Monday, May 25, 2015

Memorial Day, 2015


May you all have a happy Memorial Day, 2015; special blessings go out to everyone--and their immediate families and progeny--who served our nation in the armed forces, especially those who made the ultimate sacrifice and gave their lives. We forever will owe you.


Shelby, etc. Don’t Underestimate Him


Congress has departed for its Memorial Day holiday, but the Senate Banking Committee, chaired by Dick Shelby (R-Ala.) -- on a party line vote (12-10)--left behind a steaming, smelly mess, which requires someone to clean up. 

Who will it be?  

Logical candidates are the Senate D’s, the White House, the media, "Fannie Gate patrons," or nobody? 

Oh ,and a warning to you folks back home--also known as citizens and constituents--remember to lock your front and back doors, take in the small children, the elderly, your animals, Aunt Bessie, Uncle Fred, Cousin Delilah, and closely watch any of those politicians if they come near your neighborhoods (although many will be traveling on “fact finding missions” to exotic international places). Those visiting pols still might lie and bamboozle you, which you easily can tell if you see their lips move.


SBC Last Week

In an action cheered only by the institutions which benefited, Shelby and his committee posse removed some federal financial regulation from bank holding companies with assets between $$51 Billion and $499 Billion (current regulatory practices has eyes on anything below $500 Billion) and also made various Fannie and Freddie changes, which should make it easier for these same big banks to swallow the F&F operations, if Shelby and his boys, notably Sen. Bob Corker (R-Tenn.) complete their goal of dismantling F&F, which currently provides structure and overall management of the nation’s primary and secondary mortgage markets.

The Competitive Enterprise Institute’s John Breslau grasped the same linkage I did, when I blogged against this bill, mid-last week. The Libertarian think tank saw the Shelby language as an undesirable statutory highway to add—at some future point—last year’s failed CorkerWarnerJohnsonCrapo (CWJC) GSE legislation.


That concern stopped nobody—because they were feasting on screwing with the Fed and satisfying the big banks--and the SBC Republicans plowed forward and voted out the Shelby bill—with no Democrat votes-- vowing that it needs additional work before it could be brought the Senate floor later this year. (An understatement ranking with, “Hey General Custer, do those look like Indians out there?”)

How do you like these "apples?"
Bank fines in the past 7 years; Why Senate action was so wrong 

The links below list some major bank fines paid in the past few years. (Excuse any news report overlap or duplication)


I'm certain I missed some roguish financial services behavior, law breaking and reg busting fines; but note the variety of sanctioned bank violations:

--manipulating the London Interbank Borrowing Rate (LIBOR), to which most US adjustable rate mortgages (ARMs) are indexed (and lenders want you to take);

--violating the Service Members Relief Act;

--deceiving and selling billions of dollars’ worth of corrupted mortgage backed securities to Fannie and Freddie;

--laundering money for Mexican drug cartels;

--business engagements with Middle Eastern extremist political and business interests, supporting entities in conflict with US foreign and defense policies;

--withholding bond revenue which should have been dispensed to bond investors;

--wrongful residential foreclosures and evictions;

--defrauding/misleading investors by withholding key investment information;

--cornering precious metal markets; price fixing;

--and rigging the Euro-Dollar exchange rate.


To GOP members of the Senate Banking Committee members, please THINK? 

Why do these banking interests and their TBTF brethren—which have deceit and anti-consumer corner cutting running through their institutional DNA—want you to create fewer federal eyes on them rather than more? 

Thanks to my good friend and former colleague Gwenn Hibbs for sharing this recent Atlantic Monthly article discussing a Notre Dame University survey of financial services employees  

Almost a quarter of finance professionals surveyed have witnessed illegal conduct, and 50 percent of those with <10 caught.="" experience="" get="" happily="" if="" insider="" laws="" nbsp="" o:p="" t="" they="" trading="" violate="" would="" wouldn="" yrs.="">



Read Jena McGregor’s Wash Post story about the same ND study.


Better yet is this colorful and so accurate column from the British newspaper Independent by Andrew Newsom. (Thanks to Mr. F for sending it to me.)


The Senate GOP Needs to Answer

We all know, it’s in the banking industry’s charlatan blood and lineage to cheat. Banks have bamboozled and have gotten caught. But, they’ll continue to be larcenous because the fines are bubkis when compared with their corporate profits.

So, why do the Senate R’s think the changes they made in the Shelby bill will slow down bank trickery and are good for the American people, who always are the losers when these big fat cat bankers screw up? 

And please don’t throw out the old saw about “helping them better compete against foreign banks,” which is total BS.

How’s this? Put Them Behind Bars

Fines, no matter the size, won’t stop this industry banditry, but jail time might slow it down and, if severe enough, stop it.

The $5.7 Billion paid last week by five banks admitting guilt in the Dollar-Euro hijinks, was about 23 days profits for this group. Start putting in the slammer those who were caught and we might find some consistently honest bankers out there, especially among the big guys who haven’t always been.



Shelby/Corker and the GSEs


In last weeks’ steps making it easier for large banks to do whatever they want in contravention of federal regulatory policies, the Senate Republicans, obeying their GSE guru Senator Bob Corker (R-Tenn.), also limited the government’s ability to use its GSE preferred stock warrants to restructure F&F or alter some of the “Conservatorship” rules. (See, again, Breslau article above.)

Breslau and others on both the Libertarian/conservative side of the political spectrum  get it; banks are not worthy stewards of the nation’s mortgage finance system, but that exactly is the end game in the GOP crush F&F and let the banks decide who gets what home mortgage loan and how much they pay for it. 

Part of me things the Senate R’s are desperate to stop Mel Watt and FHFA from carrying out any administrative reforms, hence the language in Shelby. 

The American public doesn’t trust large financial institutions nor should the Congress put all of its mortgage eggs in one major industry basket which is why this GOP drive pell-mell exercise to destroy F&F makes little sense relative to the American public’s home mortgage needs/desires.

It’s Hardly Over....


Admittedly, the Shelby language may or may not survive the Senate floor debate, a conference, or a presidential veto. But, that hardly means it should be dismissed, since I can easily constrict a scenario where Shelby—if some of the more egregious bank reg relief is dropped and more honey/sugar added—could attract some D’s, with its current or even more anti-F&F proposal in it, and get through that chamber. 

Policy makers need to look at what mortgage system elements the Corker changes (in the Shelby bill) are setting up and that’s when this part of the exercise should fall through or collapse of its own weight. 

Corker is trying desperately to work the big banks into the process of F&F developing a Common Securitization Platform (CSP) and a single F&F mortgage backed security (with the Fannie bond the model since it trades better than the Freddie counterpart, because of structure and cash flow).

It seems to me that Corker and whomever helps him are seeking ways to take advantage of GSE resources for his bank buddies and leverage F&F out of their business and current roles. 

A major cautionary word to those who might see Shelby’s 12-10 all GOP votes akin to last year’s Jeb Hensarling (R-Texas) “Path Act” legislation, which got Democrat meager but a majority of votes, and then died. Don’t light up your victory cigars. 

Shelby is many times the political player as Hensarling; don’t miscalculate and underrate the senior Senator from Alabama.

Stegman, CSP, Single Security and Deposition

Mike Stegman’s move from Treasury counselor  to the WH (which I am told by legal sources won’t shield him from being deposed, if that’s what Third Amendment plaintiff’s lawyers seek) reportedly is a step to give him authority to drive the current  CSP and single security  exercises toward the non-F&F users. (A move which I think should anger Mel Watt and his allies. Are you listening CBC and Ms. Jarret?) 

Every mortgage alternative to the current F&F model (Bipartisan Commission, CWJC, and the Jeb Hensarling, banks only approach) has major flaws, as does the plain transition from one mortgage paradigm to another. But the congressional and Treasury rocket scientists are loathe to explore the one approach that can be near seamless and without chaos and massive disruption and that, simply, is making minimal changes in the GSE model and moving forward with recapitalization.

They seem intent on doing away with the GSEs—which in the mortgage world act as a governor on the major banks worst inclinations—shouting abuses at the old “business model” and seeking an ill-defined alternative.

I believe an honest poll of mortgage industry stakeholders, including the American consumer, overwhelmingly would support sprucing up what we have, which is easily done as Jim Millstein and others, including those advocating for F&F as utilities) have proposed.

Why is that simple voyage such a scary odyssey for many politicians?


GSE Courts Cases 

One hope I have is to see—finally—an honest account of why the GSEs were put into conservatorship.  

It exists, between the “GOP’s get F&F ideology”, Obama’s the “government needs money and F&F are cash cow candidates”, Treasury was “stressed so it bent/broke the HERA law,” and government officials totally and willfully misread the F&F functional market role and didn’t understand the government’s forced changes (both “conservatorship” and “Third Amendment”) would reap mortgage market anger, confusion, lawsuits, and bitterness. 

I have theories but none of which can accurately cut through what I hope will be emerging facts, coming out of the miasma in the Sweeney and Lamberth—if it ever gets successfully appealed—court hearings/decisions. 


What Others Are Saying 

Speaking at a journalism awards dinner last week in Minneapolis, the NYT’s Gretchen Morgenson slammed the Obama Administration for its secrecy, after the President promised he would preside over the most transparent White House in recent memory. 


The National Communicate Reinvestment Corporation’s John Taylor comments on the Shelby bill. on-shelby-regulatory-relief-bill-committee-vote-ID027117.html#sthash.bAAp0PG1.dpuf


The Brits see the bank problem, too. See Will Hutton’s column in the “Guardian.”



Maloni, 5-25-2015

Wednesday, May 20, 2015

Dick's playing with fire, trying to relieve bank oversight and give away GSEs



Banks Draw Major Fines on Eve of Shelby Markup 


It is somehow fitting, possibly ironic, and maybe choreographed--although I don't think the Obama Admin is that smart--that the @$5.7 Billion in fines laid on five behemoth banks, today, after guilty pleas of rate fixing occurred on the eve of Senator Dick Shelby's (R-Ala.) markup, scheduled for Thursday, legislation to reduce what he sees as the regulatory burden on large financial institutions.
Separately Shelby's proposals also paves the way for those same banks and their peers--down the road--to take over the nation's mortgage finance system with regulatory changes to Fannie Mae and Freddie Mac's oversight.

Bank fines  


Stealth GSE reform 


Maybe someone on the Senate Banking Committee will put the puzzle pieces together and show why each action is unwise and fraught with greater problems and that the large banks just are not worthy managers of both the primary and secondary mortgage markets, which ultimately they will control if Shelby and his allies prevail.


(Just last week, in unrelated actions, the Department of Justice fined Nomura Securities and the Royal Bank of Scotland over $2 Billion for faulty mortgage backed security sales to Fannie and Freddie. As dozens of major fines and guilty please over the past five years have shown, aberrant big bank behavior is constant and multi-faceted.)


What good--except for the banks themselves--can come from reducing regulatory eyes from behemoth financial institutions with asset sizes between $51 Billion and $499 Billion, as Shelby proposes?

Answer: No good at all. More oversight, not less,  is needed.

And, in typical fashion, making major changes to the Fannie and Freddie charters without any working idea of what should replace them after their disassembly-which is the  stated goal of their Senate antagonists--is irresponsible and paves the way for chaos and inefficiency in the mortgage, markets, which indirectly control about 20% of our nation's GNP.

OK, the GOP controls both hoses of Congress, but some voices need to be raised and force the Senate Banking Committee Republicans to explain the interconnections of their major legislative objectives in tomorrow's markup.

Those are not ad hoc statutory alterations and the implications are far reaching and I would argue bad for the American public on both scores..


Maloni, 5-20-2015

Monday, May 18, 2015

What's Up With Dick?



Dick Shelby and the Shelby-Corker Bill?


The headline font diminution was intentional, because SBC Chairman Dick Shelby (R-Ala.) lists only himself as the sponsor of his major banking “reform” proposal—issued last week--yet everyone knows the additional lacerating GSE language was supplied by, Shhh, Sen. Bob Corker (R-Tenn.). 

So, did Shelby get Corkered? Only Chairman Shelby can answer. 

(Read Josh Rosner scathing review of Chairman Shelby’s notions below in the “What Others Are Saying” segment.)

Shelby “knows his onions”

I don’t blame Shelby for not wanting Corker as an early named co-sponsor, let the Tennessean slither in later. But just what is Dick Shelby up to?  

With Shelby, it’s easy to suggest, whatever it is you think you see, in mini-this omnibus package, you don’t see at all; too many hot buttons and unearned benefits, he’s more stealth than this. 

The senior Alabama Senator is one of the shrewdest, most cautious, smartest vote counters and pols I’ve seen (did I mention prodigious fundraiser), with a war chest estimated 2 years ago at @$18 Million. Senator Shelby is up in 2016 for re-election. 

It’s clear on the surface: his discussion draft appeals to small and community banks (small cha-ching); will make the TBTF institutions ecstatically happy (big time cha-ching); screws the Federal Reserve Board (more bank and Conservative cha-chings) by diluting its power and spreading it to other reserve banks, and likely repulses many F&F supporters, by prohibiting steps that this or future administrations might take to free F&F from some of “conservatorship’s” indentured servitude dictates. 

There also is the major sop to some of the MBA, TBTF and Financial Services Roundtable guys (Dick, tsk, tsk, the friends you maintain), that unnecessarily legislates schemes to turn the GSE’s “Common Securitization Platform (CSP)” project  into a pig trough for the large bank community making them CSP board members.

So does this all just mean continued great fundraising for a guy who doesn’t need that much help and seldom faces tough Democrat opposition? 

Certainly, but Shelby’s more than a grand fundraiser, he’s a smart legislator. So, I am looking forward to the continued evolutions of this script—publicly and behind the scenes--and the inevitable changes when Democrats and other stakeholders divine what the Chairman is really doing and raise their voices? 


Shelby’s (Corker’s) GSE-CSP Proposals


Let’s step back a moment and go to 30,000 feet for a “big picture.” Like most things involving major mortgage moves, this set of ideas when/if it becomes a numbered Senate bill--assuming the GSE stuff stays in—is all about who will control the nation’s mortgage markets.

GSEs Versus the Big Banks? 

Someone needs to explain to “America” why these ideas are the very “camel’s nose under the tent” I labeled them last week. 

When they ponder it, do people living in those reliable GOP “red states” really will trust large commercial banks-- either on their own or controlling the nation’s mortgage finance system--to give consumers a better deal than they now get from local, regional, and national lenders working through the Fannie and Freddie systems? 

Besides the Congress (but, illogically, not their own Senator or local Congressman), the banks rank high in those institutions least liked or least respected by consumers. (Latest Gallup poll I could find.) 


Shelby-Corker’s CSP step is totally gratuitous because there is no hurdle stopping the major banks—or subset thereof, like the fat cat Financial Services Roundtable (FSR)—from putting together their own CSP project, funding it,  producing a broadly accepted common security, and letting it compete for the US mortgage backed securities market. 

It could be the GOP dream of a “private security,” created by the best non-government minds money can buy, right? 

Ooops, but the flaw--as we all know--is that those bonds will be guaranteed by those same financial institutions which most investors don’t trust as far as they can bench-press the bank’s CEOs. (Hmm, you don’t think anyone is thinking of extending federal guarantees to those private label securities, do you?) 

It was these same “Bigs” who totally soured the non-F&F mortgage backed securities punch bowl in 2005-2007, with their version of private label securities (PLS) which the world still is cleaning up. (Ooops, see Nomura and Royal Bank of Scotland last week.)

Why do the banks want in? 

But there is something near term attractive for the banks, Senator Corker (and Shelby?) getting their grips on FHFA’s CSP and trying to position themselves to get back in the MBS game, from which their own systemic shortcomings have barred them. 

Sweet, Because it’s Taxpayers’ Money 

I suspect part of it is because all CSP work is funded by F&F and paid for by the taxpayers, since those F&F revenues if not used for GSE business needs go right to/come from the Treasury’s general fund. 

It looks like Senator Bob still wants to crush F&F, but before doing so he wants them to pay his big bank buddies to dine at the GSE common platform table. His next step will be to let the banks take over that government funded platform and then turn it into the CSP into a “non-profit,” whatever the Hell that is?  

And that’s fine with the banks, why should they pay anything—or even repay F&F for what they’ve already invested in the CSP--if Uncle Sam (thanks to Senator Corker) will pick up the tab for them? And they get the red-white-and blue patina for whatever they would do. 

The seldom GSE-helpful MBA executive, David Stevens  was quoted this weekend saying—he has been lobbying for the Shelby proposal and  hoped that the housing finance provisions would gain support once Senators grasped what was being proposed. "I think it's fairly well understood that not all of this can go through," Stevens said of Shelby's overall package, "but the question is there enough to agree on." 

Come on Dave, poll your members and see if they really want F&F to disappear. Don’t forget to share those results. Word is your smaller guys like the GSEs (as do some of the larger ones, too), but why listen to them, right?


Other Shelby Propositions 

There are Too Big to Fail (TBTFs) instituions and G-SIFIs. Give those G-SIFI’s some room, boys. From Wikipedia, A systemically important financial institution (SIFI) is a bank, insurance company, or other financial institution whose failure might trigger a financial crisis.” 

SIFIs are almost always bank holding companies, sometimes with dozens or more subsidiary companies. They’ve always been ad hoc monitored by the US and international financial regulatory authorities, with the Fed formally proposing rules for the US SIFIs last year. 

Some Senators don’t like those rules and believe they are constraints. 

Afraid that these big financial institutions might get too closely watched, Dick and Bob also want to force the Fed and the Financial Stability Oversight Council (FSOC)—made up of other federal regulatory heads—to individually review certain financial conglomerates worth up to $500 Billion in assets, with an eye toward reducing their regulatory burden rather than automatically categorize them based on size ($50 Billion) as now is the Fed’s intent. 

The Senators’ goal is to remove as much “government regulation” from a few multi-hundred billion dollar financial institutions, which complain they are creaking under Uncle’s tough thumb? 

The duo gets there when they would raising the current SIFI regulatory threshold from the piddly $50 Billion of assets to $500 Billion; any holding company in the middle—with size of $51 Billion to $499 Billion--are those Senators want the federal financial regulators to back off a bit. 

No risk there in principle or fact, right guys? 

Needless to say, those likely are many of the same financial giants which have violated a bevy of federal laws and regulations, paying fines in the billions to Uncle Sam. 

Those hardly are the people who need more help from the GOP; haven’t they filled their relief quota a few times over? Yep, those are just the people who need more help form the GOP. 

Anyone else see really undesirable patterns here? 


Smalls Banks and Shelby Legislation

A few words to my friends—and they are my friends— representing the US community banks and who may be mesmerized by the “reg reform” features Chairman Shelby is huckstering. 

There is no free lunch in DC; be careful for what you sign up because there will be a reciprocal “ask.”

My own message to the ICBA  

Cam Fine, there’s a reason why your members fear the big guys, don’t forget it when appraising this plan.

As mentioned, there’s a review below of the Shelby proposal by Graham Fisher’s Josh Rosner. I urge you to play particular attention to what he sees major bad for the smaller depositories. 

Let me add some thoughts from very wise former colleague of mine, who has a gut feel for all issues banking, big versus small institutions, mortgage finance, and the salubrious impact of US financial regulatory regime. 

I share your sentiment that the beneficial effects of regulatory relief are muted if the broader support structure for community banks and their customers are eroded.  

Included in such an erosion would be legislative proposals weakening the Federal Reserve, including its vital lender of last resort functions.  

Or proposals inflicting further existential damage on Fannie
Mae and Freddie Mac leading to greater financial concentration.
And its evil twin-- greater systemic risk.  

If Fannie and Freddie are even more severely handcuffed or taken out can the third housing GSE, the Federal Home Loan Bank System, survive over the longer term?.

As regards the Federal Reserve I support former Fed Vice Chairman Don Kohn's position as told to the Financial Times, " I want the Fed to be able to do what it was founded to do in 1913, which is liquefy illiquid assets for solvent institutions that are suffering a loss of confidence because of fire sales and panics that threaten real economic activity.” 


This current Shelby bundle makes that desired/necessary Kohn position much tougher.

Shelby’s Fed attack and loosening the not very tight SIFI reins doesn’t make a hell of lot of political tactical/strategic sense to me, going into mid-term and presidential elections next year.

As noted, I feel very comfortable saying the public dislikes and doesn’t trust the TBTF banks, whether they are HQ’d in NYC, Charlotte, San Francisco, or Wilmington, Delaware.
 It could backfire on the Chairman and the Republican party. 

And everyone needs to realize “TBTF” doesn’t just apply to a half dozen behemoth financial institutions.  

In a “government bailout” context, TBTF is an existential term, which at the time bad things hit, gets applied to dozens of major US firms, all designated at the time by a combination of the Fed, Treasury, and White House (with some in Congress trying to butt in and get their constituent companies serviced similarly). 

If you don’t agree, look recently at F&F, GM, Chrysler and dozens of major banks not in the top 20, and before 2008, federal bailouts of Penn Central Railroad, Chrysler (again), Lockheed, and New York City. 

US Government Bailouts


The last thing Shelby item I will note--having worked both at the Fed and on the Hill--is we don’t anyone, certainly not the Congress or the Government Accountability Office (GAO, often called Congress’s investigative arm), tampering with Federal Reserve monetary policy functions which is what’s at stake in the Shelby plan. 


What Others Are Saying 

The Hill newspaper on the Shelby package.



Graham Fisher’s Josh Rosner talks about the Shelby legislative cache.


The NYT editorial board calls out SEC and DoJ. (C’mon government guys, you have to be able to find a few miscreants on Wall Street, right?) 


Peter Eavis--Nomura and RBS, Redux 

JUDGE RULES BANKS MISLED ON MBS — NYT’s Peter Eavis: “Many on Wall Street have long argued that the banks did not generally break the law when they packaged shoddy mortgages and sold them to investors in the lead-up to the financial crisis of 2008. But on Monday, in the starkest of terms, a federal judge dealt a strong blow to that version of history. She ruled that two banks misled Fannie Mae and Freddie Mac in selling them mortgage bonds that contained numerous errors and misrepresentations. ‘The magnitude of falsity, conservatively measured, is enormous,’ Judge Denise L. Cote of Federal District Court in Manhattan wrote in a scathing 361-page decision.

“The ruling came in a closely watched case brought by the government against the Japanese bank Nomura Holdings and Royal Bank of Scotland. They were the only two of 18 financial firms that took their case to trial, arguing that it was the housing crash, and not deceptive loan documents, that caused the bonds to collapse. The other firms — including Goldman Sachs and Bank of America — settled, together paying nearly $18 billion in penalties but avoiding a detailed public airing of their conduct.” 

Here comes Bethany McLean, again 

Good friend and previous GSE author, Bethany McLean (“All the Devils are Here,” with co-author NYT’s Joe Nocera), is writing another GSE book—solo this time, in conjunction with Columbia University--it will be out this fall, according to Ms. McLean, one of our favorite reporters/writers. 

“Shaky Ground: The Strange Saga of the U.S. Mortgage Giants” (Paperback

She has promised me, if it goes to film production (rights to the last one did), I can approach Antonio Banderas to play me. (But first, he has to promise to bring his former Desperado co-star Selma Hayek to rehearsals with him!!)

2014 List of G-SIFI’s

(A new list will be published in November, 2015)

Washington Post, why Jeb Bush had “the worst week in Washington.”



Maloni, 5-18-2015