Monday, April 29, 2013


I Remember “W”...

...and his Slanderous, Feckless Financial Regulators

Last week's opening of the George W. Bush presidential library—I won't make any jokes about books with crayons—produced nostalgia galore, especially among the nation's conservative commentators.

Ignoring the fact that he seemed cowed by the office's responsibilities and almost naive about other power/political exigencies, I remember this President Bush as taking a two year Clinton Budget surplus—produced when Frank Raines was the head of OMB and some sharp guy named Jack Lew worked for him—and pissing it away on tax cuts for those who didn't need them and a phony Iraq war based on highly questionable “intelligence,” massaged and shaped by Dick Cheney and Don Rumsfeld.

Messrs Cheney and “Rummy” had their own agendas which were far more advantageous to military and oil and gas interests than the nation's well being.

As bad a president as he was, I have little doubt that W would have been a decent guy to football tailgate  or play poker with, if he plays. In other words, someone who could laugh and joke and not take anything too seriously.

And, therein lies the rub.

Fannie and Freddie

But I also remember an upbeat enthusiastic George W. Bush who, in 2002, joined senior Fannie and Freddie executives at the historically black Bethel AME church in Atlanta—along with dozens of invited national “housers” and other dignitaries--to endorse the need for more affordable mortgage finance for all Americans and to urge and support the two former GSEs to step up and do more to that end.

But the euphoria of a GOP President actually endorsing, if not cheering, the works of Fannie Mae and Freddie Mac either didn't penetrate the White House bureaucratic walls or W just was patronizing Atlanta's and the nation's low income audience and the assembled, building, real estate and advocacy interests.

The WH demand for more from F&F came through, but the necessary required GOP attitude adjustment among the bureaucracy and conservative/Republican opponents outside of government, never matched the President's personal rhetoric and never made the trip back to DC on Air Force One.

If anything, as I have written about in the blog and others have memorialized elsewhere, the attacks on Fannie and Freddie—directed by somebody important and likely a resident of the Bush White House staff—built, culminating with a scathing and fatuous 2004 regulatory report from the Office of Financial Housing Enterprise Oversight (OFHEO), then Fannie's and Freddie's regulator, accusing senior Fannie execs of violating securities laws and cooking company books for personal game.

When the Bush SEC head weighed in and agreed with OFHEO, the political fight was lost and the mortgage finance system began unraveling, although it would take the Bush “hear no evil see no evil” financial regulatory indifference before the Wall Street subprime orgy brought the nation to its knees.

Here is some additional perspective, which I tripped on while doing some research.

My memories of George W. Bush are not fond memories. His primary interaction with the GSEs was duplicitous, he talked a positive game while his posse simultaneously conducted mortgage finance malevolence.

I wish President Bush well with his flourishing nascent painting endeavors. But if he ever chooses to paint the housing finance scene he helped produce, it won't be a very pretty picture.

Other Fannie/Freddie Matters


The exceptional Barry Ritholz had an excellent piece last week discussing his perspective on a major lender ripoff of Fannie Mae.

I think lender chicanery, where Fannie and Freddie got duped, happened more than people think or want to believe, but it happened, as several successful law suits proved.

See what you believe after reading Mr. Ritholz's work.

Excessive Loan Loss Reserves?
In one of my recent blogs, I noted the future possibilities of Fannie Mae (and Freddie Mac) generating even greater earnings (cash for the Treasury hopper) if they can secure judicial relief with lawsuits they have pending against major lenders.
But, along with Fannie’s and Freddie's rosier financial future—which does not mean concomitant political relief, except in the minds of a few of us—I suggested both entities were over reserving for dwindling anticipated losses, losses which likely will lessen even more over the next few years. By all reports which F&F and their regulator are revising downward because of general economic improvements and less red ink from seasoned loans on F&F's books.
That could add heft  billions or so to their 2013-14-15 bottom lines and therefore more for the Treasury’s General Fund and the taxpayers.

(I also like to think that it repays their debts to Treasury faster but we know that's impossible because Hank Paulson seemed to forbid that with the convoluted accounting in his 2008 takeover deal.)

Of course the GSE's regulator—whomever that Director may be in time—would have to bless this sequence as being “safe and sound.”
But, before F&F got their turn, it seems that many of the big banks have started to do the same thing as per a story in last week's Washington Post, written by Danielle Douglass. (See below.)

Senators Brown (D-Ohio) and Vitter (R-La.)

Fannie antagonist Gretchen Morgenson, propounding from her standard perch on the front page of the NYT Sunday business section, had a very positive take on one of the 9000 or so bills which are introduced in every two year session of Congress, but ultimately die.

Morgenson identifies this worthy proposal's killer with her first sentences, the nation's big bank that hate/fear the legislation.

Introduced by Senate Banking Committee members Sherrod Brown (D-Ohio) and David Vitter (R-La.), the bill would simplify and increase large bank capital requirements, divorce the US from the one size fits international  capital accords shaped in Basel, the little Swiss town where the world's financial government and private elite officialdom meet and approach common financial problems.

(As I learned in my three year stint at the Fed, if you really are an insider, you pronounce the place “Baall,” with no “s.”)

Bye Bye Basel?

It's taken more than 30 years for this slightly changing assemblage (people do die over three decades, even bankers and their regulators) to agree on some guidelines. But by the time the international group agrees on anything, the banks are long gone on their slippery ways and those who would catch them in financial skulduggery are arguing over their caviar and sauna bills.

Whether in Switzerland or New York, banks don't wait for “tea time” or “tee time.” They work and innovate 24-7-365 to make those huge earnings.

Brown and Vitter thinks that wrong—and they are right.

The odd couple liberal and conservative further believe that Dodd-Frank doesn't solve any of the major problems and that, too, should change for America's financial institutions and quickly.

Morgenson agrees. If you didn't read her column, check it out.

What Can FHFA Do With a New Director?

Last week's blog called for but did not produce many suggestions about how FHFA, if it gets a new Director and direction, can change Fannie and Freddie for the better, enhancing the nation's secondary mortgage market and its primary market lenders. (All responses appeared on the “comment section” of last week's blog.)

Of course, watching Brown and Vitter explore new approaches to improve the government's risk relationship with the nation largest financial institutions and then seeing Jeb Hensarling (R-Texas), the House Chairman of Financial Services, who refused to allow Consumer Financial Protection Bureau Director Richard Cordray to testify on consumer related financial issues--”because in my opinion he doesn't hold the office legally”--suggests why any efforts to restructure the nation's. mortgage market will go nowhere, until the White House and both chambers of Congress are controlled by the same party.

Oh, did I note that the nation's banks really dislike the Consumer Financial Protection Bureau and likely Cordray, too.

Hello Hillary Clinton in 2016!!!

Maloni, 4-29-2013


Anonymous said...

What say you, Bill?

Bill Maloni said...

I assume you are asking about the WH proposing Rep, Mel Watt to be the next head of FHFA.

It's a long way from nominated to approval and the long knives came out in the Senate weeks ago, when Watt's name just was rumored.

I see some former GOP staffer yapping already about Watt not meeting the statute's demand for technical skills (presumably mortgage finance, securities, and regulatory experience).

But, unfortunately, there is a track record of this President not getting his appointees, so we have to wait and see.

To me, the bigger question is does DeMarco exercise his civil service right to rejoin FHFA in some other capacity, if Watt gets approved?

Anonymous said...

You would know better than I, but this Watt comes across to me as a puppet of the party, and his sole responsibility will rubber stamping principle reductions.

Street apparently hates this nomination that won't happen.

Bill Maloni said...

My next blog--without being too titillating--will discuss my unrequested "advice" to MW.