Bill Maloni's GSE Blog

“The Zimmer Plan,” Redux; Not a Fannie/Freddie Bailout

noreply@blogger.com (Bill Maloni) — Mon, 21 Dec 2009 18:00:00 +0000

Last week I touted a proposal from Rob Zimmer, a DC-based financial services political consultant.

Zimmer would mandate the Obama Treasury, via regulation, or Congress through legislation (the former being far easier, that Fannie Mae and Freddie Mac reduce-- to something lower than the current 10%--what they pay to the government for their TARP borrowings and direct the difference into dividends on previously issued preferred stock. That stock was gobbled up by many community banks, at the urging of then Treasury Secretary Hank Paulson,

But Paulson pulled the plug on the small banks, which he had cajoled into buying the capital qualify preferred stock, when he ended all dividends on GSE sceurities, after putting both Fannie and Freddie into federal conservatorship late in 2008.

Zimmer’s idea has little to do with resurrecting Fannie and Freddie, since the two companies would be paying out the same amount of money annually. He would share that $10 Billon between preferred stock owners and the US Treasury. It would be a huge capital benefit to the community banks which stand ready and willing to lend to small businesses and others.

Their big bank brethren, in contrast, continue to defy or slow walk the Obama team on Administration requests to the behemoth financial institutions to start lending again to small businesses where the potential for jobs generations seems greatest. (I am very surprised that the slogan loving GOP, so worried over small businesses hasn’t picked up this effort and championed it. It’s nearly cost free.)

The theory is that the small banks will lend to whomever the Treasury suggests, given that a few billion in dividends on their GSE preferred suddenly would allow them to generate $200-$350 Billion in fresh lending. That's lot of potential jobs being ignored if Obama officials refuse to act on the idea.

I hope the Administration's financial/economic/political wizards see the benefit in helping responsive smaller banks stimulate some fresh lending and rectify the tricky sleight of hand which the Paulson Treasury and Bush White House perpetrated against the community banks.

If Treasury doesn’t act, then Congress should.

Happy Winter and happy holidays to all and wishes for good health and much success in the coming year to you and yours.

(Happy birthday to Heidi Wynn Maloni, who turns 29 for the 31st time on December 23.)

Maloni, 12-21-2009

“The Zimmer Plan,” A Smart Step for the White House and Congress

noreply@blogger.com (Bill Maloni) — Tue, 15 Dec 2009 15:11:00 +0000

A good friend of mine, Rob Zimmer, has come up with a capital idea—literally and figuratively—which I think needs the light of day or light of blog, depending on where you are sitting.

Simply stated, Zimmer would have Fannie and Freddie pay Treasury less than the 10% they now pay for their federal borrowings and channel some of the difference into dividend payments on their previously issued preferred stock.

The beauty of Zimmer’s idea is that it can be accomplished through a Treasury regulation. It corrects two historic wrongs committed against the country’s small community banks by the Bush/Paulson Treasury and would unleash powerful small bank efforts to generate much needed jobs within the small business community and elsewhere.

I’ve known the hard working Zimmer for 20 years. An ex-Cold War army Captain, he worked on the Hill for Representatives Steve Bartlett (R-Tex) and Tom Ridge (R-Pa.). Fannie then hired him to be the regional public affairs director in its Philadelphia office. He then “went techie” for a company in Philadelphia, before Freddie tabbed him to be one of their top Washington lobbyists. Zimmer operates financial services consulting firm, which he founded when Freddie cut back their congressional and public affairs outreach.

To appreciate the Zimmer plan, you need to go back to when Bush Treasury Secretary Hank Paulson told Fannie Mae and Freddie Mac to build their capital bases by issuing preferred stock, which they did, between 2000 and 2006.

Bush financial regulatory officials then pitched the nation’s small commercial banks to buy the high dividend paying preferred stock, with the banks carrying the stock as capital on their books. Industry sources say that it was suggested by regulators that such purchases would smooth the small banks’ examinations.

Paulson later engineered the federal takeover of Fannie Mae and Freddie Mac, mandating that the former GSEs pay Treasury a usurious 10% on any money borrowed from the Treasury.

This Bush Treasury action, complete with Treasury taking 80% of the two companies’ common stock ownership, ended all GSE stock dividends and caused the largely small-bank-held preferred stock’s value to drop to nearly nothing, wiping out a slug of community bank capital.

When the Treasury—under Paulson--started funneling TARP money to the large banks and others, the repayment tariff for the big bank “GOP darlings” was just 5%, half of what the GSEs had to pay. (In the minds of many, including my own, this was another Bush Treasury tactic to screw the former housing finance GSEs. Yet, that 10% rate still exists today.)

Here’s where Mr. Zimmer comes in and why his idea makes so much sense. He would have the Obama Treasury mandate via regulation that the former GSEs pay the same 5% (or 6%, if need be) to the Treasury for their borrowings, but require Fannie and Freddie to pay the difference as dividends on the now valueless preferred stock that that the Bush regulatory officials urged the small banks to buy.

The community banks still owning the preferred would agree to use that additional capital only to make loans to small businesses, for mortgages, or whatever other private activity the Obama Administration believes will generate the most jobs or public benefits.

In this way,the public gets a boost from the additional small bank lending and from the new jobs it generates; the Administration and the public get employment help where it is most needed and most productive; the community banks get needed capital back (original capital stolen from them, I would argue, by the Paulson Treasury); and the former GSEs get to repay their debt to Treasury at the same the large commercial banks pay, or slightly higher if you still are looking to punish the former GSEs.

This proposal has more promise than the Obama White House’s easily ignored begging the large banks to “do more” and asking them to quit sitting on the sidelines while unemployment dances around the 10% range.

It seems that kind of importuning has been going on for months and all that the big banks do is rub their TARP-filled coffers and give the President and his team and his team a cold shoulder.

Yes, there is slightly less going into the Treasury General Fund, because of the possible GSE interest rate cut, but it is a small amount since there is no proposed reduction of the Fannie/Freddie principal repayments.

Some small bank industry sources believe that redirecting some of the GSE interest payments into preferred stock dividends could leverage more than $250 billion of fresh lending. Even a piece of that would be more than the empty promises of a lot of the bigger financial services companies, many of which are rushing to repay their TARP debts so they can avoid Treasury compensation limits.

Others have nibbled at this same idea, but Zimmer has put the entire concept together, wrapping in the necessary political realities. He’s identified many positive components. I hope the Obama Administration or some Senate solon sees the virtue and strongly supports the plan, including it in the coming Senate regulatory reform legislation or just demanding that the Administration issue the necessary regulations.

Those small bank interests, who have been talking for years about the Paulson perfidy and their own financial hit from the Bush Administration’s GSE takeover, should welcome Zimmer’s creativity and industry. It could provide a major boost to their institutions and the nation.

Maloni, 12-15-2009

(Disclosure: I own Fannie Mae preferred stock, less than $8000 worth at yesterday’s close, which could appreciate in value, if the Zimmer idea was implemented.)

Away

noreply@blogger.com (Bill Maloni) — Fri, 04 Dec 2009 16:24:00 +0000

I spent another week at Georgetown University Hospital (third time this year), this one over Thanksgiving, surrendering another toe in the cause of world peace and GSE understanding.

I’ll return to the blogosphere when the Muse comes back!

Maloni, 12-04-2009

LBJ

noreply@blogger.com (Bill Maloni) — Tue, 17 Nov 2009 15:50:00 +0000

The Obama Administration and congressional Democrats next year should take a page from President Lyndon B. Johnson’s playbook.

In 1968, President Johnson—in the middle of a very expensive war in Vietnam—did not want to be the first President to send a $100 billion federal budget to the Congress. So LBJ turned to one of his bright young assistants, Joseph Califano, and told him to “make it happen.”

Califano put together 26 specific cuts or related steps to keep the budget below the President’s $100 billion target. Ironically one of those items was selling off Fannie Mae to private investors (for $235 million).

Califano later told me that he put a “stinker” into the package, hoping that it would draw so much congressional heat that it would be taken out, while the balance of the items saved. That stinker/lightning rod was the sale of Fannie Mae, but not only did Congress not balk at “privatizing” Fannie Mae, they went along with every one of Johnson proposals.

President Johnson got every saving he sought from the Congress.

Next year, the Obama Administration and the Democratic congressional leadership might want to assemble a serious list of cuts and program changes that do nothing but save federal budget dollars.

Whether it is ending certain subsidies (sugar?), selling assets (maybe Fannie Mae, again), Democrats need to show America that they are more than “spenders” and can be cutters, savers, and serious policy makers.

Drafting a package of cuts won’t be enough, the Democrats need to pass it, every item, and win back the confidence of the American voter which largely has been lost in 2009, by the feckless health care packages, weakness in the face of commercial bank obstinacy, and nagging questions about jobs, Iraq and Afghanistan.

Dodd’s Federal Financial Regulatory Proposal

Politically beleaguered Senator Chris Dodd (D-Ct.), Chairman of the Senate Banking Committee, last week proffered his regulatory restructuring proposal, with only eight committee members as co-sponsors and no committee Republicans.

In a legislative mish mash which gives more power to the Fed but then takes away others from the central bank, Dodd appears to have produced only a vehicle for Committee restructuring necessary to get a majority of votes, including a GOP vote or two.

Supposedly, the “wily” ranking Republican Sen. Dick Shelby (R-Ala.) dislikes the Dodd bill because it contains nothing about restructuring Fannie Mae and Freddie Mac.

One wonders where was the senior Senator from Alabama--demanding strong financial regulation--when George Bush ran the White House and Shelby was Chairman of the Senate Banking Committee?

In that era, the GOP federal financial regulators swallowed their referees' whistles and weren’t signaling any transgressions, but I don’t remember Shelby doing any “kvetching or kvelling” then.

Does Shelby support good public policy or he just interested in sticking partisan sand in the gears of financial regulatory restructuring?

Well, here’s an idea for Chairman Dodd and the ranking Republican Senator which might bridge that gap and let them “fix” Fannie and Freddie and make the Dodd bill far more acceptable and appealing to the voting public.

Take the ideas of Paul Volcker and the Bank of England’s Mervyn King and give the Fed “systemic risk” oversight authority. The goal would be to require the central bank immediately to disassemble worrisome large financial services companies (defined as at least $500 billion in assets) and reduce their financial risk to the nation. Add Fannie Mae and Freddie Mac to that category and satisfy the Alabama Senator’s blood lust.

Don’t create any new agencies to carry out this new power, but give it to the biggest cop in town and oversee the Fed’s follow through.

I wonder if “Senator Wily” will go along with that simple fix, backed by some sterling minds, and apply it across the board to the institutions he seems to dislike, the former GSEs, but also to the equally “Too Big to Fail” large commercial banks and investment banks.

(Read my friend Ken Guenther’s comment about the Dodd bill, in the right hand column of the attached.) http://www.fcmalert.com/

The FDIC

Early this year, I wrote a blog suggesting that most of the existing regulatory power be given to the Fed, rather than creating new agencies and generating new regulatory turf wars.

Let me amplify that suggestion. The FDIC should stay intact with its responsibility for the smaller commercial depositories, while the OTS, the Comptroller of the Currency and FHFA-- the former-GSEs regulator-- should be vaporized.
We’ll survive as a nation with less regulators doing more and better work.

Berkshire Hathaway and Fannie Mae?

Last week, someone wrote to my blog site (see “comments section”) and asked if I had heard the rumor that Warren Buffett/Berkshire Hathaway was looking at acquiring Fannie Mae common stock?

I have had heard nothing at all and told that to the writer.

But, as I thought about it, it would not be totally out of line for the man from Omaha, who just paid $25+ billion for a railroad. (Yes, Virginia, there once was a time when we road in cars on tracks, which were hooked together and…...!)

Again, I know nothing of this possibility, but a few reasons why it would not be surprising.

There are about 1,000,000, 000 public shares of Fannie shares outstanding. (The Treasury owns 80% of the company as part of their December 2008 “nationalization.”) The “common” is trading for a little over a buck, which means Buffett could get most of it for under $5 billion, depending on how quiet he kept his acquisition effort.

Buffett loves a bargain. He’s a “friend of President Obama’s,” a reputable businessman who once owned a lot of Fannie stock and lamented (before the fall of Fannie) that his worst mistake was selling the company stock too soon.

So, the Administration wants to run the companies for a bit, trying its hand at managing the residential mortgage market and hoping it can do a better job than it has shaping health care policy, immigration, budget cutting, Afghanistan, etc.

Now, flash forward to today or early next year. As part of a planned transition, Buffett gets a chance to buy most of the company for pennies. He’s assured by the White House that it will support a transition back to private ownership and Buffett is just the guy with whom to partner because he knows the company—has invested in it before—and has the resources to help recapitalize it, if that became necessary.

Remember, this is just me “geezing.” There is nothing I know about the Buffett rumor,et.

But, new/old FM Watch, contemplate that possibility!

Maloni 11-17-2009

Obama Should Have Named Volcker Treasury Secretary…..

noreply@blogger.com (Bill Maloni) — Tue, 10 Nov 2009 17:22:00 +0000

Woulda, shoulda, coulda…

If President Obama had named Paul Volcker his Treasury Secretary, instead of Tim Geithner, I believe we would be facing a totally different and far more politically palatable and manageable financial services scene today.

The 82 year old Volcker, who is an economic/financial adviser to the President, may not have wanted the job, which is a hugely demanding and stressful post. But, his sterling reputation and strongly held views-- especially on how to deal with “To Big to Fail” (TBTF) financial institutions--could have saved Congress from committing to this tortuous and likely to fail efffort (after implementing legislation becomes law, naturally) to restructure our nation's federal financial regulation.

Not that disassembling big US financial institutions would have been an easy political exercise, but Volcker’s instincts to reduce systemic risk--by making TBTF financial companies smaller and more manageable--makes more sense than legislatively jamming square pegs into round holes, trying to create new agencies and likely succeeding only in building new DC financial turf wars.

I believe Paul Volcker, with President Obama’s help, could have sold it to the public and Congress as a viable strategy. Especially now that Volcker friend Mervyn King and the Bank of England (the British central bank and corrolary to our Fed) took the first major step last week breaking up risky and ailing large British banks.

I fault Treasury’s Geithner for his lack of political vision and being far too easy on the nation’s major banks, which have taken billions in taxpayer dollars and taken care of themselves, while seemingly forgetting or ignoring the nation’s reeling business and residential real estate markets which was their reciprocal obligation in return for Uncle Sam’s financial largesse.

Besides booking near record profits, has anything bad happened to any of these surviving “robber barons?” With one hand the big banks take taxpayer’s dollars and with the other they fight new regulation and efforts to limit their compensation.

I asked last week and will repeat, why should any employee in the banking industry –whose institution received TARP money—should receive a 2009 bonus, when the segment of the industry’s revenue came not from the market, but largely from Treasury largesse??

Yes, the Troubled Asset Relief program (TARP) started under Hank Paulson and the Republicans, but it was carried forward by Geithner and the Fed’s Ben Bernanke, another relative “softy” when it comes to spanking the nation’s large commercial financial institutions.

Geithner is a young man, relatively speaking. And when he departs the intrigues of Washington, which industry do you think first will offer him his next job?

An unseasoned Secretary Geithner has done a lukewarm job overall managing the banks and their TARP funding; mismanaged the Fannie/Freddie “conservatorship” (see next segment); and offered too little opposition to the various “throw money at it” congressional spending plans, which just add to the US deficit.

You don’t have to be a Republican to see policy shortcomings here.

Paul Volcker would have and still could do a better job as Treasury Secretary, as long as someone tranquilizes and sticks Larry Summers in a large hole.

Treasury/FHFA and Fannie Mae

Let’s repeat the obvious regarding the former GSEs. Neither Fannie Mae nor Freddie Mac do anything which isn’t prior-approved by FHFA, their safety and soundness regulator, and the Treasury, their real regulatory (sorry, Ed DeMarco!).

So, what is the explanation for Fannie Mae’s third quarter report suggesting that their current book of mortgage business is going to suffer about three times the losses which most other mortgage investors project?

Huh?

Either the Treasury is forcing them to post billions in unneeded loss reserves, which might allow some misguided bureaucrat down the road to say that Fannie’s losses are huge and the company needs euthanized (which works from an anti-Fannie perspective, which still exists even in the Obama Admin) or the company bookkeepers are laying in a ton of loss reserves which never will be needed, but when they come back onto the Fannie books will be a monstrous positive jolt to the ex-GSE’s bottom line.

Remember, nothing goes on without Geithner--or someone close to him--blessing it.

I am sure that there is a thoughtful explanation for this unique accounting, but I haven’t heard one yet. Maybe it’s just Fannie’s way of jerking around the new/old FM Watch crew, which should be catatonic about all of those “ugly loss reserves” showing up as Fannie capital.

The NAR Scores a Possible Huge Pro Consumer Acquisition

The National Association of Realtors, which has been the only functioning Capitol Hill voice for housing (in terms of putting their money where their industry mouth is. no matter what you think of the second homeownership tax credit) announced that it has acquired a major data facility which could help future American families seeking to own a home.

NAR has brought in house a huge informational data base with details on virtually every American property transaction. What a potential boon for housing consumers.

See NSAR news. http://webmail.aol.com/28878/aol-1/en-us/Suite.aspx

I could be wrong and legally there could be some hurdles, but if the NAR has the latest sales data on virtually every US home purchase, it could facilitate for consumers low cost home appraisals, charging say $50 for that info, rather than the $500 charged by most lender appraisers charge (both in house and independent).

Go NAR!

Jon Stewart and the 30 GOP Senators Who Voted for “Rape”

Stewart is good and the Republican Senators actions are so transparent. They made it too easy for the comedian/political observer to parody their hypocritical support for Dick Cheney’s old company, while ignoring the real issue. It was quite revealing to see some of these conservatives go after “defunding ACORN than meting similar treatment to KBR and the other defense contractors. Will they never get it??

http://www.huffingtonpost.com/2009/10/15/jon-stewart-takes-on-30-r_n_321985.html

More Humor

For those who don’t see “John Kelly’s Washington,” in the Washington Post’s Metro section, you need to read his report from the Washington Zoo about the deer which leaped into the zoo’s lion’s den. Funny stuff!

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/09/AR2009110903090.html

Maloni 11-9-2009

Thank You Dede, You're a Hero

noreply@blogger.com (Bill Maloni) — Thu, 05 Nov 2009 04:04:00 +0000

It looks like Dede Scozzafava--the initial GOP choice in New York’s 23rd congressional district who was scorned by national conservatives and later dropped out of the race the weekend before this past Tuesday's election--drew around 7300 votes or slightly more than the margin by which Democrat Bill Owens defeated the Conservative Party’s Doug Hoffman, allowing the Democrats to claim this seat for the first time since the Civil War era.

Scozzafava drew heavy media attention when she was forced to resign days before the special election, because of major hostility from the GOP’s national right wing, which preferred conservative Hoffman.

Her vote total and the fact that she endorsed Owens was kind of a “she who laughs last,” at least for now.

As I wrote earlier, the extra House seat won’t give the D’s more than a little bragging rights, but the GOP was served notice by its right wing that “moderate Republicans”—whatever that term may now mean—are going to face additional hurdles when they seek to run not only in 2010 but in the off year and maybe 2012, too.

So Michael Steele, you and those party elders—not associated with the extreme wing of your party--better worry about Dick Armey, Rush Limbaugh, Glen Beck, Sarah Palin, and that cabal.

It is noteworthy that the National Republican Campaign Committee and Hill Republicans strongly opposed Hoffman, until Scozzafava quit over the right wing assaults.

Before her departure, Congressional Republicans charged that Hoffman wasn’t even a resident of the 23rd District and—more significantly--that he lacked “the integrity and qualities needed to be elected to anything, let alone Congress.”

Days ago, NRC head Michael Steele restated his firm backing of Scozzafava in the face of mounting pressure to end the official party's support for her bid.

Then Dede bolted, endorsed Democrat Owens, and the GOP threw "did a 180" and backed a loser, Hoffman. Tim Pawlenty, Newt Gingrich endorsed the guy the ‘adult Republicans” said lacked integrity and other positive qualities.

Look out. The conservative bogeymen are coming for the national GOP and I am not sure the Party is prepared to stand up for whatever qualifies as GOP principles.

All Politics Are Local

I know that the sainted Tip O’Neil claimed that “all politics are local," but I hope the gubernatorial losses in Virginia and New Jersey shock some of my national Democrat friends and brings them back to the reality of governing. There is a difference between winning an election and then using your victory to wisely make policy.

While I think the party chose a weak Virginia candidate and New Jersey had its economics and tax issues, this splash of cold political water might just shake up some of the Democrat congressional hot air machines and force them to examine what policy choices make sense to the American people and which don’t.

When you win, you have to do more than just strut, call your GOP opponents “out of touch”—even if they are--and then squabble like hell among yourselves while domestic problems seem to worsen. That’s a losing prescription for the Democratic Party which dominated all of the elections last year...

All solutions don’t have to be omnibus and costly. Whether it’s financial reform, climate technology, job creations, immigration, foreign policy, etc. etc. a dose of common sense often is better than a “trillion dollar initiative.”

The public is sending that message

From my perspective the Democrats at both ends of Washington have too many “omnibus” answers and are not doing enough hard work to generate simpler proposals that might work.

One of my conservative friends sent me an email noting those 30 years ago, we created the “Department of Energy,” as a cabinet level agency to make us independent of foreign oil.

Several Republican and Democrat Administrations later, we’ve spent hundreds of billions of dollars spent on the DOE—with its 100,000 employees—and don’t seem much closer to energy independence??

Message to Democrats: It doesn’t take too many pissed off citizens, in a country where the major parties come close to halving the national electorate, to go from political winners to losers in two years.

The American people don’t need circuses. We do need common sense, less selfishness, and some political guts.

Brits and Volcker Are Right……

…is a perfect lead in to what Mervyn King and his Bank of England have done right and we have not. If we want to reduce financial systemic risk in this country then we should make sure that no financial services company ever earns the label “Too Big to Fail.”

The British are leading the way, now, and chopping down some of their “financial redwoods,” making them smaller and more manageable.

Let’s begin to listen to Paul Volcker, who is an Obama financial adviser. He says the best way to regulate the “TBTF” behemoths is just make them smaller.

Why is that so hard for us to understand? Why does this pragmatic view likely put Volcker (on whom, intellectually, I would stake my chips) at apparent odds with Tim Geithner and Ben Bernanke? Because the big banks and financials services companions don’t want to be busted up?

Where are Teddy Roosevelt and William Howard Taft, when we need them? Where is Senator Sherman or Senator Clayton, with their respective versions of famous anti-trust legislation?

Bigger isn’t always better, especially in today’s financial megatrons. Now the Britsih are showing the way.

Both healthy and weak companies in the US should be required to reduce some of their size so they can more easily be managed and regulated. Probably sounds too “un-American” for it to happen, but it is hardly an original thought, as all of the anti-trust activity in the late 1890’s and early 1900’s suggests.

Break them up into smaller more easily managed and regulated entities, including Fannie Mae and Freddie Mac (which already have a 10 year deal with the Treasury to reduce their mortgages portfolios to the $250 Billion range, a third or more from where they are now), once Treasury stops using them to conduct mortgage operations which the rest of the market participants have abandoned.

I believe that is a more thoughtful approach to effective financial regulation than creating new agencies and new DC regulatory turf wars.

Rather than reducing real size and risk, the White House and Congress are trying to figure out who should manage the “TBTF” companies and how? Break them up and inject some steel in the spines of the federal regulatory institutions you have.

Why try and make peace and mollify the risk takers when with the same amount of zeal and political capital you can reduce it…and, in my opinion, enjoy a lot more public support in doing so.

Didn’t we learn anything from the past two years of financial failures and mistakes?
We are a people in love with new acronyms and organizational boxes, but “new” doesn’t mean “better.”

Speaking of managing risks from TBTF companies, Shelia Bair has it right to want these firms to pay up for their future support before they need help rather than afterwards!

Again, just common sense, but will the Congress go along?

(One last thought. Why do any bank employees need "bonuses" based on 2009 performnace? Let the banks show their support for the nation by keeping that money in house and lending it. Once again, the banks collectively received billions from the US Treasury. Let them, in the spirit of citizenship, show the nation's taxpayers some good faith!)

Maloni 11-5-2009

The World of Mortgages and Financial Services

noreply@blogger.com (Bill Maloni) — Mon, 02 Nov 2009 00:20:00 +0000

I still am looking at the “return of FM Watch’ and trying to figure out something more than the obvious.

The Mortgage Insurers, which always had a prominent role in the anti-GSE campaign, must worry that a reinvigorated Fannie and Freddie would figure out a way to do business without them or to dramatically lessen their role. Freddie came within a hair’s breadth of doing that some years ago and I doubt if many consumer group would mourn the industry’s diminution.

Ditto the appraisers. Having nothing to do with Andrew Cuomo’s deal with the GSEs, which could get undone my Congress, when you have access to as many mortgage loans as the former GSEs have, you can do a pretty good job of estimating property values and finding a way to charge a helluva lot less than $400 to $500 appraisers do currently. And that doesn’t include the games lenders play with some of their “captive appraisers” and multiple and duplicative consumer charges.

So, this must all about the future and keeping markets inefficient and consumer costs high?

I am sure that it won’t be too long before some anti-Fannie/Freddie allegation is leveled at the companies by the usual suspects on the Hill, in the media, and the right wing think tanks. (Knowing the straight arrows who run these shops now, I suspect the charges will be “littering” or “breaking the Sunday blue laws,” something heinous like that.)

That salvo will be FM Watch’s opening round.

we're still left with the reality that Fannie and Freddie are puppets managed by the Geithner Treasury. If FM Watch is ready to take on the Treasury, their member organizations must have their own ducks in line and don’t require Treasury or Obama good will or else why would you “pee on the Pope?”

Dede Scozzafava and Conservative Politics

Shortly after this blog gets out, we’ll know who won the special election in New York’s 23rd congressional district race, between Conservative/Republican Doug Hoffman and Democrat Bill Owens. But, already we know who lost, New York Assemblywoman Dede Scozzafava, the original the Republican Party candidate—until this past Saturday—who suddenly dropped out after getting embarrassed, denied resources and forced to resign by the GOP’s national right wing. (BTW. Is there any wing left in the GOP, but the right or the righter?)

It would be fitting, but not significant to the Democrats control of the House, if Democrat Owens somehow still wins this traditionally Republican seat—since Scozzafava still will be on the ballot and could draw votes from the conservative Hoffman. It sure would be a shot at the intruders, like Sarah Palin, Tim Pawlenty, and Newt Gingrich who reversed himself—in a two day stretch--going from Scozzafava to Owens. These non-New Yorkers saw fit to stick their noses into this local, meaning New York decision, and meddle.

The “GOP Wingers,” who love to preach the sanctity of local control (remember Florida in 2004/5), but only practice it when it serves their agenda, decided they knew better than the New York Republican Party who the republican should be in the 23rd District race and threw their collective weight against Ms. Scozzafava, causing her to come unglued and bolt.

That’s what’s going to happen to conservatives who aren’t conservative enough! Win or lose on Tuesday, we can expect more of that from the “national” conservatives, who will use their “pro-life, anti-gay, pro-business, pro-war, anti-government (except when they run it and balloon deficit spending by $6 Trillion) standards to influence getting the “right kind” of Republican candidates to seek office.

I wonder how many of these conservatives know the “Horst Wessel?”

(Early Sunday evening, as I put the blog to bed, Dede Scozzafava endorsed her former Democratic opponent Bill Owens.)

The Beat Goes On

Rush Limbaugh, one time hydrocodone and oxycodone abuser (for his “back pains”) and right wing Poobah, again is challenging President Obama’s fealty for the nation. This weekend Limbaugh claimed that the President and the Democrats are trying “on purpose” to destroy the United States. What won’t these say next? (Hey Rush, did the drugs fog your memory, where were you between 2000 and 2008 when some really danger stuff was carried out?)

Many Democrats whisper among themselves about their fear that some yahoo driven by the haters Limbaugh, Beck, O’Reilly, and the “fair and balanced” Fox News hot air machine air machine, might try and do serious harm to the President.

Now, I am wondering if the reverse may not be the equally true situation.

Debate,town hall meetings, the Internet, elections, our free press, and the First amendment traditionally have been our national safety valves for letting off partisan steam. But the right wing seems to be trying to change that. Why they think they are immune from the rhetorical and soemtimes physical violence which they espouse?

This batty crew could trigger some left winger to lose his mind and kill someone just as easily as they could rattle a conservative.

Eight years of George Bush and the type of federal government that Rush, Beck. Fox, Haley Barbour, Boehner, Palin, Newt, Pawlenty, Fox News and others want, is what gave us two wars, non-existent financial regulation, attempts to gut the Constitution and trillions in deficits.

That’s what the Democrats inherited fromt he Bush Administration.

Ten months into the Obama Administration, with a Congress voted by the people who threw out the GOP, the conservatives now complain that the Democrats don’t care for America, presumably as much as the GOP cares for the country?

If there is justice, all of the “moderate” Republicans will caucus in a phone booth and let the conservatives have their way and let the resulting “mass” become a true long time minority party—blissfully claiming you are welcome in their big tent—unless you are from labor, support government regulation of anything, don’t believe in the Bible, support “a public health care option,” are non-white, gay or lesbian, don’t support guns in church, school, or national parks, and a growing list of other minimum GOP litmus tests.

Left wing Democrats are a nuisance, more likely to turn on each other than to pull off anything spectacular. The right wing conservatives are dangerous, violence prone, and deceive themselves that they are the true Americans and those who oppose them are not.

I believe that any number of these “entertainer provocateurs,” like O’Reilly, Limbaugh and Beck, think their act is just a harmless game and that people won’t rise up and do violence based on their incendiary partisan assaults.

I think they are wrong and I hope I am.

Maloni 11-1-2009

The “New” FM Watch is…The Old FM Watch; Welcome Back

noreply@blogger.com (Bill Maloni) — Mon, 26 Oct 2009 02:27:00 +0000

I am going to play Paul Revere this week and call, “To arms, to arms, the ‘new FM Watch’ is coming.”

Yes, if you didn’t read about it last week, the old coalition--which very effectively helped the Bush Administration sink Fannie Mae and Freddie Mac--once again is registering to lobby against the current secondary mortgage market cripples.

The mystery is why this anti-housing gaggle—not exactly as how they would define themselves but accurate enough--has emerged now. There has to be some reason beyond the fact that FM Watch lobbyists want to send their grandkids to college on the old GSE issue, since they’ve already sent their children?

It's the Money!

The one thing about the “new,” which also applied to the “old,” is that this step is all about MONEY.

Either Fannie and Freddie, in their current nascent modes, still represent threats to the “new FM Watch’s” businesses or in the future, a revamped Fannie and Freddie holds the promise of keeping mortgage markets efficient and consumer costs down, two results which the FMWers would rather see not happen.

Those also are the two reasons why the Homebuilders and Realtors should always find themselves opposing the “new FM Watch.” Add to that, the former GSEs are the only TARP recipients which the Bush Administration managed to ban from lobbying and therefore they can’t protect themselves on the Hill. (When the Bushies decided to zip the GSEs lips last year, famed constitutionalist Dick Cheney was rumored to growl,”Screw their first amendment rights, but can I take them hunting, first?)

With their swords still beaten into plowshares and since few congressional campaigns will take farm equipment as contributions, do Fannie and Freddie represent any congressional threat to their old adversaries? I wish that were the case, but sadly the answer is “no.”

It can’t be the current revenue the former GSEs are taking out of the market. Neither company is pricing their goods and services for optimal business returns.
Although Freddie did report modest earnings last quarter, Fannie still hasn’t and there is that nagging 10% interest—due annually—on their near $100 Billion in Treasury indebtedness which both owe Uncle Sam.

Covering Their Own Weaknesses

Maybe the answer to why these “termites” have returned is that the best defense is a good offense, since the “new FM Watch” member organizations have done a lame job in supporting the mortgage market.

The old FM Watch had mortgage insurers, big banks and mortgage companies as members. I suspect the new group does, too, which means the new FM Watch hardly is going to qualify this year’s “Nobel Mortgage Prize for Market Integrity.” (I think President Obama has a leg on that, as well as the Heisman Trophy and Cy Young awards.)

Is it that Fannie’s and Freddie’s mere existence, even under conservatorship, is a threat to these paragons of finance? Hmmmmm??

The FMWers have reached the same conclusion I have. It is inevitable Congress will consider breathing new life into the old GSEs, because it is clear that the nation needs some dedicated mortgage investors to prime the pump. A partial return to that element of the past mortgage market operation could give the primary market lenders a jump start and revive a needed non-government segment of the mortgage world.

So, why now?

It must be that the structurally crippled former GSEs, being managed by the Treasury Department, scare the bad guys and they want to try and deep six them ASAP before Congress awakens to the fact that F&F could be part of the mortgage solution.

So, I'm left to conclude that the FM Watch spoilers hope to strangle, at the “bassinet stage,” any positives which could produce the “new Fannie and Freddie” (or whatever the Obama Administration and Congress chooses to call them, when the White House and Hill finally pay attention to the nation’s mortgage market.)

There was a time not too long ago, when Fannie and Freddie were like “swans.” Everybody loved them (FM Watch, aside). Everyone wanted to be seen with them, swim in their ponds, and be part of their success. Everyone wanted to be gifted with the swans’ beautiful feathers.

The former-GSEs no longer are swans. But, they might be in the ugly duckling stage and we all know what happens to some ugly ducklings.

Who Cares?

But does anybody, except the predators, care about these current ugly ducklings, since the new FMWers just want to step on them before they become swans, again, and kill the chance that official Washington will love the mortgage giants anew.

That strategy will require congressional enablers. Surely, the FMWers will skulk back to their old GOP congressional allies, like Dick Shelby, John Boehner, Michelle Bachman, Jed Hensarling and the like, not to mention the AEI and certain media.

This time they won’t have the support of a Bush Administration hosting them at the anti-Fannie/Freddie table. The “new FM Watch” should encounter some resistance from Barney Frank, Maxine Waters, Nancy Pelosi, Chris Dodd, Jack Reed, Chuck Schumer, and others.

Cold Shoulder Downtown

The Obama Administration will not be as accommodating as its predecessor in damning the former GSE leadership and business strategy, since today everything Fannie and Freddie do—as well as their senior management—carries the stamp of Tim Geithner’s Treasury Department.

Money is fungible, but it truly would be ironic if some TARP money—sitting in large bank balance sheets--has trickled into the new FM Watch coffers from their “new/old” members. I am sure the group’s lobbyists will answer those kinds of question once asked by the media or the Congress.

I’m glad the FMers are back, since it’s been too quiet on this front since they left and their activities should stimulate some in the real “housing coalition” to respond and demonstrate their understanding of the value of dedicated national mortgage investors.

God, it's almost enough to make me want to haul out my old combat uni, sharpen my katani, and oil my Glock.

Maloni, 10-26-2009

Cats and Dogs

noreply@blogger.com (Bill Maloni) — Wed, 21 Oct 2009 01:55:00 +0000

Public Option

If the history of the residential mortgage market is any measure, Hell, yes, we need a public health insurance option, if only to keep the insurers honest. Nothing will make the industry more responsive than opening the insurance system to competition and, by the way, forcing them to lower their prices if the public has the opportunity to get coverage “elsewhere.”

That’s what happened to mortgage products and prices in the residential mortgage market when Fannie and Freddie began forcing banks and savings and loans to compete for those lenders perceived was their God-given mortgage lending business.

F&F didn’t actually compete directly with the primary market lenders, because by law the GSEs were in the “secondary market,” buying loans from lenders, and the depository institutions were originating loans for families in the “primary market.”

But what the banks and thrifts started complaining about more than 20 years ago—and consumers loved--was that Fannie and Freddie succored a mortgage companies, non-depository exclusive mortgage lenders, which unlike banks and thrifts did not keep mortgage portfolios, but sold every loan they made to investors. (Mortgage “banker” is a euphemism, since mortgage companies never have been depositories, although today most are owned by large banks.)

This is the “competition” for which the commercial bankers blamed Fannie and Freddie and for years they battled, trying to hold onto their little honey pot making the mortgage market pricey and inefficient, with excessive fees and charges. GSE competition ended that behavior (which is one of the reasons the commercial banker anger and hostility aimed at the former GSEs seldom diminished).

The analog to what the Congress and the public seems to want to introduce into the healthcare debate is the equivalent mortgage industry “public option,” i.e. Fannie and Freddie providing high quality and low cost conventional mortgage products to the mortgage companies forcing the dominant mortgage providers of that era (banks and thrifts) to join the party offering the public competitive products and prices or face losing the business.
Remember, financial services companies—which is what an insurance company is-- all borrow money at one rate and invest it at a higher one. Competition and efficiency was good for the mortgage market. It should bring out the best in the health insurance industry and do away with some of the worst practices. In the meantime, the Congress should ignore the fear mongering that will flow from the insurance industry’s PR operations. They’ll say and do anything to hold onto their financial edge.

From my perspective, a big “Yes” on the public health care option.

Is The Congress Angry??

I hope so. Supposedly, it is so angry at the health insurance industry that it is planning hearings to examine the industry anti-trust exemptions, with the implied threat that Congress will alter this huge business benefit.

Go for it Congress, don’t just threaten.

It’s amazing to me that the Hill never has learned the lesson of taking concerted, definitive action, instead of blowing all so much hot air and doing little. (“My staff is looking…I have introduced a bill, which I hope will be referred to my subcommittee so that I…..I’ve asked the Chairman to ask GAO to……” Haff, Kaff, yak, gag!!)

Whack that industry and show the American public that their health care worries can be solved and their health protected.

And, while you are at it House and Senate, give the back of your hand—or a mailed fist--to the large commercial bankers who have screwed over you and the public on TARP, regulatory reform, consumer agency, restructuring bad mortgage loans, and executive compensation. (Having supped at the federal trough and still supping, how can they justify those comp levels?)

The Washington Post had a headline the other day suggesting that the financial services industry was losing its clout on the Hill.

I’ll believe it when I see the results, not the interim steps, which mean nothing since—in no other city in the world is “It’s not over, until it’s over” the rule as it is in Washington.

Until President Obama signs into law legislation which the banks hate—and the final regs are written implementing that law—I’ll never believe that the big banks have gotten paid back for their perfidy on the issues I mentioned and that’s just this year.

Fannie and Freddie, Keefe Bruyette Notwithstanding

Periodically, I receive calls from analysts and investors asking my opinion about the “future of Fannie and Freddie.”

I tell them, “I have no damn idea.”

But then, I offer them a few salient facts.

We have no conventional, non-government mortgage market, right now. And, nobody else has stepped up to take over the F&F role.

Every institutional mortgage investor today is funded by the government or is a government agency. That includes FHA and HUD, the former GSEs, and some banks still taking in or living large from their TARP dollars.

That is not a tenable situation and the easiest fix is to resurrect a private Fannie Mae and Freddie Mac in some form.

Keefe Bruyette and Woods this week opined that both companies are worthless and their common and preferred stock have no value, because of their new relartionship to Traesury and the Fed as well as their taxpayer debt.

True now, but--in the ways of Washington--none of it may matter. When the Obama Administration and Congress finally take a breath from their other priorities and look at the mortgage market, I think it will become obvious that the “secondary mortgage market model” works, which means a plethora of primary market lenders dealing with the public and then selling or securitizing those loans with a few dedicated national mortgage investors is an ideal structure for the nation.

Any money F&F owes can be paid to the Treasury over time, say 30 years, and if changes in their mission (please make those!) are necessary, as well as limits on their business, Congress can make those, too.

The toughest thing the politicians will face when the time comes to fix Fannie and Freddie is swallowing all of the bile they heaped on the two companies, accusing them of every crime under the sun and a few that aren’t there.

Thank God for Speed Dial

It was widely believed inside Fannie Mae, when I worked there, that its regulator, then the Office of Financial Housing Enterprise Oversight (OFHEO) was engaged in a guerilla campaign to knock down the company’s stock price and embarrass its officials, because of the agency’s impotence in dealing with both Fannie and Freddie.

There have been several law suits, some still ongoing, to prove this allegation.
Recently, lawyers for three former Fannie officials still involved in litigation, sought to interview a former OFHEO official, whom they argued might shed light on these matters, including why her boss at the time--who was head of OFHEO ‘s external operations--claimed more than “200 times” that he couldn’t remember salient agency facts and issues.

That’s a ton of bad, weak, lame, and distorted memories. With memory grasp like that, no wonder those OFHEO guys did such a crappy job! It makes you wonder how they could even remember the reporters’ numbers to whom they leaked all of that bad mojo.

Maloni 10-20-2009

TOUGH!!

noreply@blogger.com (Bill Maloni) — Mon, 28 Sep 2009 21:49:00 +0000

In last week’s blog, I called on federal regulators and others to get tough with the miscreant lenders and financial services companies, which have not been serving the markets or even performing their reciprocal responsibilities in exchange for the billions in federal TARP money they received from Treasury and the Fed.

Well, hurrah for federal district judge Jed Rakoff, of New York, who balked at the paltry $33 million fine given by the SEC to the Bank of America, for letting BoA’s newly acquired investment bank, Merrill Lynch, pay billions in employee bonuses. Rakoff said that $33 million wasn’t nearly enough and while that lowly amount may have satisfied the securities regulator and the bank, it did nothing for the public or BoA’s shareholders. (Note to SEC: BoA received some $45 Billion in TARP funds. They probably could have handled a larger fine.)
Get ‘em Judge Rakoff and take a lesson Mary Schapiro!

Maybe that’s the answer to all of the proposed financial regulatory change. Let’s just get the regulators out of it and let federal judges—with their life time tenures—handle these matters and maybe some robed stalwarts will emerge to stand up to the ”bad guys” on behalf of the consuming public.

That would be an interesting test to see if the public preferred new financial regulatory regimes or judges around the country handing out these “who broke what laws” decisions?

With all due respect to Dewey “Pigmeat” Markham and Rowan and Martin’s “Laugh In,” “Here come the Judge,” may be America’s new cry for corporate justice!!I

In the meantime, Rep. Barney Frank (D-Mass.) and the House Financial Services Committee soon will shape a major financial regulatory reform package.

Frank initiated the activity last week--trying to win some GOP votes and hold some Committee Democrats, too--by announcing several major changes to the Administration’s proposal to create a consumer finance protection agency.

One question I would ask the Committee Democrats, “Why water down your bill? How can you go wrong –in the public’s eye--if you produce a bill which the large commercial banks oppose?”

It doesn’t matter how much you appease the big banks with the legislation, the banks still will try and kill it.

It is not in the bankers DNA to support anything called “the consumer financial protection agency,” without changes that gut the intent. So why are you trying so hard to romance them? You won the 2008 elections with big numbers. Use them.

Nobody’s going to leave this town unsullied or pristine. Do you want to be remembered as a lamb or a wolf, someone who toadied for the financial interests or someone who stood up and snarled at the big banks?

Ask your constituents that question?

While you’re designing this agency, change the “advisory board” feature, since it contains every agency whiose ox gets jurisdictionally gored.

Your provision is a recipe for marginal and diluted action or just continuous internecine warfare as the Advisory Board would seek to protect lost agency turf, as the CFPA tries to build consensus.

Every regulator in town already defers to the Fed, what’s this new one going to do when their Fed advisory board member cries “No” about some agency proposal?

If you are going to give a consumer agency serious power, then give them to it. Or you risk doing just what the banks say you are, “building another layer of regulatory bureaucracy that will slow down business and not provide much protection to anyone,” save those who get tenure in the new shop.

By the way, the people hammering Mr. Frank to change this bill generally are those who don’t think the banks did anything wrong during the recent 401(K)-crushing financial tsunami.

What is wrong with demanding that all lenders covered by this new regulator offer an understandable set of “plain vanilla products” to those not as knowledgeable and sophisticated as the Congress and its staffs? Why can’t the public be offered a loan we comprehend and which won’t jump up and bite us in the wallet, a year after we get it?

Why is Capitol Hill afraid of offending the banks?

If the Hill stands up to the depositories and the Obama Administration financial regulators do too, what are the banks going to do, become credit unions, start selling fried chicken, or used cars?? Call their bluff, here and elsewhere.

The Congress, the Treasury, and the Fed need to wear their “big boy pads” whenever they engage the banks or big financial service companies in the Capitol’s version of “regulatory and political football.”

That will get more positive results than if the Congress starts channeling Neville Chamberlain.

Maloni 9-28-2009

Rein In Risk? Clone AC the AG!

noreply@blogger.com (Bill Maloni) — Wed, 16 Sep 2009 15:18:00 +0000

On the one year anniversary of the Lehman collapse, President Obama called on Wall Street to help him rein in risk and pass major financial regulatory reform legislation.
You almost could hear someone say, “Hey Mr. President, can I sell you a bridge and some land in Florida?”
The President’s not that naïve. He knows that he has to go through the motions and make a call for help to many of those who caused the very financial problems from which his Administration, the nation, and the world still are trying to extricate themselves.
Ask Wall Street not to take risks? That’s like asking the American public to stop driving, eating fatty, salty foods and drinking beer and soda.
Wall Street lives on risk and makes beaucoup bucks channeling and charging to manage that risk, sometimes failing dramatically. But that won’t stop them.

“The greater the risk the greater the reward” probably wasn't coined in Sunday school.

It’s understandable in the aftermath of what has happened financially to want to “reduce risk,” but some caution here.
Our country wasn’t founded nor developed by those afraid of risks. The risk takers managed and overcame the risks.
We need edgy entrepreneurs on Wall Street, Main Street, and any other street because innovation and creativity drive our nation’s businesses and the “business of the United States” should be business.

The federal government’s role to that dynamic is to regulate those risks, which it failed to do under President Bush and has yet to do under President Obama.

Recently the New York Times wrote about several major Wall Street firms exploring for creative ways to “monetize” the returns from death benefit insurance policies by buying them early from policy holders-- before the latter-- then securitizing them and selling them to investors.

Atta way Wall Street, no risk there!! What happens when our healthcare system works and all of those 70 year olds begin to living until they are 90 and those bonds don’t pay because Gram and Grampa haven’t croaked!!

Well, those issuing companies lose money, i.e. the market works!!

But I see nothing wrong with those companies—many of which wouldn’t self identify for the Times--investigating this new form of “securitizing receivables.”
The federal government’s response, whether a business wants to securitize mortgages, furniture or computer receivables, automobile and student loans, or life insurance payoffs should be stronger and better regulators, not banning the initiatives because of perceived risk.

Measure the risk, insure against it—both financially and socially—and then let the market work. Penalize those miscreants who break the law or violate the regulation.
I could argue that the President’s entire new regulatory regime is unnecessary, save a few small pieces, if he could find enough quality people to run the financial regulatory agencies now in place.
Calling on Wall Street to help “reg reform” is necessary PR, as will be the “Street’s” assurance to Obama that it will look objectively at all of the risk reduction proposals. (Gag, yak!!)

The President needs to get his own appointees to agree on his reg reform proposals, before he gets Wall Street to pick and choose new regulatory poisons.

The Fed, shilling for the big banks and “too big to fail” crowd, wants one thing. Shelia Bair, shilling for the small banks, wants something else. The Comptroller of the Currency, a Bush carryover appointment (John Dugan, a neighbor and a friend) argues a third thing. The SEC wants Wall Street securities action largely for itself. And Treasury doesn’t want to lose turf or standing to any of them.

The industry groups line up behind whichever government official gives their crowd the best seat at the table and then they go to their "friendlies” on the two financial services committees and buy most of those splintered votes, which is why omnibus regulation is always so tough to achieve.

Tougher and meaner regulators—with slightly enhanced powers—would be a better deal for the American public than a protracted show in the House Financial Services and Senate Banking Committees on these “fixing” issues, which have been around for years.

I may lose a lot of my friends with this next statement, but the type of federal regulator I have in mind……are individuals like Andrew Cuomo, New York’s Attorney General.

Now, I have made fun of Andrew for some time because of his incredibly large ego and his naked political ambition (not naked like his predecessor, though, thank God).
Cuomo’s press operation is next to none and if there was a market for it in the New York media, I am sure that his staff would put out a regular “The AG’s Bodily Function Reports.”

But whether he is running for Governor or President (King?), down the road, Cuomo has scared the hell out of the financial services industry and forced them to toe several lines he’s drawn. The public likes that about him.

There are various Obama regulators who could have taken the same tack and could have produced some of the same pro-public results, but they didn’t.

Cuomo’s record may be self serving, but it is a good "stand up to the financial powers" record. His actions have not been unlike my advice to the Obama Fed and Treasury appointees. Take a few prominent industry heads and bang them together or chop them off. They will notice it and so will their peers.

New regulatory schemes can be intellectually enticing, but until that happens, I am rooting for a few “Andrew Cuomo financial regulatory clones” to make federal financial regulation fearsome and respected not diluted and benign.

Maloni 9-16-2009

The MBA

noreply@blogger.com (Bill Maloni) — Thu, 10 Sep 2009 22:07:00 +0000

A few days ago, the Mortgage Bankers Association (MBA) unveiled its plan for the future of Fannie Mae and Freddie Mac. The trade association would turn Fannie and Freddie into smaller privately owned organizations which would issue not private but federally backed mortgage guarantees on conventional mortgage pools.

Huh??

Private entities don’t issue federal guarantees, which is why they are called “private.”
But a “federal guaranty” on a pool of “conventional” (not explicitly backed by the government such as FHA or VA loans) would sure be attractive for the issuer, meaning the mortgage bankers, virtually of all which today are owned by large commercial banks.

Simply stated, the mortgage companies and their “always with their hands out” large bank owners just want another sweetheart financial arrangement, using Fannie and Freddie and taking Uncle Sam’s money.

I’ve noted that the MBA should long ago have been taken in by the American Bankers Association (ABA), since “independent” mortgage banks ceased to exist when the large banks bought up all of the large mortgage companies.

MBA is a faux branch of the ABA and I hope most congressional policy makers realize that fact. Those Members and Senators—and their staffs--should make it a practice to ask “who owns you” to every visiting mortgage company exec, to see the reality of who is seeking what.

For years the MBA worked in league with Fannie and Freddie, but most of that stopped when the two major mortgage investors began introducing automated underwriting and massive systemic efficiencies, which were wonderful for consumers, but deadly for lenders who often found ways to charge unknowing mortgage borrowers for market inefficiencies.

When Fannie and Freddie started agreeing to buy lender loans within days and hours of being presented with the loan package, lenders—because of a competitive primary home mortgage market—couldn’t load junk fees onto borrowers, or the mortgagors would take their business elsewhere.

When that reality hit the mortgage market, the MBA suddenly found reasons to oppose Fannie Mae and Freddie Mac for all sorts of reasons.

The reality was that lots of mortgage bankers hungered for the old days when they could run up the cost of mortgage originations and make a ton of money on junk fees and other costs. But, the “new Fannie/Freddie mortgage technology world" turned ended that world.

To me, what is maddening about this latest suggestion is that the mortgage banker/commercial banker owners are looking for more tax payer financial support, to the billions they collectively have been given already.

Yet, they have largely failed at the one major mission which the Obama Administration gave them: restructuring or otherwise refinancing a few million underwater, upside down, and or otherwise salvageable mortgage loans.

I know why the mortgage companies and the banks don’t want to expedite this work. It’s not easy and it’s not profitable. Forget that many of these institutions—and their parents—already have been paid in TARP funds to do this one job, but it seems to escape their collective skills.

Which raises for me the same question I’ve asked before in this blog?

Why is the Obama Administration so accommodating of the large banks and their mortgage banking subsidiaries

I’ll repeat my “old West” solution to this vexing problem, since banks only respect regulatory power (which they constantly try and dilute).

Tim Geithner and Ben Bernanke need to begin chopping heads among TARP Fund recipient bank CEO’s and other senior financial institutions officials, who fail to move quickly enough on healing their share of this national mortgage problem.Set an enforceable goal of loans per month that the larger institutions need to restructure and then fire those TARP recipient CEO’s who repeatedly miss their respective goals.

The banks and their minions always will be first in line when Uncle Sam is giving out cash, but they hunker down somewhere—issuing press releases—when real work benefiting others is needed.

As I noted, the banks already have been paid by the federal government and likely will get more, so what’s wrong with our government demanding some accountability and insuring consequences when that minimal success isn’t forthcoming?

“Lockie”

Jim Lockhart, the former Fannie and Freddie regulaor was quoted last week as saying the Congress failed to pass legislation needed to fix the two companies.

Typical GOP ass-covering.

Let me remind Mr. Lockhart that the most significant Fannie and Freddie problems—which occurred when Mr. Lockhart was the primary GSE regulator in 2006--were the massive purchases by both institutions of billions in poorly underwritten Alt A and private label subprime mortgages, which later heaved red ink.

Gee Jim, all of that mess happened during the Bush Administration, on your watch and, apparently, with your blessing. You objected to none of those acquisitions.When you were Fannie’s and Freddie’s regulator, you did enough damage to them. Don’t muddy the waters, further, with self serving falsehoods aimed at indicting congressional Democrats for your shortcomings and those of other Bush financial regulators.

Maloni 9-10-2009

Banks’ Part in Mortgage Screw Up

noreply@blogger.com (Bill Maloni) — Thu, 13 Aug 2009 18:22:00 +0000

I have been sitting here in a DC hospital for almost a week and I found out this morning I’ll be here for another four days. Merde!!

I’ve tried two blog efforts, but have lost my enthusiasm part way through. In those I tried talking about Jim Lockhart’s departure, but not Jim Lockhart. (Let him go peacefully.) He did a more responsible job—consistent with the former GSE’s new conservatorship status--after the Bush Team left town than before.

I waxed about what I knew of some of the individuals whose names have shown up as possible successors at FHFA. Then, I wrote about the systemic implications of Freddie’s recent profits, as well as what it means for whoever next heads the company. However, the Muse escaped me.

Not any longer. in this blog, I want to discuss what the Obama Administration needs to do to fix this problem of banks slow walking the necessary process of re-writing billions in toxic mortgage loans.

First off, there are too many Administration “chefs” trying to cook this mortgage meal. Treasury, the Fed, FDIC, CoC, Fannie and Freddie, etc. etc. etc (positioning themselves for "huzzahs, when the job is completed).

They are using different operating systems and rules and not doing well, at all.

Geithner would have done far better picking on the GSEs and paying them $500 or some amount for every successfully converted bad loan to good loan.

A motivated Fannie or Freddie could have produced 2 or 3 million mortgage refis by now.

Last week, the Obama Administration was hyperventilating and gnashing its teeth about the snail effort by the mortgage industry to restructure underwater loans.

Treasury published a bunch of names of the least successful lender-mortgage restructurers, i.e. those that had most successfully avoided their responsibilities.

That’s a positive step, but ignores a major part of the “pace” problem, and it hardly is enough. These guys have armadillo skins, while claiming they are sensitive.

But, back to the banks. The other reason why the mortgage investors and servicers are moving so slow is that the government (Treasury) has supplied them with so much money that they think the Feds will give them more to do the necessary mortgage work they should have been doing all along.

The mortgage mess is more one for Treasury than the individual institutions.

Instead of just publishing the names of the miscreant big bank lenders, Secretary Geithner should fire as many major banks execs as it takes before the larger members of the industry get the message. Take away their status, cash, and perks and they can move quite quickly.

The banks don’t respect anything but brute regulatory force. Once displayed, you’ll see how soon they move to overcome the problems they claim are stopping them from doing the required mortgage restructuring.

Do it, Tim. Just do it and then step back and enjoy all of the rose petals and congressional praise aimed at you.

(Excuse any typos, etc. Written under less than ideal circumstances.)

Maloni 8-13-2009

Jackson, Fawcett, and McMahon

noreply@blogger.com (Bill Maloni) — Mon, 29 Jun 2009 18:51:00 +0000

McMahon: “Mighty Karnack, here is the answer. ‘Michael Jackson, Farah Fawcett, Ed McMahon, and Mark Sanford.’ Can you give us the question? “

Carson: “Yes I can. Name a bizarre Thriller, an Angel, a Top Banana, and a schmuck.”

Jackson, Fawcett, and McMahon, who died within 48 hours of one another--were superb entertainers, who--thank God--brought more joy and happiness into their fans lives than the pain and heartache associated with the ditzy governor, who garnered so much media last week. Notably Jackson can lay claim to being the King of Pop, as well as the King of Weird, but he was a helluva performer/entertainer. The final scenes of “Thriller” still shake me.

Here’s hoping that MJ’s father, Joe Jackson, gets absolutely nothing from Michael’s estate, which certainly will grow exponentially following his death. It’s my impression that most of Michael’s family played blood suckers to his host role.

And, don’t get me started on another Jackson, Jesse. My mother, who grew up in the early part of this century and whose father sold fruits and vegetables form the back of his horse drawn wagon, used to have a saying that was real life for her.

“He’s like horse s__t. He’s everywhere!”

Saltpeter

A GOP long time friend responded to the Mark Sanford story by telling me, “The Republicans need a dose of saltpeter.”

As tempting as it was to agree with that statement, I countered, “Bulls__t. John Edwards, Elliot Spitzer, etc. etc.

MSNBC documents 23 sexual peccadilloes involving Governors, Senators, Congressman, and Mayors, since the Clinton/Lewinsky scandal.

Sanford’s personal stupidity and rambling “confession” has nothing to do with partisan follies. This is just the latest example out and out political egotism.

It is behavior wrought of years of being called, “Governor, Senator, Mr. Chairman, the boss,” and the toadyism that goes with it.

I don’t care how “quiet and mellow” the candidate is, you have to be an egotist to seek public office and when they win, the phony adulation and automatic institutional respect blind some of them.

As I wrote to a few friends, some pols believe that they are invincible and the normal rules don’t apply to them, because they are “_________.” (You fill in the blank!)

If you can believe Governor Sanford, this romantic “spark “ ignited, shortly after he vowed not to take the federal stimulus grants, so desperately needed by the unemployed in South Carolina and the state’s sagging economy.

I am sure that there is a ribald connection somewhere between “stimulus” and “spark,” but—right now—I don’t care to know it.

I can’t counsel a man leaving his wife and children, but if Sanford’s real feelings are anywhere near what he expressed in those steamy emails to “Maria,” his family ties seems barren and he should figure out a way to be with his Argentinean lover.

His very together wife, Jenny Sanford (kudos to your Madam), says she’ll take him back, but doesn’t seem to overly interested in the prospect.

I am betting that he resigns the governorship and heads south.

What others are saying. From Charles Blow of the New York Times:

There are Democratic sex scandals to be sure, but Democrats didn’t build a franchise on holier-than-thou moral rectitude. The Republicans did. They used sexual morality as a weapon and now it’s shooting them in the foot.
Sanford voted to impeach Bill Clinton during the Monica Lewinsky saga. According to the Post and Courier of Charleston, Sanford called Clinton’s behavior “reprehensible” and said, “I think it would be much better for the country and for him personally” to resign. “I come from the business side. ... If you had a chairman or president in the business world facing these allegations, he’d be gone.” Remember that Mr. Sanford?

Russia, China, and Iran

Once again, our “friends,” the Russians and the Chinese, seem to been protecting Iran from world condemnation and censure, while China weighs in with more help for North Korean and its Munchkin dictator.

Some of my conservative friends think a few well placed nukes can solve all of our problems, but I doubt an American-blessed military attack--to take out the two countries nuclear capacity—likely isn’t coming.

But, I sure hope the Obama Administration doesn’t forget the Chinese and Russian behaviors when we truly have a chance to return the favor. We can’t be that powerless.

Sorry, but the Russians never will be anything but thugs. Their national characters hasn’t changed dramatically since the end of World War II. No matter who runs the place, it’s a thieving conniving nation and many of its citizens behave the same way.

(“How do you know a Russian diplomat is lying? You can see his lips move.)

The Chinese—since they own some much of our debt and therefore our country—can truly be meddlesome and manipulative if they chose. We can’t shut them out of our markets or open theirs to our products, and we need them to buy our government IOUs.

But, once or twice, I would like to rub their noses in it.

Go get them, Hillary!

Financial Re-Regulation

The facts are that nobody in the financial regulatory community did a very good job of stopping subprime lending or the complex securities and hedges Wall Street created to "protect" both sides of the deal.

Nobody did very much regulating or whistle blowing, not the Fed, SEC, Treasury, Comptroller, FDIC, OTS, or the GSE regulator (OFHEO/FHFA), the President's economic advisers, the Congressional Budget Office, the two congressional banking and finance committees, or the Joint Economic Committee.

That doesn't mean individuals at those institutions didn't see some problems or even anticipate what would be necessary to stop them before they hit full throttle.

The problem was--and will continue to be, even if a new "systemic risk" agency is created or that portfolio is given to the Fed--how do you get the rest of government to believe you if you see something “bad,” early.

Given all of the conflicting economic and political interests, how do you quickly implement ameliorative policy changes??

Look how hard it's been for this President, when so many sectors, save the diehards in the conservative community, agree that there is need for federal financial relief and economic intervention.

Who will believe any existing or new financial agency of our government, before disaster hits?

Solve that little problem and you’ve found where to put the maximum amount of the nation’s new financial oversight and regulation.

Maloni 6-29-2009

Hockey and Financial Reform

noreply@blogger.com (Bill Maloni) — Mon, 22 Jun 2009 23:49:00 +0000

Two things brought me out of my blog-a-lethargy, a hockey game and President Obama’s financial regulatory reform plan.

I am sure that only Henry Gonzalez, my late father, mother, and brother—plus the others hanging out in heaven—remember what I wrote in my final blog of last year.

In my “2009 wishes blog,” among other things, I asked for the Pittsburgh Steelers to win Super Bowl 43 and the Pittsburgh Penguins to win their third Stanley Cup hockey championship. I had hopes for the Steelers, but never thought the Pens could pull it off.

How wrong I was about the latter, as the boys in black and gold, responding to a late season coaching change, beat the defending National Hockey League champion Detroit Red Wings, in a dramatic series, with Pittsburgh’s clincher coming in Detroit in Game 7.

Pittsburgh, the city where I was born, which I still call home despite living for 40 years in the DC area, and which I love, truly is the “City of Champions,” with major sports wins this year in professional football and now hockey. (They also were the "CofC" in 1979, thanks to the Steelers and the baseball Pirates.)

(Current Pittsburgh T-Shirt, based on the foregoing, with depictions of the Super Bowl trophy and the Stanley Cup, it reads, “On ice or grass, we’ll kick your A--!”)

Since I try not to speak ill of the dead, athletically or otherwise, let me note that I haven’t written about the Pittsburgh Pirates baseball team—except in a brief 1979 historical fashion—because they have amassed a record of 16 consecutive losing seasons and, with much futility displayed in the current 2008 campaign, likely will set a major league record of 17 straight losing season.

Financial Regulatory Reform

It’s too much; it’s not enough; try discarding more than you enhance.

The Administration seems to have watered down its own financial regulatory plans and settled on a lot of form but little substance in a scheme which seems to have drawn fire from m many interests, except some of the major banking institutions.

Hmmmmm?

We had a major financial mess, caused in part by lack of strong financial regulations and we still are in the middle of it—as President Obama knows, politically—so the traditional low risk political approach is to proposed something which looks dramatic but in fact isn’t.

Yet, in satisfying critics before the legislative process begins, the Administration—which predictably will make more concessions—may not have solved many of the financial problems we and the world face.

Suffice to say, if the Admin could produce a cadre of strong regulators, they wouldn’t have to change much of the current financial regulatory terrain. But, I guess they can’t, so they throw up some structural changes (not enough) and some rules changes, pray they work, and hope for the best.

Go ahead and codify it, but the Fed already has the authority to assist any company—of any sort—which it deems needs help. It’s “systemic risk tools,” are hardly marginal, either

I already laid out my scheme—which never would pass congressional muster—because it gives too much power to the Fed, which already has a bunch of D’s in the House clamoring to dilute its authority.

These complaining Members should look at the Paul Volcker Fed's history, see the lengths to which Congress and the interest groups went demanding his head, and then internalize why those critics were wrong in the 1980’s and just as wrong now with Ben Bernanke.

Here are some simple (for me to suggest) regulatory reduction suggestions for the Obama Administration and the Hill as they go about financial reform.

You don’t need a Comptroller of the Currency's office just to give the Treasury Secretary redundant say over national bank regulation; you don’t need the OTS, because all of those small banks can be handled by the Fed and the FDIC; you don’t need a Commodity Futures Trading Commission, when you have a Securities Exchange Commission, unless you believe all of those farm interest Members and Senators, who think that ag products securities trading will get lost at the SEC. You don’t need a Home Loan Bank System (apologies to my friends who work in them or represent them), since there is nothing they offer the industry that the Fed’s discount window can’t give those smaller institutions.

While you are at it, swap out state regulation of insurance companies for federal control and if you have any time, energy, and political will, do the same for state charted banks.

Political Advice for the President: People in the business want their pet regulators and people on the Hill want their pet agencies. This is Washington, be skeptical and cynical (at least privately). Any financial interest which likes your current financial re-regulation proposal probably hasn’t been discomfited by it. Break some eggs. That's the only way to make an omelet.

The GSEs

The Obama Administration signaled that it wasn’t going to change—this year--how Fannie Mae and Freddie Mac are being employed, i.e. in a very non-conservation mode, carrying out public policy, with little regard to what the real costs are of running a national secondary mortgage market.

When the two were "nationalized," they were supposed to be run as conservatorships, to allow for their eventual revival as public companies.

Both congressional chambers said last year that they would—in 2009—decide the future role and structure of Fannie and Freddie. They won’t have to now that the Administration suggested it will wait until the FY 2011 Budget (February 2010) to offer GSE policy recommendations.

Speaking of Fannie, there was a sad development involving a Fannie attorney alumni, who the Administration plucked from a law firm to be General Counsel of the Army.

Donald Remy worked at Fannie for about 7 years, between law firm gigs, and he was a well liked colleague, who labored on employment and corporate conduct issues for the com[any.

Somehow, Remy’s official Senate confirmation papers (bio, background, etc. etc.), did not specifically cite his Fannie Mae service. One report said his papers disclosed that he worked at (paraphrasing) “a major international financial services corporation in DC.”

Bottom line, that discrepancy killed his appointment and he withdrew his name.

Nobody who knows him thinks that Donald Remy did that on his own. Someone in the Administration had to bless this description and Remy’s documents.

The issue for me is why all of the subterfuge and camouflage? Why is Fannie Mae service a “scarlet letter,” in the eyes of this White House, which still has managed to find spaces for a few talented ex-Fannies?

Fannie’s real business problems occurred in 2006, under a Republican CEO, who chose to buy billions in destined-to-fail lousy mortgage products and who left the company under pressure, not unlike a lot of the Wall Street and big bank shamed and besmirched, who lost their jobs and shareholder money.

So, some no-nothing GOP Senators and maybe even a Democrat or two would have complained, “Remy worked at Fannie Mae.” So what? He didn’t do the mortgage deals and he didn’t rub shoulders with the private label securitizers or the lenders who sent billions in Alternative A mortgage crap to the Fannie portfolio. And, he didn’t compromise his principles on Fannie’s important housing mission.

This episode’s shame doesn’t rest with Donald Remy.

Note to White House

Forget how much we—as a nation—love President Obama’s persona and his family.

The public is getting anxious. Too much federal money is being committed with too little return. Promises don’t cut unemployment numbers.

Yes, I know it barely has been six months, but reading “chicken salad results” into so many chicken crap economic reports can’t fool the public.

They want jobs and some prospects that the monstrous deficits won’t grow continuously.

Bite the bullet and make hard choices, no matter what some in Congress claim they want.

If you will lead, they will follow, especially if the public agrees with you.

Less rhetoric, please, and more action.

Maloni, 6-22-2009

The Blog Is Sleeping!

noreply@blogger.com (Bill Maloni) — Sat, 30 May 2009 02:50:00 +0000

Until some point in the future when evil raises its ugly presence!!

“That Swine Flew!”

noreply@blogger.com (Bill Maloni) — Mon, 04 May 2009 17:15:00 +0000

Who is going to stand up to the large banks? When are we going to have enough of the banks’ selfish, me-first, screw the consumer, screw the public, screw the government attitude?

This always has been the bankers’ MO, but—in good times—people tend to look past it. However, banker greed and selfishness stands out more starkly in these tougher times.

I know banks are not social institutions, but they are chartered by the states and federal government, so they have some responsibilities and obligations, besides taking every penny of TARP funds and Fed cash on which they can get their hands.

What have we reaped for financially supporting them?

Let’s see, the banks have opposed Sen. Dick Durbin’s “bankruptcy changes,” which would permit bankruptcy judges to ease mortgage foreclosure costs for defaulting borrowers. The banks have opposed changes to the credit card laws that would prohibit the worst of their pricing and marketing practices. President Obama just singled out the banks and the hedge funds to their opposition to taking a “haircut” on their Chrysler “assets.”

In these difficult times, why should banks figuratively stick out their tongues and refuse to help or do their share, when US taxpayers, labor unions, the federal government, suppliers, small and large businesses, and others, not to mention furloughed or fired employees, feel the pain?

“Yes,” commercial banks have first amendment rights and “yes” they are permitted to oppose legislation they don’t like. But, do we still have to pay them as they screw the public?

The Treasury and FDIC should let a few more go belly up and stop “TARPing” a few others, until the banks drop their intransigence and rein in their greed. (There is precedent for no institutional interactions with Capitol Hill, in the Fannie/Freddie takeover. Treasury Secretary Paulson—as part of the “aid agreement”--banned the companies from having or employing congressional lobbyists. I say apply the same rule to the TARP recipient banks.)

Banks and their reps love the federal support but love to complain about any concomitant federal obligation. The banks’ congressional apologists still are complaining that commercial bank “CRA lending requirements” (Community Reinvestment Act) caused part of the financial meltdown.

Does anyone, beyond Jed Hensarling (R-Tex) and a few others, really think that because banks made a few loans to lower income families in lower income neighborhoods (many of them minorities) that the wheels came off those institutions or our financial system?

Even though that’s more bank propaganda, I think that many financial service advocates believe it.

Obviously, these blind solons have never heard of the Wall Street firms and their “private label mortgage securities,” filled with financially toxic subprime loans which were originated for and by the same investment banks through their captive mortgage broker networks?

I guess those facts of life just don’t exist in the House and Senate Republican caucuses. (The GOP is going to be surprised by the “Truth Commission’s” product!)

It’s not in their institutional personalities, but somebody at the Fed or the Treasury may want to call those big bank boys in, again, and explain to them some of the cruder facts of life.

Better yet, just have them meet, a second time, with Obama Chief of Staff Rahm Emanuel, who I am certain could make himself easily understood to the banks about why what they have been doing is objectionable, while they sup at the federal breast.

One observer wrote last week that the banks actually were hurting themselves by opposing bankruptcy “cram downs,” because the failure to support bankruptcy relief to single family homeowners will undercut the value of other homes which banks hold as security on mortgages and other consumer loans.

She wrote, “The bankers and their lobbyists on the Hill just did not get this. They may be voraciously greedy and anti-democratic, but, ironically, they are not pursuing their own best interests. By defeating Senator Durbin's amendment, they are voting for more foreclosures, more bankruptcies and more bank failures. In other words, they are like turkeys voting for Thanksgiving.”

All is not lost! The nation has been handed one saving grace by the misbehaving banks and, as with many things, it was an accidental blessing, but one I’ll take all the same.

Just two weeks ago, a large commercial bank walked away from another mortgage commitment it had made, this time to an elderly gentleman, steeped in Southern culture.
Rather than resort to swearing, to describe the bank’s actions, the man just told a friend, “That swine flew!”

Like magic the man’s description of big bank behavior caught on. Everywhere I turned I heard the phrase being used. Of course the public’s overreaction to the possibility of a Mexican pandemic coming north may have helped some. But, I knew what all of those people were really saying.

I think “Swine flu or Swine flew” is a great description of how banks recently have treated their customers and depositors.
So why are the Treasury and Fed still pushing money at the banks?

Mike Bradfield

Congratulations to Mike Bradfield on being named General Counsel to the Federal Deposit Insurance Corporation. Mike was GC for part of my time at the Fed, back in the early 1980’s, and earned his central bank nickname of “Spike.”

Maloni 5-4-2009

On Break!

noreply@blogger.com (Bill Maloni) — Fri, 24 Apr 2009 03:37:00 +0000

Will come back, when Muse returns.

Maloni

Yea Cher, “If I could turn back time...”

noreply@blogger.com (Bill Maloni) — Wed, 08 Apr 2009 03:06:00 +0000

Fannie Wasted $2 Billion and Much More

The Financial Accounting Standards Board (FASB) blinked last week—just before Congress forced it—and announced changes in its “mark-to-market” accounting requirements, noting that concept may not be appropriate, as in times when there are no “market” prices from which to mark your securities.

This burst of logic and institutional insight came a few years too late for Fannie Mae, which challenged FASB, in 2003, when it first proposed the accounting change.

Fannie did not challenge M2M per se, but did object to FASB’s plan to require businesses only to M2M their hedging transaction and not simultaneously requiring the same treatment to the underlying assets they were hedging.

Tim Howard, Fannie’s CFO, argued--in 2003—that FASB was not illuminating corporate balance sheets but creating financial distortions with this disparate treatment.

Fannie’s objections and those of many other firms were unheeded, dismissed and FASB approved mark to market mandates and they became standard accounting practice.

Fannie Mae thought it had a way to accommodate FASB’s desire, but—in 2004--the SEC--in what I always will believe was a political hatchet job directed from the Bush White House for sins of previous senior Fannie officials who were active Democrats--opined that Fannie “wasn’t on the same page with FASB.”

Given fresh red meat by the Bush team, the anti-GSE lobby turned it into cries of outrage and charges that Fannie’s books were bad and its officials were trying to reap bonuses on results of their cooked bookkeeping. (And, those were the nice things they said!)

(Apologies to Dr. Seuss) “What Did the New Fannie Crew Then Do?”

In late 2004, Fannie’s Chairman and CEO, Frank Raines left Fannie Mae, insisting the company did not intentionally defy FASB. Other heads rolled, reputations forever were sullied and Fannie Vice Chairman, Dan Mudd, a Republican, become the new Chairman/CEO and promptly approved paying over $400 million in fines, which some labeled “admissions of guilt.” Mudd went on then to spend over $2.2 billion of corporate dollars to clean up the old books and make them compliant with the new FASB rule and ultimately with the SEC’s requirements.

To “repair” the books—meaning recast millions and millions of mortgage transactions to fit the new FASB norm--Mudd brought hundreds of contract auditors into the Fannie headquarters, had them squatting in every nook and cranny. Every available inch, plus new rented spaces were taken over and replaced. The headquarters cafeteria gave way to desks and cubicles; executive office spaces were relocated and reduced, so that auditors could go over millions of mortgage transactions from the previous several years and “package them, according to the new FASB 133.” Corporate operations were significantly disrupted as this “required” work was carried out.

But the damage was done. Fannie’s institutional reputation was sullied in a way that no explanation would clean up. The company lost whatever industry and political support it once enjoyed, as, mainly, the Right now had the cudgels to batter the GSEs, and batter and bash they did and mightily.

The recent FASB rollback of M2M caused me to wonder how much of that truly was necessary, although the political scourging of Fannie made some of it mandatory.

Roughly five years have passed and FASB now guts FASB 133 and meekly says, “Um, oh, mark to market, well maybe it isn’t always appropriate and maybe we shouldn’t have promulgated it in the way we did.”

Too late for Fannie’s shareholders and the $2 billion it spent comply with something that now has changed; too late for ruined lives and careers; and too late for Dan Mudd, the Fannie CEO whose business calls lead the company down the tubes when he approved purchases of Alt A mortgages and Private Label Subprime (PLS) mortgage securities, in 2006 and 2007. That desperate step—similar to ones taken by executives throughout Wall Street and elsewhere--was disastrous, a money losing proposition, which caused the Treasury to ask Mudd to leave his job and depart the premises.

It is not hard to envision a different scenario and a far different result.

Had FASB did not go down the M2M road it did with FASB 133, it would have been tough for the SEC to allow itself to be ideologically used and claim Fannie Mae failed to meet the FASB 133 requirements (which now have been junked). Fannie never would have had the management disruptions and Mr. Mudd never would have had to make the tortured decision to invest in the toxic subprime loans, because his predecessor—Franklin Raines--still would have been in charge and Raines never would have countenanced that subprime acquisition.

Sing it, Cher!

Why Did We Make Them “Private Companies?”

About six months after the outgoing Bush Administration appointed him head of Freddie Mac, David Moffett walked away from the job bitching about government bureaucracy and interference with management’s decision making. The latter, presumably, from the Federal Housing Finance Agency, which has been named by Treasury to guide day-to-day operations of Freddie and Fannie Mae.

The problem is that GSE decision making, historically, is more minute by minute, than “day by day,” let alone longer intervals.

Now, in a recent filing with the SEC, Freddie’s claims that FHFA is undermining Freddie’s ability to make a profit,” which—I guess—the company still is supposed to do, since it has some private shareholders in addition to the Treasury which helped itself to 80% ownership of both companies when they, essentially, nationalized Fannie and Freddie late last year.

FHFA and its Director, Jim Lockhart, reportedly blinked, after Freddie officials threatened to take their complaint to the SEC, and allowed Freddie to note its FHFA disagreement in the company’s 10Q filing.

Nobody likes to be reminded of “details,” but there was a reason that Congress created Fannie and Freddie as “private companies” with federal charters, when it had the option to put that desired secondary market execution inside the federal government at HUD or in the FHA.

Congress didn’t want government employees and government bureaucrats making private market decisions, which often require closure in seconds, minutes, or hours, not days, weeks and months.

Yet, this is what now is happening as government bureaucrats try and run these companies, pretending they have the same instincts and priorities. They just don’t.

Congress Should Choose!

This leads me into the latest brouhaha over some financial benefits, retention bonuses, or whatever GSE and FHFA managers are calling the additional comp they want to expend on the companies employees, who now will be helping the Treasury and other regulatory agencies with their mortgage tasks and not working solely on Fannie and Freddie matters.

When compensation is the issue, the natural reaction from the Hill is to bail and condemn Fannie and Freddie for some perceived shortcoming. (Note to Neanderthals,” see previous FASB item.) The GOP tried that during the recent presidential campaign and it didn’t help John McCain. Some R’s continue to make this bogus charge against Fannie and Freddie but convince few people who know the identity of the real villains in the subprime mess. (The toxic mortgage assets, which have brought down financial services firms all over the world and put our government in “the toxic mortgage business,” are almost exclusively “PLS” or “Private Label Securities, issued by Wall Street investment banking firms not Fannie and Freddie. Face it GOP, they mostly were your guys.)

The Obama Administration did not give HUD, FHA, or Ginnie Mae new responsibilities with regard to the government mission to acquire, manage, and sell hundreds of billion of dollars in toxic assets. Those government agencies just are not up to the job. They don’t have the talent, experience, or skills to do what needs to be done. Instead, Treasury is looking to the former GSEs to take on a significant share of this load.

This gets me back to all of the noise that comes out when the secondary market “firms” (Yes, Fannie and Freddie still are traded on the NY Stock Exchange) and their regulator agree to increase employee compensation and folks on Capitol Hill immediate threaten and moan.

Congress could say, “Don’t pay them one penny more” and then watch as Fannie and Freddie employee morale plummets and the work force slowly melts away as other opportunities present themselves. Or, it could give HUD the task and let FHA and/or Ginnie Mae carry out identifying, pricing, and managing hundreds of billions in toxic mortgage assets.

The best option is for Congress, wisely, to just butt out and let Fannie and Freddie officials, their regulator, and the Treasury work out those matters.

Maloni 4-7-2009

How I would Remake Federal Financial Regulation

noreply@blogger.com (Bill Maloni) — Tue, 31 Mar 2009 01:20:00 +0000

(Disclaimer: After working on the Hill for 11 years, I joined the Carter Administration, in 1980, as Director of Congressional Liaison at the savings and loans regulatory agency, the Federal Home Loan Bank Board. I took a similar job with the Board of Governors of the Federal Reserve System, in 1981, when Paul Volcker was Chairman. After toiling at the Fed for 30 months, I moved to Fannie Mae, from which I retired in 2004, after 21 years of lobbying. The Fed was and still is a powerful place, with many thoughtful/capable employees. When I worked there, the Fed showed--and still may carry the vestiges of--a disdain for the mortgage finance industry. Home loans were not big banking business, then. They are today. But expanding the Fed's regulatory role is a better alternative than perpetuating federal regulatory competition.)

Time for a Major Change!

The Obama Administration and Congress need to substantively refurbish the federal financial regulatory network, which failed us as a nation during the Bush years and continues to provide more questions than answers.

Rhetoric to the side, federal policy makers have an opportunity today to drive a significant restructuring or just could wimp out and merely change the coverlet on the financial regulatory bed, introducing some pretty new colors, but leaving in place soiled blankets and sheets underneath.

The early Obama/Geithner plans look more like the latter than the former. The President needs to be bolder.

I would take this historic opportunity, which combines national problems, international financial challenges, the American public’s desire for some serious new approaches to governing, and the popularity of President Obama to truly produce a whole new regulatory fabric.

I would not create a new federal financial regulator to oversee “systemic risk,” or just those companies which on their own could bring down serious segments of our economy or the whole ball of wax, if they faltered or failed.

I would not expand the powers of the SEC, giving it more control over hedge funds, equity funds, insurance companies, and other larger than life institutions.

The Fed, The Fed, The Fed

What I would do is take those disparate powers and authorities and give them to all the Federal Reserve System, right now. Don’t stop there. Give the Fed control over all state banking and insurance regulation, too. Get the states out of those two businesses.

The first one to say “no” will be the Fed, but it should be ignored for the time being. It will say it doesn't want “all” of that power (disingenuous, at best, since It has a great deal of it, already).

Face it; the Treasury already is powerful because it is the President’s political voice on financial and economic matters. The Board of Governors of the Federal Reserve System is all powerful because it is the nation’s central bank, manages our national monetary policy, and regulates several dozen bank holding companies, which means the Fed already control lots of control over the banked assets, the payments system and the banks' far flung holding company empires.

The SEC wants its hand made bigger and the Administration starts much of this with the Geithner demand for a wholly new “systemic risk agency,” which can control all of those hedge funds, private equity firms, and everything else “Too Big to Fail (TBTF),” already not tied down by one of the existing financial regulators.

If the Congress goes this route, they merely are recreating a more competitive version of the confusing mess we now have, but this time with four weighty regulatory principals able to bring things to a halt or worse give a green light--either actively or because they misread the threat--to some financial miscreant, no matter what the other regulatory agencies think. (See SEC and credit fault swaps and…well, you remember.)

Don’t Just Create Competitors, Reduce Confusion, Build Strength

The overlapping and sometimes conflicting existing federal financial regulators (FDIC, SEC, CFTC, OTS FHFA, CoC, NCUA, etc.)—plus the fact that the insurance industry, mortgage brokers, private mortgage insurance companions, title insurance companies, etc, as well as the fact that 8000 banks are regulated by 50 different states—has helped produce the ineffective system we have.

End that morass. Off with their institutional heads!

Mr. Obama, if you are going to fix healthcare, the environment, and create a true national energy policy, then go right along and fix financial services regulation as a logical part of your economic initiatives.

It’s just a different pew in the same church!

Failing to give significant new authority to the Fed over all financial institutions, while doing away with the rest of the regulators, just will create a new set of Washington financial turf rivalries like we already have.

The Fed will tell you that it can’t do what I suggest and that it needs to concentrate on its monetary policy mission, and it does. But it already oversees the nation’s bank holding companies, which means it already has regulatory authority over a major section of the nation’s assets, payments system and principals. Its debt ratio regs also cover the hedge funds.

Congress should make de jure what is de facto. Give total power to one already powerful Federal Reserve System, including the regulation of the insurance industry and end the abuses of McCarran-Ferguson, i.e. the 1945 federal law which perpetuates state regulation of insurers.

Do we want the U.S. to have brave new financial regulatory world—where banks, other depositories, insurance companies, investment banks, hedge funds, equity firms, and others, all play by the same rules (including Fannie and Freddie, and the Home Loan Bank System, assuming they survive)--or do you just want to change the surface colors in the guest bedroom?

Yes, at the margin, the Congress greatly would enhance Fed power, but more importantly it also will reduce duplication, waste, inefficiency, and unnecessary bureaucracy.

Regulate the Unregulated

Under my all-powerful Fed approach, investment banks, hedge funds, private equity funds, etc, which will get far more regulation or a new regulatory regime will howl--as they already have begun --assuring you that they are for “systemic risk regulation,” but need their little industrial niche carved out because they really don’t have to play by the same rules.

Don’t buy the defensive arguments about how they are “unique and different.

They all borrow money (from someone) at one price and try and invest it at a higher one, living off the spread. After that, it just a matter of sorting out the different names.

Use the Obama audacity and Tim Geithner’s funky freshness (if you can’t use Paul Volcker’s skill and reputation) and do something structurally and dramatically dynamic and seismic.

The affected industries will complain and the GOP, I am sure, will say you are seeking “Kremlin like powers” over the financial services industry or “Soviet-style fianncial regulation.” Many in Congress will bitch, too, because they like to have their own “pet” regulatory agency to throttle or from which to generate institutional obsequiousness. (“We thank you, Mr. Chairman for agreeing with our agency and for your foresight and keen intellectual….gag, yak, spew.”), not to mention industry financial contributions.

Listen politely to those arguments, but let them go in one ear and out the other.

Because it is the nation’s central bank and does conduct monetary policy, the Federal Reserve Board always will be the most prominent regulatory agency in the Capital. There’s nothing wrong with that. I’m just saying make it even tougher.

The Fed and its Chairman now get the lion’s share of Congress’ attention. In part because of the mystery which surrounds its work, it garners the media’s focus and it gets grudging bows from the other banking agencies.

Congress should acknowledge that truth and expand on it. Don’t create dilutive Fed competitors.

We already have the existing residual political power in the U.S. Treasury, and now, possibly, some new concentrated power in a brand new “Systemic Risk” unit, while expanding/maintaining the SEC and leaving in place other agencies which policy makers won’t have the political will to atomize.

What in this structure guarantees the cooperation, complementary behavior, coordination and early discussion which didn’t exist for much of the past eight years (and equally for many years under the Democrats, who did not face these serious external economic challenges)? In other words, the model wasn’t really good when times were good.

A gradual enhancement of regulatory authorityand a new "systemic risk agency" is neither much progress nor much “change.”

Put all of the authority in one institution, under one person--the Fed Chairman--and let the Federal Reserve sort out the regulatory pieces over banks, thrifts, insurance companies. investment banks, holding companies, hedge funds. The Fed can have “managing directors” and oversight units for those each industries all reporting to the Board of Governors or a Board governor for each of them, with his/her own jurisdiction. But, all financial services actions get coordinated by that Board.

The Fed will figure it out a lot faster than the Hill and likely do a better job than a new model with watered down regulatory powers for several agencies.

We’ll survive as a nation, if President Obama breaks all of the old regulatory china. So will all of those financial companies and groups who call for regulating everyone but themselves!

Maloni 3-30-2009

When the Going Gets Tough....

noreply@blogger.com (Bill Maloni) — Tue, 24 Mar 2009 16:07:00 +0000

Hard Times

As hard as these times are, I hope everyone can dig deep and contribute to the “Campaign to Keep Andrew Cuomo in New York” fund. Your pennies will go a long way.

Timmy Geithner

The best news for Treasury Secretary Tim Geithner, next to today’s market reaction to the “new” (read “detailed”) toxic mortgage acquisition plan is that some people are calling it the “Geithner Plan.”

Of course, “what makes me strong also makes me weak.” The fact that people already have attached his name to the effort makes its success all the more crucial to his ability to succeed in his job.

For the nation’s sake (and indeed the world’s financial markets), I hope TG is a smash hit with the new inititaive.

The interesting thing here is this was what had been the original Paulson scheme, although after spending about $300 billion pumping up individual financial services institutions, Hank Paulson and President Bush did a turnabout and changed their minds.
That uncertainty has been costly, but is also a reflection of the reality that nobody has a fool proof plan to fix the economy and do so quickly. The policy makers think they finally have it right and the various “cash/credit” infusion plans should bring our markets back moving toward real growth that will lift employments and revenues.

But righteous and some not so righteous opposition was heard immediately. “Dr. No,” Republican Congressman Eric Cantor, already has come out against the Geithner Plan, so there must be something good to it.
.
Paul A.Volcker

I confess I am not a Treasury Secretary Tim Geithner fan. He just doesn’t have the feel of being ready for prime time, Monday’s performance not withstanding.

I am not a Larry Summers guy either, although I think he moves a little easier in Washington power circles than Geithner. But Summers’ Harvard history and even his work in the Clinton Administration probably suggests he stay behind the scenes, not upfront making policy.

Paul Volcker has the temperament, the experience, the gravitas, the worldwide respect and—I hope—the will to make the tough decisions that this Treasury needs to make. As I closed with last week, I hope that President Obama eventually finds a way to name Paul Volcker his Secretary of the Treasury, assuming the big man is up to the pace of the demanding responsibilities.

He certainly was in 1983, when as Fed Chairman he—alone—led the fight against inflation, all the while managing an angry Congress, which secretly rooted for him to win, but bashed him constantly and viciously.

Working at the Fed for Volcker back then was an insightful education. I remember a visit we made to one Freshman MoC, who was on the House Banking Committee (as it was called then). In some hearing, the Congressman asked Volcker for a meeting. When we arrived at his office, the Member was so overcome with excitement that Volcker could have asked the freshman to polish his shoes, bring him a cigar and coffee and the Congressman, unquestionably, would have agreed.

Instead, Volcker suggested that the Member have a staffer take a picture of the two of them, with the MoC shaking his finger in the Fed Chairman’s face, so the guy could report back home that he was representing his constituents against the Fed’s high prices campaign.

It was a small thing, but the judgment of a wise man, which made an ally for life with his photo suggestion.

Geithner and Summers have strengths, but not as many as Volcker.

Keeping Volcker handy also will be a plus in a few years when the inflation inevitably returns, caused by the massive increase in credit that has been necessary to break out of the years of laisez faire inattention under recent administrations as well as what is shaping up as heavy Obama spending.

Howling Mob and the Bonuses?

It’s not quite at the mob level—and I sense a cooling off and some more level headed thinking--but the reaction to AIG bonuses was scary. It drove near instant legislation last week in the House, while the Senate works this week on its own version.

I read the response of one United States Senator (a Democrat) and it was chilling in its language and vituperation. Another solon, Sen. Chuck Grassley (R-Iowa) suggested ritual suicide for AIG’s bonus keepers.

Frankly, I hope for better answers and behavior from both parties.

When I was working, I never chose to defer compensation. Instead, I took what I made and used it at the time for whatever family needs we had.

Many people I knew, however, used deferred comp as a way to enforce savings and assure themselves that when they retired, those financial sacrifices—to which they contributed while working—would be there for them.

The House bill, approved last week, in response to the AIG bonuses, wrongly threatened deferred compensation payments (employee savings), which Fannie Mae allowed their workers to take in January 2009, rather on whatever date they initially chose when they started in the program.

I hope the Senate can straighten out this confusion. The Senate should make whatever judgment they might on “retention bonuses,” but ‘clawing back” employee savings plans is not what the Congress should be doing.

Condolences

Rob Levin and Ken Bacon, two friends and former Fannie colleagues, lost their fathers last week.

Bill Maloni 3-24-2009

Tit for Tat, Not Necessary nor Desirable

noreply@blogger.com (Bill Maloni) — Tue, 17 Mar 2009 19:40:00 +0000

To the Obama Administration, Robert Gibbs, and other D spokespeople give the overcharged rhetoric a rest.

Just as I advised the GOP to zip their lips on the Democrats’ Rush Limbaugh challenges, so too should you guys not respond to every single GOP slight. You are the winners, they lost, and lost big time.

The Republicans are taunting and agitating, because you have the political power which they want and they have no true alternative policy options.

Democratic rejoinders to every snort by Cheney, Rush, Michael Steele, Eric Cantor, Mitch McConnell, and the rest of the GOP, is both unnecessary and merely perpetuates the poisoned political atmosphere you claim you want to stop—and which many Americans want to see end.

The GOP is out of power and losing lots of support and is resorting to name calling and taunting. The party is desperate.

Show some resolve and confidence Democrats and skip, say, at least every other opportunity to strike back.

You’ll lessen the angry rhetoric and save the nation another day of political caterwauling.

Dick Cheney

Having said all of the previous, even I am aghast at Dick Cheney’s outrageous and hypocritical behavior.

He’s out there humping for “Scooter Libby,” his chief of staff, whose lying under oath protected Cheney and resulted in Libby in being charged and found guilty by a grand jury of obstruction and perjury.

Libby has stayed silent about his boss’ role in outing Joe Wilson’s wife, the then CIA official Valerie Plume, and I guess Cheney wants to insure that Libby never reveals those truths, with his vigorous defense of the man Cheney believes “W” hung out to dry.

Go away, quietly, Mr. Cheney. You, personally, did more damage to the Constitution than any of the Obama economic efforts about which you are railing.

Plus, most of America saw your nose getting longer, as you distorted history in your John King NBC interview.

I am a Republican, Hear Me Roar!

Jim Lockhart, the boss of Fannie and Freddie, obviously still was wearing his GOP/political hat the other day, when he decided to speak against the legislation which would allow bankruptcy judges to restructure mortgage loans on primary residences, lowering principle and interest costs for bankruptcy victims (as can be done on second homes and vacation residents).

Lockhart, as Vicar of Fannie and Freddie, decided that this new legislation would be bad for the former private companies, and therefore should be narrowed or defeated, which is the position of many Senate Republicans.

That’s funny. I thought the Obama Administration was employing Fannie and Freddie (and Lockhart) to modify and restructure hundreds of thousands of their own loans.

Now, tell me Mr. Lockhart, why would similar loans re-structured by bankruptcy judges be so horrendous, if Fannie and Freddie are striving to do similar things?

Maloni to Obama Administration: Time for Mr. Lockhart to go.

Rumor?

Are the Homebuilders really having problems with their “big guys,” the high production members? Someone told me that the large NAHB members--unhappy over certain personalities and the quality of Washington representation—might just want to go their own way in DC, creating a trade group exclusively pursuing their interests.

Hmm? Edgy/sand paper personalities at the NAHB, I can’t imagine who that might describe.

Scariest Conversations of the Week

There actually were at least two separate reported discussions which earn that label. They were conducted by completely different folks, but they relate to the same chilling possibility, i.e., civilian unrest growing out of continued economic retrenchment and job losses.

The topic of one official meeting was estimating how many police and military personnel would be needed to protect “Washington and the Capitol,” should unhappy citizens begin marching on the nation’s capital.

Now, maybe, those talks go on in security circles all of the time and I shouldn’t be so concerned. But……

The second was a bit of advice, which could have come straight out of the 1950’s, if it hadn’t occurred just in the past few days. A solon of sorts was advising people to, “Keep a year’s supply of food in your house and use your money to buy two things, gold and guns!”

A lot of wild and crazy talk in wild and crazy times, but, as noted, there is a relationship between smoke and fire.

Irony: We Are Systemic Risk!

AIG was one of the founding members of FM Watch, the industry group which formed to attack Fannie and Freddie, when their principals were worried that the then-GSEs were going to move into mortgage insurance, primary lending, or other business areas represented by the organizing members. (None of which were true, but why kill a good idea?)

FMW and their shock troops gave life to the suggestion that Fannie and Freddie were “systemic risks,” long before the companies obliged them by loading up on crap loans.

Initially, Fannie and Freddie fought the charge vigorously that somehow they represented a threat to the broader national economy.

Naturally, the purveyors of the anti-GSE allegations felt that none of their businesses represented such risks. That is, until last week, when AIG begging for more financial support from the Treasury alleged that its failure could bring down huge segments of the economy, domestically as well as overseas, and that it represented a systemic risk. (“We’ll admit to anything to get that federal cash!”)

And the Bush Administration, with help from Congress, nationalized Fannie and Freddie and continue to nurse these blood suckers?

BB and FASB

When I heard some of Ben Bernanke’s comments last week about possible shortcomings the Financial Accounting Standars Board's (FASB) “mark to market” accounting requirements, I thought I was in a Fannie Mae confab five or six years ago, when the company was saying basically the same thing as the Fed Chairman about one aspect of the then proposed “FAS 133.”

In its Fannie comment letters, Fannie argued then that marking to market their purchased interest rate options, but not the underlying mortgage securities that they were “protecting,” presented a distortion of the company’s true value, especially when the options were being held to the same maturities as the mortgages they were purchased to hedge.

Here’s rooting for Bernanke’s comments to force a much needed accounting change.

Secretary Tim Geithner

It wouldn’t surprise me much, if TG was the first of the Obama Cabinet to decide that he “needed to spend more time with his family” and bag his new job.

I have not been overly impressed with his actions to date and despite the presence of some very intelligent and able people, i.e. Volcker, Summers, Gene Sperling, et al, I have been under whelmed with the pace and creativity that this Administration has put forward, especially on the housing cleanup/fix up front.

Make headway here and you begin to knit together consumer confidence, the banking system, and our economic fabric.

Paul Volcker would be a great next Secretary of the Treasury.

Maloni 3-17-2009

Mrs. Bush (This One Unrelated to the Presidential Family)!

noreply@blogger.com (Bill Maloni) — Tue, 10 Mar 2009 19:12:00 +0000

The Water at the New York Fed?

Maybe it’s the New York Fed’s drinking water which makes their presidents say and do weird things (even when they move on and become Secretary of the Treasury)?

In his very first official speech as NY Federal Reserve Bank President, William Dudley--who succeeded Tim Geithner--groaned about “banks and government sponsored enterprises, for the past 18 months, telling regulators that it wasn’t a good time to raise capital,” because—he analyzed—that they didn’t want to dilute shareholders values.

Um, uh, Mr. Dudley, Fannie Mae raised over $7 Billion in fresh capital in May of 2008—which was less than 12 months ago--and still got trucked by Henry Paulson and the Bush Administration.

At least get your facts straight, Mr. Dudley, if you are going to pontificate and lead the Fed’s paramount bank. Or are you auditioning for a bigger Washington job?

Disparate Memories

I remember my homeroom teacher in high school, Mrs. Elizabeth Bush. She was about 92 (honest!) and taught girls’ sewing, which was appropriate when I graduated in the 1960’s, since the Pittsburgh public school curriculum was designed in the 1930’s/1940’s.

I arrived in her class room only in the morning, to kibitz with friends, and then went through my seven daily academic classes. That limited intercation didn’t stop Mrs. Bush from writing on this indifferent student’s final 12th grade report card “1966?” Meaning what will happen to you in four years, you poor uneducated dolt, when all of your friends are graduating from college?

If she only knew, that little wig she wore would be spinning on her head. I definitely am going to look Mrs. Bush up, when I get to heaven!

What happened to me (very nice things) isn’t important, but I thought about this dire question/forecast when I was thinking about Fannie Mae and Freddie Mac last week, just after David Moffett walked away from Freddie Mac’s top job, for which the outgoing Bush Administration chose him late last year.

Moffett offered the predictable complaints about ineffective federal government bureaucracy and decisions, which took weeks and months when the business needed answers in minutes or hours. But many observers still were forced to ask if Moffett was up to the job?

If some home room teacher wrote on Fannie’s and Freddie’s current report card, “2013?” What might that answer look like?

Fannie and Freddie

Too many people say “Fannie and Freddie,” as if the two were identical twins. They are not, never were run that way, had different corporate strategies, almost contrasting cultures, operating systems, and differing volumes and qualities of crummy assets.

Freddie seems to produce continued negative surprises, making me wonder just how bad things are in McLean. Not that Fannie’s red ink is a day at Rehoboth, either.

However, there still is some form of twisted “parity” at work inside the Beltway, which could cause Congress or the Obama Administration treat them alike.

(So, who is spreading all of those Fannie/Freddie “merger” rumors out there?)

Last week, I offered to wager a friend that, “In the next three years, Fannie Mae will be engaged in a variety of business activities which are market sensitive.” That’s as far as I would go.

For a couple of reasons, I believe that Fannie could enjoy a revival which could return it into some semblance of its former self, i.e. shareholder owned, albeit not with the full range of investment powers they once enjoyed.

I believe this because the Obama Administration slowly seems to be awakening to the reality that it owns two companies with copious talent and resources, which can be employed to help the federal government get through it’s latest “new assignment,” i.e. to acquire, manage, and then sell hundred of billions of dollars of whole mortgage loans and mortgage backed securities of varying qualities and values.

Use Them and Use them Hard!

Creative and heavy use of Fannie and Freddie to help the Treasury and other federal agencies carry out that responsibility will save our government billions and also keep more families in their homes and paying down affordable mortgages. Some borrowers still might default, but that won’t happen as rapidly as it might have, once their mortgages are restructured by Fannie and Freddie and the government.

And if Fannie and Freddie are not overburdened by the Feds, their employees know how to do the job efficiently and effectively. Chalk one up for the Obama folks and for minimal interference.

Another reason to hope for Fannie (and Freddie), to get resurrected as “regulated utilities,” is because their function is missing from the residential mortgage market and hasn't been replaced. It’s needed and it’s vital.

The nation’s mortgage finance system has become reliant on the long term fixed rate mortgage loans and commercial banks just can’t hold them on their books. We need a private dedicated mortgage market investor, with the capacity to fund and manage those longer maturity mortgages.

The alternative is a commercial bank based system with only will offer adjustable rate mortgage loans or fixed rate loans with huge pricing premiums.

Nothing has yet stepped up to replace Fannie and Freddie and if the government chooses to create something, why ignore and waste that which you have?

Holman Jenkins and The Wall Street Journal

Now—and this is just me—another reason to think optimistically about Fannie and Freddie burst from a most unusual source last week.

Holman Jenkins, long time columnist and editorial writer for the Wall Street Journal--the most ideologically nasty of the anti-Fannie/Freddie publications--wrote that it was a mistake for the government to nationalize the GSEs. He said that it sent a horrible signal to the market and took the life out of lots of financial institutions companies, including the WSJ’s darling big banks. (My thanks to my friend/colleague Gwenn Hibbs, for alerting me to the Jenkins column.)

Where were you last year, Mr. Jenkins, besides cheering on Mr. Paulson??

Not that Jenkins’ piece, suddenly, will cause the world to say “mea culpa” to Fannie and Freddie. It won't, nor are they due it.

Both companies put hundreds of billions in Alt A and PLA subprime crap on their books in 2008 and 2007 (like those other companies which have been plowed under or are being kept alive on Treasury/Fed life support) and that, not their structure or affordable housing mission brought them down.

However, the candid comments from Jenkins will breed similar reviews, and reconsideration from others, which could soften the terrain for federal policy makers and make it easier to identify the national market role that Fannie (and Freddie) still can play.

So, Mrs. Bush, my old homeroom teacher and likely celestial resident, that’s why I think the future is looking up for Fannie (and maybe even Freddie).

Maloni 3-10-2009

It Was the Best of Times, It Was the.....

noreply@blogger.com (Bill Maloni) — Mon, 02 Mar 2009 15:44:00 +0000

GOP Self-Flagellation?

With a vote likely to come up in the House this week to allow bankruptcy judges to rewrite mortgage terms on a family’s residence, are the House Republicans really going to “whip against it” (technical term when the House regional “Whips” call on their political brethren to oppose legislation), once again throwing their chips on the moneyed interests and against consumers?

After voting en masse to oppose the Obama stimulus legislation, it’s not beyond belief that the Boehner-led lemmings might keep heading for that cliff by supporting the banks and mortgage lenders and opposing judicial relief for financially hurting individuals and families.

Obama, Last Week

How many politicians, in a serious way, get a chance to actually put forward many of the planks on which they camapaigned?

In his address to Congress, Obama laid out his plans for the future of the United States and--in his executive actions, pronouncements, and now his first federal budget--is aggressively trying to make good on those very issues on which he successfully ran.

A fickle public--which seems to adore President Obama now--could turn on him, if positive results don’t flow soon from his stimulus initiatives and the nation doesn’t get relief from what has been an avalanche of bad economic news.

But once that turns—and it will turn—Obama could reap the kind of national support that will allow him to turn those “campaign ideas,” into major changes in the way our nation conducts its domestic and international lives.

I wasn’t around for the “Great Depression,” but heard a lot about it from my parents and relatives. I never can appreciate what President Franklin Roosevelt meant for battered everyday Americans. But I have to believe that we are starting to see some of that hope for a better tomorrow manifested among our citizens, when they hear President Obama discuss his policy vision for the United States.

The President is not backing off anything and, in Saturday remarks, challenged Washington special interests and lobbyists to join him or get run over defending the status quo.

Interesting approach, Mr. President!

When you get the kids their hypoallergenic Labradoodle or Portuguese water dog, you might want to get a gaggle of pit bulls for yourself, just to guard your back.

Give me an “N,” Give me an “A”

Nationalization by any other name is….”nationalization.” I don’t care what the Administration’s policy makers chooses to call it, when they start putting money into the big banks and taking pieces of the bank’s future action, Uncle Sam owns them. You can dance around the terminology, and people will, but at least let's be honest about the policies.

There may be nothing wrong with federal control over some of these institutions, especially since, recently, they didn’t do the best job under “private control.”

But, I sure wouldn’t want to dance on the difference between “nationalization” and what actually is happening to those large financial institutions, when the Treasury or Fed pumps even more money into them.

Shoot Me, Before I Lobby Again!

Just what is the purpose of Freddie Mac “investigating itself” for grievous lobbying errors, using its long time pet law firm Covington and Burling?

C&B is being asked to look at Freddie political/lobbying behavior in 2005, which presumably Covington saw first hand--but uttered no stop warnings--when Freddie engaged in the campaign against the GSE reform bill. Is the law firm now supposed to say, “We and Freddie were wrong back then and they should have not done it and we shouldn’t not have ignored what they did?”

Just what did Freddie Government Relations VP Hollis McLaughlin reportedly do, when he oversaw an outside consulting firm’s work to influence congressional legislation affecting Freddie?
The media reports have him conducting a “stealth” congressional lobbying campaign, because—presumably--nobody was aware that Freddie was behind it. (I have some great land in Florida and some almost good mortgages to sell you, if you believe that one.)

Wasn’t that what McLaughlin was paid to do and, at the time when the purported questionable activity occurred, the GSE didn’t face any ban on lobbying, like the current one imposed by its regulator. So, what was the sin?

Well, the apparent sin—among others—appears to be that Hollis might have been a bigger player in the Freddie decision-making world than he and others let on.

He reportedly wasn’t a good boss and ran roughshod over those people who reported to him and—somehow--survived the lobbyist purge when Freddie senior officials (with Hollis as an accomplice?) fired many of their veteran professionals who had worked in the legislative/lobbying/industry outreach trenches for the company. He supposedly hogged up “event tickets” for his family's use, which Freddie had purchased for lobbying purposes. And, he did not treat kindly his direct reports who survived the “putsch.”

Those chickens are coming home to roost and some of the some current Freddies and a few former employees are putting Hollis’ business “in the street,” or more directly dishing with the media about the man’s true record, management shortcomings and lack of loyalty.

And where’s “Inspector Renault” (FHFA Director James Lockhart), when all of this questionable lobbying action was going on, including Freddie now spending money to close a long emptied barn door?

How was McLaughlin allowed to stay, since OFHEO/FHFA (Lockhart) hasn’t been reluctant to name other people it wanted gone from the former GSEs? Were the two buddies from the Bush days? Do they belong to the same fraternity or the same golf club?

But, the bigger question is why the self investigation, now, and who is it meant to snare or satisfy?

McLaughlin recently even has been recruiting candidates to do congressional relations for Freddie!

Yes, I know OFHEO/FHFA has banned them from lobbying, but they still get calls from the Hill for information and market explanations. Fannie has two people handling those matters and Freddie has…..well, several more, with another being sought! (But, I am sure that Lockhart is all over that disparity.)

If Hollis can expand his universe, when FHFA has battened down the lobbying part of Freddie’s world, then he has the post-nuclear survival skills of a cockroach, which I observe in the most positive way.

(Bulletin: Freddie’s new top guy, David Moffett, has resigned this morning. “But, we hardly….!” I knew something was up when “insiders” started referring to him as “Muppet.”)

Conservative Leadership Choices for President

Whatever happened to that once full GOP political larder, which seemed to have several “presidential-candidates-in-waiting?

Well, the truth is that they still do, but very few of them seem worth a cup of coffee. Last year’s GOP primary knocked off a few.

Mitt Romney, Bobby Jindal, Sarah Palin, Mike Huckabee, and Charlie Crist were some of the top names that conservatives--meeting at the Conservative Political Action Committee (CPAC) annual meeting--ruminated over this weekend, before they voted that Romney had the best chance to lead the party in the 2012 elections and retake the White House.

Not very likely in my book.

Mitt, with all of his good looks and cash, couldn’t beat a shaky John McCain last year and the world is unlikely to demystify the Mormon Church in the next four years, his membership in which seemed to hurt his GOP Primary efforts among the “Christian Right.”

Let me go out on a limb here and say that nothing in the next four years will make Sarah Palin an acceptable national candidate, after her self inflicted wounds during the 2008 campaign. Even if she agrees to more of those wickedly funny “Jerry Sub Shop” radio commercials, which have a Palin “sound-alike,” saying--after she promotes a steak and cheese sandwich special-- “Ya know Jer, I can see the United States from my front porch.”

That will not revive whatever political viability Palin once had, although it might enlarge her pocketbook...

Bobby Jindal, unfortunately, will need a long time to come back from his disastrous televised response to President Obama’s ‘state of the nation” speech, which had more Republicans quick to complain than Democrats. An otherwise bright young public official whose handlers made him look rigid, backward looking, and doctrinaire conservative, Jindal had the opportunity to look and sound so much better. But, he allowed himself to be captive to the traditional GOP mantra, “We need more business tax relief and small government.” The first of which didn’t help a broad swath of Americans and the second totally eluded them, when they controlled both ends of Pennsylvania Avenue for six of the eight Bush years from 2000-2008.

I like Huckabee, probably because he sounds the most upbeat, charming, and humorous of the GOP bigwigs, while Crist is the executive of a major state and seems to have some gravitas and sensitivity mixed in with his Republican credentials. Assuming neither gets caught up in some type of political mess, or in Crist’s case run for the Senate in 2010, they could be an attractive GOP ticket in 2012.

Rush and Annie??

What do you have when Rush Limbaugh and Ann Coulter speak to the same audience?

Two decent sized people, if he could give her about 50 of his extra pounds.

CPAC crowds were entertained by this duo, which wowed them by saying outrageous things about the Democrats, President Obama, and the media. All of which are fair game for the Right.

But, IMO, speeches by these two agitator-extremists just drive support to the Democrats. I wish the conservatives and their GOP friends would book Rush and Annie at every primo event and venue.

Maloni 3-2-2009

“No good deed……”

noreply@blogger.com (Bill Maloni) — Mon, 23 Feb 2009 01:50:00 +0000

It’s great that President Obama and his team are thick skinned and not faint of heart, since no matter what they do seems to generate a GOP political strafing. And, he and his team have been in office a month now.

But that’s a democracy, that’s politics, and that’s Washington.

The latest shot came from some folks complaining that the Obama mortgage assistance program might help some people who got in over their heads while not assisting other mortgagors who “did the right thing” and acquired loans that they could afford.

That’s an understandable position, but it’s those problem mortgage loans that have caused the domestic and international financial agonies. Healing or otherwise fixing as many of those, as quickly as possible, is a national imperative and the goal of Obama’s policies.

I don’t know if there is a “morality issue” here, but--as a country--we’ll have to worry about that borrower distinction later, just as we later will judge the many large commercial banks the Treasury is bailing out, but which still won’t lend until they see gilt-edged borrowers come through their doors.

Oh, and I can’t wait for the first of those Republican Governors to truly reject any federal stimulus cash. He or she will earn the gubernatorial dunce cap. Let’s see if Haley Barbour, Sarah Palin or any of the other complaining GOP governors will “walk the walk.”

Bank Nationalization: “We Don’t Need No Stinkin’ Nationalization…”

That “N-word:” scared the hell out a lot of bankers last week, not to mention the stock market last week, requiring the President to issue a statement that he likes the U. S. banking system run by private interests. And, so do those who run the banks. Many of them, suddenly, were talking about quickly paying back their Treasury obligations, just to avoid the “N” possibility.

But when Ben Bernanke, Alan Greenspan (remember him), Senator Chris Dodd (D-Ct), and other solons discuss nationalizing some of the nation’s banks, then I would think those bankers—and their shareholders--should worry about the connection between smoke and fire.

Fannie Mae and Freddie Mac

The President’s mortgage restructuring plan calls for heavy use of Fannie Mae and Freddie Mac, plus possible further cash infusions from the Treasury.

The optimist in me hopes that this latest step allows the Obama Administration and the market—as well as those “policy makers” on Capitol Hill—to appreciate the value of the two firms and the ongoing role they might play in the mortgage market stabilization.

I have yet to see or hear any plan for the evolution of a “conventional secondary mortgage market” and it seems logical that when the national and international markers rebound and that question is addressed, the U.S. answer starts with Fannie and Freddie .
If it comes out that way, it will occur with the realization that those who demonized the former GSEs and “nationalized them,” did so precipitously (in Fannie’s case) and for ideological reasons, without thought to the market consequences.

One gauge of how much this most recent step means to Fannie and Freddie gaining some life will be the noise on Capitol Hill from those who vilified the two.

The Bush Administration is history, but you still have some voices in the House and Senate who have been active purveyors of “Fannie and Freddie caused everything” tale.

With Karl Rove still out there, along with the AEI’s Messrs Wallison and Calomiris and new initiate, Ed Pinto, former Fannie official, I wonder if the mortgage banshees will return to prominence.

Could we see the return of “FM Watch,” or whatever was their last iteration? I don’t know, since AIG, B of A, the MI’s and other charter members have been pretty beaten down. But, where there is a lobbyist, you still have a chance for a coalition.

This Company Is Part of the Solution and So Near, You Can…..

If I was a senior official at Fannie , Freddie, the Treasury, FDIC or the Fed, I would be beating down the door of a little company, headquartered in Bethesda, Maryland, called Overture Technology.

This firm, with years of mortgage experience, has developed a software underwriting engine that seems to answer every need of any entity managing millions of whole mortgage loans or mortgage backed securities.

Overture was founded several years ago by a former Fannie colleague of mine, Bill Kelvie. I have no financial interest in Overture, nor do I represent the company in any way, except I was blown away by a demo of their new exclusive software, at lunch (sandwiches provided by Kelvie) a few days ago. That’s the full disclosure.

Treasury, the Fed, FDIC, and any other institution facing the management and “pricing” of toxic mortgage assets should insist getting a, Overture systems demo because of their major new tasks. Implementing it likely will save them time and money, plus ease their jobs.

Yes, the “platform” strikes directly at the illusive, “How can we price mortgage assets when there is no market” issue? It also is filled with what I call “consumer friendly” features which can help even the most unsophisticated mortgagor chose restructuring elements of a new loan, making it affordable.

I hope those federal agencies—now weighted down with a new obligation to underwrite, manage, and sell mortgage assets--don’t waste time, money and effort trying to build their own underwriting engines when an amazing one—designed by mortgage market experts 7 miles away—“and ready to be driven out of the showroom” sits in suburban Maryland, just waiting for them to test it.

According to the designers, positive results can flow from the system in about two months. Consider that, you new toxic mortgage managers.

Maloni 2-22-2009