Saturday, April 26, 2014

Mommy, did that masked man give you a silver bullet ?



Corker: "Hang ‘Em High, Tim and Mike;
Let folks see their life fluids drip out!
That’ll Show ‘em How Tough We Are!"

(By the way, heh, heh, heh, Warner and I have a fundraiser $$$$$ tonight, for all your bank boys in town; there will be another one $$$$$ soon, since you can’t max out, heh, heh, heh.) 


Slowly and somewhat painstakingly, workmen are constructing the gallows outside of the Senate Banking Committee hearing room, using the stoutest of wood and  the strongest other materials, since one of the intended hangees is carrying a little over $3 Trillion in assets and the other a little under $2 Trillion. That’s a lot of dudette and dude to “stretch,” with nobody sure over what period of time they’ll have to hang out, so to speak.

Is there anyone who can save these two innocents? 


This coming Tuesday, the Senate Banking Committee plans to markup its “kill Fannie and Freddie and let’s give the world to the big banks mortgage reform bill,” in the process abusing and redefining the word “reform.”

As this blog is being written continued issues are being raised and amendments surfacing to fix observable problems. 

The Senators should understand that you are not reforming squat, if your recreate an existing system, name the parts different things, have the federal government stand behind all of the losses, except for some “private capital” upfront (which ironically comes from another federal subsidy), put a 90% federal guarantee on the transaction, create a new and untried federal agency to implement and watchdog the larcenous big banks, slap the whole thing on the federal budget (on the backs of the taxpayers), and take a deep bow because you’ve killed Fannie and Freddie, albeit not too quickly, just in case you messed up and they’re still needed.


Death Be Not Proud


On that latter point one of these brilliant solons should be able to answer when do Fannie and Freddie die? 

The two have been carrying the entire national mortgage market on their shoulders since the 2008 meltdown and this “bury them” scheme rests on a bed a promises wrapped in some regulatory and operational concepts which never before have existed, but presented by people known for disappearing quickly from crime scenes. 

Reminder guys and girls, you are screwing with a system which represents roughly 18% of the nation’s economy.  

Do you poison them before hanging them or slowly “boa constrict” F&F to death, roughly in concert with the evolution of the new Federal Mortgage Insurance Corporation (FMIC)?  

What if there is a “flapdoodle,” as we say in Tennessee, and FMIC doesn’t come online as fast as the “we never tell a lie or stretch the truth” CWJC sponsoring Senators swear it will? 

Do you hurry up and do a financial Heimlich maneuver on F&F so they can rise and fill the breach?  

Do you think that Senator Warner (D-Va.)--who is running for re-election, killing good salaried  jobs for maybe 10,000 of his constituents, while bragging of his exploits to all who will listen, including owners and employees in all of those Northern Virginia stores and businesses (run by people who also vote) and who like having those F&F folks and their families as clients and customers—will panic if a market emergency sets in,  and rush to do mouth-to-mouth on Freddie and Fannie (“Eew, which do I do first the boy or the girl?”), saying, “I’m sorry, I’m sorry, you don’t have to produce 30-1, just breathe, just breathe, please!”

Does Part A Go Into B, F or H? 

Is there anyone who believes that CWJC’s Rube Goldberg-Frankenstein regulatory arrangements with guarantors, aggregators, and insurers --which has vilified by many liberals (see recent Urban League letter) and hated by Conservatives (See letter from 25 conservative groups, plus opposition from Cato, AEI, and Heritage)—is going to happen on time with no false starts, breakdowns, glitches, and revisions even if congressional control changes at the end of this year? 

Now maybe if the bill was creating oath breakers, abductors, seducers, and out of wedlock fornicators—given current congressional backgrounds--its legislative implementation would be no challenge. 

But, CWJC purports to create guarantors, insurers, and aggregators, whose twains may never meet, if Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) see their amendment pass. Reportedly, it denies what appears to be corporate vertical integration. (Vitter is liking the hell out of the fact he can go home, get people’s minds off his dalliance with a woman of the evening, and argue forthrightly that he denied “integration” to somebody or other. Not sure if he will call his next opponent’s sister a “thespian,” probably only if it’s necessary?) 

Too Much for Banks,
Not Enough Low Mod

I am tired reminding that the bill rewards financial miscreants who will round ever square corner to get an edge and make a buck, plus there isn’t a lot of low income housing certainty in the Senate Bill. But, I'll let the Urban League letter and similar missives from others make that point.

This is an excerpt from a Gannett Washington DC News Bureau story about the bill (and Tennessee Republican Bob Corker’s role in it). 

"This would be huge for the financial sector. They are drooling," Dean Baker of the liberal Center for Economic and Policy Research, said of the Corker bill.

But Baker and other critics question whether a new agency, the FMIC, should continue the practice of taxpayers guaranteeing mortgages. Even a 90 percent guarantee would be pretty sweet for private firms, they contend.

"I can't believe we would be going back to that," Baker said. "Were these people not alive in 2008?"

Similarly, Julia Gordon, a housing expert at the Center for American Progress think tank said, "Not surprisingly, we view it as giving the keys to the car back to the guy who drove it into the ditch."

But Corker said his bill "levels the playing field" by giving local lenders, like credit unions, access to many of the databases and other technologies Fannie Mae and Freddie Mac employ.

Senator Corker’s nose must have increased significantly when he offered that empty and meaningless justification for his work.

Um, Bob. Virtually every lender in the nation—banks, mortgage companies, and credit unions—already are linked, contractually, to both Fannie and Freddie and as such have access to all of the operational and information data each has and the lender might need to originate loans for either to securitize. 

Senator Bob’s been eating too much at McDonald’s if he thinks F&F both have some “special mortgage sauce” they are holding back from their customers and therefore he needs to smite them. 

Oh and Senator Bob, the small banks (ICBA) and the federal credit unions (NAFCU) oppose your bill–see their Senate letter--because they are afraid of the big banks consuming them. 

If the bill is reported out of the Committee—and if it ever makes the Senate floor—the only thing those vulnerable incumbent Democrats need to do is read the letters and statements from the complaining conservative groups to get a preview of what charges their GOP opponents will throw at them in November.

Because of housing overhang and the less than buoyant local economy, Nevada is one of those states which least can handle any cataclysmic mortgage market disruption caused by the uncertainty inherent in approval of a stunning structural upheaval in residential real estate market financing, even if it is somewhere down the road.

Listen, Is That D Sanity Coming? 

Wait, what’s that sound? Could it be???? 

“Return with us now to those thrilling days of yesteryear, when out of the west comes the thundering hooves of the great white horse, Silver (wearing adornments form Reno), and astride his back, is a man with a broad white hat, two six guns blazing (are those silver bullets from Reno, too?), and he’s wearing a mask and a vest which says 'Majority Leader.' ”

Why it’s the “Nevada Loan Arranger” racing in to bring some sense to the addled and venomous (not just you, Senators Corker and Warner). 

“On big fellow, on, faster, faster boy!”

Will the Nevada Loan Arranger get there in time to bury the proceedings, but not the victims? 

Tune in next week little Rangers and see if truth, justice, and some political common sense—not to mention the “American way”--are victorious, or will the colossal Wall Street institutions win again?


Who is Saying What? 

In anticipation of the next chapter of “What can we do for poor little Wall Street?,” I offer this Slate article. 

Here is a link to the National Urban League letter opposing the Johnson-Crapo bill. 


From Capital Alpha’s Chuck Gabriel comes the story and link to all of the documents the FHFA sent to the Hill late Friday, including letters from Fannie and Freddie opposing parts of the bill. (Thanks, Chuck.)

Here is a link to the letter two dozen conservative groups opposing Johnson Crapo sent to the Senate.

Last but not least is the latest from David Fiderer, as the "Hebrew Hammer' uniquely rocks CWJC.

4-27-2014: Post original publication, I’ve added this link to Gretchen Morgenson’s excellent column about Senator Elizabeth Warren (D-Mass), which appeared in Sunday’s NYT. It speaks well of Sen. Warren, says so much about Washington and the issues I’ve been pounding for years, including the major problem in CWJC. It makes me proud that, a few years ago, I labeled Treasury Secretary Tim Geithner, “banking’s best friend in Washington.”




Maloni, 4-26-2014

Wednesday, April 23, 2014

Hurry, hurry, hurry, step right up and……


Will You Really Sell Me the Brooklyn Bridge and You'll Let me Rename It? 


Recently, I’ve read eloquent tomes filled with CorkerWarnerJohnsonCrapo (CWJC) accolades and the requisite dumping on Fannie Mae and Freddie Mac.

The authors extol CWJC and crap on F&F. 

They start with the assumption that Fannie and Freddie should be destroyed because they were flawed and made mistakes and that CWJC machinations are the answer to all problems in the nation’s primary and secondary mortgage markets (since the latter drives to the former). 

I have problems with many of these “Johnny’s come lately” because it’s all GSE blame and little insight, let alone anything positive about Fannie’s and Freddie’s success at sustaining the nation’s mortgage markets.

When these “experts” talk about the 2008 mortgage market financial meltdown, which prompted the Bush Administration to take over Fannie and Freddie--and the Obama Administration to keep them in indentured servitude--you almost never see any discussion that while F&F had woes, it occurred mostly from buying private label subprime mortgage bonds from the major NYC firms—not with failures of their own in-house generated MBS. The latter produced some losses but nothing close to what befell the “out house” (appropriate term for them) securities F&F purchased.

CWJC Beneficiaries &%&# Up Big Time


Few articles condemning F&F carry any critical discussion about that disastrous commercial bank/investment handiwork. 

During 2005 - 2007, the major New York institutions created--outside the Fannie and Freddie systems--$2.9 trillion in marginally underwritten, non-guaranteed, but highly rated private label mortgage backed securities (PLS) and sold them worldwide.  

Relying on claims made in SEC filings, Fannie and Freddie did purchase some of the most senior triple-A-rated tranches in PLS, primarily for reasons that had nothing to do with affordable housing goals. But we now know from legal documents in lawsuits, which Wall Street banks have been eager to settle, that the vast majority of PLS were riddled with fraud.  

Consequently, shortly after they were issued, these garbage non-F&F mortgage bonds quickly failed and produced @$725 Billion in losses not counting the CDO red ink created from the underlying PLS. 

The PLS mortgage securities had losses seven and a half times greater than F&F MBS  And that $725 Billion doesn’t include an additional billions in losses from synthetic CDOs created by those Big Apple financial stalwarts based on the underlying PLS.

In contrast, when Uncle Sam took them over, Fannie and Freddie need $187 Billion in federal cash infusions and since every penny has been repaid, including a surplus, now at $15 Billion but soon to grow larger as both entities announce their 1Q 2014 earnings.


As one sided as that performance was, none of the CWJC boosters are willing to acknowledge their proposed  legislation gives mammoth new market power and wealth via the delivery of a new federal subsidy to the very institutions which just 7 years ago committed financial mayhem on the world through their issuance of near worthless mortgage bonds. 

The nation’s largest banks already run their regulators ragged, going under, over, around, and behind them. (I’m tired tallying the laundry lists of violations and near criminal activity for which they have been fined in the past two years).

Why the Senate's Big Bank Largess? 

Can a brand spanking new federal regulator truly control the voracious TBTF institutions, especially if their “real federal regulator” (the Fed or the OCC) doesn’t want the FMIC to mess with a holding company or a national bank? 

If you say “yes,” then you’ve spent some time recently in Colorado and Washington states sampling their newest local products. 

Why will bank behavior be any different this time?

I’m not the only commentator pointing out to Senate legislators how much they would give the nation’s largest banks in return for what? 

This gets me to another bothersome issue. 

Most of the CWJC advocates disparage Fannie and Freddie and talk about the FMIC and its proposed aggregators, guarantors, and insurers, as if they are certainties which already have slain the mortgage beast, provided attractive products, reasonably priced for American families across the income continuum, with marginal losses totally covered by some yet to be raised $500 Billion in fairy dust capital (did I mention CWJC may cure the heartbreak of psoriasis, halitosis, and athlete’s feet?). Step right up and buy a bottle of Uncle……!


FMIC in the Bush, Better than F&F in the Hand?

This mortgage market savior doesn’t exist yet, let alone has it created its first mortgage, but the Senate desperate are lining up as if it is the “mortgage Lourdes.” 

Senators are touting the CWJC and how much it will reduce government financial obligations, the risk sharing the private sector is taking on (you mean the banks with their FDIC cheap deposits, that private capital?), and the words from every public official’s mouth are rich with promise, certitude and assured positive results. 

Pretty soon they will announce how many new jobs it will create. 

It hasn’t even passed the Senate Banking Committee and, if it does, it may never get to the Senate floor for major political reasons having nothing to do with Fannie and Freddie, let alone smooth and efficient mortgage financing? 

Suddenly every one accepts as truth what every Senate pol claims about CWJC and that it all will come true in a reasonable time frame. (Senator, I have some Las Vegas real estate, if you are in a “buying” mode?)

Aren't we fortunate that politicians never lie, inflate, or exaggerate about future results. 

The Senate is reshaping a totally new way for 20% of our national economy to operate, rewarding major financial miscreants, and covering all of its inevitable mistakes with taxpayer’s promises. 

Senators insist that CWJC will provide mortgage bounty for everyone because—as we know from Pentagon weapon systems to energy saving, not to mention healthcare--everything Congress builds happens seamlessly and with no interruptions, no delays, no cost overruns, and no losers. 

I Think It’s This Way Lassie… 

The FMIC is so far down this country road that Timmy and Lassie never may find, even with Opie and Barney Fife’s help. Its sponsors talk hopefully about five years, but don’t exclude 10 or even 15 years of phase in. 

I also think the CWJC’s affordable housing provisions are a joke, a ruse, something which sounds much better than it can possibly perform because—unless it gets dramatically changed— CWJC doesn’t compel, force, or statutorily require lenders to make mortgage loans to low income families, very few will be made. 

A “low income fund” sounds nice, but it’s like the banks paying fines for manipulating LIBOR or laundering Mexican drug money (both of which our big financial behemoths did), it’s a cost of doing business, but don’t look for any lender to heavily utilize it if they are not compelled by law to do so.

Why Not Reconsider Fannie and Freddie? 

Because it would undercut their case for a “new day,” GSE faultfinders seldom point to the F&F progress which the post 2008 regulation has produced.

Neither F nor F can buy or securitize the low quality loans which was part of their pre-2008 undoing. 

The “books” of business they have put on in the past few years have been exemplary because of the new rules and credit standards under which they must operate (I would loosen them a bit and I hope their regulator does), but when detractors talk about fixing F&F risk just what are they describing? 

The two are limited in their portfolio size, they largely securitize or guarantee loans which conform to the Consumer Finance Protection Agency’s QM (quality mortgage) standards, and whatever seasoned bad loans still are on their books are curing or rolling off, in the natural order of portfolio lenders. 

To me, this seems to be a lot of achievement, productivity, experience, success, and market familiarity to throw in the trash heap especially in exchange for promises and hope that the big banks don’t run roughshod over their regulators, again. 

The GSE denigrators claim they know the problems with Fannie and Freddie, but--if they do--does it really require CWJC's earthmoving, system changing upheaval, and financial uncertainty as the “fix,” especially when the sponsors only are going to put the whole kahuna on the federal budget (plus what’s left of Fannie and Freddie after the Congress fillets them)?

Just Junk CWJC.

The Congress can get a lot more housing finance done, still make desirable changes to  Fannie and Freddie, and preserve that which has worked—and a lot has—for less money, in less time, with less chance of failure and systemic breakdowns and far less political jousting which could occur when the Senate Banking Committee meets to markup CWJC. 

Who is Saying What? 

And this story in Compass Point, from Isaac Boltansky

Conservative Groups Voice Opposition. On April 22, a group of ~25 conservative groups – some far more significant than others – sent a letter to members of the Senate Banking Committee voicing their opposition to the Johnson-Crapo GSE reform bill. The letter cites a number of concerns including: (1) an “increase in moral hazard and taxpayer risk”; (2) an opposition to the construct of the housing trust funds in the language; and (3) the treatment of current shareholders under the 3rd Preferred Stock Purchase Agreement (PSPA) which would be codified under Johnson-Crapo. We believe that the conservative core on the Senate Banking Committee was already squarely opposed to the Johnson-Crapo language and this letter will only fortify their stances. As our vote count below illustrates, we continue to count Senators Vitter (R-LA), Coburn (R-OK), Toomey (R-PA), and Shelby (R-AL) as “likely against” the Johnson-Crapo bill. We highlight the letter from conservative groups because we continue to believe that as leadership aggressively courts the liberal contingent on the committee, it runs the risk of losing a handful of right-leaning supporters of the original Corker-Warner proposal.
Maloni, 4-24-2014

Sunday, April 20, 2014

When the Moon Hits Your Eye Like a Big…..




If You Are a Mooney,
You Could be Looney!


Me and the old boys were hanging at the senior citizen center swapping stories, when one asked me about Fannie Mae and Freddie Mac and the legislative efforts to destroy and replace them. 

As best I could, I explained what was occurring in the Senate and elsewhere, including how Senators explained/justified their proposed legislative actions. I was judicious and fair.

When I finished, one geezer wheezed and said, “They’re lunatics. They’re not thinking; they’re just howling at the moon.”

Hmm. April 29 is the proposed markup of the CorkerWarnerJohnsonCrapo bill (CWJC) and it occurs on the cusp of the new moon, which emerges on May 1.  

Yes, yes, “lunacy,” insanity, madness, once thought to be related to phases of the moon. 

Could be that pensioner was onto something. I continued talking to the group, who seemed to enjoy the chatter. Or maybe it just was the hard cider I passed around earlier.

I asked my audience, which by now was almost somnambulant, if---and that now seems to be a big “if” given some recent opposition—the Senate Banking Committee marks up CWJC in a week or so, will it be engaging in lunacy? 

To a chorus of snores, I answered myself with a resounding “Yes,” when you define that condition as doing strange things for stranger reasons or define “lunacy” as insanity, especially insanity relieved intermittently by periods of clear-mindedness. Also great or wild foolishness and/or a wildly foolish act.

Crush the Old Because….?

CWJC boosters want to destroy a valuable national and international mortgage system with multiple prized components, which worked well for 30 years. It did go slightly off kilter, but at the same time other financial services companies did as well. Now, the F/F model has returned successfully to do what it was designed to do, and has provided over $200 Billion to the federal government in just three years. 

And, for reasons, the Senate Banking Committee leadership can’t quite explain or justify, they want to abolish Fannie Mae and Freddie Mac; create a virgin federal guarantor and have it regulate a series of first time  mortgage market business relationships, likely at greatly increased costs to home buying consumers; give mammoth new powers to the nation’s behemoth banks (whether they limit their vertical integration possibilities or not); throw this entire arrangement on the already deficit-laden federal budget (including all remaining remnants of Fannie Mae and Freddie Mac); and do so in a time frame estimated by Senate staff as roughly five to 10 years, but using language which suggests possibly fifteen years or more. 


My audience echoed my “Huh,” (possibly because I woke them with my shout)! 

Give me one more “Huh!” I yelled at the snoozers. 

Silence. Had I lost them? 

Nonplussed, I continued. 

Quick, Let’s Go Through the Motions 

What a colossal waste of time; what an incredible unnecessary action; what a political farce based on fixing problems which no longer exist and employing a highly questionable mortgage market structure which needs far less retooling than the CWJC advocates will admit, while they scare the public with stories about F&F mortgage market risks that have all but been cured by regulation in the years following Fannie and Freddie’s 2008 takeover.

“I see,” yawned one of the older retirees, ruefully. It was clear to me this wizened seer had locked on to the folly I saw. 

Wheel chairs jokes notwithstanding, I was on a roll with these guys! 

The Senate’s hypocrisy, I explained, is because they claim to destroy Fannie and Freddie, while they create similar structures and rename them, substituting a full faith and credit guarantee on lender issued mortgage backed securities, but with Uncle Sam still at the end of the trail holding up the mortgage market and picking up excess losses from banks, claiming this will bring private capital back to the market. 

Same church, different pew. 

Does anyone, not asleep, hear the big banks chortling?

Give me another “Huh?” and some hip boots and a shovel for all that congressional horse poop, please!

Blow F&F up and hope….


Does the CWJC scheme really sound like progress, given in the past 6 years none of the F&F issues most people attribute to the 2008 meltdown have shown themselves in the nation’s mortgage markets?

A handful of bright people easily could propose ways to slightly alter the current--but heavily used-- Fannie/Freddie mortgage model and make it systemically work even "better" for all stake holders, especially consumers, lenders and the government--both from a revenue and safety and soundness perspective--than CWJC's Federal Mortgage Insurance Corporation scheme.

I’d argue that an enhanced F&F would produce more low cost mortgage finance for all Americans, not like CWHC’s “sounds good but compels little” affordable housing fund. Lenders will give to the latter but seldom use it, because there is no reason for banks to do what they don’t want to do. (See, below, recent letter to the Senate from American Bankers Association).


Of course that would postpone forever the politicians’ needed F&F blood lust public sacrifice, procuring “enemy scalps” while the pols try to blame  old worries on them, hoping to show their constituents some action (any action) because it justifies returning the elected officials to Capitol Hill.  

“See I beat up Fannie and Freddie and then put them to death, look what a good boy (girl) am I. Send me back to Congress to do nothing. 

As I suggested to a friend this week, if you polled members of the House and Senate Banking Committees and asked them what it is about F&F operations they most abhor, my bet is that 90% would identify some issue which already has been fixed by current federal regulation or something which isn’t even addressed in the latest version of CWJC. 

In fact, the Congress may just be better served doing their usual, meaning doing nothing.

Hey Mel, Loosen Up a Bit

Keeping F&F in chains is better than approving CWJC, as long as the two can lighten up on the underwriting side and securitize loans where borrowers have slightly lower credit scores. (Are you listening Director Watt, since you have the power to do this, now?) 

In the proposed five/ten/fifteen years it would take the FMIC to get its act in gear, a shackled F&F will have seen all of its old bad loans leave through curing or maturity, have only pristine mortgages on their balance sheets based on the post 2008 underwriting rules, and have repaid billions to the Treasury (the taxpayers) over and above what they were given initially in 2008 (which to date, they’ve exceeded by about $15 billion). 

The big guys may not be as happy with that fix, but who cares!

Most people believe, even if the Senate Banking Committee reports legislation, nothing will happen to it, meaning it won’t go to the Senate floor or wind up in a House-Senate conference with the Hensarling bill. 

But, those behind CWJC might take the opportunity to explore working through their mortgage market biases and instead determine how to utilize the best of two institutions which have succeeded in the past, did come off their tracks but have hopped back on, and rebounded to serve the nation quite well in the past 6 years. 

That’s a lot experience, familiarity, and achievement to wantonly throw away over bogus arguments and lies, which many people these days now can see and are calling to the attention of Senators and other policy makers.

The hard Right doesn’t like this bill. Last week the small community banks (a potent lobbying force) and the federal credit unions sent a communication to the Senate opposing the bill. Even the peripatetic Mortgage Bankers mumbled something about CWJC concentrating too much power in the big depositories. 

But even Senate lunacy and lunatics can’t obscure F&F mortgage market successes. Rather than destroying them, Congress easily could revitalize them with a few creative changes that won’t--like CWJC-- embrace uncertain results with havoc wrecking and cataclysmic consequences. 

My fear is once Congress starts down this road, it never will be able to put Humpty Dumpty or Fannie and Freddie back together, again. 

Who is Saying What?? 

In the WSJ, the new head of PIMCO schools us on how to make housing safe for private capital; hint, it’s not found in CWJC. 


Check out the NYT’s book review of French Economist Thomas Pikkety’s newest product. 

See Piketty in this Huffington Post video interview. (I don’t think Piketty will be invited to address any Tea Party conferences.)

Well, AEI’s Peter Wallison and former GOP Senator Phil Gramm and I all agree on one thing, the CWJC bill is “worse than Fannie Mae.” 

Maloni, 4-20-2014