Sunday, June 30, 2019

To me, it’s cooked that Calabria goes for bank capital for the GSEs—because he’s a bank-backing believer guy

The D Primary Debates and Fannie and Freddie Capital Requirements

Here I sit all broken hearted, waiting for Sweeney or the Fifth Circuit to rescue the GSEs and feeling very thwarted. (Hold the applause for my creativity, thank you!)

I want to offer a few non-Fannie/Freddie political comments before I go full GSE. (Calm down, Anon#1, I’m going easy on your guy.) 

Joe Biden’s campaign may have been dealt a mortal blow in last Thursday night’s debate. A record is nice to have but the longer and deeper it is, the more targets it represents. 

Any prompt comeback will be a true resiliency test for the former VP!

The former VP looked uncomfortable and sounded bad when pinioned by those youngsters competing to represent Democrats next year.

 Andy Borowitz—the New Yorker’s sharp political humorist suggested after the D debate, DJT might want to make a major financial contribution to the Biden campaign to resurrect it and just keep Biden in the race for punching bag purposes.

Watch things change soon among the 23 D presidential candidates, whose names I couldn’t rattle off absent a pictured scorecard (and still I would misidentify a few)!

Based on the early D skirmishes, I look for Warren, Harris, and Buttigieg to strengthen their current positions while the remaining candidates flutter by the wayside.

That large wannabe gaggle is a natural response to the unconventional first Trump term and his “Here I am, warts and all” presidency—which, for many, cries out “anyone but DJT”—yet the POTUS insists on displaying his offbeat and classless presidential side every day (fighting with Megan Rapinoe and joking with Putin about US election interference, which many R's agree occurred; "Hey it's Saturday night, let's go to North Korea and shake some hands and spread some Kim compliments.") which breeds those potential replacements.
Interestingly, the D’s could produce an all-female ticket and ultimately tap Warren and Harris (in any order?) hoping that duo could garner 90% of the entire US college educated female vote and enough moderate D’s and R’s to deny President Trump a second term.
(Not an election recco!) 

It’s clear to me that a Harris/Warren or Warren/Harris ticket is intellectually more gifted than Trump/Pence, more policy-oriented, and more attuned to the lives and worries of those who are not among the nations wealthiest. But, is that enough?

Is the US ready for those smart Y chromosomes?

IMO, that D pair would be strengthened, tactically, if every time DJT uses the “Pocahontas” taunt against Warren—or whatever nickname he will fling at Kamala Harris--they would call him “the Orange Baby” or “a crotch-grabbing braggart,” just to see if he can take what he gives out?

Or, either might just read off the names of the 15 or so women who have accused the POTUS—before he took office--of various types of sexual abuse and at least two extra-marital affairs, since he married Melania Trump.

To gender-balance (and remove some of the white bread and mayonnaise) the presumed GOP ticket, will VP Pence “take one for the team” and sit out 2020 “to spend more time with his family?” Mrs. Pence may not cotton to that.

GSE Capital, calling BS now….

I’m not giving Mark Calabria and the Federal Housing Finance Agency (FHFA) time until they publish their GSE risk-based capital regs (for which the nation has been waiting for a decade or more) to call “Bullshit” on their product, since I predict it will be ugly for Fannie and Freddie and a delight for GSEs opponents. 
If I am wrong, there’s plenty of time to apologize. But, if I nail it now, I’ll be ahead of the curve in calling out their political bias!!
Despite engaging the Wall Street investment bankers who are considered experts in this tricky maneuver—which also will heavily impact how Calabria wants the secondary mortgage market to evolve—I believe the new Director still will try and hamstring the GSEs by insisting they become subject to bank sized capital requirements, not capital measures for what the two legally and practically have become, i.e. monoline insurance companies which only can securitize single and multifamily mortgage loans, with business risks far fewer than commercial banks that can lend domestically and internationally to a variety of customers.

The respective geographical limits, alone, i.e. bank commercial and international lending versus GSEs only financing US-based real estate assets, contains different and multiple unique bank risks that Fannie and Freddie never will/can have. 

Given that reality, alone, Calabria and his team should stop right there, but they won’t. 

Based on his professional history, I think Calabria will take the very political route and call for bank-like capital or something higher than historical GSE loss data indicates.

He also appears to be surrounding himself with a larger FHFA staff posse, part of his reported personal agenda (hubris?) to pre-empt Treasury as the final word on GSE policy. (Stevie Mnuchin, you really going to let that happen, under your nose/? Louise will be pissed!)

That allows Calabria to keep faith with his bank and rightwing allies and is easy to cover his intention by explaining to the Hill and media, “More capital is better protection because, sir….er, oh, and--just like you--FHFA and I want to protect the taxpayers.” 

When you know the answer to that Q in advance, it’s like asking Mike Pence if wearing two condoms, before coitus, is safer and preferable to one (or asking him the same question before going to the supermarket or a gas station). 

Will Anyone Stand Up and Explain, "There is a mortgagor cost to excess capital?"

Will every Senator and MoC suddenly get stupid and ignore mortgage cost reality, to the extent any of them understand it now?? 
Will any of them—any, on either side of the Hill, in either party—point out, if that becomes Calabria’s decision—he and FHFA will make every mortgage loan which Fannie and Freddie can finance more expensive for the mortgagor (the borrower) since higher borrowing rates is what his higher GSE  capital decision will produce?

Lenders will claim, “This loan might go to the GSEs—I don’t know yet—just in case, I have to build in their capital costs on each loan I make or acquire. If I ignore their capital needs, now, it could come later from my profits.”

Is that what it will take for Congress to finally grasp, “There is a cost to (higher) capital,” something most of them don’t seem to understand now? 

Yes, every one of those citizens—every one of those congressional constituents, every one of the mortgagors who vote—will pay more for their home loans if Calabria goes ideological and casts aside GSE loan loss records as the basis for his final F&F capital decision. 

Oh and watch him, the Director seems to support a new federal guarantee for the big banks—as if they weren’t bowlegged from the weight of their existing ones--to cover future private label securities (PLS) losses.
Once again, if he does advantage big banks by weighing down GSE pricing with higher capital, will someone on the Hill or in the media suggest Calabria’s forgotten the colossal 2005-2007 bank private label securities folly and recklessness, which cost the taxpayers more than $500 Billion (in 2009 TARP funds)?

It's curious the GOP and its business and its fellow travelers have the most difficult time remembering those pre-2008 facts. Likely because it blunts their claims that the GSEs caused the 2008 financial Armageddon. 

But for the past two years, lots of smart people—inside and outside of government—have belled that financial depository cat and placed responsibility for the 2008 economic mess at the feet of the nation’s largest banks, which created some $2 trillion of their own flawed subprime MBS and sold those soon-to-fail bonds worldwide, with inflated Wall Street ratings and insufficient financial insurance behind them. 

We have the same set of federal bank-coddling regulators in place now as were there in 2005-2007 and which--then-- overlooked/ missed all of the bank PLS follies, husbanding their regulated institutions not overseeing or spanking them. 

If you hamstring the GSE with unnecessarily high capital requirements, will the banks and their regulators—seeing a chance to kill the GSEs--be any more responsible regarding bank mortgage security behavior now than they were leading up to 2008???

Could I be wrong about Calabria and the FHFA when they publish the agency’s capital rules?

Sure, but I don’t think many leopards change their spots.

Maloni, 6-30-2019


Anonymous said...

Calabria is trying to impress his future employers. Next president likely fires him.

Still, Trump approved Recap and release GSEs (proposed by Mnuchin). No one can fail him.

Bill Maloni said...

Anon--Thanks for the observation, but while the President may have done that, without a timetable, there's no impetus.

But, my concern always has been will a GSE released from conservatorship be able to work, if it is still in (capital) chains, as I suggest are Calabria's capital leanings?

Again, maybe I am wrong?

Anonymous said...

If Trump administration wants to release FnF well before elections to give a boost to economy, then Globalist Bankers and MC do not have much choice.

Recap will happen over a period of time. Capital requirements have to go along with pace of recap and not the other way around because it is the UST/FHFA that robbed FnF of all their capital.

Bill Maloni said...

Anon--Your observation is valid, but the conservatorship spans the Bush (ideological reasons) and Obama (pure cash) Admins, the latter gets tagged for the "sweep."

With both parties responsible for the GSE transgressions, who will speak up, authoritatively, and blame the perpetrators?

There is "true/required capital" and there is the "make up" version, which fits some officials' bias.

The distinction is what I was addressing in the current blog.

Unknown said...

Hello Bill-
See you are rested from vacation and loaded for bear. Got to give credit where credit is due. A Harris/Warren ticket looks a little stronger then the one with the Creepy Porn Lawyer. They certainly have a long history of Legislative accomplishments to back up all their talk. LoL I recently was at the airport and Senator Harris was walking through with her staff. Guess what I noticed? Not one single person, not one, could care less. Imagine if that was Trump or Pence? It would be chaos.
Almost daily Trump make Husain look like the amateur street corner community organizer he was.
From reading your article it reeks “sell, sell, sell”. Are you?
No one knows or has known what the future holds. Just a lot of pump and dump. For me, I chose to follow truth.

Bill Maloni said...

Anon#1, my friend.


When has DJT consistently told the truth about anything?

He certainly would be more appealing to me, if he did.

Did you hear that he plans "tanks" for his July 4th parade?

Why, what's that all about?

He plans a special VIP section for "his fireworks" show.

Why, what is that all about?

Iran can't have a nuclear weapon but it's OK for North Korea?

Why, what's that all about?

Here, see the 2011 White Hosue Correspondents Dinner...Obama and Trump

Bill Maloni said...


I forgot to add, have a good summer.

Anonymous said...


Can you find the word "truth" in the dictionary of politics?

Bill Maloni said...

Anon--I understand the point you are making, virtually every politician misstates facts, some stretch the truth, conveniently forgets history and his or her part in it, but..............
Have you ever encountered any President who told bald face lies multiple times per day as Donald Trump does?

Some of it just is ignorance because he never took to the time to understand our Constitution and how our three branches of government are supposed to work and interact

But the rest if just arrogance, blatant falsehoods, or explaining away facts he finds inconvenient and by being belligerent or insistent he's right and everyone else is wrong.

He's cheapened civic discourse, neutered and then subjugated most of the GOP to his thinking, and seems to crave an autocracy wiht him at the head.

He just is not my kind of human being or public official.

Anonymous said...

Hey Bill,

As always, very entertaining and insightful blog. Although, I must say that the font changes and long sentences sometimes makes it cryptic and requires a reread. Just like Pause -> Rewind -> Play

If you don't mind, I would like to change your last line from:

"Sure, but I don’t think many leopards change their spots."


"But let me assure you, I will call out a Wolf in sheep's clothing when I see one."

Bill Maloni said...


Tell me who you have in mind and I'll consider it. My arrow was aimed at Calabria.

Re your graphic comments, they are most appreciated.

I spend a lot of time hoping to make the blog visually appealing (from tex, location, headlines, subheads, etc.), ergo the spaces in the last two when I felt it was too "crowded."

I try for 1000 words per blog, but know I often go over.

Going to experiment with @750 words and see if my verbiage is missed or welcomed.

(Probaably a few less political observations.)

Bill Maloni said...

Notice the pair (more?) of typos, which I try desperately to avoid those in my blogs (I'm a two-finger typist and always have been), but the point I made but not very well, is if I shorten the blog to 750 words will readers care/miss them????

Anonymous said...

Hey Bill,

Happy July 4th!

Ditto. I was talking about Mr. Calabria as well. If he has been trying to show that he is supportive of the common shareholders and planning thigs that would profit the big banks in lieu of common stockholders that have suffered the hardship for so long, I think the metaphor fits him perfectly. Once the plan details are out, we will know for sure if he has trying to pull wool over all the common stockholders. Won't we?

About your writing, if you ask me, I would say "Don't change a thing!". The style and the word arrangement, that's what makes your blog authentic and a fun read. Don't worry about the typos, don't worry about the font and don't think of the word count. Just keep it coming as if flows from your mind to the blogpost.

Thank you.

Bill Maloni said...


That's very kind of you and is nice to hear.

But shorter may be better if I can gather enough substantive GSE stories/angles I can address.

But, sometimes when writing I employ an old Fannie tactic, "If the jar lid needs seven turns, give it an 8th!"

The additional thought adds words but may not increase value and meaning.

Bill Maloni said...

Look for new Maloni blog tomorrow, 7-8-2019!

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