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


Anonymous said...

The Bipartisan Housing Commission submitted their report on Monday.
I searched,in vane, for press reports on these reccomendations. Could not find any in the general press. Finally found the text of the report after much searching.

What is wrong with the press?
My guess is that few reporters or editors know anything about the housing business and housing public policy- a sad commentary.
So Bill, you should begin the dialogue on housing finance policy on this site. Again, the ?White House has not evidenced any interest in federal housing policy.

Bill Maloni said...

Over the weekend I spoke with one of the Commissioners and he pointed out (almost lamented) that the Commission spent a year on its work, as if anticipating marginal coverage and recation.

I did see a brief Commission story in the Post calling for a Ginnie Mae like arrangement to replace F&F, with a level of federal insurance guarantee for losses not covered by the issuer and others in the process.

Housing matters draws lots of heated rhetoric in DC but not too much enlightenment on the Hill.

Hopefully someone up there will react differently to this report and at least start the dialogue you suggest.

The report still calls for a federal role, which might make it DOA in the House.

Anonymous said...

The report protects the 30 year fixed rate mortgage and endorses a federal mortgage reinsurer. this requires a very substantial federal role. This would require a Fannie, Freddie (perhaps combined) and the Federal Home Loan Banks however renamed and reorganized.
The Realtors, Homebuilders andMortgage Bankers should be pushing the Obama WH to push a housing reform agenda. Do not leave it to those clowns on the House to come up with a reform plan.

Bill Maloni said...

I agree with your depiction of certain House members (and Committee Chairman).

But even the Commission says its plan should be implemented over 5 to 10 years, so nothign is happening soon.

I've suggested using the shorter time frame to work out Fannie/Freddie debt repayment (if Treasury ever could agree on what if nayhtign is owed by the former GSEs) and then turn them loose with no federal guarantees, and save lots of congressional stress, bloviation, and aggravation (plus trees that won't be cut down for all of those unnecessary hearing reports).

The mortgage cogniscienti claim it can't be accomplished while still preserving the 30 year FRM.

On that one, I'm from Missouri."You need to show me."

Bill Maloni said...

I agree with your depiction of certain House members (and Committee Chairman).

But even the Commission says its plan should be implemented over 5 to 10 years, so nothign is happening soon.

I've suggested using the shorter time frame to work out Fannie/Freddie debt repayment (if Treasury ever could agree on what if nayhtign is owed by the former GSEs) and then turn them loose with no federal guarantees, and save lots of congressional stress, bloviation, and aggravation (plus trees that won't be cut down for all of those unnecessary hearing reports).

The mortgage cogniscienti claim it can't be accomplished while still preserving the 30 year FRM.

On that one, I'm from Missouri."You need to show me."

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