Monday, August 12, 2013

It's Long, But Worth Reading!

President Obama's Misguided Speech
(I wrote the majority of this blog right after I heard President Obama speak in Phoenix and watched his TV commentary. I let it sit in my PC for a few days, not sure if I was happy with the written rancor I displayed, so I dialed it down a click. Now I’ve decided  I am satisfied the blog reflects what I think, certainly about who benefits from killing Fannie and Freddie and who doesn’t.)

Following the Obama speech, it seems most of the DC and media cognoscenti agree with the need to do away with Fannie and Freddie, ASAP.
The question becomes “Now what?”

Ooops, before answering that, let’s do a news update from last week noting that those “quasi companies,’ as President Obama dismissively called Fannie and Freddie—which now hold up the US conventional mortgage market on their shoulders—just sent the US Treasury $15 Billion in second quarter 2013 earnings to allow this President to continue his fight against the GOP over pending budget deadlines. Also, this suggest they will ship another $30-$40 Billion, or more, over the rest of the business year. Now, back to DC nonsense.

My imaginary Obama-MoC dialogue.

BHO: “OK guys how are we going to do this and remember, I don’t really care what you do, except I want fixed rate loans available and all of the money those two earn sent to the Treasury until you kill them. You over there, Capuano, right? What do you say?”

Rep. Capuano: “Er, um, how about letting them pay back the Treasury everything the taxpayers gave them—which will happen in six months or so--and then let them re-enter the mortgage market to compete with every other financial institution?”

BHO: ”Kid, do you know anything; we have to kill these suckers to let the banks—who I admit have screwed me left and right—get what they need to do what F/F do now. The banks need another federal subsidy and we’re going to give it to them!”

I'm Still Angry

When I heard the President’s Phoenix speech and his televised faux Q&ampA, I got pissed and, frankly, I still am.

I watched  President Obama rant and fume, in full campaign mode—and disappointingly, spew far more AEI imaginary history than mortgage facts—call for the destruction of Fannie Mae and Freddie Mac, and insist on more private capital investment in mortgages. (I guess from the banks, who else has any?)

He said this, while his Justice department filed suit against Bank of America for mortgage fraud, and then he canceled his coming summit with Vlad Putin. (Maybe Mr. Obama does read my blog??!!)

Putin will abuse the US and Obama more in the coming months, so get ready Barack to waive Olympic withdrawal at him or prepare just to smack Putin in the knee, again, with your groin, as you’ve been doing.

After watching the President, I am beginning to feel almost Tea Party-like in my anger at how mortgage lending naïve or just uninformed is our President. 
Did Wall Street Flummox the Chief?
Perhaps all of that Wall Street lobbying money sloshing around the streets of Washington has eroded the President’s last bit of responsibility to the 90% who believed his rhetoric about creating a better deal for the little guy.
His Fannie and Freddie comments and what  his Administration has done for “underwater” homeowners both are laughable, since his efforts to restructure upside down mortgages have been blunted by the Republican he’s left in charge of F&F regulation. And the Senate R’s are blocking his Democrat successor.

At one point in his televised exchange, sponsored by the real estate site Zillow, the President suggested that we need to simplify the system and go back a few years when the government didn’t play so large a role in mortgage finance, specifically, the President said, “In some ways, it’s a return to earlier (mortgage)  models.”
Let’s Just Go Back in Time
To what earlier mortgage era Mr. President should we return?
20’s and 30’s

Maybe he was yearning for the last century’s first great crash, which was precipitated by a real estate bust. I guess nobody in the White House has read the story of the Depression finance.

It will sound familiar. The Roaring 20’s saw a major run up in housing prices fed by private mortgages. Back then mortgage investors were on a wild run of private innovation. With mortgages supplied by private lenders and insurance companies, mortgages tripled in value from $9 billion to $30 billion, according to US Census Bureau Data. 

There was also a newfangled type of securitization by real estate bond houses that helped write billions of dollars of mortgages. But those mortgages were short-run and required 50 percent down payments. Everyone had to refinance every three to five years. 
Throw it in the blender with a stock market bubble, commercial banks running their own investment bets, and skimpy state financial regulation, and you got the Great Depression.  
The Savings and Loan Days of the 1970’s
But maybe the President wants a return to the 1970's, when the savings and loan ("thrift")  ndustry (just small banks), was unable to manage the interest rate risk on mortgages they held, and lost $200 Billion.
What about Just 6 or 7 Years Ago? 
We could just look over our shoulders, six or seven years ago,  when the very commercial  and investment banks to whom the President wants to transfer the nation’s mortgage market issued more than two trillion dollars in worthless subprime mortgage securities—outside the Fannie Mae and Freddie Mac systems and undeterred by the Bush Administration “see no evil” regulators—and brought financial calamity to every major developed nation?

In 2009, President Obama and his Treasury Secretary, Tim Geithner (or as I named the latter, “the best friend the banks had”), gave most of those banks an unsecured federal cash gift with a no job-generating reciprocal lending required. And these same banks have been getting a taxpayer subsidy of $83 billion a year ever since -- according to Bloomberg News!  Yet they still don’t have enough capital to operate safely, according to the same Bloomberg analysis.
Big Banks Tawdry and Illegal Behavior
Your Troubled Asset Relief Program (TARP), which  Secy. Geithner administered,  sent hundreds of billions of dollars not for bank lending to small businesses or home buyers, but to the banks’ bottom lines as they arbitraged the taxpayers’ funds mostly invested in Fed overnight funds and Treasury securities.

This is the bunch that you want to run the nation’s mortgage system after you and the Republicans get done obliterating Fannie and Freddie?

It is the exact same Too Big To Fail (TBTF) bank crew your regulatory agencies have fined billions of dollars in the past year for other mortgage crimes and deviations; working cooperatively with Mexican drug cartels, laundering funds; and business dealings with radical Muslim regimes and fronts. These are the guys who manipulated the London Interbank Borrowing rate (LIBOR), which provides the index on most of this nation adjustable-rate mortgages (you know, the ones the banks want people to have rather than fixed-rate loans).

It’s the same mob that sought and mainly succeeded during Hill consideration of the Dodd-Frank bill and throughout the regulatory process to weaken its provisions and dilute its impact.

Oh, and it’s the crowd which gave most of their campaign cash to the GOP and Mitt Romney.

Mr. President, shame on you.  No one can truly be that naïve or gullible, so unprepared to candidly discuss in substance what mortgage finance system is best for the nation.

The big banks are the last institutions you should be pitching as the ideal stewards to wield massive control over the nation’s mortgage finance system—which C-W would do--because they simply will continue to overwhelm and manipulate those federal regulators you expect to oversee the financial institutions. 
Financial Services Food for Thought
If they choose to, and when have they not, the guys who run the banks know they can just leave behind even more financial wreckage with total impunity.After all, your Administration has failed to bring a single criminal indictment against any of the CEOs who masterminded the 2008 subprime implosion, caused mainly by Wall Street machinations.  And the statute of limitations on all those crimes is running down fast; they literally have nothing to worry about.
The C-W bill cedes great market influence and control to the TBTF banks, at the expense of all others, and the consumer.
The big guys have shown themselves to be immune to current regulation, which doesn't change under C-W.
So why does anyone think with F&F out of the way, the big guys suddenly will perform like good corporate citizens and do the right thing, i.e. the pro-systemic stuff , pre-2005,which Fannie (and Freddie) provided did regularly??
No Disguise, Corker-Warner Big Federal Presence and Paying Banks to Make Loans
Open up the dirty little secret of the Senate legislation you romance but won’t quite endorse. The bill—still being shaped—by Senators Bob Corker (R-Tenn.) and Mark Warner (D-Va.) which reportedly will attract that private mortgage capital investment you and they claim will occur smartly.

To get that “new money,” they would create and put on the federal budget all the liabilities of a new Federal Mortgage Insurance Corporation (FMIC), plus any remaining Fannie and Freddie debts.

Now, exactly how does that get the federal government out of the nation’s lending system, or reduce the taxpayer’s obligation?

The legislation creates a huge new federal bank subsidy in the form of loan loss insurance on the bank’s mortgage bonds and it’s what the banks demand for crudely doing what F&F, seamlessly, do now.

How does that make this “new investment” private money if it only comes out of the banks’ pockets when Uncle Sam protects them against losses?  And duh, let’s not forget, this money in bank coffers is there only because of the welter of other federal bank subsidies, like deposit insurance.
Please Ask the Big Banks?

If the Congress succeeds in executing Fannie Mae and Freddie Mac will they respond to your clarion call for new mortgage investments without Uncle Sam’s additional sugar?

Ask them if they will originate 15- and 30-year fixed- rate mortgage loans at reasonable rates—as F&F did and does—but keep those loans on their own books using their own due diligence and underwriting skills without some new federal loss insurance?

If their  “NO” answers shock you, it’s because your staff has misled you or you are hoodwinking the nation about who in the mortgage business are good guys and bad guys.

You were “Zillowed” on TV and asked softball questions and many of your answers were not on point, but I won’t go through the list and embarrass you.

Your coy C-W endorsements may just force the GOP to throw sand in the legislative gears, allowing the next President to show some cajones and take the appropriate steps assuring that the American people and the mortgage market will continue to see the F&F produced efficiencies, controls, and products.

Last Thing (for now)

During your interview Mr. President, you copped a variation of the Right Wing lie and implied that Fannie (and Freddie) wantonly made profits while the federal government stood by to pick up losses. But, it's Fannie for which I worked and am most familiar.

Mr. President, that charge is Bullshit!
A Proposition for You and a Question for Jack Lew
But, don’t take my word for that allegation's falsehood.

Ask Bill Daley your former white House chief of staff, who was a Fannie Board member; ask Jim Johnson, a former Fannie CEO who vetted your 2008 VP candidates; ask Tom Donilon, your former National Security Advisor, who was a general Counsel at Fannie; ask Tom Nides, a former Fannie SVP, who was Hillary’s top deputy at State; and--if you know him-- ask Frank Raines, a former Fannie CEO and Clinton OMB director for whom Jack Lew worked (and knows quite well).

See if any  agrees with you and you say Fannie Mae—before it was taken over by the Bush (whacking) in 2008—believed that its mortgage business operations were conducted believing that the federal government--not the corporation itself--was responsible for any business errors  or losses it incurred.
When you get that question answered from close friends and allies, it might cause you to rethink your penitent to question the institutional honesty of Fannie Mae.
Speaking of the very competent Treasury Secretary Jack Lew who once was a protégé of the House Speaker Tip O’Neil (D-Mass.), I have a question for him.

“Secretary Lew, you have a major hand in the President Obama’s mortgage thinking. Is a national mortgage finance system—potentially controlled from origination through securitization by the major TBTF commercial banks, and their subs—a model that Tip would have endorsed as supporting the homeownership aspirations of low and middle income American families?
Related/unrelated to the Washington Post to The Wash Post

Last week, I was told--something I can’t verify--that Amazon visionary Jeff Bezos—the new owner of the Washington Post--is/was a major Fannie Mae fan from the company’s early success and later recognition in the book “Built to Last” by business guru Jim Collins. Given all of the ass-kissing (fear reflecting?) columns I’ve read in the past week, now that the Grahams sold the newspaper, if I was on the Post editorial staff, I’d want to know where my new boss is before I write another one of those specious “kill Fannie Mae” screeds.)
Maloni, 8-13-2013


Duncan MacLeod said...

Please tell us how you really feel!
Great comments just pulling your leg and thanks for all the HONEST blogging you do here.


Bill Maloni said...

Thanks, Duncan.

Yes, even for me, it's a bit heavy. But, as noted, I was pissed and disappointed and for the reasons I stated and some I didn't.

Some people think I just am humping for a return to the old Fannie Mae, unchanged.

But that's not accurate, although there were many systemic pluses to that model, especially for consumers.

Large commercial bank perfidy is so dominant that I cannot believe policy makers think there is no downside to adding to their business, market clout and concentrated power.

If you don't understand the mistakes of the past, you just keep making them.

Banks perform best when they are part of a broader system and there are other participants in the same "weight class."

Robert Mae said...

Bill Maloni's opus. Enough said.

Bill Maloni said...

I want to work for you, Robert, "fracking!"

I can live out of the back of my Lexus with its hot and cold showers and portable beer taps.

It even has its own ex-Swedish stewardess/now chauffeur.

Robert Mae said...

Substitute 'Lexus' with 'Silverado' and 'Swedish' with 'Mexican' and you're damn close.

Our's is a great country that is one large extraction away from >5 GDP growth again: Obama. Nice experiment, America; it failed. DO NOT DO THIS AGAIN.

Bill Maloni said...

My other car (true) is a 1996 Toyota Land Cruiser--with only 130K miles--the kind you see running around in Africa with a howitzer or anti-aircraft gun set, attached to the roof.

I can do Mexican.

So, how will you feel when he approves the Keystone XL Pipeline??

Robert Mae said...

The same way I think of everything he says: Whatever it is, too many will oppose it. He truly is the monkey wrench in the machinery.