want F&F to shrink and wither away, suggest that the big banks stop using them and instead, hold on their own books every loan they originate, not run them through the the federal mortgage giants, which you continually disparage.

Problem solved, right?

Bank officals: "Harumph, haff kaff, uh, we banks can't do that Mr. Chairman, um, a too much risk. Er, remember the build up to 2008?"

Ask the Banks to Keep the Loans

So, the banks get a free pass and House R's and a few D's, continue to beat on Fannie and Freddie, call them names, repeat phony political analysis, don't read David Fiderer or my blog to get the straight story, and delude themselves that they are debating a viable alternative to the current system, which—with a few tweaks already described in my blog and elsewhere (Jim Millstein, CEO of Millstein Company) you could resurrect a Fannie and Freddie “model.”

Call them A and B, Laurel and Hardy, Ruth and Gehrig or the Steelers and Ravens, but if you clone Fannie and Freddie you would permit  the national mortgage market to sing with efficiency, again, since most of the old business risks have disappeared due to diligent oversight..

Congress has made some decent regulatory improvements. Sit back, understand them, and appreciate your work, before you follow your political instincts and try and disassemble today's operating system.

Oh and a word to the wise Financial Services Committee Members, when you hold your inevitable Fannie/Freddie hearings, save time don't invite anyone from the AEI to berate the two.

Only Francisco Franco is more dead than  AEI's touted/derided Fannie and Freddie research. Those efforts have been crushed by so many credible outside observers and government entities, that they now look like the Washington Generals after the fifth road game drubbing in a week at the hands of the Harlem Globetrotters.

And that won't change no matter how hard the AEI press operation pimps that work.

Pinto, the NAR and the FHA

I won't prattle about  Ed Pinto, except to say that, IMO, he extended a huge helping hand last week to the National Association of Realtors (NAR), when he and they engaged in a mini battle over Pinto's FHA testimony before the Hensarling Committee.

Before the hearing, the NAR put out a dramatic full page ad touting the virtue/value of the FHA's programs for mortgage borrowers with lower credit profiles.

The NAR's advertising was good, but it still was just another issue ad, which in DC come a dime for 13 and most often get overlooked or ignored in the flood.

Not anymore, Citizen Pinto did the NAR a monstrous good turn by lashing out at the ad through the AEI communications network and bringing far greater notice to that advertisement.

With all due respect to my Realtors friends, Pinto gave the NAR far more attention and eyes than their campaign would have gotten. But, take it you wins where you can.

Unlike the Washington Post, I don't hand out “Worst Week in Washington” awards, but for his nonstrategic rejoinder--which called attention to his critics positive FHA arguments--Ed Pinto, I nominate you for......................!

Oops, Caught You (Again) Bankie-Bankie

Another large bank, this one Royal Bank of Scotland (now called RBS), has come a cropper of the feds and is paying a $600 Million fine to US officials for its role in manipulating LIBOR (London Interbank Borrowing Rate).

Exposing aberrant bank behavior may just be the solution to the nation's deficit, if the Justice Department, Treasury and other financial regulators just keep charging these scofflaws mammoth fines.

Nobody should think this is an aberration. “Financial services is a “monkey see. monkey do” business. Banks know which of their peers are making money and how and, inevitably, will clone that behavior.

Most big banks are swifter and more nimble than their federal overseers. The regulators always are catching up to edgy bank revenue schemes, which sometimes are just criminal behavior (laundering Mexican drug cartel cash, facilitating loans and money movement for violent Middle Eastern regimes).

If the Fed, Comptroller and Treasury really cracked down and heavily fined bank transgressions,  they could generate major revenue from bank violations.

Fiderer's Corner

As long as David Fiderer keeps producing interest rich broadsides, I'll highlight, link or re post his work.

Last week, the financial world was agog with news that the Justice Department was moving against prominent rating agency Standard and Poor's (S&P) for creating inflated, distorted, and misleading mortgage backed securities ratings during the height of the subprime bond origination five years ago.

Justice declared those prime S&P ratings were fraudulent, helped obscure the securities poor quality, and cost investors billions.

The link below is to an “Op Ed News” column, discussing dicey rating agency practices and a letter, which Fiderer imagines sending to the Justice Department, almost 18 months before last week's S&P developments.

Fiderer never sent his hypothetical letter to Justice but the column did appear in October 2011.

Did David Fiderer blow a whistle on phony security ratings a year and a half ago to which nobody listened?

Fiderer told me he is writing a book about the rating agencies and their financial meltdown role.

Don't despair GSE fans, DF believes he has uncovered—and soon will publish—some pungent OFHEO skulduggery, which occurred before Ed DeMarco was named Director.

That can't be good news for some people still around town.

Maloni, 2-11-2013

Friday, February 1, 2013

Another Hit

The Fabulous Fiderer Rides Again
Bing, Bang, Boom, Boom, Boom !!

In my last blog, I linked an article by David Fiderer, a long time New York based financial services analyst , who has logged tons of hours going over all of the available public documents surrounding a fatuous but destructive 2004 regulatory allegation of “securities fraud,” lodged against three Fannie Mae senior executives by its then regulator the Office of Financial Housing Enterprise Oversight (OFHEO).

The regulator--employing its own interpretation --claimed the company had intentionally misapplied a new Financial Accounting Standards Accounting rule (FASB 133) to hide business weakness.

At the time, Fannie Mae's enemies picked up that handy cudgel, overwhelmed the Hill with the shorthand that, “Fannie's regulator says it cooked its books and then paid their officers big bonuses.”

It was a devastating allegation and did far more harm than even the most diehard opponent could want, since it ultimately destabilized the nation's entire mortgage market before the Treasury Department stepped in and took over Fannie and Freddie in 2008.

It was a groundless charge, but it sounded good and then all Hell hit Fannie, as its friends, allies, and supporters ran from it.

Senior Fannie officials were forced out and then very bad things happened when their successors made poor business decisions and red ink begun spurting from Fannie's books.

The SEC Piles On

To add to the fun of seeing a long time GOP political target publicly wounded, Chris Cox, George W. Bush's chosen head of the Securities Exchange Commission (SEC), and his team jumped on and said, “We agree with OFHEO. Fannie Mae missed the relevant accounting rules by a mile.”

Those allegations and implications lingered for eight years--ruining careers, reputations, costing the government millions in defense costs, and near crippling the mortgage finance system--until Federal Judge Richard Leon issued three decisions dismissing charges against the Fannie execs, citing no information/facts among the 65 million hearings pages that could lead any jury to find them guilty.

The Judge did not comment on what motivated OFHEO and SEC officials to come after the company and its senior leaders.

In “All the Devils Are Here,” the Bethany McLean and Joe Nocera, book on that era, the authors referenced a covert campaign called “Project Noriega,” in which the Bush Administration and conservative allies hoped to cripple Fannie and its operations.

Would the Bush appointees have engaged in that kind of BS and lied in those 2004 reports?

Would they say say/do things for the benefit of Fannie's business and political opponents and stagger a multibillion dollar corporation which was at the heart of the nation's efficient secondary mortgage market? Would they do this to a company that Republicans seemed to intensely dislike?

That's like accusing President Bush and his advisers of starting a costly and senseless war over nonexistent military intelligence and sending thousands of Americans to die while those military costs enriched a cadre of political supporters embedded in major defense industries.

Fiderer to the Rescue

David Fiderer, writing in Op Ed News a week ago, discussed the 2004 OFHEO and SEC regulatory treachery and Judge Leon's rulings.

This week in the same venue, Fiderer looks carefully at the very complex original Fas133 proposal, how many companies beyond Fannie failed to properly implement it, and why the major accounting firms all seemed to agree what Fannie had done was entirely correct?

Long after the charges against Fannie's top people, the national accounting firms collectively agreed not only was Fannie's early application of FAS 133 right (meaning OFHEO and SEC were wrong), but those same firms began giving their own financial service clients the exact same Fannie Mae implementation directions.

That deserves repeating.

After examining the FASB 133 history and purposes and how Fannie Mae initially had complied with the new rule, the nation's major accounting firms opined what Fannie had done was proper.

Fiderer certainly raises the question of why two Bush regulatory agencies tried to cripple Fannie Mae and the damage those campaigns produced.

Anyone who thinks they knew/know Fannie Mae and what happened to it before its descent into sub prime Hell, should closely read Fiderer's work.

Here is the link to his most recent article, from Jan. 28 (Fiderer #2), and I also link last week's (Fiderer#1), so they can be read serially. Fiderer's second article mirrors the same excellent research that was in his first.

I hope there will be more Fiderer's revelations, containing more evidence that craven politically driven regulators can easily ignore what is correct and lawful and willingly join a political witch hunt to wreak partisan havoc.

Congress and the media, take heed.

Maloni, 2-1-2013