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






Gwenn said...

Bill, keep up the shame-ometer on these blowhards. You are fighting the good fight and hopefully there will be a loud enough chorus from media and others to dissuade any real momentum on the Fannie/Freddie dismantlement.

Bill Maloni said...

Thanks for your support, it means a lot to me. I owe you a lunch!

Anonymous said...

Just noticed a nice opinion piece in the American Banker (4/22) from Prof Rossi out of the U of Maryland. It almost makes too much sense to actually work. Seems to read, largely, along the lines of most pro-GSE arguements these days. Does anyone bother listen/read the voice(s) of reason like this??


Bill Maloni said...

They do get read (so it is better to have them than not have them).

If CWJC falters this year, as I think it will, you'll see more of this as others try and offer "cutting through the Gordian knot" ideas for mortgage finance reform.

I contend the simplest method would be some structural changes in Fannie and Freddie and going from there.

Anonymous said...

Looks like Buffet is now weighing in. He got burned on the GSE stock he dumped in 2008. His comments are confusing about the GSE future, nonetheless we have new players weighing in.