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


Bryndon Fisher said...

Dear Bill:

Thank you for another great blog post; it brought up an idea I have been floating around for the past several months. I believe the enterprises (and more specifically, the employees) need to strike back. And by that I mean going on strike until the companies are released from their conservatorships and returned to the stakeholders. How do you think the mortgage market would fair if 30% or 40% of the employees of Fannie Mae and Freddie Mac decided not to show up for work for a month? My guess is it would be disastrous for mortgage finance and our economy. But, drastic times call for drastic measures. The employees need to band together to take back their companies. I would love your thoughts on that idea.

Bill Maloni said...

Jean Valjean, I mean Bryndon--I think that's a fabulous idea and I will join you and the others at the barricades.

I've always been a fan of surprise political guerilla tactics.

Yes, the markets would go "nucking futz," if that surprise interruption ever happened for that reason.

Unfortunately, most of the F&F employees need their jobs and their incomes and would be slow to take up your call to action.

For understandable reasons--although I don't totally agree with them--execs from both companies have been unusually silent as their futures are being carved up.

But, if Congress (not just the Senate) moves to kill both entities, you might see part of your action fantasy occur, Physically and mentally, F&F employees will start leaving their posts to find work elsewhere.

Some congressional knuckleheads would cheer that response, but they are playing with market disruption fire.

I keep pointing out that a great majority of those 12,000 or so F&F employees live in Virginia when "30-1" Mark Warner is up for re-election. If you knock 10,000 well paying jobs out of any community, i.e. Northern Virginia, you are going to have major negative consequences for local commercial establishments, as well as local and state revenues.

10,000 angry employees and their families could prove to be a major political force if they collectively got pissed off at Warner for this show.

I also should note that in material sent Friday night to the Senate (found in my blog with the Chuck Gabriel link), Freddie officials argued that it would be difficult to hold onto experienced employees (remember they are managing some $5 Trillion in mortgage assets and debt) during a long transition.

If the Congress ever moves, and accepts market disruption caused by departing employees, I am sure someone will come up with a carrot and stick approach, especially when they don't see it as "their money."

Bryndon Fisher said...

You have inspired me. I will work on a way to protect the employees, while allowing them to peacefully protest (strike). In the meantime:

Bill Maloni said...

Talk to Tim Pagliara and get some good sign material for picketing Corker's DC home and then, with Warner who is local, just make sure you use small, short words in whatever signage you employ!

"30-1" Wants 10,000 Virginians to Lose Jobs," would be a possibility?

Bryndon Fisher said...

Thank you, Bill. I will endeavor to follow your advice. Now, just one more clip to show my resolve:

Anonymous said...

I guess I'll be the first one to ask...what's your take on the news this morning that the vote has been delayed? Probably not a huge surprise as the rumor has been out there already in regards to a delay, etc. I suspect time continues to be an ally at this point.


Bill Maloni said...

GW--You beat me to the punch and thanks for asking.

Not good news for the CWJC advocates.

Could be some of those ugly chickens coming home to roost that we've discussed here and elsewhere. (I still can't believe the D's want to do so much for the big banks, who have all but scorned them.)

The Committee leadership and staff will spend a few days trying to appease the complainers (from both sides of the aisle)
and then decide if this puppy is breathing.

They have the votes to get the bill out of committee but there is a lot more to getting it to the floor, including how strongly the GOP feels about the matter. I said to someone last night with Mitch McConnell getting beaten up back home by his Tea Party primary challenger does he wasn't his finger prints on this bill, which is required if it goes to the Senate floor?

Anonymous said...

Thought you'd enjoy the commonsense in this comment to the following WaPo web piece on "housing finance reform:"


4/28/2014 2:07 PM PDT

This is a solution looking for a problem.

Yes, Fannie and Freddie failed spectacularly in the crisis, and their lemon socialism model is unappealing for everyone.

But guess what? They did NOT cause the crisis. Their losses were ancillary. They, as heavily regulated GSEs, had stricter rules on what kinds of mortgages they could dish out, so mostly they stayed out of the garbage mortgage business.

Instead what we saw was a rush to private label underwriters who were not burdened by those rules. Private markets wanted to buy loans and didn't care if (or rather ... didn't realize that) they were garbage, so private underwriters and loosely regulated mortgage brokers rushed in to fill the need.

Know what else? While that "$188 billion bailout" sounds like a big number, it's small when you consider that the housing crash wiped out around $5 trillion in wealth. The GSEs, again, were a bit player.

Know what else? Fannie and Freddie have actually paid back more than all of the funds put into them, and the government has made a PROFIT on the "bailouts" for those firms.

So ... now we have a lot of people saying we need private markets to impose more discipline on mortgage lending to save ourselves from having to bail out the GSEs. How again does that make any sense in light of what JUST HAPPENED in REAL LIFE?

And to save ourselves from having to bail out the GSEs, which we just observed after a once in 3 generations collapse has cost us less than zero dollars, we're going to impose on ourselves a "reform" package that adds somewhere on the order of 0.5% to 2% more to every mortgage in America.


Bill Maloni said...

Thanks, I did.

At least the Post prints your stuff, I think any email from me gets channeled to the trash can.

I didn't even receive the traditional, "Thank you for your letter....", when I commented on their Monday's "Yay, F&F are going to die tomorrow" editorial.
(I am paraphrasing the title.)

I keep asking why does everyone assume the banks have gotten better at underwriting mortgage risk than they showed 7 years ago, when--without any assistance from Fannie and Freddie--they originated and sold more than $2 Trillion in garbage PLS, with losses well over $700 Billion?

Did they earn a "regulatory pass," because the Feds assumed ever rising real estate prices would have wiped out all of their underwriting errors, but when prices settled and then dropped the banks shouldn't be blamed??

The big banks aren't the guys to whom you want to give the keys to the new FMIC car, considering what they did to the old one.

Staying with the metaphor, given the flat tire that CWJC suffered today, I am wondering if we will hear unhappiness over the proposal's bank largesse, along with higher consumer costs and uncertain low income mortgage finance availability.

Someone wrote to me this evening and suggested the WH has been hustling this markup in hopes that people wouldn't' notice the disconnects and questionable policy mandates.

Well, someone woke up to them today.

Bill Maloni said...

Lots of CWJC talk but not much more surrounding Senate Banking Committee follow up.

I avoid saying "never" in situations like these because the hill is so peripatetic, but other serious observers think the legislation is history for this year.