Friday, January 3, 2014

First 2014 Blog


 Predictions and Stuff


Conventional political wisdom still holds this coming year and, primarily, that means nothing controversial will pass Congress in 2014; too many interest groups can threaten and shake their media and money clout at  too many Senators and Members who need their industry enablers quiet, happy, and spending heavily on incumbents. 

November elections will not change control of the House, but the Republicans could pick up six seats in the Senate giving them chamber control starting in 2015.

If the House extremist element continues to try and sink Speaker Boehner’s more moderate (in comparison) efforts, those GOP Senate victories may not emerge, since most of the challenges to Senate D’s will come from very conservative GOP candidates and  House Tea Party antics may scare off some voters and “scare in” others. 

The House majority R’s might lose a few of their wingnuts, but not enough to change the flat out opposition to moving thoughtful legislation through the junior chamber. 

Once introduced (it hasn’t been, yet), I do think the Senate Banking Committee could mark up a Tim Johnson (D-SD) and Mike Crapo (R-Idaho) backed housing/mortgage reform proposal, with the bill getting reported from the Committee with a bipartisan majority.

Depending on the contents—and the reaction to it from the major housing mortgage/finance trades and the White House--it might go to the Senate floor and be approved. 

But, it dies there, because anything coming out of “that” Senate will call for a continued federal involvement in the nation’s mortgage finance market, which is Tea Party anathema. 

That alone kills House prospects. 

Although no Senate bill will extend F&F—and might call for their slow death—the current Corker (R-Tenn.) -
Warner (D-Va.) bill has gaping flaws based on questionable new federal costs, availability of private mortgage insurance, required new capital, and the implications of tearing up the current mortgage market structure and substituting something which carries so many unanswered questions? 

Congress doesn’t do mega structural and financial legislation well. That often suggests that tweaks rather than full scale radical surgery is the best public policy. But that’s often too rational for Senate egos.
One possible wrinkle, if Crapo puts his shoulder to the wheel to get a mortgage reform bill through the Committee and the floor, the Senator might have a tough time walking away from it, if the 2014 elections make him Senate Banking Chairman.  

Federal Housing Finance Agency

If new Director Mel Watt can escape/overcome the “Legacy DeMarco’s,” i.e., the left over/behind agency policy makers who likely still identify with the “we should grind down Fannie and Freddie, rather than succor them” approach, then he will be welcomed policy maker.

Watt needs to arrive with two items: a strong personal staff (although I heard that he might bring people from his congressional office, which means they won’t be technically/ substantively mortgage finance strong enough) and a “Watt agenda,” which shows the current staff and agency watchers that he is not there just to carry out Obama Administration wishes. 

Obviously, he can’t stray too far from what the White House and Treasury want, but that doesn’t mean he can’t encourage his two regulated entities to do more for homeowners and also cut some of the F&F internal costs/revenue expectations which figure into how much gets passed onto mortgagors and to Treasury‘s General Fund. 

F&F still will make plenty of money for this Administration, as indentured commercial servants, and—with recent court awards—already are into the “black” relative to what Treasury invested in the two. 

In 2014, together they will add (conservative estimate) another $30 to $45 Billion in “dividend repayments” and—as noted--that could be low if an improved economy drives greater housing construction and sales. 

(I hope former Congressman Watt remembers the congressional exchange below, when witnesses from the OFHEO, predecessor to FHFA, came before House Banking in 2004.  Mel Watt’s penetrating exchange, suggested he was nobody’s fool and was onto the Armando Falcon and OFHEO antics.

Chairman BAKER. Mr. Watt?
    Mr. WATT. Thank you, Mr. Chairman. And again, thank the Chairman for allowing the nonmembers of the subcommittee to participate.
    I think I may be the last questioner, so I want to try to follow up on a couple of things. Number one, Mr. Bachus, I believe it was, asked about the leak the morning of the day you met with the Fannie Mae board.
    My question to you is, are you undertaking any internal investigation to determine whether that leak was inside your shop at present?
    Mr. FALCON. I will.
    Mr. WATT. Are you presently, or you are planning to in light of the comments that were raised today?
    Mr. FALCON. Yes.
    Mr. WATT. Okay.
    Mr. FALCON. And I guess I would also ask——
    Mr. WATT. That is all I need to know.
    Second, you made reference in response to questions that Ms. Waters asked to at least some conversations with members of Congress leading up to the time that you had the meeting with the board of Fannie Mae.    Would you be kind enough to provide to the chairman and the ranking member of this subcommittee a list of those contacts and the contents of those contacts? I don't expect you to have that with you today, but would you provide that to the chairman and ranking member?
    Mr. FALCON. Sure, Congressman.
    Mr. WATT. Okay. Now, let me kind of zero in on the bottom lines, as I have gathered them, and contrary to what Mr. Shays is saying, I am not second-guessing whatever conclusion the study. But I do have some problems with the timing of the release of this information.
    Is it correct that you have not concluded whether the derivative conduct that you describe in your report either resulted in an overstatement or an understatement of Fannie Mae earnings?
    Mr. FALCON. Right. The next step——
    Mr. WATT. Okay. Just, is that correct?
    Mr. FALCON. Yes.
    Mr. WATT. Okay. And, now, since we have separated out that, we don't know what the financial consequence of that is.
    Let me go to the primary thing that I want to get at, and this is at the bottom of page three of your statement. Right near the next-to-the-last sentence there you say, ''Fannie Mae improperly delayed the recognition of income to create a 'cookie-jar' reserve that it could dip into whenever it best served the interest of senior management.''
    Now, the word ''cookie-jar'' makes it sound pretty small, but in actuality, the specific incident you are talking about related to $400 million in 1998. Is that correct?
    Mr. FALCON. Yes.
    Mr. WATT. And what you are saying is that in 1998, Fannie Mae made a decision to recognize only $200 million of that and then amortized the rest of it over 1999. Is that the bottom line on what you are saying?

    Mr. FALCON. Yes.
    Mr. WATT. Now, is it also then true that for 1997 and prior years, there would have had to be an understatement of revenue or income for Fannie Mae in order for Fannie Mae to have been able to create this ''cookie jar''?
    I mean, is that not what this means when you say they improperly delayed the recognition of income. Does that not mean that in some years to prior to 1998, they did not recognize income so they understated income. Is that not what that means?
    Mr. FALCON. I do not believe so. I would like to have my chief accountant to explain to you, but I think it was just a function of——
    Mr. WATT. Yes, well, tell your chief accountant to tell me what this means.
    Mr. DICKERSON. The ''cookie jar'' is really a Securities and Exchange Commission term of art for——
    Mr. WATT. I do not care about the term itself, but you cannot create a reserve in a cookie jar without having created some consequences to prior earnings. Is that correct, Ms. Deleo or whoever it is that is going to answer it?
    Mr. DICKERSON. Congressman, our analysis and our special examination did not go back beyond——
    Mr. WATT. I understand that. That is not the question I am asking. But you cannot really determine whether there was an overstatement or an understatement of earnings over time at Fannie Mae without going back beyond 1998, can you?
    If they were creating a reserve that was supposed to level out earnings, they had to understate at some point and overstate at some point. Is that not correct?
    Mr. DICKERSON. Well, Congressman, our examination found that there was $400 million——

    Mr. WATT. I understand that. I have acknowledged that. I went through that in some detail and you went through it some detail.
    The question I am asking is: In order to create the cookie jar reserve, would there not have had to be an understatement of income at some point just as there was an overstatement of income at some point?
    Chairman BAKER. And someone please try to answer his question. The gentleman's time has expired.
    Mr. WATT. I thought it was a pretty simple question myself.
    Mr. DICKERSON. It was after this experience in 1998 that Fannie Mae implemented policies to create these cookie jar reserves beginning in 1999——
    Mr. WATT. How can you say that and you did not even look at 1997? You do not know whether the cookie jar was already there or not, do you?
    Mr. DICKERSON. I cannot really speak to the years before 1998, sir.
    Mr. FALCON. Congressman, I think what you are getting at is: Was this there in 1997 and they just carried it forward or something to that effect.
    This $400 million showed up in 1998 as a result of the change in interest rates and the amortization——
    Mr. WATT. Well, what did they offset it against if there was not already a reserve? And how did they get the reserve if there was not already understated income at some point, or overstated income at some point?
    I am just trying to figure out—I mean, this is a balancing act, right? And the objective is to smooth out earnings. Is that not right?
    Mr. FALCON. This came up as a result of a change in interest rates and a change in the amortization of the expenses related to the mortgages.
    So it is not something that is necessarily what you are suggesting. It is more of a factor of the models showed that they——
    Mr. WATT. But is it necessarily what you are suggesting? That is the question.

Chairman BAKER. With that, the gentleman's time really has expired.
    Mr. Director, would you care to respond to his last comment?
    Mr. FALCON. No, Mr. Chairman.
    Mr. FRANK. For something clear cut, that is pretty hard to explain.


(Thanks to the reliable, indefatigable, and researcher extraordinaire David Fiderer, for bringing me this historic disconnect. I hope others, beyond new Director Watt, will see how OFHEO disassembled and spun Fannie/Freddie issues to put the companies, primarily Fannie, in the worst possible light.)


Note to Director Watt: “Mr. Dickerson,” refers to Christopher Dickerson, now FHFA’s Senior Associate Director, Office of Systemic Risk and Market Surveillance.


Now that you’re his boss, maybe Dickerson will give you the straight answer he didn’t give you a few years ago.


My Scary Holiday Political Education



For the past few weeks, our family has hosted a terminally ill elderly parent. 

That’s life and we will handle it, but the old girl insists on watching Fox Network News all day and that is an issue. 

In the past, only occasionally did I watch Fox, because I knew instinctively how conservative and distorting their news coverage was. I had little interest. 

But until forced to listen seven and eight hours a day (I, since, have put a new DTV outlet into our guest bedroom exclusively for the parent) I never realized how single minded and constant is that network’s heaped abuse on President Obama and his Administration.

I can’t remember hearing one statement in two weeks of watching/listening which I considered Obama-positive. 

Every story the network covers has some Conservative reporting on the Obama components/flaws in whatever the subject being covered, often tying discordant past events and slinging them forward as evidence of, “We told you so.” 

It’s never said just once, either, but dozens and dozens of times to drum into network viewers the core message. 

Nothing President Obama is or does goes without multiple sarcastic and venal putdowns via commentary and analysis by a legion of rabid looking white guys and blond women. 

No wonder its heavy viewership produces such anti-Obama vitriol and woeful progressive policy poll numbers. Although I did hear one woman (not a blond) complain about Rush Limbaugh calling the Pope “a Marxist.” 
I am not surprised about their orientation, but I am about the heavy concentration and frequency. 

For days and continuously throughout the day all I heard was "Obamacare"—which is featured on nearly every single program--Edward Snowden, Duck Dynasty and most recently the 13 year old girl in a coma after her surgery. 

The campaign against Obamacare is relentless and bizarre, especially given how the GOP has never offered an alternative and the insurance companies, a key element among GOP supporters, are part of the implemenattion problem. 

And, hey, Conservatives, that horse has left the barn, no matter how much you rant. Your SCOTUS says it's legal, states are putting it in place and people are signing up, many to part of the expanded Medicaid system, But you keep dragging you feet and yelping. 

Some people claim that Fox just is the reciprocal to CNBC or CNN, but I don’t see those networks engaging in the simplistic black/white (literally on Fox) approach to the news.

Fox is just a commercial communications outlet for conservative and Right Wing dogma and those who espouse that line. 

On any given day or within any given hour, Fox—the voice of America’s extreme Right--implements the old advertising meme that you need to hear the same message at least 18 times, before it starts sinking into your audience.


What Others Are Saying


Paul Muolo, at Inside Mortgage Finance, reports on how much $$$ Fannie and Freddie mean to the taxpayer and US Treasury.



LA Times, hitting that theme, says F&F may be too profitable/valuable to destroy, as per Corker-Warner. 

Senator Elizabeth Warren (D-Mass) has some probing policy questions about Corker-Warner (which likely will be cloned in Johnson-Crapo).

(In the initial posting of this blog, I had an incorrect link for the Warren story. This is the right one.)


Banks bitch about Volcker Rule (so what else is new?).

Another reason why I like Pope Francis, his comments exposing the Vatican bureaucracy. 

“Without an attitude of service to bishops and churches worldwide, he said, "the structure of the Curia turns into a ponderous, bureaucratic customs house, constantly inspecting and questioning, hindering the working of the Holy Spirit and the growth of God's people." 

Here is the annual congressional,  “We missed passing those tax extenders” dance.

Prediction: they all will be extended sometime before people actually file their tax returns. 


Maloni, 1-3-2014








Qualified Observer said...

Happy new year! Is the link below the Elizabeth Warren blurb correct? It's the same LA Times article cited immediately above, and contains nothing about the Massachusetts democrat.

Again, thanks for your continued commentary on this topic!

Bill Maloni said...

My bad; I'll go back and try to fix it.

The Elizabeth Warren story was in the American Banker.

Again, thanks for catching it.

Bill Maloni said...

QO--Fixed it in the blog and I'll also put it here for those reading the comments.

The correct link for the American Banker Warren story is below.

Duncan MacLeod said...

"the old girl"
My 81 year old mother listens to Rush- in the car.
I smile as I and love her dearly. She appreciates me not arguing with her and respects that my views are different.
We survived the Vietnam War, we can survive this.

Bill Maloni said...

93, cancer and a brain tumor.

Kids bought her a "pink" Nicky Minaj wig and video taped the shopping trip for more laughs for her.

(Look Nicky Minaj up if you don't know the entertainer.)

MichelKitware said...
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