Bill Maloni's GSE Blog

Listen to Ralph, Listen to Ralph, Please Listen to…

2012-02-12T08:46:00.000-08:00

Ralph “Get 'Em While They’re Hot” Nader

Even before Ralph Nader’s huge ego impacted his brain in 2000 and told him to run an independent presidential race as the “Green Party” candidate, which likely cost Democrat Al Gore a victory in 2000 and brought the nation 8 years of George W. Bush--with his unwanted wars and extreme deficits--I had little use for Ralph who despite all of his anti-establishment bravado quietly became a millionaire.

Ralph may resurrect himself in my eyes, if he can convince Newt Gingrich, who likely is angry enough to listen, to run as a third party candidate (as Ralph now has done five times).

Nader never will admit and indeed continues to brag about his role in dragging votes away from Gore, but no amount of car safety issues or consumer protection benefits, will balance his perfidious delivery of the White House to George W. Bush, twelve years ago.

Every time I think of “Florida” or “Chad,” I think of Ralph Nader.

Nader’s advice to Newt is in the following link.

http://finance.yahoo.com/blogs/daily-ticker/ralph-nader-advice-gingrich-third-party-run-145214778.html

GOP Fingerprints on GSE Low Income Lending

Let me be truth teller, again.

I’ve familiar with all of the right wing attacks on Fannie (and Freddie) and the GSEs affordable housing efforts.

It’s perfectly acceptable to assail Fannie and Freddie for their unwarranted subprime purchases in the past decade; I have done so often myself.

What upsets me is that today’s attacks are shotgun assaults aimed, not just at the ill-advised and flawed subprime buys of 2004 and forward, but at the Fannie (and Freddie) of 20 years ago, when the companies worked under fresh federal statute to provide homeownership opportunities to a broad range of low and moderate income families, including minorities and those living in central cities and other underserved areas.

Draw Distinctions
The eras easily can and should be divided by serious reviewers—hint: pre-subprime Fannie, good; post subprime Fannie, bad--especially those divining some type of successor national mortgage investors, to insure fairness, standardization, and 30 year financing for future borrowers.

GOP critics also need reminding that the 1992 seminal housing goals legislation, signed into law by President George H. W. Bush, was a bipartisan effort—again with Republicans in the White House and congressional Democrats—designed to insure that all banks, mortgage banks, and savings institutions, which were Fannie and Freddie customers, would originate loans to those desired demographic groups, if the lenders wanted to do business in the burgeoning secondary mortgage market.

Senior Bush Made It Law, “W” Jacked Up the Goals

With the DNA of both parties on the provision, the bipartisan statute used Fannie and Freddie as both measurement tools and engines to shape the primary mortgage market--which dealt directly with consumers—to do a job which it had been reluctant to perform.

Before 1992, both GSEs had their own regulatory affordable housing standards, implemented by the Department of Housing and Urban Development, which both Fannie and Freddie met.

The new law hardwired the goals into statute and allowed them to be increased by the Administration in power (first Bill Clinton and later George W. Bush).

In permitting escalation of housing goals, the Congress and White House used Fannie and Freddie as the hammer and the goals as the anvil to produce both more mortgage financing as well as a fairer system relative to low income borrowers.

When Republicans bleat about “housing goals” and the former GSEs actions, I hope they will pause and remember the pivotal role that President H.W Bush, played as well as that of his son George W, who leaned on the former GSEs to meet robust low-mod goals of over 50% of their annual business.

Different Church, Same Pinto

Ed Pinto once worked at Fannie Mae, as he proudly will proclaim.

What he seldom notes is that, after a short stint, the company suggested that he get on with his life’s work…somewhere else.

Ed emerged on the Washington political scene a few years ago, working for the American Enterprise Institute (AEI) as a staunch critic of Fannie Mae and Freddie Mac.

He debuted after both GSEs had ruined much of their stellar reputations after buying billions of Alt A and private label subprime mortgage securities, which produced so much red ink that the Bush Administration chose to put both Fannie and Freddie into conservatorship.

Pinto Started With a Distortion

Ed’s maiden performance, thanks to the AEI’s press operation and the Right Wing’s hunger for anti-Fannie/Freddie raw meat, was his claim—based on his own research-- that in the 1990’s Fannie Mae acquired untold billion of dollars in shoddy loans, which he labeled subprime.

His opinions were celebrated, especially by his AEI colleague Peter Wallison, congressional Republicans and other conservatives.

But, the response hardly was universal.

Ed and his report met solid opposition, was called inaccurate, and rejected by prominent sources including Nobel prize winners, national columnists (Joseph Stiglitz, Joe Nocera), the Federal Reserve Board and the President’s Financial Crisis Commission.

But, Ed kept flogging his shaky thesis, because the Right gave him regular applause.

Just last week, Ed was pipe dreaming, again.

“Horatio at the…,” I Mean “Ed at the Bridge”

In an email to his peeps, Ed claims that as early as 1986 he positioned himself against the formidable National People’s Action (NPA) low income advocacy group---headed by Chicagoan Gale Cincotta--which was demanding that Fannie Mae and Freddie Mac lower their underwriting standards to make it easier for lower income families to qualify for GSE financing.

Ed quotes himself warning the group it would be a financial disaster for the poor and the nation if Nap’s efforts succeeded and notes ruefully that the NPA and others stated that same position before the Congress in 1991.

If NPA and other congressional witnesses--in 1991--asked Congress to make it easier for those with lesser incomes to get financing, it had little to do with the F&F private label subprime purchases a decade and a half into the future, a nexus Ed tries to draw.

That demanding crowd wanted action then and in a sense succeeded, when Fannie and Freddie made underwriting adjustment to accommodate more low income lending, as they contemplated the 1992 goals legislation noted previously.

But those 1990’s loans the GSEs made were neither shoddy nor a precursor to F&F’s PLS subprime purchases fifteen years later.

And His Distortion Was Blown Up With Facts

The most damming unalterable fact for the AEI/Pinto/Wallison arguments is that the loans Fannie bought and securitized through the all of the 1990’s, and into the following decade, did not go bad.

More than a dozen years of corporate records filed with HUD, the GSEs new safety and soundness regular OFHEO (now FHFA) and the SEC—as well as reported in the national and financial media--show superb loan performance (no defaults) and few losses.

Ed, claiming the mortgage loans were faulty doesn’t make them bad, just the opposite when there is no evidence of failure or poor underwriting.

I don’t know how I –and others--can be more clear refuting Ed’s very shaky premise or how the GOP forces can continue to support the Pinto/AEI/Wallison thesis.

Speaking of Church….

This is a Washington Post reader’s Internet comment on the Catholic Bishops opposing President Obama making birth control services/devices available to women.

“We are fighting a war in Afghanistan; Middle East on verge of melt-down; hunger, drought and famine in Africa; Greece and Portugal heading towards bankruptcy; millions of Americans still out of work; millions of homeowners underwater facing foreclosures; Moe, Larry, Curly and Shemp running for Republican nomination; and the most important thing on the minds of the Catholic Church and its autocratic Bishops is whether or not the American woman has access to contraception. Are you kidding me?”

Last Week’s Mortgage Deal With the Lenders

I think the big mortgage lenders got off cheap at @$25 billion, given the much larger mess which still exists. I hope the state AG’s push the banks to restructure far more loans than those possible, given the funds mentioned.

Maloni, 2-12-2012

Russia (and China), Again

2012-02-05T15:08:00.000-08:00

The Russians are first in the world on my list “courve and goniff” (“thieves and whores”), but the “Red” Chinese are real close to the top.

Their respective UN performances last week denying a Security Council move on Syria’s bloody repression were contemptible. Part of the Sino-Russian fear is loss of plain old business as usual--reflected in Syria being a large business partners of each (with Russian weapons arming the Syrian military)--while a lurking other concern is the possibility of some future UN coming after both Russia and China for brutalizing their own restive citizens and denying them freedom.

Russian and Chinese officials seem to live to frustrate America policy initiatives and with trade revenue as a primary motivation, how do they value those Syrian casualties killed by their own government, in their hypocritical UN posturing about concern for the Syrian people?

I have a doctor friend, who was born in Homs, Syria, and whose parents “and hundreds of cousins” still living in and around the city. Every time we talk, I ask what’s going on and the fate of her loved ones.

“The government is killing people left and right and nobody is stopping them,” was her latest reply.

I can only hope when this ends, not only will someone have “Gadaffied” the Assad government and Assad, but the Russians and Chinese pay a price in national treasury—which is what they seem to care about the most—as well as lost prestige and influence in that volatile region.

Obama Administration “Does Away” With Fannie and Freddie?????

The Washington Post quoted Treasury Tim Geithner saying, the Obama Administration (slightly paraphrasing) “will continue in its effort this year to do away with Fannie Mae and Freddie Mac and attract more private capital to the national mortgage market.”

What’s that mean, Tim?

The Administration doesn’t have the political will or power to do anything in an election year, especially something that would further scramble the still sensitive residential real estate market.

More germane is the fact that the nation—and the world--is filled with “private capital” in the hands of businesses and banks. That money once flowed easily into US mortgage finance, logn before anyone ever encountered subprime lending.

There are no laws prohibiting those potential mortgage investors from buying or financing mortgage loans. What is it that you plan to do to “attract” them, offer more federal guarantees?

But, if you do that, that really isn’t “private capital.” It’s federally insured private capital which has a budget costs and still puts taxpayers behind the big banks, which we all know—your rhetoric to the contrary—are not “too big to fail.”

What’s the alchemy you plan to employ?

You can’t call “time out” because the mortgage market moves constantly, 24-7 and 365 days a year. Currently Fannie and Freddie still are serving a giant share of the market, as most of your “private capital” guys stay on the sidelines and only make loans which Fannie and Freddie will securitize for them.

When and how is all of this “attracting” going to occur?

To be fair, the same question can be asked of the GOP, when they don their “beat up on the GSE” rags and rage about the need for private capital in the mortgage markets.

One dirty little secret is a lot of large banks don’t want F&F gone, because they want and need a mortgage investor of last resort on which they can ladle their mortgage risks.

Which party’s principal, President Obama or Mitt/Newt, will be honest with the public and say, “If private capital (whatever that means since most banks are deposit fat because of federal subsidies and former TARP funds) comes back to the market--without a functional Fannie or Freddie, or its equivalent, establishing standards--consumers won’t have 30 year fixed rate loans, except by paying very exorbitant premiums.”

I am waiting or should we all just prepare for more insipid “get rid of Fannie and Freddie” talk?

Obama and the November Elections

If I can read between the headlines, the Obama folks are chortling over the emergence of Mitt Romney as the likely GOP champion. Sure, he’s going to need another few state primary wins, but he appears to have lapped a pretty lame field.

Rick Santorum soon will drop out, but Newt Gingrich and Ron Paul (whom I still believe, despite some nutso positions, utters more common sense than the other two) will hang on, ragging on Mitt and softening him up for the real event in November.

Romney, for all of his flaws and whatever the result of those internecine GOP muggings, could be our next President, solely because he is not Barack Obama.

President Obama is in trouble politically and while he will say and do dozens of things to appeal to various constituencies this year, too many people don’t like or mistrust him—and those are the Democrats!

Even if the President gets real lucky and unemployment drops, while business improves throughout the nation, the appeal of the “Obama way”—cheered by his coterie of Chicago political mafia—remains opaque to most Americans.

Traditionally the public is best served by divided government, with neither party in total control, but what about when the nation needs and wants action on any number of urgent issues?

Right now, a measured in negatives President Obama doesn’t appear to me to have the coattail strength to flip the House to Democratic control or add seats to the slim D majority in the Senate.

Does he even deserve a second term?

Would Romney and Republican control of both congressional chambers—Tea Party and all—use that unchallenged power to make the deficit reduction, structural, and tax changes needed to propel the nation forward? Or is that risk not worth the change in Presidents?

These are tough political questions for the nation to answer in November.

The Koch Brothers

Need someone to vilify and dislike motivating you to vote for Barack Obama (“the enemy of my enemy is my….”)?

How about the notorious Koch (pronounced “coke”) brothers, billionaires many times over and politically ultraconservative, head of Koch industries.

Last week, the Koch’s pledged over $100 million to defeat Barack Obama and his congressional supporters, reportedly posting $60 million on the spot to do so.

That would be small potatoes for the Koch’s, who made the statement while addressing a group of more than 200 well wheeled and equally conservative wingers, gathered to discuss common concerns. (Standard discourse: “Acquired any good countries or politicians lately? Yes, but have you seen the cost of caviar these days or the new Rolls? Both have become so cheap, I may stop buying them!”)

Guys like the Koch’s always have been around and always dangerous. Naturally the Supreme Court’s “Citizens United” decision has brought their money out of the closet and encouraged them to put it into candidates and causes heavily tilted Right.

But, there is something about the Koch’s “hands into everything,” as well their all out Obama assaults, which is quite smarmy and disquieting. Like some of the Russian antics I abhor, these brothers need a huge spotlight thrown on them for people to see just what their political machinations are all about.

Much of the early Koch fortunate –inherited from their father but grown many times over by the sons—came from mineral and ore refining.

No doubt part of their current partisan anger is because they, likely, were in the middle of and stood to gain handsomely from the Keystone Pipeline project, which Obama killed (the right way to handle your enemies).

Of course, if little people want to take little steps, they can stop buying products which Koch-owned companies sell, like Dixie cups, Brawny paper towels and Quilted Northern bath tissue and make public their paper product boycotts.

Maloni, 2-5-2012

This and That

2012-01-28T21:36:00.000-08:00

Getting Fannie and Freddie Positively Involved

When I first heard that the federal government was going to pay Fannie Mae and Freddie Mac to reduce principal on mortgages they own and use the two entities (it’s tough call them “companies” anymore) in a far more constructive way to help the nation rebound from some of its real estate problems, I was overjoyed.

With the continued criticism of the two from the political Right, I felt that the Obama Administration barely tapped the systemic good the two are capable of performing, if only incented and let loose. Maybe that’s changing?

This new step: asks the companies to reduces monthly payments on their loans which receive a “mortgage principal haircut”; recognizes that F&F have to operate on some sense of market principles; will inject billions into the economy as the fortunate F&F mortgagors start spending those monthly mortgage savings; and is an efficient way to deal with the market reality that Fannie and Freddie have so many US mortgage loans on their books.

If this works, the next step--which likely would require an executive regulation--since the GOP controlled Congress likely would balk at any legislation, would permit the two mortgage giants to do the same thing for other mortgage investors (read large commercial banks), holding both Fannie/Freddie and non Fannie/Freddie mortgage securities on their books.

Turning weaker loans into stronger ones, by cutting the principal, clearly helps consumers. I believe it also would strengthen bank balance sheets and might encourage the financial institutions to return to active home mortgage lending.

Geithner

Good news, one way or another Tim Geithner is leaving government service no matter who wins the presidency in November.

The “best Democratic Treasury Secretary the banks could want”--which is my personal description-- has indicated he won’t stay if President Obama wins and it’s doubtful that “Newt-ney” or “Rom-ich” (you tell me who’s going to prevail) will invite him back.

So goodbye Tim, I wish I could say that “we hardly knew yee,” but unfortunately we got to know you quite well and you never dumped that “big bank first” set of priorities, which always puts the needs of large financial institutions over other considerations.

Job Swap, If the R’s Win?

Some think Geithner would be a natural at the World Bank. (Doubt it!)
There also is a strong rumor that Hillary Clinton—who also said this is her final year in the Administration—covets that job.

If those suggestions are true, Tim should just get a Metroliner ticket to New York and hunt for his next banking position, because, I believe The World Bank’s board of directors would find Mrs. Clinton a far more attractive candidate.

(Of course, if Joe Biden “retires” and Hillary replaces him on the Democratic ticket? Hmmmm!)

One World Bank problem is that current bank President Bob Zoellick, with whom I worked at Fannie on his two separate stints there, has done an excellent job and, despite his five year term ending this year, he likely could get an extension if he wants one.

If there is a Republican president after November’s election, that person easily could offer Bob Zoellick a cabinet post (Treasury or State, not necessarily in that order).

The indefatigable and brainy “Z”--who was former US Trade Representative and worked in the Jim Baker Treasury--has the substantive background to do either of those jobs and do them well. Some might suggest he could do both, simultaneously. (Paraphrased quote from a Time Magazine article about BZ, a few years ago, “The thing about Zoellick is that he has about 50 more IQ points than everyone else.”)

Endorsements

Newt seems to appeal to a lot of prominent GOP dullards, getting endorsements from Jim DeMint, Rush Limbaugh, Sarah Palin, Rick Perry, and Herman Cain, while smarter R’s, like Rob Portman, Bob Dole, Tim Pawlenty, John Huntsman, and a few astronauts and NASA types come out for Romney.

The Florida Primary

The blog will go out before Tuesday’s Florida results will be known and the Republican internecine beatdowns continue, since none of the candidates is likely to pull out of the race until we go through a few more state primaries.

After watching Romney and Gingrich use a similar technique to respond to each other ‘s “false statements,” I now understand the secret to telling lies is quietly to say “yes,” nodding in a condescending way when challenged with the information you fibbed, and then go right on to your next attack point.

Not to suggest that Gingrich has more opportunities to do so, but Newt does it best, just looking at Mitt, slightly nodding and saying “yes” and then he loads up and whacks Mitt with another slobberknocker!

Conventional wisdom is that—at some point—Newt’s peccadilloes (and frankly Callista Gingrich’s jaded role being “the other woman” in Newt’s married life, no matter how many musical instruments or children’s art works she produces) will cause his world to come crashing down and all of the hubris, bravado, an institution challenging silver tongue oration --which has earned him votes and support—will crumble when people start asking, “Do we really want this man to be our President, really?”

Undeniably, Newt has an edgy surface appeal, but if he can run a successful campaign and win the GOP nomination with the baggage he (and she, too) is carrying, then we have lost more national character than I’m comfortable acknowledging.

I still may want to volunteer and be one of the 13,000 people (Newt's estimate) who travel to that new lunar base which “President Newt” swears he will construct before he “leaves office after his second term!”

As Jon Stewart asked, “Why stop at two terms?”

The former Speaker in the 1990’s stood in the way of the, then, 500,000 Washington DC residents seeking statehood for the District. But, as President, Newt says he will support statehood status for those 13,000 Americans colonizing the moon.

Newton Leroy Gingrich must feel pretty confident that a majority of those moonie pioneers won’t be Democrats.

Deficit Cutting, Go Big Sooner Rather Than Later

I know that the National Commission on Fiscal responsibility (Simpson/Bowles) gave the President and the Congress major budget/deficit cutting recommendations, which easily could do the job.

Here are some major meat axe savings I would recommend.

In 1964, we created the “Energy Department” to lead our efforts to free ourselves form foreign oil. It has failed; do away with it.

The Department of Housing and Urban Development probably is the only entity in the nation, beyond some (not all) local and state housing authorities, which cares about maintaining necessary public housing. Limit HUD’s role to just that and the FHA operations and cut the rest of it. It won't me missed.

Disassemble Homeland Security, make all of the components agencies independent and then do away with the duplication.

Limit the Transportation Department’s job to building and maintaining the interstate state highway network and get rid of everything else in the agency.

Do away with virtually all of the agriculture subsidies.

The states are responsible—or should be—for educating their children. Let the federal government, through a greatly downsized Department of Education, support those efforts with minimum federal guidelines which must be achieved to get Uncle Sam’s financial support.

I could do another dozen of these—likely sounding the current four GOP presidential candidates (they’re not always wrong!)--but incremental cuts won’t do the job, given our huge budget deficit and the thousands of interest groups which will moan anytime serious savings are proposed.

Some don’t like using large tools, but a big budget axe produces lots of results.

Maloni, 1-29-2012

South Carolina and Beyond

2012-01-22T09:46:00.000-08:00

What a Hoot to Watch Newt Boot Mitt

For the political junkies, the South Carolina GOP primary was better than a trip to the circus and the zoo in the same day.

Newt, what a hoot!

I do expect Mitt Romney, eventually, will get the nomination, but it won’t be easy.

I also will be astounded if Newt’s blatancy and in--your-face aggressive style--much of it trying to cover his shortcomings—can fool a majority of GOP voters in future primaries or, if I am wrong, the American public in November.

As a citizen, I was ready for the angry theatrics and the gouge their eyes/kick them in the groin Republican politics to end. I wanted the GOP to finally settle on Mitch Romney, allowing for a more serious discussion to unfold between Romney and President Obama.

However, as a partisan, I wanted Newt to win in SC, Paul and Santorum to do well and the GOP bloodletting to continue as long as the candidates and their campaigns keep dishing it out.

As noted, I believe Romney will prevail over Gingrich, because the Republican Party establishment can’t be that whacko or harbor a political death wish.

They might beat President Obama with Romney but never with Newt. There are manifold reasons why so many seasoned GOP soldiers are Gingrich-negative.

If/when Romney does win the nomination, hopefully, a bullheaded Newt, Ron Paul, or Rick Santorum stays in the race as a “conservative option to Romney.” That draining scenario provides the Democrats with food for a presidential win and possibly even enough juice to hold onto the Senate.

Ron Paul should just fold his tent and walk away, but he is my candidate to figure out a way to stay active and pursue the Republican Holy Grail long after he’s mathematically “defeated.”

As a final comment, for real, I want to thank the senior Catholic officials who publicly called on their “fellow churchmen,” Gingrich and Santorum, to end their not so subtle race-baiting and efforts to demean the poor and needy. I wish others, in and out of the GOP, had the same principles.

That Lee Atwater “Willie Horton” garbage appeals to our citizens’ meanest and lowest instincts and it isn’t mindful of the human carnage the bad economic times have generated for lots of American families. Someone has to remind these guys—and anyone else who engages in it--they are running to be President of all of the American people.

I don’t think Gingrich’s pit bull personality--once he goes down--will allow him to do anything but throw grenades at Romney (and Obama) from the sidelines or wherever he chooses to stand.

Newt is an engaging scoundrel and, likely, a serial adulterer, who has the stones to go after the media for discussing those facts.

At least Newt didn't claim Romney's family harbored a "thespian," a line he's probably saving for Florida, West Virginia, or Alabama!

Parlez Vous Francais, Newt?

One of the funnier incidents to come out the GOP SC battle concerned Newt telling an audience—in a put down Romney effort—that the former Massachusetts Governor speaks French, “just like John Kerry.” (Translation: Here Mittens, let me stick in that “effete, Massachusetts, he’s not like you and me” knife one more time!)

I don’t know if Romney or John Kerry speaks French, Evangaline Morphos strongly believes that Newt Gingrich did 40 years ago and may still.

Ms. Morphos’s father taught French literature at Tulane University in the 1970’s when Newt Gingrich earned his Ph. D. in history. That Professor Morphos had been Chairman of Tulane’s Romance Language Department

In a column last week in Politico, Ms. Morphos points out that Tulane required their Ph. D. candidates to be conversant in one, if not, two foreign languages. Newt’s dissertation--the “Belgian Education Policy in the Congo: 1945-1960”--dealt with learning tenets in a French speaking country and had more than 100 footnotes citing French language sources.

According to Ms. Morphos—who is on the faculty at Columbia University--the Tulane Language Department would not have blessed the dissertation topic if Newt couldn’t speak French (which is the language of the Congo) and which his work strongly suggested that he did.

Did Newt ever speak French--which would put his Ph. D. on very shaky ground, if he didn’t--or does his indictment of Romney represent a type of acting, which one might see a thespian perform?

The Financial Commentator and Me

There is a prominent financial writer who buys into the Wallison/Pinto/AEI line that Fannie Mae bought tons of bad loans in the 1990’s long before the public came to learn about Wall Street’s shoddy private label subprime securities (PLS). Recently the newsman and I have engaged in a series of emails trying to convince the other that he is wrong.

My last communication to him suggested—with so many distorted definitions of prime, subprime, good/ bad loans (see Wallison/Pinto/AEI)--that an easier way to decide if a loan was well underwritten or not is to look at whether the mortgage failed or stayed current.

No matter the terms and the underwriting, if the borrower stayed in the home and made the monthly mortgage payments, that was a good loan. If the borrower failed to do so—absent his or her death or serious compromise to the family income source (sustained unemployment, divorce, or major illness)—that likely was a bad loan.

In the 1990’s, when Jim Johnson was Fannie’s CEO, and early into the following decade, when Frank Raines was Fannie’s CEO through 2004, the mortgage loans Fannie acquired or securitized overwhelmingly were good loans which performed well.

Borrowers didn’t default, faithfully made their monthly payments, and Fannie Mae’s losses on its mortgage portfolio were de minimis and multiple federal reports—filed with the SEC, HUD, OFHEO--make those points clear.

That should be end of story regarding the Johnson and Raines years, no matter how the AEI and others twist definitions and “their findings.”

People can and should--as I have done—criticize Fannie Mae’s major acquisitions of subprime and Alt A mortgages beginning in 2005 and beyond. Those private label Wall Street originated loans are what bled the company and which continue to lose money.

However, conflating the eras allow the Fannie haters--and their media and think tank allies--to generate limited and simplistic Fannie Mae stories which are inaccurate and fail to illuminate.

Conference NFL Playoffs

I’ll take the “dogs” (those not favored) in today’s games, eventually hoping to see a Ravens and Giants Super Bowl. If my Steelers can’t win, I want to see Baltimore beat New England and the Giants prevail over San Francisco.

At least one half of actress Rooney Mara’s extended family--the Rooney’s own the Steelers and the Mara’s own the Giants--needs to get to the SB. (Ms. Mara is the female lead in “Girl With the Dragon Tattoo.”)

Maloni, 1-22-12

Some 2012 Thoughts

2012-01-17T09:05:00.000-08:00

Poor JB!

“This week House Republicans will huddle at their annual three-day retreat in Baltimore to map out their 2012 agenda and strategy for responding to President Obama and Congressional Democrats.”

“But high on the agenda at that meeting for House Speaker John Boehner is likely to be an effort to bridge severe divisions with his own rank-and- file, many of whom questioned his leadership over the course of several showdowns with the White House and Democrats last year. Conservatives want Boehner to be more aggressive in standing for their principles.”

Front and center for the GOP is what to do about extending the payroll tax--beyond its current two month life--which Congress agreed to before leaving last year.

The demand from D’s and R’s will be for a one year extension, with the fight being—once again—how to pay for it.

The last time, Congress adopted a special Fannie and Freddie fee as the required 60 day revenue “pay for.” The easy step would be to rely on that same revenue source, again, and put the fee in place for 10 additional months.

But, that mechanism also perpetuates the mortgage entities and it’s a future cloudy with real estate uncertainty and mortgage finance doubt.

Might the wingnuts on the Right decide they don’t want to extend the lives of the former GSEs in a backhanded way and seek other ways to pay for a very popular tax cut?

We’ll find out over the new few weeks.

“Put Me In Coach, I’m Ready for Freddie or Fannie"

Last week, Fannie CEO Mike Williams announced that he’s leaving as soon as his successor can be named. Freddie’s CEO Charles Haldeman made a similar announcement late last year.

I nominate myself to run either Fannie or Freddie, preferably the former, if President Obama is stumped for candidates.

Everyone else and their grandfather has had their chance, so why not bring in someone who
knows more about the business than the legion of critics out there and even how to deal with the Congress, both sides of the Hill and both parties.

Also, clearly I know how to succeed while being pulled hither and yon. After all I’ve been married for more than 40 years—with kids and grand kids—and that has provided major “push me-pull me” experience.

Lastly, I can be had for whatever compensation Uncle Sam pays his senior civil servants, which should keep some of the congressional salary complaints down. Larger salaries can go to the work force at whichever company I’m posted.

Now, there’s a deal for you Mr. President.

If I get the job and join my old colleague Tom Donilon, currently the President’s National Security Advisor, maybe he would get me access to the one federal report I’ve wanted to see all of my adult life—the government’s UFO files.

That’s right, Mulder, they’re out there. (I hope this doesn’t dampen your interest in me Mr. President.)

The Fed’s report on Housing

As often is the case with the Federal Reserve, the central bank’s recent report on the nation’s housing and real estate markets simultaneously said a lot (verbiage) and nothing (practical recommendations).

The Fed did talk about the central role a Fannie and Freddie play but minced around in making recommendations. When boldness is/was needed, predictably the Fed tucked in its front and rear legs and "turtled."

The Fed might have gotten a lot more attention, as well as some serious positive action on stimulating the residential real estate market by noting the following: the banks are playing it safe and have taken themselves out of any independent financial stimulus picture, since they only originate mortgage loans they can sell to F&F.

Brother Bernanke could have recommended to Brother Geithner that for one year only, Treasury and FHFA permit Fannie and Freddie to run themselves, on a market sensitive basis, charging what the market permits for their goods and services and simultaneously permit F&F to act as agent for any "federally related mortgage" (defined in statute, as any F&F loan or any mortgage loan held by a federally insured depository) which requires restructuring.

Fannie and Freddie could bring a missing catalytic start, as well as standardization and entrepreneurial zeal, to the moribund real estate market and with little downside, since they are regulated tightly enough that there should be no fear of them financing/securitizing junk loans.

It's my opinion that newly motivated work forces at each company can produce far more--systemically--than they now do as Treasury/FHFA automatons, which only can mean positive developments for the economy.

What's to lose, save some political face for those who would demolish the pair, which still are being used heavily but inefficiently by the market? Congress—politically--can still throw them in the scrap heap after they’ve helped start the financial ball rolling.

Mitt versus Obama in November 2012

The doubt should end soon with Mitt Romney finally securing the 2012 GOP presidential nomination. But, will the Republican’s extreme right wing cotton to a Mormon or someone who has shown liberal tendencies on issues they hold near and dear?

My early bet is that they will swallow a lot of their bile and decide to vote for Mitt because they want so badly to beat President Obama.

But, it wouldn’t take too much for a conservative zealot—exorcised over Romney’s history, religion, silver spoon, country club liberalism and moderation—to lead willing GOP defectors away on a political suicide campaign and produce a “Ralph Nader” on Romney, like the real Ralph did to Al Gore in 2000. Here’s hoping.

For President Obama to repeat, he will need all of the Democrats he had in 2008 (unlikely get), plus a good slug of the independents, and hope that some of the R’s stay home.

The best thing for Obama may be the prospect that a Romney (or any R) presidential victory gives the GOP the Congress, the White House and the Supreme Court far into the future--if a conservative President gets to name one or two justices.

That’s a frightening specter: a new conservative majority in both houses ending federal programs—but not corporate subsidies; voting tax cuts for the wealthy; opining on environmental issues; assaulting a woman’s right to choose; attacking progressive court decisions; instituting harsh immigration reforms; blurring church and state boundaries; imposing its will on controversial issues such as evolution; and eschewing any real federal financial, health or safety regulation.

But those fears might just bring out just enough American voters to stop this scary turn to a US theocracy.

Maloni, 1-17-12

Iowa, Steelers, Issa, and Wall Street

2012-01-05T18:41:00.000-08:00

Look out while I pat myself on the back for picking Rick Santorum--a guy who humorist Andy Borowitz said, “still wears sweater vests”—emerging from Iowa as the newest GOP “flavor of the month” to badger Mitt Romney. I also predicted that one candidate, with a poor Iowa showing, would bag it—either Newt Gingrich or Michelle Bachmann-- and that's exactly what Mrs. Bachmann did the day after the vote.

Funny man Borowitz also had the best (made up) line—regarding Newt’s sensitivity and tenacity--in the Iowa aftermath.

Reporter: “Speaker Gingrich, given your very poor showing in the Iowa caucus votes, will you consider leaving the race?”

Newt: “Only if it has cancer!”

Last comment. Look out Rick Santorum; strap your helmet on tight. The media will be digging and your old GOP colleagues will be gunning for you.

Of course, they may not need to chop you down if you keep making thoughtless statements about minorities, as you did earlier this week.

Remember, as Urban League CEO Marc Morial reminded, you still are auditioning to represent the entire nation (not just the Evangelical right).

NFL Playoffs: God, Oscars, and Victories

Now, if the limping and injured Steelers just can get past the Denver Broncos this Sunday, I can relax on a cruise with my wife, until they likely play the Ravens in Baltimore the following week.

The road for the “just and virtuous” never is easy (he said sanctimoniously)!

Speaking of the Broncos-Steelers, I know Tim Tebow is a man of God, but half the Rooney family (Steeler owners) are priests and nuns, while “Rooney Mara,” female lead in the “Girl with the Dragon Tattoo,” is part of both the extended Rooney family and also the Mara family, which owns the New York Giants. For her “Tattoo” work, she has a strong shot at winning an Oscar.

The blood related clergy from Pittsburgh and the good vibes emanating from a family-member actress--in a first class movie—might prove to be a tough mix for Tebow and the Broncos to overcome. (I hope.)

“Issa He Really Going to Keep The Names Quiet?”

If you were Senate Democrat and got a home loan from Countrywide Mortgage--before it was sold to the Wells Fargo company--your name wound up in the newspaper. Chris Dodd, former senator from Connecticut, who did not seek re-election in 2010, and Kent Conrad (D-ND), who already announced he won't run in November, were skewered for dealing with a Countrywide, a business run by Angelo Mozilo, a one time mortgage industry hero whose company and Mozilo himself came on hard times in the wake of the 2008 financial meltdown, primarily for originating low quality subprime loans.

But, if you are a House Republican—other than poor Ed Royce (R-Cal), whose name came out over a year ago along with Dodd’s and Conrad’s—and your Countrywide financing was unearthed by Rep. Darrel Issa (R-Cal), Chairman of the House Government Operations Committee (labeled by some the JOB Committee or “Jihad on Obama”), your name stays secret and just gets sent for review/investigation to the House Ethics Committee, the do-noting protector of House perfidy.

Why has Issa, a self made millionaire, who seems to have plenty of past interactions with the law and the California police, chosen to apply kid gloves to the R's and not employ the same treatment in which their D Senate counterparts got busted and blasted?

Ask Chairman Issa or his staff, since they carefully have shielded IDs of the congressional Countrywide mortgagors in a “staff report” to Ethics, not a more traditional committee to committee report. I am sure that it has nothing to do with the myriad business and political GOP interests who seem to have a plethora of inroads to the Issa inner circle.

Reliable media sources say that three of the four named were GOP Members, who like their Senate counterparts, may not even have been aware that their loans came via a process which identified them as “Friends of Angelo (Mozilo),” Countrywide’s former business leader.

FOA’s were assured of a more rapid application process than others received, presumably others who were “not Friends of Angelo.”

I am sure, in the end, that Chairman Issa will insure that the Jih…oops, I mean justice will apply equally to Democrat and Republican alike!!

Mitt/Newt, “Wall Street? Huh, Where, What’s That?
Ferrera Says Bloomberg Hides Government Causes Of Financial Crisis.

“Peter Ferrera writes in a piece for the American Spectator (1/5) that the Bloomberg News in a December 21st article says that "Both former House Speaker Newt Gingrich and former Massachusetts Governor Mitt Romney lay much of the blame on US government housing policies, saying they led to the real estate crash that almost brought down the banking system."

“Ferrera argues that it's not just Gingrich and Romney who think this, but virtually every Republican and conservative across America recognizes what is by now well established in the literature -- the government caused the financial crisis."

How can any serious GOP observer, let alone presidential candidate, ignore the catalytic Wall Street role in the nation’s financial meltdown, which delivered a body blow to the entire world economy? What is “well established in the literature,” is that Wall Street took advantage of a lax Bush Administration financial regulatory regime, demanded and welcomed by so many Republicans and pro-business types.

Wall Street created their own private label subprime mortgage securities—which detoured around the more restrictive Fannie/Freddie underwriting systems—and employed thousands of poorly trained, paid-by-the-application mortgage brokers--to provide flawed loans for their securities, which the same Street firms guaranteed, using high ratings extorted from very willing Wall Street rating agencies.

The same Wall Street investment banks fashioned the “credit default swap” securities that baffled federal regulators, but which institutional investors devoured as hedges against the very subprime securities Wall Street sold them.

Yes ample and cheap Fed money, as well as a souring economy, could have created national and international financial/economic problems. But, it never would have been as devastating and corrosive if Wall Street hadn’t created and flogged hundred of billions of dollars in worthless subprime mortgage backed securities to every major financial institution in the world.

Many national economies—including our own—still are bleeding because of the Wall Street actions.

So, Mitt, Newt and other GOP thinkers believe that all of this chaos, rife with Wall Street DNA, was exclusively the federal government’s fault?

They couldn’t be running for office and pandering for financial service company support could they?

Maloni, 1-6-2012

Happy 2012

2012-01-02T10:43:00.000-08:00

I Must Be Right, Look Who’s Upset!!

In the past few blogs, I’ve noted that—despite all of the angry rhetoric and BS talk aimed at Fannie and Freddie--the cowardly Congress has lacked the courage to make any significant budget decisions. In addition, a call it did make likely breathed life into Fannie and Freddie by using them as a “pay fors” to fund the two month extension of the payroll tax, a legislative action completed at year’s end.

No doubt, that two month relief will be extended to one year (requiring more “pay fors”), when Congress next takes it up.

The unique “homeownership tax”--which F/F must stick on their lender customers--in turn will be transferred to consumers in the form of higher mortgage costs. (The returning revenue skips Fannie and Freddie and flows right to the US Treasury.)

Now both Ed Pinto and Gretchen Morgenson, he of the make believe “subprime numbers” which he alleges Fannie bought in the 1990’s (although those loans never defaulted) and she the author of a book which employs Ed’s fantasy figures (see Joe Nocera’s evisceration of Pinto—his AEI colleague Peter Wallison—and Pinto’s data, in the 12-24 NYT), have now awakened to the fact and damned Congress for the resurrection action.

For people who claim to be so smart, Ed and Gretch are very naïve when it comes to Washington politics, since once the congressional vampires start supping on the former GSEs’ blood (or their revenue), the Congress won’t stop. Watch for the fees to be perpetuated and likely grow, as demands for bipartisan “pay fors” inevitably increase.

The bottom line here is that congressional greed always will trump ideology. So what if some revenue raising action keeps the evil twins alive, Congress can pretend it is doing something right by periodically whacking Fannie and Freddie, ignoring they also are hitting the American home buyer.

Score: Maloni-1, bad guys-0.

It Was the Democrats, Clinton, Frank, Pelosi or…W?

When the Raging Right picks its enemies list of those responsible for whatever it is about Fannie Mae or Freddie Mac which angers them that day, inevitably they bang away at Democrats.

D Administrations or D’s in Congress wind up getting smacked by the WSJ, Heritage, AEI, Cato and the like. But those conservative institutions seem to mince and dance around their last President, George W. Bush. He and his Administration leaned on Fannie and Freddie to do more and goosed up the companies’ affordable housing goals while entwining the two in the Bush “ownership society.”

For those with temporary amnesia, I want to provide a link to President Bush’s famous 2002 Atlanta housing speech, where he called on the nation and the federal government to do a much better job and boost homeownership rates for everyone, especially black and Hispanic families.

Now if only Bush’s SEC, Alan Greenspan’s Fed, the Comptroller of the Currency, the FDIC, as well as the GSE regulator, had their heads up—instead of stuck in an institutional body cavity— they would have nopticed that Wall Street was going around the Fannie and Freddie underwriting systems and using their own looser standards to underwrite mortgages for many poor and minority families.

President Bush—and the nation—would have been far better off had the Wall Street slicksters never put so many low income families into loans they could ill afford. (Fannie and Freddie made a huge mistake when they later bought those crap mortgage backed bonds, but that doesn’t erase the sins of those investment banks which created them or the federal regulators who permitted their formation.)

Also, had the President not chosen Mel Martinez as Secretary of Housing and Urban Development (HUD) and Alphonso Jackson as Under Secretary (both of whom Bush, produly, introduced to the crowd in Atlanta that day), the President might have been more successful.

Martinez was a nice man, but a housing lightweight who couldn’t leave tracks in wet mud, while Jackson—a few years into the job--barely avoided jail time when he was discovered manipulating HUD contracts for political reasons.

Enjoy the former President’s rhetoric and see if you believe that those remarks contain any DNA from 2008’s financial debacle and mortgage market collapse.

REMARKS_BY_PRESIDENT_GEORGE_W._BUSH_.doc I18N YGP.SaveAll I18N YGP.SaveProgress I18N YGP.ViewAfterSave

Overcome by the Spirit of Christmas

And to what to my wondering eyes should appear, but a fairly written, almost objective article in the Dec. 27 online Wall Street Journal.

I don’t want to get too carried away with this fact, but here is the link for all to read. Speaking of sleeping at the switch, I wonder which WSJ editorial elf let this one slip by?

http://online.wsj.com/article/SB10001424052970203391104577124403751459214.html

Tomorrow’s Iowa Caucus

Here’s rooting that tomorrow’s GOP Iowa caucus produces another “flavor of the month” winner, maybe Rick Santorum or Ron Paul, to force the Republicans to dither for some additional weeks and months before they reluctantly turn to Mitt (“Mittens”??--see Maureen Dowd) Romney as their standard bearer.

Hopefully distant finishes in Iowa will sap whatever life there is in the candidacies of Michelle Bachmann, Rick Perry, Newt Gingrich and whoever else is seeking the GOP presidential nomination, so some of the cacophony—especially which candidate spends more time in church--will subside.

Maloni, 1-2-2012

Heavyweight Combat!!

2011-12-28T14:11:00.000-08:00

In the past two weeks, Joe Nocera and Peter Wallison have gone at one another over GSE history. Others, see below, have weighed in on this scrap. Enjoy the reading.

Happy 2012.

The Big Lie
The New York Times, Pg. 21
Dec 24, 2011

By Joe Nocera

So this is how the Big Lie works.

You begin with a hypothesis that has a certain surface plausibility. You find an ally whose background suggests that he's an ''expert''; out of thin air, he devises ''data.'' You write articles in sympathetic publications, repeating the data endlessly; in time, some of these publications make your cause their own. Like-minded congressmen pick up your mantra and invite you to testify at hearings.

You're chosen for an investigative panel related to your topic. When other panel members, after inspecting your evidence, reject your thesis, you claim that they did so for ideological reasons. This, too, is repeated by your allies. Soon, the echo chamber you created drowns out dissenting views; even presidential candidates begin repeating the Big Lie.

Thus has Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie's chief credit officer. Pinto claims that as of June 2008, 27 million ''risky'' mortgages had been issued -- ''and a lion's share was on Fannie and Freddie's books,'' as Wallison wrote recently. Never mind that his definition of ''risky'' is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto's numbers are the Big Lie's primary data point.

Allies? Start with Congressional Republicans, who have vowed to eliminate Fannie and Freddie -- because, after all, they caused the crisis! Throw in The Wall Street Journal's editorial page, which, on Wednesday, published one of Wallison's many articles repeating the Big Lie. It was followed on Thursday by an editorial in The Journal making essentially the same point. Repetition is all-important to spreading a Big Lie.

In Wallison's article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light. Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.'s allegations show is that the Big Lie is, well, a lie.

Central to Wallison's argument is that the government's effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain ''affordable housing mandates,'' were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those ''risky'' mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages -- belatedly, contrary to the Big Lie -- because they were trying to reclaim lost market share, and thus maximize their bonuses.

As Karen Petrou, a well-regarded bank analyst, puts it: ''The S.E.C.'s facts paint a picture in which it wasn't high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.'' As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn. They were becoming irrelevant in the most profitable segment of the market -- subprime. And that they couldn't abide.

(The S.E.C., I should note, had its own criticism of my column, saying that I conflated its allegations regarding the lack of disclosure of subprime mortgages, with an entirely different set of charges it has brought regarding disclosure of so-called Alt-A loans. I still maintain that the S.E.C.'s charges are weak, and that the agency brought the case in part for political reasons: how better to curry favor with House Republicans than to go after former Fannie and Freddie executives?)

Three years after the financial crisis, the country would be well served by a real debate about the role of government in housing. Should the government be helping low- and moderate-income Americans own their own homes? If so, is there an acceptable level of risk? If not, how do we recast the American dream?

To have that debate, though, we need a clear understanding of what role the government's affordable-housing goals did -- and did not -- play in the crisis. And that is impossible as long as the Big Lie holds sway.

Which, now that I think of it, may be the whole point of the exercise.

************************************************************************************
Paul Krugman

Joe Nocera Gets Mad
The New York Times
Dec 24, 2011

By Paul Krugman

And it's a beautiful thing to see.

Today Joe once again goes after the Big Lie the claim that Fannie and Freddie caused the crisis and drives home the point that the people advancing this story aren't just wrong but are acting with intent, engaged in deliberate deception:
In Wallison's article, he claimed that the charges brought by the Securities and Exchange Commission against six former Fannie and Freddie executives last week prove him right. This is another favorite tactic: He takes a victory lap whenever events cast Fannie and Freddie in a bad light.

Rarely, however, has his intellectual dishonesty been on such vivid display. In fact, what the S.E.C.'s allegations show is that the Big Lie is, well, a lie.Read the whole thing.

Basically, Joe is arriving where I've been since 2000: what's going on in the discussion of economic affairs (and other matters, like justifications for war) isn't just a case where different people look at the same facts but reach different conclusions. Instead, we're looking at a situation in which one side of the debate just isn't interested in the truth, in which alleged scholarship is actually just propaganda.

Saying this, of course, gets you declared "shrill", denounced as partisan; you're supposed to pretend that we're having a civilized discussion between people with good intentions. And you're supposed to match each attack on Republicans with an attack on Democrats, as if the mendacity were equal on both sides. Sorry, but it isn't. Democrats aren't angels; they're human and sometimes corrupt but they don't operate a lie machine 24/7 the way modern Republicans do.

Welcome to my world, Joe.
*************************************************************************************

Rep. Barney Frank

Who Is Really Responsible for the Housing Crisis?
The Atlantic

Dec 26, 2011

By Barney Frank

Peter Wallison's recent article in The Atlantic, "Hey, Barney Frank: The Government Did Cause the Housing Crisis," is part of his ongoing attempt to show that the private financial industry was the victim, not the cause, of the financial crisis.

Mr. Wallison protests my characterization of him in a recent interview in The
Atlantic as "a real extremist." Yet his article again proves his extremism which is marked by his denial that a failure of regulation of reckless or imprudent practices in the private financial services industry played any significant role in the crisis, and his complete rejection of the regulatory reforms in the 2010 Wall Street Reform and Consumer Protection Act.

It is important to remember that Wallison's unique interpretation of the financial crisis has been rejected by every other member of the Financial Services Inquiry Commission, including the three Republican commissioners on the panel. Wallison's disagreement with the other members was so strong that he refused to sign their dissent and instead wrote his own dissent to the majority opinion. In subsequent Congressional testimony Wallison referred to them disparagingly as the "The Group" because he found them woefully inadequate because in his mind they did not place sufficient blame on the government for the housing crisis. A report on the FCIC by Democratic members of the House Oversight Committee revealed the degree to which other commissioners struggled to deal with Wallison's extreme position.

Mr. Wallison is also far out of the mainstream in his recommendations for dealing with Fannie Mae and Freddie Mac. In 2009 and 2010, while Democrats were working to pass the financial reform law that Mr. Wallison believes to be wholly unnecessary, the Republican Members of the Financial Services Committee offered a bill drafted by Mr. Wallison which would abolish Fannie and Freddie without putting anything in their place to support the mortgage market. Senator Dodd, I and many other Democrats believed that a new system was needed, but we did not think that abolishing Fannie and Freddie without creating some kind of arrangement for the guarantee of securitizations of 30-year mortgages would adequately serve our nation's housing needs. The Republican members of the House-Senate Conference Committee were contemptuous of our position, and they pushed hard to get us to adopt the bill which Wallison had drafted.

This year, House Republicans abandoned Wallison's position. As the majority party in the House, Republicans have the power to advance Wallison's legislation to abolish Fannie and Freddie. But they are fully aware that groups concerned with housing - realtors, homebuilders, lenders, low-income housing advocates, etc. - believe that Mr. Wallison's approach would be a disaster. For this reason, Republicans did not even introduce the bill the until after we embarrassed them by noting its absence. The current posture of the Republican committee leadership, articulated by Congressman Scott Garrett, Chairman of the relevant subcommittee, is that they cannot move on the bill because they need guidance from Secretary Geithner; they cannot act on their own principles and views until the Obama administration tells them how to do it. The fact is that they cannot advance the bill because they know it is too extreme.

Wallison's positions are formulated on the basis of his extremely selective account of the financial crisis and steps taken to address its causes. For example, he omits mention of the passage in 1994 of the Homeowners Equity Protection Act (HOEPA), which directed the Federal Reserve to establish rules to prevent mortgages from being given to people who could not afford them. A decade later, as the housing bubble inflated, Federal Reserve Chairman Alan Greenspan refused to use the power given to him under this law to restrict predatory lending, arguing that free markets would naturally lead to the best results. In 2008, after the peak of the financial crisis, Greenspan appeared before the House Committee on Government Oversight and admitted that his assumptions had been wrong. "I found a flaw," he told Chairman Henry Waxman. "I don't know how significant or permanent it is, but I've been very distressed by that fact."

Wallison has apparently not yet discovered this flaw.

Wallison criticizes me for having said in 2003 that I was for "rolling the dice" on Fannie and Freddie. But his memory for the period between 2004 and 2008 becomes extremely selective to the point of being dishonest. In 2004, the administration of President George W. Bush began a conscious plan of trying to increase levels of homeownership as part of its "Ownership Society," raising affordable housing targets for Fannie and Freddie. I opposed this policy because I thought people could end up with mortgages they could not afford. Wallison also omits Democratic efforts to pass legislation to reduce predatory lending -- this was blocked on direct orders by House Majority Leader Tom DeLay. He also conveniently ignores the fact that my Democratic colleagues and I worked with moderate House Republicans to try to pass legislation to increase regulation of Fannie Mae and Freddie Mac -- this was killed by the Bush administration, which according to Republican Chairman Mike Oxley, "gave us the one-finger salute." Finally, he omits the fact that in 2007 House Democrats passed an even stronger Fannie and Freddie bill which later became law. The legislation allowed Bush Treasury Secretary Henry Paulson to put Fannie Mae and Freddie Mac into conservatorship, arresting behavior that could cause further losses. The law has won widespread praise.

To be fair, there is one aspect of Wallison's piece in the Atlantic which reveals a partial retreat from his extremist positions. Mr. Wallison has long contended that the 1977 Community Reinvestment Act was a significant cause of the financial crisis. In page 85 of his dissent to the Financial Crisis Inquiry Commission report, Wallison writes that "the most controversial element in the vast increase in NTMs (non-traditional mortgages) between 1993 and 2008 was the role of the CRA." But in his response to my characterization of him as an extremist, he now repudiates his earlier position, writing that "As far as I can tell, CRA was a relatively small contributor to the crisis, when compared to the GSEs and the affordable housing requirements."

This is small but significant retreat from Wallison's very extreme position on the financial crisis. But overall his views remain clearly on the furthest margin of opinion, rejected even by his three Republican colleagues on the Financial Crisis Inquiry Commission and by conservative members of the House Financial Services Committee.

Maloni, 12-28-2011

2011-12-22T11:59:00.000-08:00

Pimping the SEC Findings Could Get You Coal in Your Christmas Stockings

“You know Dasher and Dancer, Prancer and Vixen, Wallison, Pinto, the Journal, Donner and Blitzen, but do you recall their most infamous snow job of all…..….”

Before we all get buried by the holidays, I wanted to share some thoughts on last week’s SEC indictment of three Fannie and three Freddie senior officers for what the regulatory agency said was misrepresenting the nature of the subprime assets each company carried on its books.

The news brought forth the predictable hoots and hollers from Right side wing nuts, their think tank apologists, and a bundle of GOP Members of Congress and presidential candidates, everyone trying to claim that the SEC’s case description supports what they and other anti-GSE folks have been saying.

Joe Nocera--who joined Bethany McLean in writing an extremely readable and straight forward book about Fannie and Freddie and the financial crisis ("All the Devils Are Here")--challenged the SEC findings in a New York Times op-ed piece earlier this week. (See link below.)

http://www.nytimes.com/2011/12/20/opinion/nocera-an-inconvenient-truth.html

I won’t repeat what Nocera said, other than to say, “Way to go, Joe No!”

The Nocera op-ed brought a response in the Wall Street Journal from AEI’s Peter Wallison and one widely disseminated critical email from his colleague Ed Pinto, a former Fannie Mae official, who keeps reminding people of that brief career stop.

Fannie SP Security Purchases a Major Mistake

I never have wavered in my criticism of the massive Fannie and Freddie subprime purchases. The officials responsible were wrong and the strategy sucked--especially when insiders were telling senior managemen, at least at Fannie—not to buy the crap. But, they did anyway and the nation bore the consequences (as did the individuals who lost their jobs and their reputations).

In my opinion, not one of the three previous Fannie chairmen, for whom I worked, David Maxwell, Jim Johnson, or Frank Raines, would have made those purchases.

If Fannie's Dan Mudd and Freddie’s Dick Syron, instead of okaying the subprime purchases, had gone in the opposite direction, the public still would be building heroic statues of the guys. Now, they face millions in federal fines.

But, until incompetence and greed are federal crimes—as dumb as the subprime purchases were—I am not sure the “Fannie-Freddie Six” are guilty of anything but really lame judgment.

The SEC’s actions are less about the former GSEs and more about it trying to enhance its not so shining image in Washington. Certainly before 2008 and intermitently since then, the SEC cops have produced little in the way of going after anyone on Wall Street who caused the massive subprime creation and their international sales.

The Fannie and Freddie folks, demonized individually and institutionally by many in the nation’s capital (including some responsible for the very problems they accuse the mortgage giants of causing), represent politically vulnerable, friendless,low hanging fruit. The SEC thinks they easily can be harvested and will produce a needed public relations boost to its sagging enforcement reputation.

Im not a lawyer and haven't read all of the briefs in this case, but I am suggesting that the SEC has been slow in pursuing any financial services heavies. Its legal assault on the former GSE officials, represents kicking near dead horses.

That’s not to say the F&F guys are blameless, but their actions and statements no more caused the 2008 financial debacle than any other big time player.

Look carefully at what some of those who were indicted said about the SEC case.

Combining—and paraphrasing--at least three public comments, it comes out as: “Our regulator the Office of Financial Enterprise Oversight (OFHEO, now the Federal Housing Finance Agency or FHFA), knew everything that was on our books, knew the loan volume and risk profiles, but never said ‘boo’ at that time about our investor or other public comments. The SEC had the same information through our 10K filings. It, too, was silent.”

The indicted mortgage officials are suggesting that their regulators knew exactly what was on F&F's books and—at the time—received no regulatory guidance or commentary, negative or otherwise.

In the wake of the SEC findings, Peter Wallison, Ed Pinto and the Wall Street Journal haff-kaffed and harumphed that F&F were the root cause of the 2008 world financial debacle and that Fannie and Freddie had been purchasing subprime loans throughout the 1990’s.

Except all three, once again, have their “subprime” facts wrong, no matter how they try and piggyback on the SEC’s verbiage.

Wallison, Pinto and the Journal should know—especially since Ed for a time headed the Fannie business group which microscopically looked at every failed mortgage loan--if a lender poorly underwrites a mortgage applicant (which is what they and others allege Fannie did throughout the 1990’s), that loan most likely will default within three years of origination because of its shortcomings.

So, if the Righties and their friendly media were/are correct, the millions of low quality loans they claim Fannie bought--before the year 2000--should have suffered major problems and produced losses.

Except the loans didn’t.

In fact, most of that decade's books of business—all of the individual loans bought/acquired in those years—not only seldom defaulted but they continued to be healthy, quality performing mortgage assets well into the next decade. (All of the supporting data for this statement and similar ones have been published by the SEC and OFHEO/FHFA.)

Ed and Peter can’t accuse Fannie Mae of buying billions of subprime loans as far back as 20 years ago—using Ed’s very “liberal” (oops!) definition of subprime--and ignore that those 1990 loans just didn’t default in any significant manner, quite the contrary.

What did go bad, and in horrific numbers, were the F&F purchases of subprime mortgage backed securities which Wall Street created—outside the GSE underwriting systems—and sold world wide. That story has been well told and it’s a sorry mistake Fannie and Freddie share with a lot of other investors, who made equally bad business choices.

Messrs. W&P often reject federal agency studies and reports which don't agree with them. But now they think they and SEC lawyers are soul mates.

Wallison and Pinto have conflated the SEC’s finding with their GSE attacks and twisted that into an SEC endorsement of the hyperbolic views they’ve been flogging for years.

The town now is hearing lots of, “You see, we told you, didn’t we tell you?” from the AEI twins.

But—elsewhere in town--any number of recent federal reports (including a separate one from the SEC) not only have rejected W&P's primary premise, but the Fed and the President's Financial Crisis Commission rebuffed them in content and, in an unusual development, by name.

I would note and then ask, from a purely historical look, why should anyone believe Wallison and Pinto now, when they disassembled so much and misled people before? And please don’t tell me it is because their work appears in the Wall Street Journal’s editorial pages.

SEC Findings from a Legal Perspective?

I have a great deal of professional respect for Gwenn Hibbs, a former Fannie colleague, who I first met 30 years ago when we worked together at the federal Home Loan Bank Board. Gwenn has a first rate legal mind and multitudinous other talents, ranging from sketch, skit, and book writing, to playing musical instruments and training her canine pets (although not to play trombone).

In an email this week to me about the SEC indictments, Gwenn asked:

“… why none of the coverage in the '”NEWS” section re the F/F misrepresentation and fraud allegations by SEC discusses the dismissal by a federal district court of virtually the same charges (re inadequate subprime disclosure) in a shareholder derivative suit..”, as Nocera points out?

“That whole case can be found at:

http://www.leagle.com/xmlResult.aspx?page=12&xmldoc=In%20FDCO%2020100930F82.xml&docbase=CSLWAR3-2007-CURR&SizeDisp=7 .

“Maybe the reporters could be inspired to even call the SEC and ask THEM why their suit won’t be tossed out on exactly the same reasoning. Or ask them (I presume Gwenn means the media) if they don’t care because by the time it gets to the dismissal stage, it’ll be after the 2012 election.”

Go get ‘em, Gwennie!

I can’t answer that question, maybe some of the lawyers out there reading this can.

Coming Year

Health, happiness, and good holiday wishes to you all—even the wing nuts who provide so much content for my blog. You might want to acquire a coal burning stove in anticipation of Santa's presents.

Maloni, 12-22-2011

The Monsters Are Alive, Igor!!”

2011-12-18T11:08:00.000-08:00

It’s fun being right and it’s easy to be right when making predictions about a House and Senate (both sides of the aisle) which has done little but shame themselves for the past few years.

In a blog last week, I noted that Congress—as a “pay for” for its end of session actions--was contemplating a new Fannie Mae/Freddie Mac user fee that would be charged to Fannie/Freddie customers (mortgage lenders), with new revenue bypassing conmpany coffers and flowing directly to the Treasury.

This bipartisan idea had been kicking around for months, since the “work” (ha, ha!) of the Select Deficit Committee. A responsible media practioner told me that the idea first came from House Majority Whip Eric Cantor (R-Va.), but I cannot independently confirm it.

Last Friday, the Senate approved that fee to pay for the two month extension of the lower payroll tax, an Obama Administration priority due to expire at the end of this month. The bill then was sent to the House, where it will be voted on it early this week.

Livid House conservatives are angered by the brief two month extension and the belief that it represents too big a political win for the Democrats. They may reject the plan—causing angst for their leaders and joy for the Tea Party--not because of the Fannie/Freddie “tax” (my word, but trust me, it is), but for political reasons.

I’ve said this before and I will repeat, bipartisan support on any revenue raiser is rare and, as such, this new fee—which mortgage lenders only will pass onto borrowers—will be utilized either now or shortly thereafter when Congress again seeks revenue for “deficit reduction purposes.”

The Fannie Freddie fee likely then slowly will become a national fact of life and work its way into mortgage rates for some time. That also suggests—unless Congress does something entirely unpredictable (which involves work and intelligent legislating)--Fannie Mae and Freddie Mac will stay in place.

Despite all of the gnashing of political teeth, the latter is a positive because, systemically, the two are needed to support a mortgage finance market still shaky and working out its post-2008 relationships.

(I love the irony that so many Senators and Congressmen, by using this approach as a “pay for,” likely have breathed life into two entities they have spent the past several years excoriating.)

For the naïve who argue that raising the former GSEs prices will bring in fresh “private capital” (read banks, which because of all of their federal support mechanism, are hardly “private”) don’t bet on it.

When the legislative/political dust settles and the fees take hold, the higher Fannie/Freddie mortgage rates will be used by big bank lenders as a baseline to increase their pricing on conforming and non-conforming loans.

To those in Congress who still don’t get it, it’s not making the loan that is a bank problem (since most bank mortgage originations are sold to Fannie and Freddie), the problem is bank unwillingness to hold the mortgage risk on their books. That won’t change near term.

Happy holidays to all and please try and remember those less fortunate—especially the kids--and help them in whatever way you can.

Below are links to pieces discussing the congressional action reviewed above.

http://www.foxnews.com/politics/2011/12/17/mortgage-fees-would-rise-under-payroll-tax-cut-deal/

http://politicalticker.blogs.cnn.com/2011/12/17/how-will-congress-pay-for-the-payroll-tax-cut-extension/?hpt=hp_t2

http://www.cnn.com/video/?hpt=hp_t1#/video/bestoftv/2011/12/18/exp-sotu-senators-12-18-blunt-menendez.cnn

Maloni, 12-18-11

Fannie and Freddie Get Resurrected?

2011-12-06T20:02:00.000-08:00

Go Long the Former GSEs?

Some of us have been predicting for three years that Congress—because it has no real mortgage finance alternatives—would keep Fannie Mae and Freddie Mac in place, despite all of the GOP anger, anguish, and verbal posturing to “get, destroy, or abolish” the two mortgage giants.

But this week our prediction got new legs—and lengthy ones at that—when word leaked about how a new extension of a lower payroll tax might be funded. (See Pennsylvania Democrat Senator Bob Casey’s payroll tax revenue explanation.)

Casey said because of lengthy bipartisan discussions on the utility a new Fannie and Freddie fee--going back to the failed Select Committee on the Deficit--both D’s and R’s want to stick Fannie and Freddie with mandated higher “guarantee fees” to cover lost Treasury revenue caused by extending the current low payroll tax.

Late political developments have the GOP opposing Casey’s plan—which was blessed by the White House and Majority leader Sen. Harry Reid (D-Nev), but not over the Fannie/Freddie fee but because the scheme still has a minuscule tax on those making over a million dollars a year.

But, IMO, any agreement will keep the new F&F fees.

The “G fee” is the price lenders pay F&F for their mortgage backed securities (bonds) guarantee of the “ timely payment of principal and interest” on bonds created from mortgage loans the lenders make) as part of providing revenue that will be lost by extending the much desired lower payroll tax.

The “F&F guarantee” is what allows the bonds to be easily traded in markets all over the world.

F and F Are Back

Why does this mean—in my view—that Fannie Mae and Freddie Mac have new life breathed into them? Two reasons, simply.

The Budget rules demand that all revenue proposals, whether this one or others, require a 10 year revenue projection, as well as a 10 stream of actual revenue. So, if the Congress is to pay for keeping the current lower payroll tax by having F&F charge their customers—the mortgage lenders—generating the required revenue, that device must be in place for 10 years, which means Fannie and Freddie must be in place for 10 years.

More important is the fact that if a bipartisan group of Senators and Members—as Casey has claimed--really supports utilizing this specific revenue option, it can employed to pay for whatever political wet dream any powerful Senator or Members wants covered by using this unique “tax”—and jacking it up in the future when additional revenue is needed, homeownership impact or not.

Once again, to me, this just means it’s a matter of time before the former GSEs get tapped to pick up some of the deficit slack.

Yes, friends and foes (especially you GOP taxphobes), this may be a “homeownership tax,” because it applies only to Fannie Mae and Freddie Mac, which must pass it on to their clients, mortgage lenders of all stripes, which then will pass it on to their customers, "Mr. and Mrs. would be homebuyer.”

Although many desperate-for-revenue advocates will argue that they just are forcing Fannie and Freddie, those evil twins responsible for _______ (fill in the blank), to pony up more cash to the Treasury, that revenue dog won’t hunt, except maybe in Tea Party land.

Business doesn’t work that way and—if approved for payroll tax purposes or something else--every player in the mortgage chain just will pass as much as possible onto to the next guy in queue, with the public ultimately picking up much/all of the tab for the "Fannie/Freddie fee."

What’s worse (or better depending on where you stand) is that applying this new fee just to Fannie and Freddie—not to the large banks which make “jumbo mortgage loans, those above the Fannie and Freddie ceilings—means the fees won’t be absorbed by those borrowers who need or can afford mortgages of $650,000 or above (which is a benefit to the big banks which make those loans).

But, when the “pay for” dust finally settles, any proposal successfully applied to Fannie and Freddie, surely will extend their lives for years to come.

I hope all of my buddies at AEI, CATO, and Heritage are watching this unfold.

Some investors might want to weigh “going long Fannie and Freddie” in hopes that a future Administration and Congress might just say, “The hell with it, let’s just free the bastards once and for all."

Not a bad call!!

Maloni, 12-7-2011

Barney

2011-12-04T17:18:00.000-08:00

It didn’t take a genius to see that the Dodd-Frank exercise took a lot out of the heady and feisty former House Banking Committee Chairman--and now ranking Democrat--Rep. Barney Frank. While Barney still might be able to get on his warhorse and do battle with the best of them, recently he has just began to look tired.

He worked hard and long most recently on the financial reform legislation, which ultimately bore retiring Senator Chris Dodd and Barney’s names, and—in my opinion--produced not much, after the bank lobbyists and the GOP got finished diluting all of the bill’s heavy hitting provisions.

What remained—yet to be fully implemented--got further watered down during the regulatory process, where the banks and their political allies worked their will on the Obama Administration and the federal financial regulators.

Before 2010, Barney may have made up his mind to call it quits in 2012, since his race was so very close.

Dodd-Frank Wasn’t Tough Enough

But in the wake of the 2008 global financial disaster, the fact that Barney Frank failed in leading the Congress to deal directly with the principle companies and issues which produced the world wide debacle, had to sap whatever interest he had left. (Of course, it might have gone differently had any Republicans of note tried to should some of the political burden with him.)

Besides, he’s seventy years old and likely can chose to teach professionally, pursue his vast set of humane priorities, or even just explore his poker playing skills and interests.

While I believe Barney Frank could win re-election, why should he go through all of that anguish just to be a minority Democrat on Financial Services, as he aged into his mid-70's?

As someone with first hand experience (and the scars to show for it), I laugh ruefully at those people who claim Barney was a foil for Fannie Mae.

Bar none, he was the toughest, most difficult person I ever had to lobby.

He was tough to schedule, never gave you the time for full explanations and political rationales—because he felt he knew them all, even the ones you weren’t pushing--and acted as if his next meeting was with God and that you were impinging on the few minutes he was willing to give the deity.

He seldom communicated what he was going to do until after he did it or say if he merely was going to vote for or against you or work his colleagues behind the scenes, which most lobbyists wanted the savvy legislator to do.

To me, it was a shame that someone so brilliant, so capable, and with such a sharp satirical bent—often missing in other public officials--was so very off putting.

Those people who are catatonic about Rep. Maxine Waters (D-Cal)—with cause?--succeeding Barney and possibly becoming committee Chairperson, should relax because even if President Obama wins in 2012, he won’t have coattails long enough to sweep Speaker John Boehner (R-Ohio) and the House GOP out of power.

Ethanol Warms the Cockles of Your GOP Heart!!

The next time your friendly Republican Senator or Congressman discuss their legislative and political priorities, ask them where they stand on whether T. Boone Pickens or the infamous Koch brothers should be entitled to billions in federal ethanol subsidies.

The only problems as these stalwarts of the Right fight each other over federal dollars, which they nor their ethanol businesses need, is that one or both of Pickens or the Koch’s will win.

Of course, doing away with these wonderful ethanol tax benefits never will gain GOP support.

Read more—as Sebastian Blanco, writing in green.autoblog.com--reviews the smarmy situation as these rich guys square off against one another or more precisely,in my view, against the American public and our federal deficit.

http://green.autoblog.com/2011/11/25/t-boone-pickens-federal-subsidy-koch-brothers-cng-ethanol/?ncid=webmail10

FHFA’s IG, His Agency and Boss

Maybe healthy conflict is the natural role between an inspector general and the agency where the IG works.

The conflicts seems to exist at the Federal Housing Finance Agency (FHFA), the Fannie Mae and Freddie Mac federal regulator, where Inspector General (IG) Steve Linick has been chucking out report after report damning weaknesses or shortcomings in the FHFA oversight and regulatory process.

Recently, Linick scolded the agency for allowing Fannie and Freddie to spend some $640,000 to send a combined hundred employees to the national Mortgage Bankers Association annual conference in Chicago, earlier this year.

Long before the 2008 federal takeover, Fannie officials decided too many employees—who weren’t needed to interact with business partners—were attending this event. Management even then rigorously cut back on those attending.

So, there is a basis for Linick's conclusions.

However, today--as was the case when I worked at Fannie--MBA lenders are major F&F customers, which--despite the for GSE's federal leashes—continue to acquire or securitize billions of dollars in mortgage loans originated by the mortgage banks and their commercial bank parents. This fact establishes a legitimate business need for Fannie and Freddie to attend the conference in appropriate numbers.

But, here’s what I think may be occurring, especially when I see attention paid to piddling issues like employees attending a conference and the pennies that represents.

WH Saying Bye-Bye??

Linick, rightly or wrongly, has been issuing reports critical of the agency. Intended or not, those complaints are born by the agency’s Director, Ed DeMarco, a Republican appointee who has been “acting director" for some three years, after the Obama White House held him over.

In my evolving view, DeMarco has done a very good job at FHFA in very difficult circumstances. He is supposed to conserve the companies, as in “conservatorship,” but recognize that they still are the engine of the nation’s conventional mortgage market and, as such, need to run themselves in some semblance of commercial entities. And that’s before you consider all of the Hill crazies in both parties criticizing the mortgage finance giants.

DeMarco also has to insure that the two make enough money to pay back the federal government for Uncle Sam’s operational loans.

But, just recently the White House named two former Federal Reserve employees to senior posts at FHFA. Either one has the title status—stipulated in statute—to replace DeMarco either as “acting Director” or on a permanent basis, assuming either can get Senate approval.

In my opinion (no "inside" information), I think the White House is in the process of ushering Republican Ed DeMarco out of FHFA and the IG reports’ accumulated criticisms are meant to justify that action.

Sad, if it happens.

Maloni, 12-4-2011

Deficits, Fannie and Freddie, and the Redskins

2011-11-20T14:42:00.000-08:00

Who do we blame for the abject failure of the Select Deficit Committee to produce a viable budget plan for an up or down congressional vote?

The easiest target is the Senators and members themselves, not the sharpest knives in the drawer to begin with—as I pointed out when they first were named—and certainly not enough with a history of working successfully on a bi-partisan basis to achieve critical mass. Add to that, no “profiles in courage,” no guts to cross party lines to build a consensus product.

It would have taken only one Democrat or one Republican to cross over and join the other side to produce something on which the Congress could vote.

Now, let me quickly point out that those 12 individuals were responding to their respective congressional leaders and the rank and file caucuses, so some of the blame gets shared more broadly.

If anyone believes that the “Sword of Damocles”, i.e. $1.2 trillion of domestic and military spending, cuts will survive the legislative part of the next year’s presidential election, I have some land in Florida for you.

Kick it, kick it

“Kicking the can down the road” has been what this Congress does best—both sides of the Hill, both sides of the aisle—and it sucks.

Even if it isn’t 100 perfect, doing something always is better than doing nothing and letting delay worsen events.

If the domestic economy and international situation aren’t woeful enough to dictate some substantive steps, what do these selfish public officials require to convince them of the need to take deficit reduction action now?

Tom Edsall, writing in the New York Times, lays out the possible political strategies of each party in doing nothing, which may have been part of this charade from day one.

http://campaignstops.blogs.nytimes.com/2011/11/18/capitalizing-on-collapse/?hp

Fannie/Freddie Compensation

I suspect that Congress first will do something to limit the compensation (salary and bonuses) of top Fannie and Freddie execs, then do high fives over the money they saved the “tax payers” and gloat over the Hill extracted revenge for those poorly underwritten, red ink generating subprime loans.

Except for a few messy facts, which seldom stops an angry mob?

Most of those company “squeezees” weren’t responsible for those losses; they were given their assignments to “fix” what ultimately erupted in 2008.

None of the people being targeted produced the subprime securities which failed costing billions. That was Wall Street, using its own corps of mortgage brokers and avoiding the more restrictive Fannie/Freddie underwriting systems. The investment banks then managed to bamboozle the rating agencies into awarding AAA measures to corporate junk bonds, facilitating sales to institutional investors worldwide.

And, the Fannie and Freddie officials--who bought that mortgage poison five or more years ago, seeking yield and revenue and who, theoretically, have angered Congress--all were fired long ago.

My Advice

If I was advising Fannie and Freddie (and I am not), I would urge the top half dozen execs to resign if Congress puts through major compensation caps.

That would then force Treasury and Federal Housing Finance Agency (FHFA), F&F’s regulator, to more closely run the companies and scramble to put together top managements.

Wait and see what the civil servants—without securities, mortgage, or trading experience--can produce running two business with combined mortgage assets of about $1.5 TRILLION.

There was a reason, when Fannie Mae first was privatized in 1970 that the Congress wanted the company (and later Freddie) to not run by civil servants. It was the abysmal financial performance of HUD or the Department of Housing and Urban Development.

The Congress saw that government housing employees didn’t have the skill, experience, or creativity to produce what it wanted, without generating huge losses (see HUD’s history) and wisely ordered the new Fannie Mae to employ private sector employees, earning private sector wages, with private sector incentives. And, Fannie Mae, for the 35 years through 2005, showed the Congress to be correct.

This Congress would have more credibility if they took similar actions against the large commercial banks and Wall Street investment banks, which received tons of taxpayer’s dollars through TARP and zero obligations to invest that money.

Instead, Congress has gone for the low hanging former GSE fruit.

How About Comp Caps for the Big Banks and Wall Street?

Focusing merely on one or two Wall Street execs and limiting their compensation would generate far more savings than whacking to all of the people at Fannie and Freddie, who will see their incomes suffer.

But, hey the Congress—both D’s and R’s—in their rush to claim Fannie and Freddie coup will grab a cheap headline and then run like hell—blaming others—if executive departures produce worse financial results not better.

If the Fannie/Freddie leadership bails, the message will get to the rest of their employees, who will start looking elsewhere and jump at any opportunity to get away from possible salary freezes or more forced firings.

Courageous Ed DeMarco, FHFA’s Director, was absolutely right in his testimony on the Hill last week. He sees the talent departing and he knows it takes very smart and able individuals to run these large mortgage operations. You don’t find them growing on trees in Gaithersburg, Rock Creek Park, or Spring Valley. You have to recruit it and pay for good talent.

(Before this latest salary/bonus dust up occurred; already the top two Freddie execs announced their planned departures.)

Enjoy whatever you save in being penny wise and pound foolish Congress. Your actions, here, are self defeating.

Before voting their anger, Members of Congress might want to familiarize themselves with the facts not the “talking points issued by F&F’s ideological critics and business competitors.

Barry Ritholz’s column, writing in Sunday’s Post business section, would be a great place for them to start.

http://www.washingtonpost.com/business/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/2011/11/16/gIQA7G23cN_story.html

Of course, that same “get the facts” advice applies to the Wall Street Journal and Washington Post editorial sides, D’s and R’s on the Financial Services and Banking Committees, the Obama Administration and various right wing commentators at AEI, Cato, and the Heritage Foundation.

Cats and Dogs

-- IMO, the GOP presidential candidate with the most common sense, based on his debate pronouncements is Ron Paul. Hard to feel ill about a guy—who sometimes is whacky—but dispenses a ton of good advice.

--It looks to me that Mitt Romney has put his campaign on cruise control and expects to glide into the GOP nomination.

--Newt is what he is, a scintillating speaker and historian, but his hypocrisy during Bill Clinton’s infidelities, the details of Newt’s three marriages (and likely affairs?), his lavish spending/charging at Tiffany’s, and even his work for Freddie Mac (which I first found out about it when I read it last week in the paper) raises character questions and puts him at odds with many Republicans.

Regarding Freddie, you don’t take that much money from any client without endorsing their actions and positions.

--Redskins Coach Mike Shanahan’s facial contortions almost make him like he is going to cry during the games. Of course, with his team’s poor play and Mike’s poor coaching and leadership, his tears would match those of the loyal Skins fans.

--Will the GOP ever get tired of defending the rich and the haves, at the expense of the middle class and have nots? And given the fact that the latter would appear to have far more voting power, when will this majority turn on the aristocratic bent of the Republican Party?

Maloni, 11-20-11

Update

2011-11-13T16:55:00.000-08:00

Will publish again, after brief surgical (eye) rehab.

Maloni

Cato Challenges 10 Year Old GSE Support

2011-10-23T17:31:00.000-07:00

Stiglitz & Fannie Mae, continued…

Posted by Mark A. Calabria

Last week I expressed some disappointment that while Nobel prize winner Joseph Stiglitz now raises the issue of “privatized gains and socialized losses” in our financial system, he made very different claims about Fannie Mae some years ago. In a NPR piece back in July, Professor Stiglitz offers his response to this charge. You should read it and decide for yourself. To the Professor’s credit, he does admit that we have a problem with Fannie (and Freddie). Such an admission would have been more helpful a few years ago. But better late than never.

For the sake of brevity I will address one of the many claims now, and address the others later this week. Stiglitz argues that “our big banks get finance at lower rates of interest than do others, because of the belief, in part, that should they have a problem, they will be bailed out.” His implication is that had Fannie not existed the risk would have just flowed to the big banks, which had to be bailed out too. Now I’ve questioned elsewhere just how much of a problem “too big to fail” banks were before the crisis, but one critical point bears remembering, even the most higher leveraged and reckless of the big banks still had to hold multiples of the capital that Fannie and Freddie held. In the extreme the GSEs only were required to hold .45 percentage points of capital against their MBS guarantees. Had a bank held that same risk on portfolio, it would have been required to hold 4.0 percentage points. That’s correct, a bank would have held almost 9 times the capital for the same risk as did Fannie. Even if Fannie held that risk on balance sheet, banks would still be required to hold 160% more capital. The simple fact is that had Fannie/Freddie not existed and banks had instead held that risk, there would have been over a $100 billion more capital in our financial system.

Professor Stiglitz was far from alone, and far from the worst, in terms of academics writing work to provide cover for Fannie Mae. Current economic advisor to Mitt Romney and former Bush official Glenn Hubbard also produced work defending Fannie Mae. Fannie and Freddie were also some of the largest supporters of the various real estate finance academic organizations, like the American Real Estate and Urban Economics Association. This is less about picking on Stiglitz (or Hubbard) than exposing Fannie’s ability to corrupt academia for its own purposes.

Mark A. Calabria • October 17, 2011 @ 1:49 pm
Filed under: Finance, Banking & Monetary Policy

Stiglitz and Hubbard are Innocent

By the time you read this, Cato Institute’s Mark Calabria, likely, will have turned to stone for his prevarications, just in the above article alone. He also might have a Pinocchio moment and find his nose several inches longer.

My teasing Calabria is based on something he wrote a week ago—which I’ve posted above--criticizing Fannie Mae, Nobel Prize in economics winner (2001) Joseph Stiglitz, and Glenn Hubbard, a Mitt Romney economic advisor.

About 10 years ago, both Stiglitz and Hubbard penned papers saying positive things about Fannie Mae, Freddie Mac, and the secondary mortgage market. The papers appeared in a Fannie compendium titled “Housing Matters.”

In attacking the two academics, now, Mr. Calabria uses standard right wing anti-GSE arguments to go after Stiglitz (and to a lesser extent Hubbard).

But what he really does—in using these tired themes—is to expose his own ignorance of how Fannie Mae truly operated and why “the pre-2004 Fannie Mae wasn’t the post-2004 Fannie Mae.”

(BTW, before writing this piece, I called Mr. Calabria—whom I didn’t know--to give him a heads up re my disagreements.)

This Mae Ain’t That Mae

The Right refuses to look at pre-2004 Fannie Mae in its pre-subprime role and compare/contrast it with the post-2004 company which made foolish purchases of Alt-A mortgages and subprime securities originated, marketed, and sold by Wall Street firms (a huge Fannie mistake, but one also committed by financial service firms all over the globe).

The pre-2004 Fannie Mae, before Dan Mudd was named Chairman and CEO in 2005, never engaged in that risky type of mortgage investing, as has been attested to in recent months by the SEC, Federal Reserve, Fannie’s regulator—the Federal Housing Finance Agency (FHFA), the President’s Financial Inquiry Commission and any number of economists and financial writers.

The original paper that Mr. Calabria uses to assail Mr. Stiglitz (ditto Hubbard)—where JS offered his opinions of Fannie Mae’s operations and capital—was produced in late 2001, when Fannie Mae was quite successful meeting its charter and producing solid earnings. It was written long before a future Fannie heavily buy private label subprime loans, chasing lost market share and profits.

There was no way, 10 years ago, for Messrs. Stiglitz and Hubbard to see subprime coming or understand how it would rock most of the world’s major financial serice companies and systems.

Privatized Gains and Socialized Losses

I also challenge Mr. Calabria to put some meat (and proof) on the phony—but cute sounding--allegation he parrots that Fannie “privatized its losses and socialized its losses.”

This is an attack line that some congressional know-nothings employ to disparage Fannie and Freddie, because it makes good sound bites but few of them can define or defend.

I worked at Fannie from 1983 through 2004 and every year the company had losses of one type or another, but fortunately, had far greater gains. The losses were deducted from profits and the net number was reported to the company’s investors and later the SEC. Nobody tried to stick the federal government with the company's losses.

It wasn’t until 2008—following the Hank Paulson/GOP takeover of Fannie and Freddie-- that the federal government put its first dime into Fannie Mae (and Freddie), which is another fact that the Right likes to forget.

The Pre-2004 Fannie Wasn’t a Major Risk Taker

The traditional and, indeed, conventional way Fannie operated before Mr. Mudd took control is evidence that huge risk taking wasn’t the GSE leadership MO of previous chairmen David Maxwell, Jim Johnson, and Frank Raines, who preceded Mudd.

During those eras, the “franchise” and “housing mission” were Fannie’s most valuable corporate possessions. None of my colleagues was willing to risk them. I remember telling any variety of outside groups and Congress that as long as the company responsibly met its congressionally mandated housing mission (goals), Fannie should enjoy congressional support.

I believe history proved me right.

Starting in 2004-2005, as soon as acquiring subprime securities--and aggressively seeking market share temporarily lost to the private-label security issuers--became the corporate priority, Fannie’s wheels fell off.

By 2008, Fannie (and Freddie) became wards of the Treasury; their shareholders got wiped out, most of their senior officers left voluntarily or were asked to leave, and their surviving workers lost years of savings they had in company stock.

(Let me note at this point, Fannie Mae’s dalliance with subprime investing should have been caught and stopped by its regulator. Instead the aberrant purchase activity was virtually regulator-blessed.)

GSE Versus Bank Capital

Calabria makes some generic comments about the GSEs smaller capital vis-à-vis commercial bank capital.

The Cato official conveniently forgets to mention two things about commercial bank capital requirements.

Banks had higher capital requirement than the GSEs because the banks could invest in any asset their management chose, including domestic loans of all kinds, foreign commercial and sovereign debt securities (think Greek bonds), while Fannie and Freddie were lower risk mono-line companies, with only mortgage loans and securities as permissible investments.

The GSE’s statutory “minimum” 45 basis points capital (.45%) against credit business was more than enough to protect that entire book of business in all of the years the risk based capital standard was in place--from 1992 on--before the failed subprime acquisitions produced the Paulson/Bush takeover.

Federal Regulators “Turtled” for the Big Banks

In offering the banks his protective journalistic shield, Calabria ignores the favored regulatory treatment big banks enjoyed.

Unlike the mortgage giants, bank executives and shareholders were protected from the consequences of their excessive risk-taking. The Fed lowered interest rates to "reliquify" them and then “lent” to them to prevent deposit runs, while the Treasury gave them capital (TARP funds).

First the Bush White House and then the Obama Administration did this—as I’ve noted ruefully—without demanding from the banks any sort of reciprocal lending (for small and large business or for mortgage borrowers), which could have ameliorated some of the nation’s unemployment problems.

How the Cato (and AEI) crowds can continue to use the "private gain public loss" label with Fannie/Freddie, but not, at a minimum, to apply the same to the banks—for which they toady--is beyond me.

I’d also ask Mr. Calabria to detail his charge that Fannie and Freddie borrowed at lower costs than the commercial banks.

FDIC Deposits Are Cheaper than GSE Debt Costs

The primary source of bank working capital (money they lend to customers, back in the day when banks did lend and not just arbitrage) is federally insured deposits.

There are about $3 Trillion of insured deposits in America’s depository institutions.

The cost of that is simple for the reader to figure, because it is what the banks pay you on your checking and savings accounts, roughly 1% give or take 25 basis points.

I can almost guarantee you that Fannie pays two or three times that amount for its working capital, slightly more than the US Treasury but slightly less than other large investors, when the latter borrow in the international debt markets.

I think Mr. Calabria perpetuates a myth when he continues to claim that Fannie pays/paid less for working capital than the banks and that banks are rugged private institutions.

Da Dum De Dum

(And finally, Congrats to DG and FDR, you two irrepressible and crazy kids!!)

Maloni, 10-23-2011

Cats and Dogs

2011-10-16T14:10:00.000-07:00

The GSEs, also Wishes and Hopes

Other issues with higher political priorities have bumped Fannie and Freddie to the back burner, making those of us who predicted no legislation on these companies until 2013 look prescient.

Still there were two GSE items this week worth highlighting.

First the American Enterprise Institute’s (AEI) Peter Wallison was back on the Wall Street Journal perch, beating up Fannie and Freddie, using Ed Pinto’s ragged research (EP also is with AEI and once toiled at Fannie) which wrongly suggests that Fannie and Freddie bought subprime loans in the 1990’s bringing about the 2008 international financial meltdown.

Give it a break, Peter. You lost this one…overwhelmingly.

Fannie’s regulator, the Federal Housing Finance Agency, the Federal Reserve Board, the Securities and Exchange Commission, and the President’s Financial Crisis Inquiry Commission, plus any number of columnists and prominent economists have shown how wrong Wallison’s and Pinto’s meanderings are. That view is heavily weighted by the fact that Ed conjured a unique and exclusive definition of “subprime,” which nobody else recognizes or employs.

Wallison and more recently Pinto have run with this bogus claim for years but their numbers still lack integrity, unless you are the WSJ.

Moving on, but not too far…

The recent book by Josh Rosner and the New York Times Gretchen Morgenson employed the AEI fables and added their own negatives about former Fannie Mae Chairman Jim Johnson. But their business attacks were rebutted too, by many of the same folks who threw cold water on the Wallison-Pinto work.

Jeff Madrick and Frank Partnoy, writing in the New York Review of Books, penned the most recent Rosner-Morgenson smack down. (Link below.)

http://www.nybooks.com/articles/archives/2011/oct/27/did-fannie-cause-disaster/

One more article which deserves sharing came from an old line GOP economist of some renown, Martin Feldstein, Chairman of President Reagan’s Council of Economic Advisers, from 1982 to 1984, who last week wrote in the New York Times about making existing mortgages more affordable and holding down future defaults.

Feldstein’s proposed creative use of Fannie Mae and Freddie Mac, to reduce the outstanding principal on their mortgages, could meet bank opposition. This, despite how quickly the banks could make it work, how many consumer/customers could benefit, and how alternatives might be less efficient and more bank costly.

The Treasury and Fed should meet with bank reps and offer Feldstein’s plan for implementation. If the banks reject it, federal financial regulators should propose that banks “mark to market” their mortgage portfolios. That won’t immediately help consumers, but it will bring greater reality to bank accounting. (Link to Feldstein’s article follows.)

http://www.nytimes.com/2011/10/13/opinion/how-to-stop-the-drop-in-home-values.html?_r=1

My Bucket List

One of the beauties of writing a blog is that you don’t have to check with anybody before spilling your thoughts on the issue of your choosing.

Here are a few things—some serious, some silly, some fanciful, others doable--which I would like to see happen before I kick or succumb to Alzheimer’s.

--A ton of “country club” Republicans run and win congressional seats, displacing some of the Tea Party cranks who won in 2010, and bring some sanity to the GOP.

--“Solyndra” notwithstanding, for the Congress to foster and stimulate green business development because the world payoff is so grand.

--To be alive when the Congress and whoever is in the White House realize that Fannie and Freddie really did work, except for the subprime crap, an aberration unlikely ever to happen again.

--The return of bipartisan friendships/relationships. When I worked on the Hill in the 1970’s, most D’s and R’s did like and respect one another, got along, compromised and displayed comity.

--For colleges and universities to share some of the revenue with “student athletes” and end the amateur status charade.

--For the National Basketball Association (NBA) to stay “struck and locked out” through next year and maybe 2013.” (Fat chance; too much money involved on both sides.)

--For Roger Goodell to resign or be forced out as head of the National Football League.

---I want the Congress to pass and the President to sign legislation capping malpractice health care awards and then track to see if the “docs” pass onto their patients some of their medical insurance savings.

--For the GOP to admit—even to itself--that lower taxes for corporations, the wealthy, and smaller companies have been around since “W’s” first term and haven’t dramatically increased industrial production or new hiring. The R’s want the poor to get by with less federal help. They would earn greater credibility if they apply the same principle to the well off.

--For a future Supreme Court—this one won’t reconsider--to establish spending limits on all federal elections, low enough so incumbents face plenty of competition, meaning the most appealing candidate--not the richest--has a chance to win.

--For some bright young American kid to figure how to run internal combustion vehicles on salt water or something equally far-fetched and improbable.

--For newspapers to make a comeback.

--Never having to pay more than $1 for a two liter bottle of diet soda, no matter the brand.

--John Boehner to tell the House Tea Party contingent (and their back stabbing leader from Virginia, who covets Boehner’s job) to “stuff themselves,” which hopefully will allow Boehner to resume his previous decent guy persona.

--For the American people to wake up to the reality of the giant financial services companies. They exist to make money; they are not charities; they squeeze you for every dollar they can; they covet their competitor’s revenue; and most couldn’t exist without the federal government’s largesse, which –for me—puts the stake in the heart of the bank claim of being “the private sector.”

--For Maryland and Virginia to truly clean up the Chesapeake Bay and also significantly curtail crabbing and fishing—both commercial and private--for a year or two to let the species thrive and multiply. (Too radical?)

--To spend quality time with Angelina Jolie, when she isn’t wearing make up, to see if I love her as much as I think I do.

--To have fresh recordings of all of the 1950’s R&B hits by groups whose first name always started with “The……” (as in, Platters, Arabians, Drifters, Del Vikings, Aladdins, Five Satins, Crows, Dominos, Limelights, Passions, Angels, Imperials, Bel-Aires, Argyles, etc. etc.)

--To have a local store with all the penny candy and five cent candy bars I used to buy when I was a kid (and pay today what I paid for them 60 years ago).

--For the state of Maryland (or DC) to approve a full service casino nearer my house, so I don’t have to drive 63 miles (one way) to Charles Town, West Virginia to gamble.

--To be able to play touch football, basketball, and soft ball as well as I did when I was 20.

--To learn how to mechanically repair and refurbish old cars and then to buy two 1970 GM “Muscle Cars” (Pontiac GTO and Olds Cutlass convertibles) and restore them.

--Force the UN move its headquarters to Europe.

--The Russian armed forces to mutiny, revolt against Putin, the Russian mob and the oligarchs who control that country and lead the Russian people in demanding a true representative government.

--Sidney Crosby and Evgeny Malkin stay health for the entire 2011-2012 hockey season, almost guaranteeing that the Pittsburgh Penguins will be Stanley Cup contenders.

--Ben Roethlisberger, James Harrison, and Troy Polamalu to stay healthy for the balance of the 2011 National Football League season, allowing the Pittsburgh Steelers to be Super Bowl contenders.

--To have Bob Nutting, the Pittsburgh Pirates’ owner—whose team now has produced 19 consecutive losing seasons--sell the Pirates to a person/corporation willing to spend the money necessary to compete in major league baseball.

--To have The Angel of Death visit every nation and annihilate all their citizens who practice violence and repression of others or who foster those vile acts. (Gawler’s funeral home in the District of Columbia would do a land office business, just from Capitol Hill alone!)

--For President Obama to approve dropping several nukes on parts of Iran to show the Ayatollah not to screw with the US.

--Ditto the nukes in about 20 valleys between Afghanistan and Pakistan (and maybe just a few in each country) to see if we can add to the US drone successes.

--Have the world turn Africa into a continent where every country is bountiful and produces enough food for their citizens and to export, so that there are no more famines and no more pictures of sickly and dying children.

--The Congress to approve an automatic death penalty for all child molesters, with this current Supreme Court rejecting the inevitable challenge.

--For every country to legalize marijuana and release from prison anyone jailed for trafficking solely in that drug.

—To see every American second grader get instruction in foreign language and computer classes, with the most able taught Asian and Middle Eastern tongues.

Maloni, 8-16-2011

Merkel and "Occupy"

2011-10-10T19:26:00.000-07:00

Exceeding Hitler’s Grasp!!

It appears that Germany’s President Angela Merkel, with a little help from France’s President Nicolas Sarkozy, may be poised to exceed Adolph Hitler goal of occupying most of Europe and subjecting it to his whims and plans.

Of course Hitler used his armed forces, blitzkrieg bombings, Panzer tank divisions and looked as if he would pummel every major European nation, from 1939 until 1945, when the Allies finally defeated Nazi Germany.

Ms. Merkel “merely” has the German banking system and its history of high quality economic and financial policies fronting for her, so who needs Panzers?

Merkel's Germany—and Sarkozy's France—seem to be leading an effort to boost and support the European Union’s “Euro” currency and to force feed Portugal, Ireland, Italy, Greece and Spain (PIIGS) a thinning diet of reduced spending, federal cost cutting, greater savings and self sufficiency, all using the carrot of German financial support and backing of the PIIGS sovereign debt.

Germany and Merkel are the real players here, with a chance to turn most of that continent around, if the Germans can summon the requisite courage and fancy. And, unlike Hitler, she and her country are being invited in and asked for this core financial support, which also will help many US banks, too, which were pigs themselves in buying Greek government IOUs.

Merkel may need Sarkoxy for some sort of political cover, but—next to the Russians—the French are the most feckless and unreliable of the European nations.

If the Russians are “courve and gonif” (“thieves and whores”), then the French, whose armies “went on strike" in World War I, surrendered to Hitler and fought with the Axis in WWII, and whose military vehicles have five reverse gears—to rapidly leave the field—and one forward gear, in case the enemy gets behind them, are barely more

Look Out, Here Come the American People!

My advice to Democrats and Republicans alike, ignore the nationwide “'Occupy” protests and protestors at your own political peril.

Cast them as reprobates and losers and you’ll find yourself sitting at home after the 2012 doing self flagellation “shoulda, coulda, wouldas.”

I think these demonstrations will grow and, like the conservative Tea Party advocates and sympathizers, today’s angry Americans are frustrated and disappointed, too, at a system which won’t provide them gainful employment.

Many are college graduates (recent and older), who desperately want and need jobs where few exist when businesses are not hiring.

We’ll soon find out whether their numbers grow to the level of the Vietnam War protests, 50 or so years ago. Those were the last large public demonstrations which forced major American policy changes.

But, with millions out of work or wanting more than mere minimum wage jobs, it's possible that the current protests could mushroom, especially if local and state officials don’t panic and start “busting heads” or arresting those who peacefully picket.

Like minded sympathizers and their families could add to the marcher numbers. At the end of the day--despite the GOP rhetoric--the broad complaint is not opposition to “the wealthy” as much as it opposition to federal economic policies which either don’t exist or fail to secure political consensus because of opposition.

Great Safety Valve

To me, these early rallies represent a cathartic and healthy demonstration of the First Amendment rights. That’s why I hope more and more people join the effort--as long as they stay peaceful and non-destructive.

Speaking up and demonstrating is Democracy’s perfectly acceptable outlets for policy unhappiness and could be just the activity to make Americans feel better about their lot in life, especially if their efforts produce the desired change.

At times, we’ve all complained about people failing to register to vote or being too uninvolved after they’ve registered. We just may be seeing a large group of Americans shrug off their complacency and begin to enter the political process in a loud and unmistakable manner.

It also can be seen as a message to the GOP congressional obstructionists. “Work on something which addressees our broad economic/employment concerns, not just the 2012 defeat of Barack Obama or more for those who already have gotten financially fat from federal benefits.”

It’s ironic for Republicans to suggest today’s demonstrators are left wing kooks, rather than individuals desperate for regular jobs and employment income.

The initial GOP criticism and dismissal of protestor’ issues sounds to me like false bravado and “whistling past the graveyard.”

The putdowns makes it’s easy for the Right to dehumanize and distort the protests rather than seeing them as a natural expression of angst over America’s economic dislocation and the GOP’s responsibility for much of that. (Anyone remember President George W. Bush and his phony Iraq War, eight years of deficit spending and tilted-to-the-well-off tax cuts?).

Before rushing to judgment, the GOP should remember its chosen “opening day of Congress exercise,” when House Republicans read aloud the United States Constitution (conveniently skipping the sections which could be tied to racial equality), especially the First Amendment.

The American people, now participating in “Occupy” demonstrations, merely are exercising their First Amendment rights, which Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va) and their allies chose to venerate on their first day controlling he chamber.

I am sure that with some labor unions adding their strength and numbers to the protests, Republicans will engage in new forms of name calling and denigration.

Get Micro

But, far more important—I hope--will be the American public’s reaction when the protesters get more debate and attention on issues that should resonate with the public, like GE earning almost $15 Billion in 2010 and paying no federal taxes because of the variety of tax breaks available to corporations, which the congressional GOP refuses to close.

Or when “Occupy” participants discuss bank profits versus bank lending activity. The former—given unconditional help by the federal government—last year were up over 100% and the latter down by 9%.

Eventually, protestors will develop a common agenda and demand that Congress—and the Obama Administration—address their concerns.

“Class warfare” –the current GOP epithet used against the “Occupy” crowds, is such a catchy and ugly term, but when the protesters expand their economic brief, I believe that policy makers will see that a pretty broad range of Americans have suffered major financial setbacks, including total family unemployment, access only to sub-minimum wage positions, loss of their homes, diminished shelter, food stamp use, and entry to public welfare rolls.

The political protests are in their incubation stage. I believe that more and more people will march and protest the deaf ear that many in Washington (not just the congressional R’s) show toward the problems facing the poor, middle class, and a ton of recent college graduates who wish only to work and make their own mark in our society.

When the Tea Party types, two years ago, were “hating on Obama,” claiming that was a socialist and wasn’t born in America, few Republicans or Democrats questioned their patriotism or their right to picket and protest.

Why do those TP supporters and their congressional friends now accuse the current protestors as anti-American or engaging in class warfare?

The answer is because the protest message is antithetical to the GOP’s political objectives, might attract millions of voters to the same cause, and stimulate a large--heretofore moribund—Democrat leaning contingent toward political action which likely will see lots of Republicans lose their seats in 2012 elections.

Maloni, 10-11-2011

Take to the Streets….Please!

2011-10-06T18:30:00.000-07:00

While protesters have their pet targets, Wall Street, large financial institutions, obliging public officials, corporate greed, financial bailouts, etc., the root issue appears to be an economy which cannot—because of political lethargy and willful indifference---provide work for millions of American who need and want jobs.

I hope thousands, hundreds of thousands more citizens join—peacefully—screaming and shouting their demands for the chance to work.

I want the GOP-controlled Congress, which has been most indifferent, to hear these Americans and begin doing more legislatively than trying to plan President Obama’s 2012 defeat.

In my lifetime, I’ve seen public policy change because Americans were “fed up and wouldn’t take it anymore,” In this case, more than 40 years ago, it was massive opposition to the Vietnam War.

Those protests--which started in society’s fringe elements--gestated over a period of years, beseeched the Congress and the White House, drew Americans of all colors and backgrounds, and became violent.

Millions of American, opposing the conduct of this war, finally got to the Nixon White House. Changes were made which led to the United State’s participation ending after 50,000 US casualties and thousands more wounded and disillusioned and an enduring economic inflation which took years to squelch.

The arrogant current Congress--again with Republicans tolling the bell--seems to think that more tax cuts for the wealthy and big business is the answer to jobs. But something beyond polite discourse needs to challenge their arrogant certitude.

I tried pointing out in my last blog how short sighted this reliance is, but Tom Toles, the cartoonist in the Washington Post did a better job--when he asked in a recent drawing showing unemployment rising while Uncle Sam heaped cash at the foot of an idol labeled “tax cuts for the rich=job creation”--“How is that working for you?”

If the American people get angry enough and begin to take their frustrations into the streets, John Boehner (R-Ohio), Eric Cantor (R-Va), Mitch McConnell (R-Ky) and the Tea Party better listen or they could suffer political setbacks, leading to a broad realization by the voters that the GOP has no real ideas about their plight, save giving more taxpayer dollars to the wealthy and comfortable. (“That Republican Emperor isn’t wearing any clothes.”)

Of course, Tea Party members may want to go “Kent State” on the protestors, which is an additional story from the Vietnam War era. (The Congressman for whom I worked represented the family of Allison Krause, one of the Kent State students shot to death by the Ohio National Guard. Anyone want to guess how responsive Attorney General John Mitchell was to a congressional request for a grand jury investigation of the killings?)

R.I.P.P. (Rest in Political Peace) Chris Christie

I wrote the following before Governor Christie (R-NJ) announced that he wasn’t going to run for the GOP presidential nod.

While I believe all of his early explanations about his young family and his love of New Jersey, I also think his row would not have been as easy to hoe as some Republicans felt.

Nonetheless, here was my wish when Christie’s candidacy was alive.

If the New Jersey Governor is convinced that his party and his country needs him and he joins the GOP presidential nomination chase, we will have tons (no pun) of stories about his weight and girth. I hope not.

Christie has described himself as a poor eater (choice or foods) and someone who

doesn’t exercise enough (he’s “everyman”).

So what?

If CC is a capable public servant, displays awareness, intelligence, sensitivity, and global smarts, let’s welcome him and forget about his waistline.

If Christie enters the race, I hope we won’t be deluged with a bunch of William Howard Taft stories, our 27^th President who weighed north of 300 pounds.

One Out Another in, Sarah Palin?

Doesn’t former Governor Palin owe the Right or somebody an announcement of her 2012 presidential aspirations? She once said that she would make her plans clear at the end of September.

It couldn’t be any of those suggestions appearing in the Joe McGinniss’ book (“Jungle Fever”) or Levi Johnson’s tome (SP as a “cougar”).

I may be taunting, but I really hope that she toughs it out and announces that she is seeking the GOP nod.

Perry’s Most Recent Problem

Rick Perry’s recent poll numbers suggest some bumps in his road, as does his “problem du jour,” his family’s leasehold.

Why should anyone be surprised that Governor Rick Perry, the anti-science, mediocre college student, secessionist flirting Governor of Texas--with record high number of executions of African American inmates--might have hunted and recreated on a property that was named with a racial slur?

This is a man who condemns all non-Christians to Hell. Do you think he is going to be sensitive to words he heard about a million times when he was growing up?

That language and attitude jibes with Perry’s rural background, the less than “big-tent” views of current party (he once was a Gore-supporting Democrat), and the historic Texas attitude toward all minorities not just Black people.

Possible proof of the latter is the rumor that before getting it’s ”N” name, Perry’s hunting reserve was called “Kikes’ Beak,” because of the unique outcropping and curve of high rocks by the old corral.

I am certain that this won’t be the last example of some bizarre “Rick behavior” which the media will uncover. And, frankly, I am sure we’ll hear this kind of thing about any frontrunner.

It’s the intensity with which the national media go after candidates, especially when their general behavior offers themselves up, as Perry’s has.

No Good Deed Goes Unpunished!!

Speaking of Rick Perry, I received my first fundraising request from the “Gov,” ironically in the same mail that brought a campaign ask from Harry Reid (D-Nev.).

I’ve told the Senate Majority Leader’s PAC not to call or send me any requests, since I think he’s done a weak job leading the Senate Democrats.

Since I never had any contact with him or his team, the Perry letter must be my past catching up with me. Before I retired from Fannie Mae (2004) and the corporate PAC never stretched as far as I hoped it would, I adopted a, “If you helped Fannie, I’ll help you” rule when approached for campaign contributions.

While most of my checks went to Democrats and their institutional campaign committees, I must have given to enough Republicans for me to forever be “remembered” by them.

You know what they say about elephants?

Please forget me. already!!

So it’s shredder time for that letter and continued inaction when my Verizon “talking” home telephone reports a call from “Unavailable!”

Maloni, 10-3-2011

Take to the Streets….Please!

2011-10-04T20:55:00.000-07:00

Here’s one guy who welcomes the protests on Wall Street and a half dozen other cities around the nation. I hope they get louder, stronger, more popular, and attract more and more Americans to them, adding their voices to the many angry and unemployed citizens already voicing their unhappiness.

While protesters have their pet target, Wall Street, large financial institutions, obliging public officials, corporate greed, financial bailouts, etc., the root issue is an economy which cannot—because of political lethargy and indifference---provide work for millions of American who need and want jobs.

I hope thousands, hundreds of thousands more citizens join—peacefully—screaming and shouting their demands for the chance to work.

I want the GOP-controlled Congress, which has been most indifferent, to hear these Americans and begin doing more legislatively than trying to plan President Obama’s 2012 defeat.

In my lifetime, I’ve seen public policy change because Americans were “fed up and wouldn’t take it anymore,” In this case, more than 40 years ago, it was massive opposition to the Vietnam War.

Those protests--which started in society’s fringe elements--gestated over a period of years, beseeched the Congress and the White House, drew in Americans of all colors and backgrounds, and became violent.

Millions of American, opposing the conduct of this war, finally reached policy makers. Changes were made which led to the United State’s participation ending after 50,000 US casualties and thousands more wounded and disillusioned and an enduring economic inflation which took years to squelch.

This arrogant current Congress--again with Republicans tolling the bell--seems to think that more tax cuts for the wealthy and big business is the answer to jobs. But something beyond polite discourse needs to challenge their arrogant certitude.

I tried pointing out in my last blog how short sighted this reliance is, but Tom Toles, the cartoonist in the Washington Post did a better job--when he asked in a recent drawing showing unemployment rising while Uncle Sam heaped cash at the foot of an idol labeled “tax cuts for the rich=job creation”--“How is that working for you?”

If the American people get angry enough and begin to take their frustrations into the streets, John Boehner (R-Ohio), Eric Cantor (R-Va), Mitch McConnell (R-Ky) and the Tea Party better listen or they could suffer political setbacks, leading to a broad realization by the voters that the GOP has no real ideas about their plight, save giving more taxpayer dollars to the wealthy and comfortable. (“That Republican Emperor isn’t wearing any clothes.”)

Of course, Tea Party members may want to go “Kent State” on the protestors, which is an additional story from the Vietnam War era. (The Congressman for whom I worked represented the family of Allison Krause, one of the Kent State students shot to death by the Ohio National Guard. Anyone want to guess how responsive Attorney General John Mitchell was to a congressional request for a grand jury investigation of the killings?)

R.I.P.P. (Rest in Political Peace) Chris Christie

I wrote the following before Governor Christie (R-NJ) announced that he wasn’t going to run for the GOP presidential nomination.

While I believe all of his early explanations about his young family and his love of New Jersey, I also think his row would not have been as easy to hoe as some Republicans felt.

Nonetheless, here was my wish when Christie’s candidacy was alive.

If the New Jersey Governor is convinced that his party and his country needs him and he joins the GOP presidential nomination chase, we will have tons (no pun) of stories about his weight and girth. I hope not.

Christie has described himself as a poor eater (choice or foods) and someone who
doesn’t exercise enough (he’s “everyman”).

So what?

If CC is a capable public servant, displays awareness, intelligence, sensitivity, and global smarts, let’s welcome him and forget about his waistline.

If Christie enters the race, I hope we won’t be deluged with a bunch of William Howard Taft stories, our 27th President who weighed north of 300 pounds.

One Out Another in, Sarah Palin?

Doesn’t former Governor Palin owe the Right or somebody an announcement of her 2012 presidential aspirations? She once said that she would make her plans clear at the end of September.

It couldn’t be any of those suggestions appearing in the Joe McGinniss’ book (“Jungle Fever”) or Levi Johnson’s tome (SP as a “cougar”).

I may be taunting, but I really hope that she toughs it out and announces that she is seeking the GOP nod.

Perry’s Most Recent Problem

Rick Perry’s recent poll numbers suggest some bumps in his road, as does his “problem du jour,” his family’s leasehold.

Why should anyone be surprised that Governor Rick Perry, the anti-science, mediocre college student, secessionist flirting Governor of Texas--with record high number of executions of African American inmates--might have hunted and recreated on a property that was named with a racial slur?

This is a man who condemns all non-Christians to Hell. Do you think he is going to be sensitive to words he heard about a million times when he was growing up?

That language and attitude jibes with Perry’s rural background, the less than “big-tent” views of his current party (he once was a Gore-supporting Democrat), and the historic Texas attitude toward all minorities not just Black people.

Possible proof of the latter is the rumor that before getting its ”N word” name, Perry’s hunting reserve was nicknamed was “Kikes’ Beak,” because of the unique outcropping and curve of high rocks by the old corral.

I am certain that this won’t be the last example of some bizarre “Rick behavior” which the media will uncover. And, frankly, I am sure we’ll hear this kind of thing about any frontrunner.

It’s the intensity with which the national media goes after candidates, especially when their general behavior offers themselves up, as Governor Perry has.

No Good Deed Goes Unpunished!

Speaking of Rick Perry, I received my first fundraising request from the Gov, ironically in the same mail that brought a campaign ask from Harry Reid (D-Nev.).

I’ve told the Senate Majority Leader’s PAC not to call or send me any requests, since I think he’s done a weak job leading the Senate Democrats.

Since I never had any contact with him or his team, the Perry letter must be my past catching up with me. Before I retired from Fannie Mae (2004) and the corporate PAC never stretched as far as I hoped it would, I adopted a, “If you helped Fannie, I’ll help you” rule when approached for campaign contributions.

While most of my checks went to Democrats and their institutional campaign committees, I must have given to enough Republicans for me to forever be “remembered” by them.

You know what they say about elephants?

Please forget me. already!!

So it’s shredder time for that letter and continued inaction when my Verizon “talking” home telephone reports a call from “Unavailable!”

Maloni, 10-4-2011

Mitt, Rick, and….?

2011-09-28T07:14:00.000-07:00

Could Perry’s Problems Bring New Faces

Rick Perry’s earned his horrendous political performance last week with a series disastrous debate answers—heard round the world and making him look like an empty vessel--a shocking loss in the Florida Republican straw poll, and a similar albeit not as surprising GOP straw poll setback in Mitt Romney’s birth state of Michigan.

It may have slowed down the Perry express, but it is doubtful—yet—whether his self inflicted wounds are terminal. There is a lot of conservative money behind him.

Despite his gaffs, there still appears to be a lot of GOP backing for the former Al Gore for President supporter (when Rick was a Democrat) and moderate Republican Rudy Giuliani for President (after Rick switched parties).

Perry also is the anti-science, anti/pro immigration (depends on day of the week and audience), and anti-abortion Governor who mandated anti-cancer immunization for young Texan girls in case they chose sexual activity over abstinence.

Woo-who cowboys and cowgirls, that’s a lot of stuff for Republicans to accept before you even get to Governor Rick’s history as a poor student; his desire to consider seceding from the union; his efforts to provide youthful illegal aliens with taxpayer supplied college tuition, get rid of social security because he thinks it may be unconstitutional and a “Ponzi scheme.”

That pistol packing, jogging Rick, he’s a hoot!

The good news for the nation, but the bad news for Perry in his failing support, is that a reasonable Republican (actually I believe Mitt Romney fits that description, but because he’s a Mormon, I don’t think a lot of truly conservative Right does) might come out of the woodwork and seek the GOP nod.

The names that come to mind are New Jersey Governor Chris Christie and his Indiana peer Governor Mitch Daniels. Or, how about urging New York’s Mayor Michael Bloomberg to enter the race?

Maybe ex-Governor Sarah Palin will jump in (please God!!). She claims she will make a decision by the end of this week, so let’s hope!!

FHFA Upset at FHFA

A few weeks ago, I wrote that the Federal Housing Finance Agency’s (FHFA) new Inspector General (IG) was shaking up the troops with his internal inquires and questions.

This week he issued a charge that regulatory staff was asleep when Freddie Mac and Fannie Mae reached deals with Bank of America over the loans involved in the BofA
cash settlement with the two companies.

The IG felt that did examine some 300,000 loans which could have been part of the deal and for which it could have sought a greater return from BoA. And because FHFA personnel failed to examine these loans or Freddie’s methodology either, money which F&F could have been claimed was left on the table and the taxpayer suffered.

Here’s hoping that FHFA Director Ed DeMarco uses the IG’s finding to fire some of the people who weren’t up to the job (as many, for years, have claimed).

Jobs and Job Creation

If the federal government can’t do it, what can?

My thinking probably is off here, but try and follow it and let me know if you believe it is flawed.

Both political parties seem to agree that the most and best jobs are created by the private sector, not the federal government, but the GOP ridicules suggestions that anything short of massive tax cuts for business will spur that hiring.

Here’s where I think the R’s get into real “the Emperor isn’t wearing any clothes” trouble.

Big business—while they want even more tax breaks—already seems to enjoy lots tax benefits, isn't that what the GOP is fighting to save from the Select Deficit Committee's budget axe?

But, with the tax bennies they have, are they massively hiring anyone?

If there are 25 million job seekers and the federal government can’t find it’s behind with both hands to find ways to get them jobs, why aren’t all of those conservative businessmen/women stepping up and hiring people?

Well, despite much record and near record quarterly and annual earnings reports, businesses claim there is no market to justify expanding their work forces.

Well, if a few start hiring, won’t that have something of a snowball ripple effect, when those workers spend their pay checks and create some opportunity for others to get hired in different businesses and industries, or is still all the fault of President Obama and the federal government?

All of those anti-federal government public officials and commentators should stop beating up on the Democrats and the federal government and instead, just exhort “the private sector” to step up and take some job creating risks?

The businesses could benefit and unemployment can get knocked down. After all aren’t those enterprises the best generators of good jobs or do they need more federal tax benefits piled on top of what they have, or is that another speech to a different GOP audience?

What a perfect segue into all of that money, all of those cheap deposits or TARP funds, sitting in bank vaults not being lent to businesses or individuals. (I save you that rant since you’ve all heard me use it before.)

If the federal government is useless for everything but making war then it’s useless. But, the next good GOP idea for businesses (not to mention the banks) to step up and independently shoulder some of the burden to quickly get Americans back to work, will be the first since the GOP won the House of Representatives.

Before ignoring this suggestion you might want to read the Time magazine story on why banks still don’t work, linked below, especially the part how three quarters of all small businesses report they are starved for credit.

http://www.time.com/time/magazine/article/0,9171,2093317,00.html

Bank profits up and bank lending down, who would be surprised by that??

Maybe I shouldn’t give all of these ideas to the Republicans. If business suddenly did become the forge for millions of new jobs, because of GOP prodding, the Party of Lincoln wouldn’t have to sweat beating Barack Obama next year.

The GOP’s biggest problems would be finding committee assignments and subcommittee chairmanships for their huge congressional majorities, come January 2013.

Maloni, 9-28-2011

Tim Geithner, a Tool of the Big Banks?

2011-09-22T15:07:00.000-07:00

So Ron Suskind, former Wall Street Journal reporter, Pulitzer prize winner, New York Times best selling author is out with a new book, Confidence Men: Wall Street, Washington and the Education of a President, among other things claiming that Treasury Tim Geithner has been a quisling (my word) in the Obama Administration, shilling for the big banks and slow walking presidential financial reforms?

Well, since I am not part of the Obama Administration and the Prez doesn’t check in with me to discuss his personal feelings, I only can assume that Suskind doesn’t read my blog, where I’ve been saying the same thing for many months, only in a much kinder way.

The Treasury Secretary came from the industry he is supposed to monitor and, occasionally lean on, but what he's done is more like cuddling and providing succor to the big banks and their investment banking subs.

I’m sure, when Geithner’s time in DC is over, he’ll find a comfy well paying niche in the financial services industry.

Suskind’s also book seems to expose former Obama economic advisor Larry Summers for the loose lips, sour grapes guy most think he is when he doesn’t (or didn’t) get his way..

It seems clear that Summers--who was dumped by the White House not long after he was named--appears to be the disgruntled source for a lot of the negative descriptions of the President and his advisors in Suskind’s book.

No political jobs for Larry.

Sign on the Times?

I was walking my dog this morning past one of the many banks on upper Connecticut Avenue in the District of Columbia, when I came across a large sandwich board sign saying “M&T Bank Is Lending!”

I guess that sign’s statement could be interpreted many ways, but the most likely is that the bank management’s doesn’t believe that most consumers think that banks in general are lending their money to individuals and businesses and M&T needs to get the word out that it is (or may be, since the devil is in the details).

What next sky-writing small planes, “Citicorp is…..!”

Could it Happen in the United States?

Which GOP presidential candidate—if he doesn’t change his tune--is most likely to generate civilian strife, bordering on civil war, if elected President?

IMO. Rick Perry hands down.

The most dangerous characteristic of GOP front runner Rick Perry isn’t his opposition to abortion; gun totting; rejection of evolution; wanting to charge the Fed Chairman with treason; disliking Gays; calling Social Security a “Ponzi scheme” and unconstitutional: believing that all non-Christians are headed for purgatory; wanting to blur church/state divisions; leading prayer services for rain in parched Texas (and failing); and thinking the federal government is useless and woeful except when it wages war?

While I have problems with most of those politically conservative manifestations, it is Perry’s constant flaunting of his Christian faith which worries me the most because I think it could lead to a real old fashioned blood letting conflict in the United States, pitting economic, racial, and religious mobs against one another.

By design it sets up another, but more visceral, “us and them” schism.

Think about it, a Perry primary win could set up more of his spiritual pandering and agitation which has thrust him to the top of the GOP political food chain.

Scary Rick Perry

What kind of future can most low income and minority families, let alone Jews, Muslims, and other non-Christian minorities, believe they’ll have under President Rick Perry—likely buttressed by fresh and larger GOP majorities in both houses of Congress—if he proposes to undo the federal support networks for education, jobs, healthcare, and nutrition, occupational and financial safety, while keeping in place the federal programs enjoyed by the wealthy and big business?

Could mobs of citizens who feel totally jilted by Perry take to the streets with mayhem in mind and battle the authorities and their fellow citizens?

My answer is “yes,” if continually goaded and excluded. There are many elements in our nation who might turn their neighborhoods into battlegrounds as they take out their anger, and political and economic isolation on perceived detractors.

This possibility grows when the “have nots,” already reeling from repeated economic blows, including high unemployment rates, lower incomes, and poor neighborhood schools, perceive themselves religiously ostracized.

I worry that if candidate Rick Perry continues to tub thump his personal relationship with God and wins—giving his God credit for prevailing over someone else’s God--Perry will have crossed a religious Rubicon from which he may not be able to swim back.

Can Perry, who has used this brickbat of faith to batter the heads of his opponents and build support among Evangelicals and other Christian zealots, stop when the opposition is a Democrat?

Take Your Right Foot Off the Gas, Rick!

Do you think Perry understands, “Run right in the Primary but run Center in the general?”

Rather than low-keying religious preference Perry wears it on his sleeves and keeps company with some of the most reactionary Christian pastors in the nation, racial bigots and anti-Semites.

This brings me to my core question. Do Rick Perry and his supporters truly appreciate how much misery throughout history has been produced by religious extremists, arguing over who God likes better or who is closer to his/her God?

Christians and Muslims, Jews and Arabs, Sunnis and Shiites, Protestants and Catholics, Hindus and Muslims, Hutu and Tutsi, Serbs and Croats—all occupying the same geography--have produced continuous clashes over the years leaving millions dead, devastation and destruction in the wake and almost no lasting peaceful resolutions to what started as religious disagreements.

Why do some Americans assume that kind of warfare can’t or won’t break out in the United States following an ugly and hate filled election?

There are too many short tempers and easy to reach guns in this nation for those seeking public office not to consider how incendiary their religious pandering can be. Turning it on and then off—depending on your audience--doesn’t work in today’s 24 hour total access to every uttered word.

I prefer the days when John F. Kennedy, seeking the Democratic presidential nomination in 1960, brushed aside a question about his deep Catholic faith and said “the United States had too many other dire problems” than to worry about his personal religion.

Maybe if Rick Perry quickly takes a lesson from John Kennedy, we won’t have to fear a US Armageddon following next year’s elections.

Preferably, it won’t come to that and Perry gets rebuffed by the Republican Party and sent back to Texas. But, right now, it doesn’t look that way.

(Anyone interested in this Perry blog segment will find valuable Christopher Hitchen’s Slate article.)

http://www.skepticmoney.com/hitchens-on-rick-perry-and-god/

Maloni, 9-22-11

The President’s Jobs Speech

2011-09-10T08:43:00.000-07:00

I liked his speech. I thought it was concise, logical, understandable and even bold. President Obama spoke to the fears and concerns of millions of unemployed and underemployed Americans, not to mention his own political frustrations.

It certainly called for enough spending to generate attention and make an impact. But, he will get little Republican support for what he wants to do.

I haven’t seen anything in the earlier GOP responses to the Obama proposals which indicates they will go along and “pass this bill,” as the President frequently exhorted.

Through the weekend, I am sure that we will hear more from the GOP about less regulation and more tax cuts for business and the wealthy, the standard Republican mantra. But nothing resembling any jobs plans.

The Select Committee

The wild card in all of this may be the “Select Committee,” currently working on deficit reduction proposals, complete with preemptive legislative power, if they choose to use it.

The world is just waking up to the fact that this super committee’s mandate seems limitless—with only a seventh vote—stopping it from offering major spending and tax change proposals in its final report to the Congress. That package then needs only a majority vote in each chamber to pass and be sent to the President.

Only time and repeated polling will tell if President Obama succeeded at his second speech goal, i.e. trying to aim the American people and their collective opinions at the recalcitrant congressional Republicans, costing the GOP massive support in 2012 if the “party of Lincoln” refuses to back off its opposition to most any proposal Obama recommends or supports.

The Select Committee might be the fastest legislative vehicle in getting real bipartisan policy changes.

Hey, I can wish and hope can’t I??

FHFA’s Tough Task, Standing in the Middle

Let me give everyone involved in the future of Fannie Mae and Freddie Mac the benefit of the doubt. That’s tough in this town where most of the GSE influence peddlers are high end schemers and promoters.

The simple reason for that is the money involved.

Even in their confused and weakened state, Fannie and Freddie still represent “big casino,” because of their size, business volumes and potential future revenues. That attracts people who have their eyes on that revenue for their own pet plans or other selfish reasons.

But, again, for the time being let’s assume none of that exists.

I started thinking along these lines when examining some recent actions of Director Ed DeMarco and the Federal Housing Finance Agency (FHFA), which he heads. Is it possible that DeMarco might not be the anti-GSE ogre many people believed?

Is DeMarco “Horatio,” standing in between those who would fatten the two before cannibalizing them or is he maintaining/sustaining them because they work and still are needed?

I don’t know Ed DeMarco. Although he and I both have been around these mortgage finance structural and political issues for many years, I can't remember meeting him. So, nothing I say is based on any first hand knowledge of him or his priorities. I’m just giving him the “benefit of the doubt.”

He is in the awkward position of being the financial regulator of the two companies which were put into federal conservatorship by the Bush Administration, three years ago, and kept there by the Obama Administration.But, the mortgage firms are working and quite successfully.

As such, he has to try and conserve the companies’ resources offering them some hope for future economic activity.

Still There Under the Democrats

Despite DeMarco’s Republican history, he has not been replaced—yet--by the Obama Democrats.

DeMarco also wears a Fannie/Freddie safety and soundness hat trying to insure that their past troublesome misadventures—notably buying tons of Wall Street created subprime securities in the middle of the last decade--remain in the past and never occurs again.

He may have come to appreciate that what happened to Fannie and Freddie was an aberration, desperate managements in both companies taking disastrous steps—buying billions in private label securities to retain market share and grow revenue—which failed and cost their shareholders and the taxpayers billions.

It also was an aberration which didn’t have to happen had his predecessors done a better job.

He might also realize that F&F merely did what virtually every other large financial institution in the world did buying those poorly underwritten and likely fraudulent mortgage securities.

Other federal housing programs, notably HUD’s Federal Housing Administration (FHA) mortgage guarantee efforts, have risen up to insure almost all of those credits that would have gone subprime in the past.

Better regulation and the absence of major subprime lending activity make those mistakes unlikely future events.

Most important, DeMarco—despite the conservatorship status—now might envision Fannie and Freddie as vitally important, still adding value as the chosen investor for more than one in two US conventional mortgage loans. In other words, their business model still makes systemic sense.

That’s because the “private sector” (mostly the large commercial banks and their investment banking subsidiaries) has not stepped up to provide an alternative to Fannie and Freddie and likely cannot or will not.

Future GSE risks look way down and the higher quality loans which both companies have put on their books in the past three years will begin reaping profits and erase much of the red ink still imbedded in bad PLS on their books.

Also in this mix--and weighing against doing away with Fannie’s and Freddie’s federal function as primary mortgage investors—is my belief that some of the companies’ major business opponents don’t want to see the GSEs demolished. Many big lenders don’t want to lose two entities to which the banks frequently transfer their mortgage lending business risks.

That investor role continues to be a major, major plus for bank lenders chary about carrying fixed rate mortgage assets on their books.

DeMarco has to navigate these waters, as the Obama Administration seeks to use Fannie and Freddie more—see the President’s jobs speech—and as the GOP rhetoric and efforts seek to use the GSEs post 2004 business activities as political weapons against the presumed 2012 Democrat presidential candidate.

Links and Things

To close this blog, let me offer links to two recent articles, one related and the other not quite but very chilling in itself.

The first—which discusses facts I didn’t know and speaks well of DeMarco—notes that the FHFA’s PLS lender lawsuits name dozens and dozens of lender officials as responsible for hiding the true nature of the bad loans sold to Fannie and Freddie. The story appeared in the Columbia Journalism Review last week.

While the lawsuits are appropriately aggressive, going after the people who worked at these companies and were responsible for selling the garbage, contrasts sharply with other federal financial regulators who seem happy to sue the institutions, but not their senior employees.

http://www.cjr.org/the_audit/fhfa_suits_try_to_hold_individ.php

The second link (unrelated) is an absolutely superb and scary analysis, written by Mike Lofgren, a senior Republican Senate/House Budget Committee staffer, who just retired from the Hill when he became convinced that the GOP’s objectives were misguided and destructive. Lofgren’s article also ladles out plenty of blame for Democratic cowardice in the face of the bizarre GOP agenda, intensified by the latter’s Tea Party membership.

http://www.truth-out.org/goodbye-all-reflections-gop-operative-who-left-cult/1314907779

In Our Hearts and Minds

I hope we never allow mortgage finance matters nor political fanaticism to get in the way of our 9/11 obligations and memories, honoring the innocent victims of that national tragedy.

God bless and protect all of the 9/11/2001 first responders, all of our countrymen and women killed or injured on that fateful day, as well their grieving family members and loved ones. I hope their fates unite us stronger as a nation and make us a bastion against extremism wherever it exists.

Maloni, 9-10-2011

Happy Labor Day, Bring on the Jobs Speech!

2011-09-04T12:18:00.000-07:00

Already, I’m embarrassed for you, President Obama. I am shaking my head in anger and outrage--as I am sure are many hopeful Democrats and “independents”—over how poorly you played your jobs speech timing and how often you seem to shoot yourself in the butt.

You are giving the other side too many chortling opportunities.

The American president should not be the “Wuss and Chief.”

Why pick a fight over the date of a speech, which you hope will capture some the public’s imagination for your plans to get people back to work, chose a date which you know will antagonize the opposition—which in itself is not bad—and then immediately back down when the GOP House Speaker denies your requested venue?

That is chicken crap all over you and it’s self administered.

Please understand that the R’s never are going to respect, embrace, or help you do anything that’s positive, because you are different in more ways than the obvious? (Somewhere down there is some real GOP fear of you, but I am not that good a psychologist to isolate and identify it for you.)

Congressional and other Republicans have made their Obama animus crystal clear.

They don’t like you. They want to humiliate you and the Democratic Party and then defeat you in 2012, so they can introduce the ersatz theocracy espoused by so many of their presidential candidates.

You should ignore them whenever it makes sense, like last week when they balked at your chosen presentation details.

Very few Americans care from where the President speaks when he offers plans to help them. And if anyone in the White House thinks the gilded House chamber adds to your message substance, those individuals likely are part of your political problems.

Give the speech on a street corner, from your own office, or the national mall. The people and the media will watch discuss and what you say.

The substance is the message, not the room’s furniture nor the predictable smiling and frowning D and R wall paper.

People who want to watch the GOP presidential candidates invoke the Almighty, damn Franklin Roosevelt and all things associated with the federal government--save its war fighting ability—could still have seen, watched or heard all that, without you making it easier for them.

Many of those folks likely don’t or won’t care what you have to say.

Take off the velvet gloves Mr. President, this isn’t Marquis of Queensbury rules. It’s a knife fight in an alley.

When you address the Congress and the nation on Thursday, please don’t compound the recent political missteps with a “jobs pabulum recitation,” filled with airy fairy rhetoric and little content.

Calling for $200 billion or more in fresh federal spending for ”shovel ready” public works projects will get people’s attention, especially if the money can be dispensed quickly to municipalities and state and local governments.

Put your best lawyers to work, deficit fund the initiative, and use some presidential emergency authority to implement it.

Training and education, while nice, don’t put unemployed Americans to work, now, or quickly inject fresh wages into the national economy.

Keep your message simple and filled with solid proposals which the average Jane or Joe can understand.

You bobbled the ball last week, don’t do it twice by throwing out lukewarm employment aphorisms.

If the GOP wants to balk at spending for jobs and oppose you, as it will, watch the American public/electorate—which supports infrastructure and other job creating spending--turn on them.

The Banks Can Help

Lastly, let me point out, again, that America’s large commercial banks have huge deposits, which despite all of their rhetoric the banks aren’t lending.

Until the recession ebbs, have financial regulators develop a mandatory new bank lending program to small and large businesses. Use as a target investment amount the TARP money the taxpayers gave obligation-free to these same banks three years ago.

That could pump an additional several hundred billion dollars into the business and economic stream, aimed at those very waiting and willing employers the GOP claims provide the best and most jobs.

Let the banks step up and help you and the Congress whittle away at those 9% unemployment numbers.

If the banks argue they don’t have the customers for that volume of lending, remind them that when Fannie and Freddie were given major new tasks---lending to low, moderate and middle income families in central cities and other underserved areas—the two reached out and met with legions of lenders, black and Hispanic Realtors, huddled with numerous consumer groups, printed easy to understand information brochures in 12 different languages aimed at families likely to want to buy a house, sponsored housing fairs in major markets, set up toll free contact numbers, did targeted television advertising and much more, to find the necessary business.

And before anyone says “and looks at the mess that produced,” read the Fed study (link follows) about why that type of lending did not result in the 2008 financial mess.

http://www.federalreserve.gov/pubs/feds/2011/201136/201136pap.pdf

Banks could be part of the solution this time, if they would get off their collected derrieres and hunt for good business, rather than just wait for pristine credits to come to them.

Contrary to what many banks might say and/or believe, this could help them boost their revenues, since they are in business to lend money.

As I’ve suggested before, let whatever deficit dollars needed to prime this jobs creation pump become the responsibility of the new Select Deficit Committee, which then will need to subsume this necessary expenditure to their ongoing responsibilities.

Bold, bold bold, President Obama, not wuss, wuss, wuss.

Lawsuits on Behalf of Fannie and Freddie?

Fannie’s and Freddie’s regulator, the Federal Housing Finance Agency (FHFA) is suing a gaggle of large banks, claiming the financial institutions sold the two companies—now in federal conservatorship--poorly underwritten mortgages and mortgage securities, intentionally misleading the GSEs about the mortgages’ quality (fraud?).

The figure $200 Billion is mentioned as the recovery goal.

FHFA and the Justice Department never will get that kind of money back from the lenders. But, there will be settlements, concessions, and other agreements that will bring cash into the government coffers negating taxpayer’s losses.

The only comment I’ll make is to share an exchange I had some weeks ago—before this news hit the press—with a senior official at one of the companies (not the one at which I worked).

I was damning—with great negativity--some of the FHFA senior staff, the veteran GSE-haters who had been there for years and like foraging termites had burrowed for life into the civil service protection system.

My friend disagreed, then correcting me (and I am paraphrasing) said, “That doesn’t apply to (FHFA Director) Ed DeMarco. I am not sure how it happened but he seems to have come around, sees great value in the Fannie/Freddie investor role and appears to be trying to protect that capacity.”

If that is true, then good for Mr. D!

Maloni, 9-3-2011

The Fed Gallops to the Aid of…..Fannie and Freddie??

2011-08-31T08:57:00.000-07:00

Scary Perry
Listening to some of the campaign rhetoric, it’s very scary that the GOP race seems to be include a stirring debate over which candidate can argue most convincingly that he or she is closest to God and therefore better qualified to lead the Republican Party in the 2012 presidential election.

Nothing wrong with a strong personal religious faith, but whatever ever happened to people demanding leaders intellect, who comprehend market forces, sound judgment, a world view compatible with the people you want to lead, and some compassion (“walk a mile…”) other than religious passion?

Texas Governor Rick Perry, the “Republican proselytizer in charge” and front running GOP presidential candidate, isn’t President, yet—nor has won his party’s nomination—but already he has convicted Fed Chairman Ben Bernanke of treasonous acts, or at least says BB is guilty of such.

“If you can’t understand it, throw rocks at it,” seems to be the new mantra as per Perry’s indictment of our central bank and its Chair. (Wait till Perry realizes that Bernanke isn’t a Christian.)

After suggesting that any new Fed stimulus would be treasonous--and Bernanke along with it--Governor Perry campaigning in Iowa said, “I don't know what you all would do to him (BB) in Iowa, but we would treat him pretty ugly down in Texas.”

I advise never uttering the name “Bilderberg” in front of Governor Perry!!

The Fed GSE Report

The Bernanke, Fed and GOP nexus is germane, since the Fed economists have just published a report debunking the GOP’s core rampart that Fannie Mae’s and Freddie Mac’s low income lending and the complementary federal affordable housing goals were responsible for the 2008 US/world financial collapse. (See American Banker story at the end of this blog.)

The Fed found quite the contrary. The GSE lending was far superior to the poorly underwritten private label subprime mortgage securities which Wall Street produced in the billions and then sold world wide infecting financial institutions in every modern country.

The Fed report supports those who have been arguing this point for some time but I doubt likely will have any major impact on the Right because the Fed shatters that which the conservatives stand on when they argue against any federal role in the nation’s mortgage finance system, i.e. “look at how bad Fannie and Freddie performed.”

Some Implications

So the Fed becomes the latest institution to take on all of the tree killing studies produced by the American Enterprise Institute and its gurus, Peter Wallison and Ed Pinto.

The central bank’s work is another in a series of assaults on Gretchen Morgenson’s poorly researched (note the number of factual errors) book, claiming Jim Johnson stewardship of Fannie Mae and the company’s affordable lending under Johnson led to the 2008 Armageddon.

And the Fed’s work also dumps a whole lot of cold water on the fiery anti-Fannie/Freddie rhetoric of many on the Right, including the Chairman of the Selection Deficit Committee and senior member of the House Financial Services Committee, Rep. Jed Hensarling (R-Tex).

But, will they care about facts?

The only personal comment I’ll add is to remind that the Federal Reserve Board never has been considered a Fannie/Freddie friend, quite the contrary when Alan Greenspan (he of the plummeting personal legacy) was Chairman.

Cheney and McCain

I won’t buy Dick Cheney’s new book or put a penny in his pocket, but I’ve enjoyed reading excerpts about what he says about well known political figures.

Thinking back to the 2008 presidential race, when a scrambling candidate John McCain tried clumsily to employ Fannie and Freddie as cudgels to beat Barack Obama politically about the head and body--ironically, using many of the arguments which the latest Fed report dismantled--McCain temporarily put on hold his (failing) campaign in the summer of 2008 to call for an emergency all hands “economic summit” in DC.

Cheney offers the following observation of the Arizona Senator at the summit meetings, which McCain hoped would make him appear statesmanlike and above the daily campaign political fray.

“Senator McCain added nothing of substance. It was entirely unclear why he'd returned to Washington and why he'd wanted the congressional leadership called together. I left the Cabinet Room when the meeting was over thinking the Republican presidential ticket was in trouble.”

Maloni, 8-31-2011

Fed Economists: CRA, Housing Goals Not to Blame for Financial Crisis
American Banker
By Joe Adler
August, 29, 2011
A new Federal Reserve Board report refutes the claim by some that the Community Reinvestment Act and affordable housing goals of Fannie Mae and Freddie Mac caused the mortgage crisis.

"We find little evidence that either the CRA or the" affordable housing "goals played a significant role in the subprime crisis," wrote senior Fed economists Robert B. Avery and Kenneth P. Brevoort in the report titled "The Subprime Crisis: Is Government Housing Policy to Blame?".

To test the claim forwarded by several conservatives that the policies are culpable, the central bank essentially compared loans backed by the two policies with those that were not. In one analysis, Fed researchers compared mortgages between CRA-covered and non-CRA-covered institutions. In another, they compared certain geographic areas known to benefit from the CRA and the housing goals set by the government-sponsored enterprises with other areas. In both tests, no link between the two initiatives and higher proportions of troubled loans could be found.

"Using a variety of indirect tests, we find little evidence to support the view that either the CRA or the GSE goals caused excessive or less prudent lending than otherwise would have taken place," Avery and Brevoort wrote.

Rather than find higher delinquencies in areas served by the CRA, the economists wrote, "In fact, the evidence suggests that loan outcomes may have been marginally better in tracts that were served by more CRA-covered lenders than in similar tracts where CRA-covered institutions had less of a footprint.

"Loan purchases by CRA-covered lenders also do not appear to have been associated with riskier lending. Additionally, this analysis found no evidence that either the CRA or the GSE goals contributed to house prices appreciation during the 2001-2006 subprime buildup," they wrote.

A Future for Fannie and Freddie??

2011-08-25T14:42:00.000-07:00

Last week, the Washington Post carried a front page story, by reporter Zach Goldfarb, suggesting that the Obama Administration was moving closer to prioritizing a role for the federal government in the nation’s mortgage finance system.

That development also could mean that Fannie Mae and Freddie Mac might be active future market players, likely with different names and/or business limitations, in a second Obama Administration.

There were no specific details about future GSE activity just the suggestion.

Here is how Bloomberg covered the same story.

“The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac, according to a person with direct knowledge of the effort.”

No sooner had the Post story circulated then the White House media spinners beat down speculation saying no such decision had been reached and the President was not ready yet to choose between previously announced policy options such as doing away with F&F, privatizing them, or something else.

Yet, the Goldfarb story rings true to me and the first reason has nothing to do with Fannie or Freddie, but merely the journalism world.

Over the years, I am sure that the Post has written hundreds of stories like this. Often when an internal working group produces a paper which represents some slight or even dramatic shift from an existing public position—in this case February GSE testimony by HUD/Treasury—and word slips out, accidentally, or is leaked by an advocate or opponent of the new twist.

IMO, if the Goldfarb’s story wasn’t based on good sources and other support, his article wouldn’t have made it to the Post’s front page.

The other more obvious reason is that the White House people working on this issue have concluded that without a federal market presence, the United States will not have a smooth, efficient, standardized, consumer friendly mortgage finance system, guaranteeing the existence of the 30 year fixed rate mortgage.

Many right wing think tanks, congressional Republicans, and lots of Tea Party denizens still believe this is disastrous public policy.

Whatever shortcomings that Fannie and Freddie may have, the conservatives have no proof that anything else will evolve (nor do they seem to care), since their friends the banks are not obliging them with aggressive creative mortgage lending designed to crush Fannie and Freddie with vigorous competition.

The mythical private sector, i.e. large banks, investment banks, others, just have not stepped and actively made mortgage loans except to the best of credits and on the most favorable bank terms.

Everyone knows that Fannie, Freddie and the Federal Housing Administration (FHA)—two years after the first two were taken over-- are conducting about 90% of all of the nation’s mortgage financing.

Big lenders are originating very few loans which they can’t turnaround and shift into Fannie and Freddie securities.

I assume the Goldfarb story is accurate, but it won’t change matters, politically. As most observers believe, no major mortgage market legislative structural changes will emerge until 2013.

However, the news does underscore the following scenario. The Admin polishes its mortgage plan, one which acknowledges the need for a pronounced federal mortgage role and some business future for F&F. If President Obama wins the 2012 election, he will promote it as his primary mortgage market policy option in the following year.

If the GOP wins the White House next November, then the economic problems, including how to manage our nation’s mortgage finance system and real estate markets, become a Republican and—likely—a Tea Party problem.

What Wonderful Irony!

I retired at the end of 2004, but when I was in charge of Fannie Mae’s congressional relations operations I seethed at the incompetence of the Fannie regulator, the Office of Financial Enterprise Oversight (OFHEO), a name since changed to the Federal Housing Finance Agency (FHFA).

Having worked at two different financial regulatory agencies, I knew what good oversight looked like and seldom did I see the same from OFHEO.

Instead, I saw incompetence, lack of mortgage finance industry knowledge, and political shenanigans not befitting serious people but very much the behavior of fools and posers.

It never helped OFHEO/FHFA that the other Washington financial regulators never accorded marginal respect to its Director or senior staff.

One US Senator finally had enough of the “amateur hour” and sought a HUD Inspector General inquiry into charges that the agency was seeking to influence corporate behavior by knocking down Fannie and Freddie stocks prices, through an exercise of issuing negative stories on the eve of major corporate announcements.

The HUD IG’s finding, which never was pursued by the Bush Justice Department, suggested the questionable behavior ran up to the Director’s office.

The purpose of this brief history is to establish why I feel so good hearing that massive chickens now seem to be coming home to roost, with the work of Steve Linick, a career federal prosecutor, named as FHFA’s first Inspector General.

Word is that IG Linick’s work is creating great unhappiness and discomfort among senior FHFA staff as the agency’s top cop seems to be finding precisely the type of incompetence and agency (professional?) shortcomings which many of us lamented for years.

And he is sharing. Linick’s reviews are on the agency's website for all to see.

All that I can say, now, is, “Inspect away General Linick and with great vigor.”

If you have the time, sir, go back eight or so years and look carefully at the “accounting problems,” which OFHEO claimed it found in Fannie’s efforts to comply with, then, major changes instituted by the Financial Accounting Standards Boards (FASB) on how to “mark to market” a GSE securities portfolio.

(While I am not ready to claim I am “visually healthy,” my recovery from surgeries is going well and within the next two to three weeks, I hope to have the final surgery to Solve those problems. Thanks for all of the messages and inquiries.)

Maloni, 8-25-2011

Some Time Off!

2011-08-16T08:17:00.000-07:00

The blog will go on vacation, as I recover from back-to-back eye surgeries. Hope to be back at it in a few weeks.

Maloni, 8-16-2011

What Duds!

2011-08-11T06:28:00.000-07:00

Now we know that Rep. Jeb Hensarling (R-Tex) and Sen. Patty Murray (D-Wash) will be the co-chairmen and leaders of the Select Deficit Committee.

Are these really the best that Speaker John Boehner (R-Ohio) and Majority Leader Harry Reid (D-Nev) could produce?

Were Laurel and Hardy busy? How about the Captain and Tenille, Crosby and Stills, Crosby and Ovechkin, Chubby Checker and Fats Domino, Siegfried and Roy, or Chas and Cher Bono. Too smart, too colorful, too capable?

House Minority Leader Nancy Pelosi (D-Cal.) hasn’t named her three candidates yet, but will it matter?

Albert Einstein, Winston Churchill, and Mahatma Gandhi could help Pelosi balance some of the early personalities, but--from many reliable reports--those guys still are dead and are not coming to the Capitol.

It’s not that the chamber leaders didn’t name those whom I suggested (“The Gang of Six,” plus the House Budget Committee leaders), it’s that they named enough has beens, never was-es, and never will be’s to screw the pooch.

Maybe I’ll be shocked and pleasantly surprised, but there are no thoughtful personalities or profiles in courage among the nine. The numbers to give me any hope that $4 Trillion in federal spending cuts and tax changes could be produced in their machinations just don’t seem to be there.

Look at Reid’s appointees.

Max Baucus (D-Colo.) supported the Bush tax cuts and fought for big agriculture subsidies. John Kerry (D-Mass) speaks extemporaneously every time the light goes on in his kitchen refrigerator (Theresa: “C’mon John close the damn refrigerator.”) Patty Murray (D-Wash) is the official money raiser for Senate D’s and it’s debatable—on policy matters--whether she or Kerry would leave the shallowest tracks in wet mud.

Mitch McConnell (R-Ky.) only did a little better. At least Rob Portman (R-Ohio) has brains and some budget experience.

Jon Kyl (R-Ariz.) is not smart and--to be kind--is backward looking. Pat Toomey (R-Pa.), is a freshman Tea Party acolyte, who opposes daylight, oxygen, and electricity.

Speaker John Boehner named the ultra conservative Jeb Hensarling (R-Tex) as his top guy. Hensarling specializes in blaming Fannie Mae and Freddie Mac for all domestic problems, primarily the 2008 financial meltdown. Boehner did balance good old Jeb with Dave Camp (R-Mich.) and Fred Upton (R-Mich), two Michiganders who seem to have some grit and gray matter between them.

There are plenty of votes among these nine to cut federal spending but it doesn’t look to me like there are enough to generate tax savings, especially since all six Republicans oppose tax savings or new taxes.

It looks like leaders in both houses just want the process to go forward and then fail (“But, we tried!”), because that then triggers an automatic across the board federal spending cut (half domestic and half military) which will have nobody’s political DNA on it.

That means nobody has to do any real heavy lifting, be creative or radical. They just can sit back blame the other side for intransigence then lament, but accept, the buzz saw results. “We tried.” (That’s assuming that the House Republicans don’t try and refute their debt limit budget deal and blackmail the nation with some other Tea Party creation.)

Again, the American public gets screwed by the political mini-minds, who masquerade as House and Senate party leaders.

What the hell were they thinking with this turkey smorgasbord?

Maloni, 8-11-2011

Blame the Tea Party and the House GOP

2011-08-09T09:59:00.000-07:00

Waving bye-bye to your 401 (k) or other nest egg, Junior’s college fund, next year’s beach vacation, the new-used car you planned to buy, Grammy’s rainy day cash, daughter Debbie’s braces, or next week’s groceries?

So, why are the Obama people chastising Standard and Poor’s for doing its job? Few think the rating agency screwed up in its assessment. S&P was hinting for weeks that the downgrade was coming, if Washington failed clean up its budget and spending act.

So, Congress kicked the can down the road and S&P acted.

The Congress, mainly the House GOP ignored the warning. Hundreds of billions of net worth now have been wiped out in a 10% stock market drop, which could go higher, and folks want to blame S&P for doing what it didn’t do in 2008 and got whipped for that failure?

The barn door is wide open, that horse is gone, and the wrong people are being pilloried.

The reverberations of the S&P write-down of the US long term debt rating--and the resulting rate increases and losses that already have surged through our national savings--are the work of the congressional Tea Party members and the their enabling colleagues in the House GOP.

Where is the sharp tongued and House Majority Leader Eric Cantor (R-Va.) defending those actions; how about the Teasies leaders, or presidential candidate Michele Bachmann (R-Minn.)?

Seven times Democrats gave George W. Bush debt limit increases without undue drama, embarrassing him, or hurting the nation. But the first time Barack Obama sought a debt limit increase, the newly elected congressional TP crazies—“our way or the highway”-- did him in, aided by their conservative, experienced Republican House brethren who should have known better.

Once again, the American people get screwed by backward looking zealots, who likely still don’t accept or understood the damage they caused us or how to fix it (which doesn’t get fixed easily).

Hopefully, Speaker John Boehner has learned a very humbling lesson--albeit a truly expensive one--which underscores that he cannot let his wing nuts drive GOP public policy.

And those non-TP members--who cowered from their new colleagues’ ranting and went along for the legislative ride--can’t escape blame.

It was fun when the gang joined to jack up the White House and get all of that local media time, but their now less-comfortable--off and poorer constituents should grill them about their actions and what their legislative plans are when they return to Congress after Labor Day.

“Do you plan to continue to hurt us economically and financially by following the Tea Party’s destructive ongoing agenda, since you contributed to the political dysfunction which gave S&P grounds for their actions?”

Opposing excessive or wasteful federal spending is one thing, but bringing down a structure’s financial walls in ignorance and frustration is totally another.

Last week, there was more worrying the markets before S&P’s actions, although their new rating was an unprecedented move—like southern Europe's economic problems, ongoing US deficit spending, two expensive American wars, and US political fratricide—but the TP’s added major pain of the downgrade didn’t need to happen. Not when, as noted Democrats never denied George W. Bush a debt increase notwithstanding that President Bush gave the Congress plenty of reasons to despise his deficit laden and wrong headed policy choices (see Iraq war).

Earlier this week, I wrote that maybe this crash and the unfortunately resulting damage may wake up voting Americans to the need for the Select Deficit Committee to quickly put together for congressional passage a $4 Trillion savings and taxes package that could right this big American economic ship.

How many people did you speak to on this weekend or on Monday and Tuesday who are pissed. I spoke to a heck of a lot, many of whom who are Republicans (I live in a bad neighborhood!) and they were livid.

I hope they direct their anger at those truly responsible and also help to neutralize the Tea Party elements both in the Congress and around the nation, because there's no telling what other damage the Teasies can produce if given the means as the House GOP gave them on the debt limit and budget talks.

Every political commentator with guts should expose the Tea Party cabal and their accomplices for their stupid actions and make it near impossible for them to do any additional damage to our nation.

They will have their advocates but I still think there are more rational people in the nation, who—combined with their general concern over ineffective national government—will “go medieval” on the Teasies when the latter begin again to act up.

Maloni, 8-8-2011

I Know What I Would Do!

2011-08-07T09:51:00.000-07:00

The S&P downgrade is not surprising and was telegraphed a week ago or more. It will cost Americans more, as some lenders will use it to justify upping borrowing costs. But, maybe it also will shock the nation into a shared awareness that the job of cutting back needless federal spending (and jettisoning unneeded tax expenditures) is the paramount political problem for us all.

Despite the unhappy rating news (and the coming downgrades of Fannie and Freddie), if I was President Obama and the GOP controlled Congress, I still would invest in two ideas, one old school the other newer, which I think would produce multiple benefits ( assuming the feds could implement one or both, quickly).

Come on guys, roll the dice and go for it. (Now you’ll begin to understand why I am such a hit in the casinos I visit.)

As a down payment on the future savings implicit in the budget deal, I’d approve a massive public works program, with the money going to cities and municipalities which have “shovel ready” projects to remake their infrastructures (streets, roads, water and sewer project).

The goal of this federal economic stimulus is be to create new jobs as well as fix some pretty shoddy and worn public facilities on which our communities rely.

(The satirical publication, “The Onion,” last week ran a story about a fallacious Al Queda video declaring the terrorists now refuse to bomb United States infrastructure until we repair/upgrade our nation’s crumbled, antiquated highways and byways, making them more worthy targets.)

Distribute the stimulus funds in every state, based on the ready to go now principle, but withdraw the money—shifting it elsewhere—if construction work does not begin in 90 days from the original grant.

Before the screams of “profligate spender” rain upon me, I would mandate that the newly created “Joint Select Committee on Deficit Reduction” (JSCDR) must recapture at least the amount invested from existing federal spending, so that this job-generating public works effort does not increase the near term deficit.

I’ve said and written that the Tea Party and others are correct that we waste hundreds of billions of dollars in federal spending which must end, but federal spending per se need not dry up, since much of it drives “private spending.”

Where the Teasies are wrong is to suggest that you cannot create jobs with federal spending going through local governments and private contractors.

The Select Committee is a rare opportunity to set a bunch of things “right,” end wasteful spending and useless subsidies. Already competitive interests and their lobbyists are setting up shop to try and tilt the results to their clients’ benefit.

But invasion of the lobbyists” is a realization that any thoughtful group of 12 Americans could come up with $4 trillion in savings and revenue over the next 10 years, which now seems to be the minimum magic number.

My Select Committee Canidates

Who should sit on the new committee?

The best situation for the congressional leaders--charged with naming the powerful new dirty dozen--would pick six Democrats and six Republicans who are not seeking re-election, but that can’t happen.

Next best is to name the half dozen D and R Senators who worked well together on a similar exercise, the “Gang of Six”: Senators Tom Coburn (R-OK), Saxby Chambliss (R-GA), and Mike Crapo (R-Id), and Mark Warner (D-VA), Dick Durbin (D-Ill), and Kent Conrad (D-ND).

As for the six House appointees, I would go with Budget Committee Chairman Rep. Paul Ryan (R-Wisc.) and his ranking member Reps Chris Van Hollen (D-Md.). Speaker Boehner and Minority Leader Pelosi then should appoint their two Members with the greatest intelligence, integrity and harmonic skills.

Needless to say, the above never will happen because it makes too much sense. The House likely will get into a “one from Column A, one from Coolum B” approach and bend out of shape a lot of the faithful ebcasue there just aren’t’ enough slots. While the GOP already claims it won’t name anyone willing to raise revenues, which means no Republican brave hearts like Tom Coburn.

Make the Banks Work, as per Wm. Sutton, “That’s Where the Money Is”

The second initiative I would undertake is to figure out a way to mandate the nation’s large banks—which are sitting on just a ton of money (most of it originally taxpayer-provided)—to lend in the context of the above public works projects or in a complementary manner.

As 1950’s bank robber Willie Sutton answered, when asked why he robbed banks, “Because that’s where the money is!”

Come on big guys, give back to the nation. Help your country, earn major kudos and make money doing it. How’s that for a winning Trifecta?

If conservatives and the GOP are correct that the key to economic recovery is small business growth and investment, let the big banks wade in—big time—lend to small and medium size businesses or entrepreneurs and help make a recovery happen.

What could have a higher priority than the United States’ economic welfare and why do the big financial institutions even need to be asked or begged?

It’s the least the banks can do given what the taxpayers gave them, with no strings attached.

When the Bush Administration said the banks were hurting, hundreds of billions flowed into big bank coffers and nothing, literally nothing, was demanded of them regarding reciprocal investments in their communities.

The Congress should reverse that!

Fannie and Freddie

A Maloni blog without an F&F reference is like a “fish without a bicycle.”

So, let me share a few germane items, via links with you.

The first is from Phil Angelides, who chaired the President’s Financial Crisis Inquiry Commission (FCIC), and wrote this week in Bloomberg.

Angelides takes on the critics and GOP public officials who absolve Wall Street still try and blame Fannie and Freddie for entire crisis, while often relying on specious information supplied by the "AEI twins," Ed Pinto and Peter Wallison.

http://www.bloomberg.com/news/2011-08-04/fannie-freddie-role-in-the-financial-crisis-commentary-by-phil-angelides.html

It is noteworthy that even Federal Reserve economists—in a confidential memo to the Angelides Commission—dumped on the AEI proposition which the acolytes still sell to sell the right wing (see Gretchen Morgenson’s book).

The next is a critical review of the Morgenson book. Bill Berliner, a former mortgage banker, originally reviewed the Morgenson and Josh Rosner tome in the Asset Communication Report (August). The review then was picked up by Mortgage News Daily.

Berliner--as several previous book critics also suggest—notes Morgenson’s and Rosner’s poor writing quality, shaky fact base, and erroneous descriptions of how the nation’s mortgage market works.

“The authors are clearly trying to stoke anger and outrage at the various players that they view as being responsible for the financial crisis. However, their arguments and credibility are undermined by a large number of errors and misconceptions that betray a limited grasp of the mortgage market and securitization practices…”

http://www.mortgagenewsdaily.com/08012011_reckless_endangerment_and_the_mortgage_crisis_blame_game.asp

Bank Attacks

The large banks keep hammering away at the existing secondary mortgage market structure—which alone should make Congress leery—and Security Industry and Financial Market’s Association had Barclay’s Tom Hamilton tell the Senate that the nation needed to turn to “covered bonds” as the answer.

Hold your wallet and gird your loins, Congress, anytime someone tell you how to solve a problem by utilizing his/its idea.

Covered bonds are used in Europe and have never been successful here (ask former WAMU officials) are a product in search of an investor.

Of course, Hamilton suggests ways to tighten down what’s left of the conventional mortgage market to tilt it even more toward large banks. No surprise there.

http://www.americanbanker.com/issues/176_150/industry-push-congress-fannie-mae-freddie-mac-1040880-1.html

One last item. If the Federal Housing Finance Agency, F&F’s regulator, has its way, the two companies/agencies/entities/things—whatever they are today--will be charging up to 25 basis points (.25%) on large loans they might process, if their mortgage ceilings do not fall, as now is planned.

Higher costs to the consumers in high cost mortgage areas, more money for the Treasury, and maybe a faster return to black ink for F&F, but bad public policy.

Movie Review

Go see “Cowboys and Aliens.” It’s a fun watch. Daniel Craig, Harrison Ford and other familiar faces are great!

Maloni 8-7-2011

Winners, Losers, and What’s Next?

2011-08-02T09:06:00.000-07:00

My early thoughts on the “debt/budget big deal” are a little ho-hum and a lot of trepidation.

I believe the Tea Party in Congress and their ilk were the major winners in this dispute and that bodes ill for the United States in coming months/years.

Most of this exercise—with the real fight down the road—was a colossal waste of time and energy, reminding folks, how often the Democrats gave President Bush the necessary debt limit increase to avoid embarrassment and problems.

A strong case can be made for getting rid of this requirement.

At least we didn't default on our financial obligations…this time. But, given the TP’s leverage, you can’t guarantee that Party members won’t extort some other chilling set of demands the next time.

The Teasies came out of top because their objective--to cut the deficit by limiting “excessive federal spending” (defining that is the rub)—is not unreasonable. (It's something I think is necessary after closely watching the federal government for the past 40 years).

However, the Party’s tactics suck and run from the immature to the diabolically dangerous.

In terms of individual political winners, Sen. Mitch McConnell seemed to arrive at the right moment and can claim “victory.” Speaker John Boehner might try but a closer look shows that the TPers turned him upside down and shook violently, which is a shame because he deserved much better. Boehner’s backstabber in waiting, er, House Majority Leader Eric Cantor (R-Va.), will try and take victory laps.

Harry Reid and Nancy Pelosi (who?) were bit players.

President Obama

President Obama looked weak and non-presidential. Nobody fears him and while he can salvage some credit for being the only “adult” present, that alone may not help him in 2012.

But something—often Obama himself—gets in the way of the President getting acknowledged for responsible achievement.

As a good and very politically sophisticated friend told me, “President Obama is a fixer, not a fighter, and he found himself trying to negotiate with people who only wanted to fight.”

IMO, one way Obama could reclaim his legacy next year, is by not running in 2012.

He then can eschew partisan politics and try to do the “right thing” for the next 12 months, paving the way for Hillary Clinton to seek the Democratic nomination next year and run against Mitt Romney. I’m not betting that way, but I wouldn’t rule it out.

The Tea Party Wins

The Tea Party won because they got most of their priorities handed to them in the deal. They have positioned themselves to “hold their breath and turn blue”—taking their 60 plus House swing votes and leveraging them for more--the next time the GOP or the country needs them.

Re public policy, the Teasies are an ill-educated and uninformed group, if one believes the statements made by their membership. I still don’t think that many of them think that sacraficing the nation’s credit rating meant a hill of beans.

But, they are zealous, single minded, apparently uncaring about the consequences of their quests, in other words formidable.

Secret Winner

Senator Tom Coburn (R-Okla) might have come out of this debacle smelling more like a rose than anyone else and deservedly so.

An original member of the informal and bipartisan Senate “Gang of Six,” the very conservative Coburn showed insight and courage in speaking out against some of the GOP’s major scared policy cows, primarily hidden—or not so hidden—in the nation’s tax code.

If he gets named to the new 12 member congressional deficit group (6 D’s, six R’s, even split between the House and Senate)—created in the budget deal statute--Coburn could be major voice in shaping the serious round of deficit reductions and revenue raisers. I am rooting for him.

Politics Not Up to National Needs?

The saddest realization of all has been the generally agreed upon observation that it is our political system which is dysfunctional more so than our economic or financial system.

We do spend too much of the taxpayers’ money on wasteful things, but too many disparate groups—well represented in Congress and also by paid lobbyists—make it tough to wean the nation from Uncle Sam’s teat.

That doesn’t mean it shouldn’t happen.

There are no near term revenues in the proposal which will go to President Obama for his signature, but just the prospect of defense spending cuts generated opposition from some House conservatives.

Who blinks first or will the November recommendations get politically rolled, too?

Many interests in the nation’s capital adopt the sage observation of the late Senator Russell Long (D-La.), who claimed the prevailing opinion when searching for revenues, was, “Don’t tax you, don’t tax me, let’s get the guy behind the tree.”

Totally lost in the budget sturm and drang—and someone whose success deserves acknowledgement--is the last OMB director who produced two consecutive balanced federal budgets. His name is Franklin Delano Raines and, after leading OMB for Bill Clinton from 1996-1998, he returned to Fannie Mae in 1999 to become its Chairman.

That was right before President George W. Bush pitched the nation and its taxpayers into the deficit vortex, running up huge deficits and advocating major tax cuts while trying to fight two expensive wars.

Remembering Raines’ solid efforts are a nice segue into comments about Fannie Mae and Freddie Mac, the former GSEs.

Fannie and Freddie

Thank you to the National Association of Realtors for inviting me to speak a week ago to 150 of its state and local lobbyists in Memphis.

I won’t blame the famous Rendezvous barbecue restaurant for my subsequent stomach distress (those ribs, coleslaw, and beans were real good). Suffice to say, I was six pounds lighter when I returned to DC two days later.

The Realtors have become the single strongest voice in the nation’s capital for homeownership and have tried to bring together significant elements into the same campaign, realizing that opponents—again ill informed but zealous—would wreck the nation’s mortgage fiancé system, if given a chance.

I told the assemblage that I doubted if anything would change structurally for Fannie Mae and Freddie Mac, as the Congress lumbered into next year and the presidential and congressional elections, but 2013 and beyond were up for grabs requiring their diligence.

The large banks, still declaring that they are the “private sector” continue to seek additional federal support, read "subsidies,” to originate mortgages which they won’t hold on their books but continue to sell to Fannie Mae and Freddie Mac (about 75% this year have gone to the two entities which is a major case for not abolishing the companies now in federal conservatorship).

Look around, we have a feckless mortgage finance system, limited investors for loans and securities not backed by F&F (or the Treasury), other national economic problems (see above), economic lassitude, unemployment staying in the 9% plus range, and large international uncertainties including winding down two very costly wars.

No, I see very little happening legislatively to Fannie and Freddie, except their return to some financial equilibrium as their newer books of business produce black ink.

One slightly cheering thing is the number of places recently where writers acknowledge that Fannie and Freddie under wring wasn’t’ the cause of the 2008 meltdown, with most of that coming from unregulated mortgage brokers working for Wall Street and others.

The frequency of this view won’t stop the AEI berserkers and others from peddling their view of history, but it’s a start.

Maloni, 8-2-2011

Bachmann and Blood

2011-07-29T06:00:00.000-07:00

I truly do not care for Michelle Bachmann in her public capacity as a MoC and now as a presidential candidate. I think she is the Tea Party flavor du jour, and I believe that the “Teasies” and their acolytes cannot be allowed to dominate American politics with their out of touch tri-cornered approach to public policy.

But, anyone who berates Rep. Bachmann—who publicly opposes Fannie Mae and Freddie Mac and would see them demolished—because her own mortgage loan may have been sold to one of the companies (as was reported this week) is smoking their lawn cuttings

Bachmann and her husband had little or no control over the fact that their mortgage loan may have been sold to Fannie or Freddie and packaged into mortgage bonds which likely were sold to institutional investors.

That is a lender decision, often made before the loan ever was originated to the Bachmann’s and has no impact on them or any other family in a similar situation. The Bachmann’s monthly mortgage payment just was passed on by the lender to whoever invested in the bonds.

Of course that she supports doing away with the secondary market entities which helped her and millions of other American families finance their mortgage loans—and continue to aid about 70% of all new homeowners finance--is another sad commentary on Bachmann’s marginal ability to serve the public let alone lead it from the White House.

Rep. Bachmann would get a more keen, revealing, and educational insight into how the nation’s mortgage market works, if she sought to learn why her originating lender didn’t keep her mortgage loan on its books.

She still can ask that question.

Yankees

Bored with all of the deficit/budget chicanery and BS? Me, too. BTW, someone will figure out a fix by next week, even if it is some hokey chicanery of the Treasury lending the Fed $100 Billion, possibly using the Fed member institutions as financial conduits, since legally it cannot be done directly. But this is war, right?

The following is a total Maloni make-up. It’s a sports fantasy and it occurred to me as my beloved Pittsburgh Pirates--owners of 18 consecutive losing major league baseball seasons--found themselves in a pennant race in 2011, hanging on by their thumbs and employing a very marginal group of major leaguers, but generating rekindled baseball interest in Pittsburgh.

What if the Buccos could develop some baseball serious talent and quickly? Might there be a way?

(Apologies to the Steinbrenner family and anyone in the New York Yankee organization, who may feel offended by my fiction.)

Baseball?

The New York Yankees today became the first team in major league baseball to announce that it has added vampires to its player development (PD) department, possibly heralding a new first in professional sports.

Rumors have been around for years about Caribbean baseball teams engaging the use of “blood suckers,” but those allegations never have been proved.

Yankees co-owner Hank Steinbrenner, his brother Hal Steinbrenner, Yankee General Manager Brian Cashman and many members of the extended Steinbrenner family, gathered today at Yankee Stadium to explain this new Bronx Bomber first.

Hank, the elder brother, told hundreds of media at a raucous press conference, that 34 year old, Vladimir “Fangs” Horowitz, a life long Yankees fan--who traces his father’s side of the family back four centuries to Europe’s eastern Moldavia--will head a new PD contingent, which includes three of Horowitz’s female cousins, Zsa Zsa, Melanie, and Gidget, all from his paternal side.

Hank Steinbrenner told the media, “It’s a true ‘first.’ Given our aging superstars, the Yankees need some fresh blood, and Vlad and the girls seem to be poised to produce it… in quarts.”

While Hank Steinbrenner, older of the two team owning brothers, refused to comment on specifics, reports are that the new Yankee employees will “scout” the majors for current young baseball talent and—employing the collective wiles of the Horowitz clan-- seek to acquire the “essence” of those players for infusion into current Yankee players or just for warehousing purposes and future use.

“Given all of the new national interest, recent success in blood sucking technology, and the sharing of vital essence, this is a much cheaper way to go than finding or trading for quality young ball players, many of whom initially only will play in night games,” said GM Brian Cashman.

“Blood is thicker than water, “younger brother Hal Steinbrenner said. “And as my late sainted father George—who many felt was a seer--used to say, you never can have enough of either!”

For his part, Vlad Horowitz recounted how—upon hearing that he had been hired by the baseball franchise with the most World Series wins—told his father that this was a job he had dreamed about as a kid growing up in the Bronx and could “really get my teeth into.”

Nobody in the Yankee family would respond to reports that octogenarian Yogi Berra, heralded former Yankee catcher and all-star, has volunteered to be the first beneficiary/recipient of the new Yankee essence extraction process.

Cashman also showed reporters a new “UnderArmour” plasma bag, with a large Citibank and even larger Yankee logo on it, which will part of an early fan giveaway promotion.

Maloni, 7-29-2011

I Hope I Am Wrong But I Sense the “Undertoad”

2011-07-25T18:12:00.000-07:00

More than 20 years ago, after my wife and I read John Irving’s brilliant, “The World According to Garp,” we adopted—as husband/wife code--"Garp’s" phrase for pending doom, he called it the “Undertoad.”.

In Irving’s novel, the phrase referred to a youth’s mispronunciation of “under tow,” an ocean affect which caused the death of one of Garp character's three children.

I feel the “Undertoad” coming this week.

I have no idea how this struggle to increase the nation’s debt limit—historically and almost automatic event no matter which party was in power---and cut the nation’s deficit will be resolved.

But I don’t think the House GOP will blink before it is the catalyst for the historic, calamitous, expensive, just stupid sacrifice of our national financial honor and credit rating, which in turn will cost our nation’s taxpayers hundreds of billions of unnecessary dollars.

If their selfish intransigence produces no breakthrough by this coming weekend, everyone’s borrowing costs--across the board, from the Treasury, mortgage, car, student loans, to individual credit cards--will go up and extract a huge sum of money from taxpayers and others.

For the first time in history the United States will show its word as a debtor nation can’t be believed. Put that in your tri-cornered hat Tea Partiers, Ms, Bachman, et al.

I don’t know how one calculates that prestigious and grievous loss.

But, the Tea Party members don’t even seem to be thinking about the consequences.

I am not being overly dramatic, nor am I trying to pitch partisan blame, merely calling it as I think it could occur.

The Tea Party in the House and its informal leader Eric Cantor (R-Va.) will pursue this suicidal objective because they can and because they don’t believe that the result will be as Armageddon-like as both Democrat and Republic observers claim.

Besides, they drape themselves in a self congratulatory fantasy that they came to town to make some sort of “difference” and they are not going to do anything too traditional like increase the national debt limit, since they have nothing vested in the system they surely will dismantle.

Maybe a real poll of their constituents might help them better understand their responsibilities.

It seems as if the Tea Party mantra is, “So, our debt and credit system goes boom, big deal. We'll build a better one when we get total control of Washington after next year’s election.”

Scary, scary people and there sure isn’t enough House GOP profiles in courage to go against the freshman juggernaut.

“Our way or the highway,” isn’t compromise TP guys and girls.

This doesn’t mean President Obama or congressional Democrats will be automatic winners, but the right wing TP members stand out for their obstinacy and wrong headedness.

If this scenario unfolds, I believe the nation’s electorate will vote most of them out of office, but at what price?

The irony here is that for a group so outspoken in its hatred of America’s foreign enemies, the Tea Party’s actions will generate huge joy among those who despise this nation and its people. Think Al Queda, Iran, North Korea, Venezuela, Russia, various Muslim populations and a host of other overseas haters who masquerade as our fair weather friends.

Maloni, 7-25-2011

Take That You Scallywags!!

2011-07-15T13:17:00.000-07:00

This past week was great for those of us who believe that for years the Right has dominated the headlines with specious attacks on Fannie Mae and its affordable housing investments. With no choreographed coordination, a series of high profile push backs appeared in the past several days.

Gretchen Morgenson’s book, excoriating former Fannie Chairman and CEO Jim Johnson, was the most recent major anti-GSE diatribe, while happy talk reviews of Morgenson’s screed (see George Will) just added to the bull pucky.

Of course much in Morgenson’s book repeats the themes of Peter Wallison and Ed Pinto, erstwhile American Enterprise Institute “researchers,” who have suggested that Fannie Mae feasted on subprime and poor quality loans in the 1990’s—when Johnson was Fannie’s Chairman—and those investments precipitated the domestic and international financial meltdowns three years ago.

(The AEI cabal continues to ignore the fact that a variety of government reports, including from the SEC and the company’s regulator, show how well those loans performed and what few losses they generated. The Fed could well be part of this list of “rejecters” but their memo on this subject still is not public, although it has been shared with Congress and discussed in the media.)

This week's sharp rebukes to the AEI suggestions came from a variety of sources, including researcher David Min, Nobel Prize winner Paul Krugman, Bob Kuttner, and folks writing about the Morgenson work in the New York Times Review of Books*. (*Corrected from original blog, see "Comments.")

Another liklely damaging rebuttal of AEI reportedly was a special report from the Federal Reserve—sought by the President’s Financial Crisis Inquiry Commission several months ago—which some media claim specifically rebutted the Wallison/Pinto work on which most of the GOP and right wing assaults on Fannie (and Freddie) rest.

Everything but the Fed report is public and the links to the others all appear below.

Read these writings and see if you think that Fannie Mae, in the 1990’s and early 2000’s, engaged in the shady business which the AEI and their fellow conservative travelers claim?

Now, before anyone runs off and misinterprets what I’ve just written, I am referring to the AEI, Wallison Pinto, WSJ, and Morgenson collected aspersions on the pre-2004 Fannie Mae.

Fannie Mae and Freddie Mac screwed up royally when they bought the Wall Street private label subprime poison in the early 2000’s and I’ve written that several times in this blog.

But, don’t conflate the two eras as Fannie’s (and Freddie's) business and political foes seek to do.

Here is David Min’s superb and substantive rejection of the AEL line.

http://www.ritholtz.com/blog/2011/07/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/

Bob Kuttner in the American Prospect.

http://prospect.org/cs/articles?article=fanniebackwards

Here is Paul Krugman’s work in the NYT.

http://krugman.blogs.nytimes.com/2011/07/14/fannie-freddie-phooey/?partner=bloomberg

Here is a review of the Morgenson book on the New York Times Book Review blog.

http://www.nybooks.com/blogs/nyrblog/2011/jul/13/why-fannie-and-freddie-are-not-blame-crisis/

Here is a Huffington Post link, which contains the most detailed description of what reportedly was in the Fed memo sent to the FCIC, as well as Wallison’s admission to leaking it to Pinto. (It’s amusing to me that the bogus research—which Wallison utilized heavily before it started getting criticized—suddenly is descried by Peter as “Pinto’s work.”

http://www.huffingtonpost.com/2011/07/13/financial-crisis-panel-leaks-lobbyists_n_897186.html

Wallison “Spooked?”

I guess all of this noise has worried the AEI gurus, since Peter Wallison is up today on the AEI website with a very, very defensive charge that his views were all but ignored, while the FCIC tried to shift all of the mortgage blame to Wall Street. Hardly.

Once again, Peter is prevaricating, since Fannie and Freddie and other government programs came in for FCIC criticism, just not the exclusive blame as Wallison, Pinto, and Morgenson have sought to do.

Compare the FCIC’s balanced verdict with the Commission’s “minority views” which refused to mention the phrase “Wall Street,” in discussing the mess.

I guess those billions and billions of dollars of “private label subprime securities”—which by definition avoided the higher F/F underwriting demands, ergo the name “subprime,” just immaculate conceptioned themselves!!

Maloni, 7-17-2011

Some Cats and Dogs

2011-06-27T19:38:00.000-07:00

When you look at the US’s unemployment numbers and economic malaise, and then at w has the money ameliorate some of the problem--over and above what they owe--it’s the nation’s banks, not the US Treasury.

When I was a lobbyist I would strive for “two fers,” initiatives which would produce benefits which helped multiple industry or political interests. It was not original thinking on my part merely a good way to build support, add momentum to my objectives, and improve the chances of winning.

I believe the nation’s big commercial banks, complete with their honking large investment banking subsidiaries, have a golden opportunity to achieve the “Trifecta” of doing good, doing well, and winning public and government support by funding commercial and municipal public works efforts around the nation, using new construction to put lots of people back to work and generating even greater bank earnings. (Sorry, Ron Klain, I disagree with you re the jobs impact of this type of activity, no matter who funds it.)

Four years ago, federal officials didn’t tarry (maybe they should have) when the banks “appeared” on the ropes and needed financial and regulatory help. The Bush and later the Obama administrations quickly infused the depositories with hundreds of billions in taxpayers dollars.

That cash came unencumbered by reciprocal demands on the banks and allowed those recipient financial institutions to improve their bottom lines---which they then arbitraged earning more and paying themselves wonderful bonuses or just increasing their overall compensation with Uncle Sam’s cash.

Now they should return the favor. Why aren’t the ABA and the Bankers Roundtable taking advantage of this opportunity to make money and help the nation?

The banks should find a way to give back to the nation, as well as their investors, and employ their ample resources in the most job creative, intensive manner?

There are no major legal or regulatory barriers to this arrangement and if there are, they could be handled easily, by a gracious Congress and Obama Administration. House.

If the banks occasionally wandered outside the liens of supporting job creating and revenue returning projects, I am sure that the federal and state regulators will be thoughtful about the added risks they are taking because of the greater good in the broader lending effort.

Maybe Republicans reading this, who still believes that the banks represent the “private market,” might embrace this not so bold proposal to have that financial segment elbow Uncle Sam out of the way and do their thing for America, bringing their private sector efficiencies to bear. It doesn’t involve raising taxes.

How much worse can this be than the thumb twiddling and the partisan hot air going back and forth now on Capitol Hill and in various state houses and governors’ mansions? And, when it works, let the banks get the credit for it.

Do What I Say Not What I Do

The United States sits here chastising and cheering on the Irish, the Greeks, Spain, Italy and Portugal, screaming at them to fix their economies, while we engage in partisan hyperbole and do very little to repair our own leaky financial house, White House media hints today, notwithstanding.

And, we want the world’s respect? For what?

We can adopt this hypocrisy because it boils down to the fact that we have a larger economic engine—not sure whether anyone can galvanize and channel it—and ultimately, our armies and guns are bigger and more plentiful. So, somewhere along the line is the implicit, “If you don’t do what I say, I’ll smite you!”

I think we have been woefully negligent as a political society, meaning the White House and Congress, cowardly hiding behind this disastrous kabuki dance of “Let’s put off this reckoning until as many of us as possible come back 2013.”

For what it is worth, I have “unsubscribed” from every political fundraising group which virtually daily send me fundraising messages, in the process telling them how disappointed I am in their lack of leadership in deficit reduction and other crucial matters.

People and institutions need greater leadership in hard times and not as much when the sun is shining and everyone is drawing paychecks.

I’ll repeat what I’ve been saying, both parties are negligent in their respective stewardships, but it’s President Obama, for whom I voted, who disappoints me most.

The nation—and the world—are looking to him, not John Boehner (R-Ohio) or Harry Reid (D-Nev), to get in front, project power, and produce some practical economic solutions.

Maybe that’s about to change, but I’ll believe it when I see it.

What Others Say?

People know my views on the works of the AEI’s, Peter Wallison, Ed Pinto, and now, after her book, Gretchen Morgenson.

They each have argued that Fannie Mae put lousy loans on their books for years prior to the Wall Street subprime driven financial meltdown which affected financial intuitions and societies across the globe. These critics have been unrelenting in their excoriation of the former GSEs.

I’ve cited official rejection of this political indictment and baseless political rthetoric, which is what it comes down to. But, as long as they persist, more rational and reasonable will try and expose them and their agendas.

Recently, I came across some additional views extremely critical of Wallison and his man Pinto’s efforts to con the President’s Financial Crisis Inquiry Commission and others.

The juicy one is from the Daily Kos, written by Peter Architect, who has commented before on Wallison’s effort. (Bear in mind, much of what is in Morgenson’s books tracks the Wallison/Pinto fictions.)

http://www.dailykos.com/story/2011/06/05/982269/-Whom-To-Believe:-GOP-Commissioner-Peter-Wallison-Or-Your-Own-Lying-Eyes?via=user

The next piece, on the same issue, was written by David Min for the Center on American Progress.

http://www.americanprogress.org/issues/2011/02/pdf/pinto.pdf

The most recent comes from a former major league baseball player and now real estate veteran, Broderick Perkins, who was a first baseman for the San Diego Padres.

Perkins’ work appeared in the “Examiner.com,” which describes itself as, “The fastest-growing local content network in the U.S., powered by the largest pool of knowledgeable and passionate contributors in the world.”

http://www.examiner.com/real-estate-news-in-national/wall-street-not-fannie-freddie-to-blame-for-housing-economic-meltdown

Thanks to the friends who sent me these articles. I hope my blog readers enjoy them as much as I did.

Maloni, 6-27-2011
2011

I May Be Piling On, But they Deserve It!

2011-06-06T16:49:00.000-07:00

The White House and the Congress deserve a heap of scorn for what they are not doing, which is not passing debt relief and a federal budget which cuts our too fat federal budget.

Why are they waiting until 2013, as seems to be the bi-partisan rallying cry?

“Answer, answer, class, class?”

Because most of these craven public officials will have faced the electorate in 2012 with no tough votes on their record and an ability to spin and blame the “other side” or somebody else for Washington’s spineless foot dragging.

Look, my Democratic stripes have been slowly fading as I watch this obscene Senate choreography with no real votes scheduled by Harry Reid, who’s trying to “protect Democratic seats.”

If the barely D controlled Senate fails to act on these vital issues and just “turtles,” because they can’t read the political winds correctly, what the hell good are they?

They all should lose their elections, as well as the waffling R’s, so we get enough people in office who will act.

Frankly, I was hoping that Speaker John Boehner could control his gaggle extreme righties, channel their energy, and get them to support some serious cuts, yet stay within some modicum of reason. That story has yet to be written. But—for now—JB’s on the run, not in control.

That leaves President Barack Obama. BTW, good job Mr. President on the “execution” of the Bin Laden plan, literally speaking.

The President’s support is up. While there always will be 40% of America who never will like or back him, that still leaves a big swath of the country and its voters who will rally behind a plan that fairly cuts the budget (yes, including the entitlement programs D’s love) but also ends the Republicans’ favored tax giveaways.

Lead, President Obama, please lead!

Someone has to try and expose this “getting reelected is the only thing that matters” horse manure, which both parties are displaying to the nation’s disadvantage and produce someone substantive federal policy changes and needed savings and it looks like you’re that person.

Oh and Then There Are the Big Banks!!!

Gretchen Morgenson writes a sophomoric book about Fannie Mae, Jim Johnson and the 2008 financial debacle.

The AEI’s Peter Wallison and, now, Ed Pinto kill hundreds of trees with their ranting about Fannie Mae and mysterious subprime loans, which turn out to be loans of their own invention and categorization. And I try and call attention to how the Bush and Obama Administrations, as well as the Congress, are serving the ultra large financial services companies, which haven’t done squat for the American people, but have done much “to” the American people.

Who is keeping and eye on the Banks?

Thanks to my friend and former colleague Gwenn Hibbs, the now retired financial services lawyer, who I once praised as someone who “can do more with two commas than most lawyers can do with two sentences,” I have some corroborating intel which argues the public is getting screwed by the banks.

The big banks are being aided and abetted by all of those congressional folks who think that unbridled bank authority to lend--and control whatever aspect of our national economy they can reach--is good public policy.

How can anyone who claims they are upset over the former GSEs not go catatonic when they read some of the work from—of all places--the ultra boring and conservative (not ideologically) Congressional Research Service (CRS), not exactly some left wing or right wing nut factory, which recently opined on bank perfidy.

I’ll just link the b-o-r-i-n-g CRS report and reprint some juicy comments from the blog world, commenting on the CRS findings.

Maybe this will wake up some of our blinkered congressional bank lovers, who think these huge subsidized financial beasts are somehow “private sector” and impervious to wrong doing.

As Gwenn Hibbs put it succinctly: "The points made by a number of bloggers and Fox Business News (!!) re: the CRS report is the inescapable conclusion that banks made huge trading profits by arbitraging the various credit facilities and then purchasing govt. bonds and MBS. That money did not go to promote economic growth or help underwater homeowners, or to address massive fraud by banks in the foreclosure process – it went straight to the banks’ bottom line in order to help them grow out of their toxic asset problem and give the appearance of having adequate capital. Not to mention huge executive pay packages."

Congressional Research Service Confirms Big Banks Borrowed Cash For Next To Nothing, Then Lent It Back to the Federal Government at Much Higher Rates

Here is the link to the CRS report.

http://sanders.senate.gov/imo/media/doc/sanders-bankholdingsofsecurities.pdf,

And, here are some blogosphere comments on the work.

Via The Big Picture by Washington’s Blog on 6/4/11

As Shahien Nasiripour reports, the Congressional Research Service has just confirmed what As I’ve noted for years, the government has been guaranteeing that the big banks make money at taxpayer expense by loaning money at very low interest rates, and then letting the banks loan the money back to the government at much higher interest rates.

Bloomberg notes:
“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.

Harry Blodget explains:
The latest quarterly reports from the big Wall Street banks revealed a startling fact: None of the big four banks had a single day in the quarter in which they lost money trading.

For the 63 straight trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) made money trading for their own accounts.

Trading, of course, is supposed to be a risky business: You win some, you lose some. That’s how traders justify their gargantuan bonuses–their jobs are so risky that they deserve to be paid millions for protecting their firms’ precious capital. (Of course, the only thing that happens if traders fail to protect that capital is that taxpayers bail out the bank and the traders are paid huge “retention” bonuses to prevent them from leaving to trade somewhere else, but that’s a different story).

But these days, trading isn’t risky at all. In fact, it’s safer than walking down the street.

Why?

Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.
***
The government’s zero-interest-rate policy, in other words, is the biggest Wall Street subsidy yet. So far, it has done little to increase the supply of credit in the real economy. But it has hosed responsible people who lived within their means and are now earning next-to-nothing on their savings. It has also allowed the big Wall Street banks to print money to offset all the dumb bets that brought the financial system to the brink of collapse two years ago. And it has fattened Wall Street bonus pools to record levels again.

Paul Abrams chimes in: To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives…for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer’s voice has entertained a packed stadium. No batter has hit a walk-off double. No “risk”has even been “managed”, the current mantra for what big banks do that is so goddamned important that it is doing “god’s work”.

Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.

Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.

In the next blog, more evidence and outside commentary that further bury the Wallison, Pinto, Morgenson “Fannie fantasy” lending theories.

Maloni, 6-6-2011

(Happy 74th birthday to the late Louis G. Maloni, my only sibling.)

A Commenter Comments and I Answer

2011-06-03T07:51:00.000-07:00

Bill, a pyramid scheme always results in rising asset prices (for a while). As long as a new sucker joins the game the prices rise. Add falling interest rates so troubled borrowers can refinance and defaults stay low. This was the reason JJ was able to walk away. By the way... they didn't have SEC filings while JJ was there... he made sure they were exempt from filings. Keep talking your book though.

The above is a “comment” sent to my blog this week, signed “Anonymous,” which most have been since that option is available. I started to answer, but my response quickly became blog-length, so I thought I just would put it out as a separate blog. My answer to the commenter follows.

So, let me see. Using your paradigm, Jim Johnson was responsible for what you call a housing “pyramid scheme,” which single handedly increased America’s homeownership rate to the 65% range, supporting the economic activity and all of its related facets, which generated 25% of America’s gross national product during Johnson’s years.

Ergo Johnson was responsible for a strong economy which kept people working and juiced their desire to own homes. Then he—not Fed Chairman Alan Greenspan (no friend of Fannie Mae)—managed to keep interest rates low so millions of middle income families, not to mention low income families, could afford those houses. (Could have fooled me and most history writers about who controlled rates.)
Apparently, federal financial regulators say Johnson did do such a superb job of those two things—quantity and quality of home mortgage financing-- that most of those families stayed in their home, never defaulted, and Fannie Mae (and Freddie Mac), created by the Congress to foster affordable homeownership, succeeded fabulously.

The Johnson era loans originated in the 1990’s—according to those same federal regulators--not only performed well while he was Fannie’s Chairman but also logn after he left (again, as reported by federal regulators).
That’s what you have??

Oh please, don’t throw me into the briar patch.

Regardless of when Fannie began filing with the SEC (prior to that time, its corporate disclosure were the near equivalent of what companies gave the SEC), the current SEC filings show that most of Fannie’s truly bad loans were worthless private label subprime securities, originated and sold by Wall Street—which Johnson’s successor, once removed, bought by the buckets full.
None of that computes with Gretchen’s book or the similar AEI attacks.
As I’ve written, I think much of this animus comes from business and political enemies, who failed where Johnson and Fannie succeeded.

The same fellows were jealous of the attention he generated personally and which he brought to Fannie Mae, a company that for years earned awards and achievements for the “Best Place to Work” for any number of groups, including women, African Americans, Hispanics, couples who wanted to adopt, adult children with the responsibility for elderly parents, etc. etc.

Recognizing where many moderate income families came from, literally, Johnson directed that all Fannie Foundation homeownership information needed to be printed in about a dozen foreign languages, including two dialects of Chinese. He then charged Fannie’s outreach efforts to conduct homeownership fairs all over the nation to spread that word.

Johnson reached out to everyone in the industry who could help, including lenders of all stripes (large banks, small banks, mortgage companies, thrifts, credit unions, and state finance agencies), Realtors, builders, community groups, Governors, Mayors, and state and local officials.

Fannie’s Foundation supported dozens of national and local efforts to help the homeless and a variety of other homeownership initiatives, including an immensely successful national advertising campaign which began on National Basketball Association games, because the league’s “fan demographic” matched the would be homeowners Fannie was trying to reach.

Johnson brought an energy and verve to Fannie’s effort, which sometimes embarrassed other providers and turned them negative.

If the American people could grasp that concept—called “jealousy”--they would better understand a lot of the political grief Fannie encountered during the Johnson years and later.

Frank Raines left Fannie Mae in 1998 to serve President Bill Clinton as head of OMB and in 1999 and 2000 produced the last two balanced budgets (consecutive years) in America’s history. After that government service, he rejoined Fannie.

Johnson was gone in 1998, succeeded by Raines, who was gone in 2004.

The financial meltdown hit in 2008.

In my humble opinion looking at the pre-2005 years, the worst that critics can claim is that the Fannie’s work to stimulate interest and the means to homeownership in the 1990’s--which later was copied, distorted, and suborned by voraciously piggish Wall Street forces, who bypassed the Fannie and Freddie standards and underwriting systems--gulled borrowers and mortgage securities investors by creating and heaping onto world market billions in poorly documented and soon to be worthless mortgage backed securities.

Depending on your values (and politics), there are plenty of Johnson and later Raines initiatives which their detractors could attack, but geometrically those were dwarfed by more accomplishments, realized best by those who understand mortgage finance and the obstacles to make it broadly available. Both of which Johnson and Raines, as former Fannie chairmen, overcame to achieve their national successes.

However, as I’ve noted, all of the effort, goodwill, and most of the positive personal and institutional opinions were wiped out by the foolish post-2005 Fannie subprime purchase adventures which occurred after Johnson and Frank Raines were gone from Fannie Mae. Both men, being Democrats with political profile, along with the company paid a steep price with the GOP and the Right.

When that story is finally written and not just hinted at, as some magazine articles and books have done, then that author will have a block buster best seller.

Maloni, 6-3, 2011

Gretchen Misses the Boat and Maybe the Entire Ocean

2011-05-30T18:39:00.000-07:00

Blog readers know that I’ve cited Gretchen Morgenson’s financial services writing and often agreed with the NYT business columnist’s commentary.

But not this time.

Her new book came out last week and rather than anything original in her analysis of the 2008 financial Armageddon, she—and co-author Josh Rosner—turn this thin screed into an ad hominine attack on Fannie Mae’s Chairman Jim Johnson and the company’s efforts to achieve its statutorily mandated low and moderate income housing finance goals.

Johnson was Fannie’s Chairman and CEO from 1991 to 1998. In that time, a series of regulatory changes increased those stiff goals for both Fannie and Freddie to more than 50% of annual business volume. Johnson made it his primary objective to realize or exceed those annual goals leading a variety of business, communications, marketing and political actions to do so.

Unfortunately, Morgenson‘s book represents nothing more than another Conservative secondary mortgage market systemic, suggesting that Johnson’s Fannie Mae leadership providing mortgage finance for low and moderate income Americans—as the Congress required Fannie Mae and Freddie Mac to do—was the catalyst for the 2008 national and international financial meltdown. Fannie and Freddie did play a part in that catastrophe, but not the one she suggests.

Johnson Long Gone by 2008

Morgenson and her posse ignore that Johnson was almost 10 years gone from Fannie Mae when the 2008 mess, which had Wall Street DNA all over it, percolated to the surface. She stretches credulity by trying to tie Jim Johnson to those events. The poor quality Fannie assets, which quickly failed, were brought in more than five years after Johnson was gone.

Contrary to Morgenson’s book and other critics, Fannie Mae’s low income lending, when Johnson was chair--as evidenced by documentation filed publicly with its regulator and the Securities and Exchange Commission—was fabulously successful and showed amazingly small default and foreclosure losses, which continued for years after Johnson departed Fannie Mae in 1998.

This means that people who took out those loans, successfully made those mortgage payments and stayed in their homes.

This business information—supplied by the Federal Housing Finance Agency (FHFA) Fannie and Freddie’s regulator—makes the case far better than I that the low income lending occurring under the Johnson leadership was both responsible and well underwritten.

FHFA and SEC Reports Torpedo Morgenson's Claims

The spectacularly low “serious delinquency rates”--covering all of Fannie’s business lines-- during the Johnson years are covered on page 26 of a FHFA report found here.

http://www.fhfa.gov/webfiles/1139/MMin2000.pdf

FHFA reported that the highest that the Fannie Mae “serious delinquency rate” (90+ days) got was 0.62% in 1997. That’s less than two thirds of one percent, a figure most financial services companies would delight in having.

The FHFA report says that the both companies reduced their credit losses (charge-offs plus foreclosure expenses) for a third consecutive year in 2000 to extremely low levels. "Credit losses for Fannie Mae fell 28 percent to just $89 million, 0.007 percent of the Enterprise’s average total mortgage portfolio."

The most recent Fannie Mae 10-K report—filed in February 2011-- amplifies this and goes even further towards under cutting Morgenson’s questionable demonizing of Johnson’s work.

Between 1991 and 2003, under Jim Johnson and Frank Raines, the mortgages Fannie Mae acquired between 1991 and 2003 remain profitable today. This means that the loans Fannie acquired on Johnson’s watch and those of his immediate successor were quality with minimal defaults and not ticking time bombs.

See link below and Page10; read the easily understood table from the Fannie Mae’s 2010 10-K.

http://www.fanniemae.com/ir/pdf/earnings/2010/10k_2010.pdf;jsessionid=FMODF31RVY4HVJ2FECISFGI

Morgenson’s Book is a Drive-By Political Shooting

The book, suggesting somehow that Fannie’s business was bad, is nothing more than a literary drive-by shooting, possibly the latest from the old GOP attack machine, which tried to use the same tactics against Barack Obama in 2008, blaming Fannie Mae for blossoming financial destruction which happened on George W. Bush’s watch..

Jim Johnson joined Fannie Mae in 1991, after serving as a major consultant to the company for two years. He retired as Chairman and CEO in 1998 and was succeeded by Frank Raines, who left Fannie in 2004.

As someone who was on the Fannie political front lines—along with many others—in the Johnson era, when attacks from the right (primarily) and the left (occasionally) never abated, Jim’s leadership of the company, it’s success, and the role it played in increasing homeownership for millions of American families, including large numbers of minorities, were extraordinary.

But, Ms. Morgenson, once the press secretary for unsuccessful presidential candidate Steve Forbes, trying to understand the era and home ownership issues present, takes up the tired old GOP rhetoric of Peter Wallison, the AEI, the Wall Street Journal, and the conservative Right, indicting Fannie’s affordable lending and Johnson, attributing to them evils which exist only in their own minds.

Someone needs to remind Morgenson, Rosner and that ilk that Fannie and Freddie were given their “affordable housing mission,” because banks, savings and loans and mortgage companies—presumably Ms. Morgenson’s desired mortgage industry managers--couldn’t be relied on to serve the poor and minorities.

Both the homeownership number and loans to those groups all grew after F&F started their work. But Morgenson’s clique ignores those realities.

Johnson/Fannie a Success and it Wasn’t Easy

As they say in baseball, Johnson “didn’t just throw his glove on the mound and pitch a shutout.” It took work and effort to lead. Johnson and his team had to sell and sell hard to get the lending community ready to originate the voluminous loan amounts Fannie and Freddie would need to achieve those lofty goals.

Consumers had to be made aware of the new and expanded mortgage borrowing opportunities. Realtors, lenders, and others in the business needed to work harder and—in some cases—in concert to do things that, while mutually beneficial, were different from the ways that they had done business.

And business analysts, federal regulators, and Congress had to support both Fannie and Freddie, as they developed new systems, products, and technology—often in the face of business and political opposition--to accomplish the job.

Johnson willingly took on those challenging roles to help his company meet those statutory mandated goals.

Five or so years into Fannie’s Johnson led efforts, any number of financial service companies had cloned communications and ad campaigns like Fannie’s, stressing homeownership, neighborhoods, and the success which comes from fostering that.

Look Carefully at Fannie’s Post 2004 Years, Compare and Judge Results

However, more than 20 years of solid business achievement--started in the early 1980’s by David Maxwell, accelerated by Jim Johnson, and continued by Frank Raines--was obliterated when Fannie and Freddie future manages lost sight of their core housing missions and instead invested billions of dollars in Wall Street created private label subprime securities (PLS), chasing previously lost mortgage market share and revenue, ironically lost to the same Wall Street businesses.

In choosing that dodgy course, after the Raines’ years and long after the Johnson era, both Fannie Mae and Freddie Mac gave ammunition to their critics; squandered the immense national respect and goodwill, so tenaciously secured by previous chairmen; and lost billions and billions of shareholder dollars until the Bush Administration started pumping in taxpayers’ money into each in 2008 (the first explicit F&F federal financial support, ever).

(Gretch, you can dislike the man’s politics and disrespect his career choices, but if you plan to bash him for Fannie’s low income lending successes, at least employ facts not ideologically driven hyperbole.)

The valueless PLS which Fannie’s new managers acquired after 2004—which still bleed--is what doomed the company.

For those not familiar with GSE history, those red ink laden mortgage and mortgage security acquisitions came seven years after Johnson left and two years after Raines departed. At that time, Dan Mudd was Fannie’s CEO, while Dick Syron headed Freddie.

These facts I offered may never silence the critics about Fannie’s low income lending, since they always can point to the mistakes made by Mudd and others.

Trying Unsuccessfully to Sabotage a National Inquiry Commission

But, it also is worth noting as I have in previous blogs, that Morgenson’s main themes--and similar allegations by the AEI’s Peter Wallison and Ed Pinto, that Fannie Mae put low quality loans on its books throughout the 1990’s--were rejected in writing in the Financial Crisis Inquiry Commission’s (FIRC) final report.

Peter Wallison was a GOP member of FIRC. He tried to front run the Commission and put out his own report early, which not surprisingly singled out Fannie and Freddie as major culprits, but refused to even mention the phrase “Wall Street”—let alone assign any blame to the investment banking community--in his tortured history of the financial debacle.

I just hope I am around when the Congress, still frustrated over how to handle systemic mortgage finance issues—especially as Freddie and Fannie round into financial health—decides that something similar to the current mortgage finance system (without the explicit Treasury support) should be the order of the day.

When it occurs, I promise my conservative friends not to smirk…..well maybe a little.

Maloni, May 30, 2011

Blog Notice

2011-05-10T18:52:00.001-07:00

Blog on vacation for a bit.

(Nothing is wrong, just waiting for the muse to return. Sorry that i didn't do this earlier; apologies to any who looked in seeking fresh material.)

2011-04-11T08:07:00.000-07:00

Government Shutdown….Not!

Why the federal government didn’t shut down on Friday night is buried in the miasma of why two kids fight or don’t fight, i.e. they have their reasons.

Talk about overly dramatic and anticlimactic. The world would not have ended if the deal came one or two days later, as has happened in the past.
Where you sit is where you stand and most people already have picked their heroes and villains

In my view, the “winner” (Washington and America, with our sports laced society needs a “winner”) was John Boehner.

He represented his side, well, made his social case against Planned Parenthood or whatever the Tea Party was PO’d about last week n(it will change to something new), secured needed budget savings that he didn’t expect and positioned himself for the next partisan squabble which will involve a more emboldened GOP Right and far larger stakes and dollars.

Honestly, part of me wants some elements of the GOP/Tea Party agenda to prevail because I don’t think the Democrats are ready for the amount of federal sopending cuts necessary to make a dent in our national deficit.

The GOP is. I disagree with most of their spending priorities, although could live with many. But, if the Republicans ever put “on the table” serious defense cuts, diminution of agriculture and other federal subsidies to their core constituencies, then their credibility quickly increases.

President Obama did his job and still positioned himself for 2012, including making his formal re-election announcement, but actions speak louder than words and more cuts must be the guiding principle when the sides start major debate on the FY2012 budget, the President’s formal version of which is nowhere near adequate or up to the reduced sopending necessities.

Shame on all of those who have ignored the hard work and deficit “road map” that the President’s won Bowles-Simpson Commission offered the White House, Congress, and the public.

You want bi-partisan, that was bi-partisan. This degree of reduced won’t become manifested until you have a ton of new Representatives and Senators for whom an additional term is not their primary objective.

That means it probably won’t happen in “God’s lifetime!”

“Banks Are Off the Hook, Again”

So said the lead editorial in yesterday’s (Sunday’s) New York Times about the bank’s streaky, at best, record in solving mortgage foreclosure issues, deftly and with common sense.

Let’s keep it simple, forget the histrionics, and just try and be pragmatic defaulted mortgage problem solvers in the best interest of the nation.

Looking back three or four years, some unrealistic expectations of homeownership by people who could not afford it yet were manipulated into debt by mortgage broker con men, well documented financial services legerdemain, and bad economic times millions of Americans have defaulted on their mortgages. Those financially bleeding, failed and failing loans now are on various bank and other investor balance sheets.

The federal government in a clumsy way tried to incent invertors, mortgage servicers and mortgagors to address the problem and while some did, most didn’t. Months and months ago, I wrote that the banks only would amelioratively act once the federal government made them, either through very heavy subsidies or sanctions.

The government never did either and the problem still is with us or as the Times pointed out yesterday.

"Americans know that banks have mistreated borrowers in many ways in foreclosure cases. Among other things, they habitually filed false court documents. There were investigations. We’ve been waiting for federal and state regulators to crack down."

But, the government before and since has ladled out billions of taxpayers dollars to the banks—with no reciprocal behavior demanded—and we are left with the question.

Going forward, who is in a better position to eat the foreclosure costs, the borrowers or the banks and investors?

Faster than you can say “Tim Geithner,” the Administration’s answer is most borrowers should.

Simply stated, unless overwhelmingly forced the banks will do nothing that is not in the best interests of the banks. Anybody expecting otherwise is naïve or foolish.

I’ll leave Gretchen Morgenson out of this week’s blog but will point to her employers’ top editorial, in which the banks and the too-bank-friendly Obama Administration come in for a deserved calling out over another weak deal between the federal financial regulators and the commercial banks to remedy the problem.

(Here’s a link to the Times' editorial.)

http://www.nytimes.com/2011/04/10/opinion/10sun1.html?_r=1&ref=todayspaper

Do You Think…?

--That the House Republicans understand that if they force F&F to rapidly shrink their loan portfolios—irrespective of market demand—the companies will have to shed the high quality loans—acquired over the past two years—on which they now rely upon to generate income to pay the Treasury’s ridiculous mandated 10% “tithe?”

--That Rep Randy Neugebauer (R-Tex), who also rants about getting the federal government out of the mortgage market, especially the securities side (but I’ll bet he means the portfolio business), yet wants to give the large commercial banks more and more federal subsidies, number bone of which is a new “federal” reinsurance for bank securitization activities?

“Federal reinsurance” hardly sounds private sector or private to me, but I am not a Texan.

--That the House Republicans and others who for years complained and bemoaned Fannie’s and Freddie’s mortgage portfolio realize that most of the GSE woes and red ink—which are forcing bills to be introduced and hearings held—came from the companies’ securities or credit investments?

I’ll bet not!

Maloni, 4-11-11

Facts (Mostly Non-Subjective) & Q’s (Mostly Tough) For Those Who Would Kill Fannie and Freddie

2011-04-04T11:19:00.000-07:00

Fact: For the past 17 years, since implementation of the 1992 GSE legislation, creating housing goals for the two companies, Fannie Mae and Freddie Mac had to devote an increasing percentage of their busyness to supporting mortgage finance for low, moderate and middle income families. That number was 55%, when the Paulson/Bush takeover occurred in 2008, caused when both companies bought subprime securities generated mammoth losses.

The losses resulted from decisions made by senior managers at both companies—despite internal objections—to invest in Wall Street created private label mortgage backed securities (PLS), which were so poorly underwritten that early stress on borrowers produced unprecedented defaults and losses.

Those GSE managers made major mistakes and paid for it with their jobs, but congressional hearings and government and independent reports point to the subprime and Wall Street’s role as the horrendous catalytic event which bank and investment bank failures in every major country, bringing on international financial chaos.

Question: Since Fannie Mae and Freddie, as most large US and foreign institutional investors invested in those ultimately worthless assets, with no objections from their regulators, what was their particular shortcoming which justifies “abolishing them,” especially when post 2008 asset acquisition already is governed by far more regulatory control, including no subprime acquisitions?

Since they were and still are a major part of the nation’s mortgage finance system, what systemic reason explains substituting untried and uncertain institutions and financing techniques in lieu of the former GSEs?

Fact: In the main, commercial banks don’t have a very good historical record on mortgage lending, given their primary business of lending for business, i.e. “commercial banks,” their role in red lining, their preference for making adjustable rate loans over fixed rate, and their rapid departure from the jumbo mortgage markets (loans which Fannie and Freddie cannot buy), when times got tough.

Question: To the House Republicans, what is the evidence that the large commercial banks will pick up the Fannie/Freddie secondary mortgage market mantle--without demanding large federal subsidies or concessions--and deal fairly with the public and smaller lenders? If your response is vague or vacillating, it begs the question, why make any major structural mortgage market changes whatsoever?

Fact: All commercial banks enjoy the protection of federal deposit insurance, which allows them to attract billions in low cost consumer accounts (checking and savings), while paying very little for the insurance coverage in relation to its value and little interest on the deposits. The banks pay premiums to the FDIC for the coverage but that amount doesn’t cover the full amount of the deposits insured. There also was a recent 10 year period when the banks paid nothing to the federal government for the coverage, underscoring the federal bank benefits.

This represents a major federal subsidy (taxpayer money) to the commercial banks.

The largest banks have major investment banking subsidiaries which enjoy federal privileges, bank access to “easy money” collateralized loans through the Fed and the Home Loan Bank System, federally defined markets where they face no F&F competition (see “jumbo loan market”), and still expect additional federal support, i.e. see new bank requests for federal re-insurance of future mortgage securities issued.

Question for the Administration, the Hill, and the media: In the context of this reality, how can the Administration, the GOP in Congress, allow the banks to refer to them as the “private sector,” when so much of their activities rely on federal support?

Fact: In the Jim Johnson years, when I worked at Fannie Mae, we developed an excellent easily understood tool for explaining to Congress and others, exactly what it is that Fannie did and how we believed that it added value to every congressional district and state.

These boutiqued CD profiles, employed the company’s latest business data (loans financed) Fannie possessed and reported it by census tract, zip code, congressional district and state, highlighting locations and types of loans and special multifamily and elderly mortgage support. The size of the loan and the exact geography (“Are you financing loans in Bad Town?”) could be readily seen and understood by people who were not mortgage finance experts.

Invariably, whether it was the most recent data (three months or a month old) or accumulated data, all loans outstanding which Fannie had financed, the information showed that Fannie Mae was financing thousands of families and had invested hundreds of millions and often several billion dollars in that CD, which then got circulated to businesses throughout.

The fresh data, certainly when added to the accumulated historic data (two or three years old) often proved that Fannie Mae was the largest investor in those congressional districts, out stripping most if not all of the local financial institutions.

Because of the Paulson-Bush takeover, which severely limits the former GSEs from interacting with Congress, I am not sure if Fannie Mae (or Freddie Mac) provides that important perspective to MoCs or their staffs. I suspect that information now open a few closed, eyes, heads, and hearts on the Hill if seen today and put these institutions in a more positive light. (Senators, Congressmen and staffs, try calling the companies and asking for those reports.)

Question for the Congress: Beyond “trust the banks,” what insures that whatever you want to succeed Fannie and Freddie will continue to support mortgage activity in your congressional district and state to the extent the former GSEs did and do?

What, in the Administration’s future mortgage market pronouncements or in the package of GOP legislative proposal on the subject—both of which rewards banks with a ton a ton of new authority and discretion to make mortgage loans—will produce a functioning secondary mortgage market structure, where law dictates that some institution somewhere invests and hold mortgage loans, thereby creating the fabric of a secondary mortgage market?

No mandate, no obligatory lending and purchasing, no guaranteed secondary mortgage market. Pig in a poke?
.

Fact: Prominently mentioned as an alternative to the mortgage industry’s current use and reliance upon mortgage backed securities is a financial product know as “covered bonds,” which have been used in Europe but not been employed much in the United States. A “covered bond,” collateralized by mortgage assets requires issuers (mostly banks) to keep some piece of the bond on their own books and not sell the entirety.

The US mortgage market, which involves a trillion dollars in annual funding, has relied and still relies on the trading of high quality mortgage backed securities (MBS)—often guaranteed by Fannie Mae or Freddie Mac--to facilitate mortgage investments domestically and internationally, allowing foreign dollars to finance US home US mortgages.

Question for the Congress, mostly the GOP: Why do you think “covered bonds,” which are foreign, literally and figuratively to US markets--can easily substitute or replace the MBS market, which the nation has utilized since the early 1980s?

Fact: By most reports Fannie and Freddie—while being poorly run by the regulator—have both reached the stage where on an operational level they are profitable, but when you apply the 10% “dividend” they must pay the Treasury on their outstanding borrowings, the companies are in the red and have to borrow from the Treasury to pay the Treasury. (Yes, you have it right!)

Various House GOP proposals would have the former GSEs pay only federal level salaries to their employees and stop paying legal fees for former officials, who have been sued by shareholders and others.

Question for the GOP. How does any of that “save:” money for the federal government? Right now, two “getting healthy” companies—still doing 90% of the conventional loan financing in the nation—are on the cusp of repaying their debts and running black ink?

Banning company paid legal fees for former officers certainly exposes the companies financially if those officials could lose their court cases and the Treasury—which now effectively owns F&F—would face billions of dollars in legal losses, because Congress managed to save a few dollars in lawyers’ costs.

Related that is your plan to cut dramatically all F&F compensation to federal levels, daring many of those people to abandon their jobs and seek better wages. These work forces have been abused and demeaned on the Hill and in the media for several years. Penny wise, pound foolish?

If you effort to cut their salaries succeeds, what talent might remain to manage a trillion dollars in mortgage portfolios and why is your approach sound, not punitive?

Maloni, 4-4-11

Happy April Fool’s Day, Play a Joke on Someone!!

2011-03-31T17:44:00.000-07:00

An April Fool's Day Interview with a GOP Member of the House Financial Services Committee.

Congressman, you’ve introduced 8 bills designed to reduce Fannie’s and Freddie’s role in the nation’s mortgage finance system and to scale back the federal gCovernment’s stake in the same operation.

Yes, that is correct. We think disassembling the old GSEs piece meal is better than trying to abolish them all at once.

Before we get into the substance of these bills, following the introduction, did you hear Committee Chairman Spencer Bachus (R-Ala) say, “The measures are intended ‘to create a well-functioning, private, competitive secondary mortgage market to price mortgages according to risk, be more innovative and efficient, and operate with less political interference?’ ”

Yes I was and truer words were never spoken.

Sir, do you think the Chairman intentionally ignored how much campaign money the banking industry—after abandoning the Democrats--spent mainly on the GOP to produce the bankers’ legislative and regulatory agenda? It’s been rather well documented how massive was the bank lobbying effort both to mash Fannie and Freddie and then last year to get Congress to pass weak legislative changes, memorialized in the Dodd-Frank Act. Now the same actors are doing the same level of lobbying now with every federal financial regulator, trying to water down new regs. Has Chairman Bachus missed all that and how can he hope people will view him as credible or believe him?

Also, a quick follow up, after making that statement, did the Chairman turn to stone or have his proboscis grow significantly larger?

Look, where you stand is where you sit and I believe that’s just corporate America—God love them--exercising its First Amendment rights, just as our, I mean the, Supreme Court said they could.

OK, back to your proposals. If you succeed with these legislative approaches, what institutions will provide mortgage finance and act as the nation’s secondary mortgage market?

Well Silly, our big banks of course, excuse me, I mean the nation’s large diversified fully integrated bank holding companies and other large depositories.

And why would you—in effect—cede the nation’s entire national mortgage market to large financial institutions, which have a spotty record on mortgage lending? The banks were pioneers in “redlining,” prefer to lend adjustable rate loans rather than fixed rate and seem to oppose every pro-consumer finance proposal or appointment made in Washington. In addition, they abandoned some markets in tough times and never have presided over a national secondary mortgage market. Yet, in your legislative scheme, the banks face no natural competition?

Not an issue, we also are going to have “covered bonds” and the “Danish system,” although I don’t know why pastries help with mortgage lending. And, as soon as the Financial Services Roundtable tells me what a covered bond is and what they do, I’ll have a better answer for you. At first, I thought this was a punch line to a “blonds” joke, but now I know they were saying “bonds,” not blonds.

But, we need to get the federal government out of the mortgage finance business and the best way is to give everything to be banks money, so that we have private money instead of tax payers money used for mortgage loans..

Obviously Congressman you are aware that those major regional and national banks rely on a variety of federally offered and supported initiatives for their working capital, which is a neat way of saying they are federally subsidized? The biggest banks, likely, all are “Too Big to Fail,” meaning the federal government would bail them out, if they ran into difficulty, which sounds more like the Fannie/Freddie story than not. Your approach just may be getting the federal government deeper into the mix than they are right now, not to mention creating a not-consumer friendly United States mortgage market.

Note that your proposals, state explicitly, that the GOP wants Fannie and Freddie—while they still are around--to charge consumers more for their mortgage loans to make it easier for these banks to compete. How does that help anyone but the banks?

Nonsense, I don’t know about “your” banks, but these banks--our banks, as I like to call them--are private and need help. Let me spell that for you “P-R-I-V-I-T, private." They’re all good local businessmen, entrepreneurs and--unlike Foo and Fat-- don’t use the federal government for much of anything. Nobody in the private sector does. That's why the banks call themselves
"private."

But…?

So, don’t try and confuse us. Did I mention the banks are going to employ “covered bonds” and great coffee cakes and whatever other goodies those Danes bake and what generous contributors these guys are? I mean all we have to do is mention a number and “boom,” we get it from them. It’s like having our bank-provided Republican ATM machine, but—of course—with no swipe fees for us.

But……!

Even Haley Barbour supports us. You remember when Haley worked in town, his old lobbying firm (Barbour, Griffith, and Rogers) was part of the successful effort to wound Fannie and Freddie and that was before we all even heard the word “subprime.” No we just have to finish the job that old Haley started.

"Colorblind Haley”—as he wants us to call him—was a Fannie killer, before most of us even came to Congress. So how much more evidence do you need that we are doing right by the banks, I mean the American people?

Congressman, who is going to buy all of these covered bonds and can they finance a trillion dollar US mortgage market?

I don’t know. I told you I needed to speak with the boys at the Roundtable. I am sure that they have answers to that question, especially since I don’t.

I am sorry sir, please tell me again why you want to get rid of Fannie and Freddie?

Simple, they caused the entire 2008 financial meltdown, with their efforts to make poor people homeowners. Damndest idea I ever heard, telling poor people—who didn’t know if they were going to have a paycheck from one month to the other—that they could afford buying a home. That was the problem.

You must be referring to the subprime debacle, on which your committee held days of hearings?

Yes sir, that and more, Frannie and Feddie or Frankie and Johnny were the cause of all of that, too.

Sir, Mr. Congressman, didn’t the President’s Financial Crisis Inquiry Commission, as well as many others, point out that it was Wall Street, in concert with large banks and the rating agencies—not the former GSEs-- which introduced subprime lending, told their paid-by-the-contract mortgage brokers to ignore all underwriting standards and just send all of the signed paper they could to New York?

These same banks and investment banks created, packaged, guaranteed, and sold the poisonous mortgage backed securities all over the world, causing dozens of lenders to fail or lose huge sums of money--and international financial chaos to set in--as thousands of borrowers quickly ran out of money to make their monthly mortgage payments. Didn't that dishonesty and treacherous behavior cause the huge mess in late 2007 and 2008, from which we just now are digging out, albeit slowly?

Pure bull pucky! Our guys on that Commission had the facts they needed--before the hearuings--and made their case well. Who cares if nobody else on the Commission agreed with them?

They also got out in front of those Democrats and put out our own report early, making it clear that Fannie and Freddie were the sole culprits.

Our guys wouldn’t say that if it wasn’t true, would they? Based on what our Commission members wrote and later said, I am not even sure if "Wall Street" investment banks were involved, since that name never appears in their findings.

What other evidence do you need that you are wrong and we are right, er Right?

Congressman, isn’t there the possibility that all of this power concentrated in the big banks--with no natural competitors and their opposition to serious regulation--scares you and makes you wonder if you are taking the correct action, especially given the big boys proven ability to manipulate the Congress?

Let me answer your question this way. Did I mention their campaign contributions?

Well sir, thank you for your time and um, good luck.

We don’t need any luck, son, we have the votes and lots of campaign money? Damn did you notice that Spencer now is using handkerchiefs that are two feet by two feet? I guess you got to have those when your nose grows so big, so fast.

Maloni, 4-1-11

Republicans and Libya, Bank Regulation, and the GSEs

2011-03-28T07:14:00.000-07:00

Suddenly the GOP--who allowed George W. Bush to violate all sane budget dogma with his war his phony war in Iraq and combat later Afghanistan--are concerned over what Persistent Obama is spending on Libya and what congressional blessing he is getting for military action.

It’s Mickey Mouse partisan hassling, since the R’s read the papers listen and often appear on television and know exactly what is happening in Libya and the fact that President Obama, unlike his predecessor Bush, quickly put together a real participatory alliance, which early on committed their sovereign wills, planes, pilots, and other military resources to stop Gadaffi from killing his own people and further mucking up the economically important oil rich northern African.

The alliance quickly has opted to give NATO control of the military operations and our President will tell the American people Monday night, what he believes are the US’s goals and opportunities in shutting down Gadaffi

I learned professionally—and have said often in this blog—that when you toil in DC and have a profile, you are going to be rebuked either for being a sheep or a wolf. I hope Barack Obama agrees with me that it’s better to be a predator then a lamb chop.

That doesn’t mean that President Obama’s messaging on Libya has been sound, but his actions are to be applauded. I’ve been wrong plenty of times in my political prognostications, but continued GOP opposition to what Obama and NATO are trying to do will hurt the Republicans, especially given their “gung ho, kill the Commies and all enemies of the US” Christian Conservative/Tea Party elements.

It Isn’t 2006

I don’t know if Gretchen Morgenson is aping me or the reverse is true, but—once again, in her Sunday NYT column—she takes the large commercial banks to task for trying to dilute regulations being fashioned by the federal regulatory community or favorably shape them.

The scary and not so surprising thing is that Treasury Secretary Tim “I Haven’t Seen a Big Bank I Don’t Like” Geithner isn’t vexed by what the banks want and may end up supporting them, with appropriate veils hiding his work. (Link to GM's column.)

http://www.nytimes.com/2011/03/27/business/27gret.html?_r=1&scp=2&sq=Gretchen%20Morgenson&st=cse

Colonial and Equine Heroes and F&F

There are both House and Senate hearings this week on mortgage finance issues, which means Fannie and Freddie, will come up and likely trashed, in part because the of the heavy campaign of mistruths which have been dumped so hard and heavy on them.

It will be very tough to polish the companies’ wheels from what will be another crap shower.

Plus the Congress has in front of it, the fresh grist of GSE borrowings from the Treasury, based on the Bush GSE takeover, which should be heavily discounted literally and figuratively.

Oh and don’t forget all of the congressional “outrage” over paying legal fees for former GSE officials facing legal challenges. Those purse string watchers on the Hill—in both parties--better hope those outside counsels do their best Perry Mason imitations and do it well, because their fees are scant compared to what the Treasury--which owns Fannie and Freddie—would have to pay litigants if the former GSE officials lose. (Hmm. Think that one over Reps. Issa (R-Cal) and Hensearling (R-Tex).)

Treasury insists that the companies maintain loan loss reserves against assets already owned by the government and liabilities which—if actualized—immediately become the responsibility of the taxpayers. That’s the government’s choice, not the companies. And F&F are being charged an exorbitant interest rate, which too has to be borrowed from Treasury and then promptly paid back to the Treasury. Duh?!!

Of course this both makes the companies look—on paper—in worse financial shape then they are and also allows Treasury to boast that it is earning money on what it “lent” the former GSEs.

Isn’t that something like offing your parents and then crying because you are an orphan?

Once you get over those minor hurdles, you likely don’t have the political will among many D’s to subject the GOP’s “facts” to a grueling review. Plus, we know the GOP won’t cross the Wall Street Journal, AEI, and their Tea Party screamers no matter what a factual review shows.

The Grand Old Party and Tim Geithner just want to get rid of Fannie and Freddie or “abolish them,” in Barney Frank’s famous phrase.

But, if they don’t want—as they naively claim-- the federal government dominating the nation’s conventional mortgage market, both sides will have to come to grips with the fact that their proposed mortgage market saviors--the nation’s large commercial banks--are barely one step below Fannie and Freddie on the “who is getting all of its working capital because of federal supports and subsidies?”

All of Those Federal Benefits

One just has to think and understand federal deposit insurance, access to Fed and Home Loan bank windows, exclusive markets where they face no competition because the Treasury has walled off others, And their continued efforts to both dilute Dodd-Frank regs or twist same to their decided advantage, i.e. return to Morgenson’s column.

Since the GOP doesn’t care for stringent federal regulation or much regulation at all and the banks are trying to get full ROI on their 2010 GOP campaign contributions—and Tim Geithner keeps doing his best Treasury secretary Andrew Mellon impersonation--what’s to prevent a replay of the last real estate financial disaster, since we know those big banks, top heavy with their investment banking subs, are the ultimate TBTF?

Of course in five years to seven or even 10 years (pick your “fix the national mortgage marketplace” time frame), most of the current Members of Congress and Admin officials will be gone, but they mess they create by caving to the big banks-- or more accurately re-create--will require someone’s cleanup.

A Hero and a Derby Winning Horse!

If the big financial behemoths are the 18th century British Redcoats then I am happy to be Paul Revere, riding through every “Middlesex, village and farm” warning, “They’re coming, they’re coming.”

Mixing our metaphors, what we really need to is for F&F to be the famous smallish racehorse “Carryback,” but in the second decade of the 21st century iteration.

Carryback was the little horse—often laughed at or even pilloried by peers and critics, as F&F are now—which in big races started out neat the end of the pack but then his core strengths would kick in and he would roar past the competition to win.

Maybe the former GSEs can just stay alive and win the big one for consumers, small lenders, and the nation.

Maloni, 3-28-11

Libya, Japan, and the US Mortgage Market

2011-03-20T14:52:00.000-07:00

Libya

I was going to concentrate on “mortgage stuff” this week, until the French—quickly followed by the US and Britain-- acting on the UN resolution sicced their jets on Libya. Now, if they all would continue blowing up s*** and not watch from 30,000 feet while the Gadaffi’s army overwhelms the rebels, I’ll feel much better.

Italy, Spain, Canada, Denmark, Qatar, and the United Arab Emirates now are part of the UN effort.

I still hope that some of these US arms sitting in Egypt to find their way into the hands of Libyan rebels, along with some necessary “weapons instructors” and maybe a few Special Forces operatives, just to give this movement a chance to oust Muammar.

About two thousand well armed French Foreign Legionnaires would also help.

Oh and, naturally, the opportunistic Russian leadership is staying on the sidelines speaking out of both sides of its mouth regarding aggression.

Japan

Has the world in recent years ever faced such simultaneous disasters--each pregnant with horrific consequences--than the earthquake and tsunami in Japan and the UN response Gadaffi murdering his own?

I know the US and its people will do that is possible to help Japan and its brave citizens in their hours of need and I only can hope that China, with its wealth but ugly history with Japan, will offer maximum support to its neighbor. You help people when they need help, not when it’s convenient for the helper.

Mortgage Finance

There were a plethora of “Hey, Wait a Minute on Fannie and Freddie” articles recently, links for which I add at the end of this segment, But almost as interesting was Gretchen Morgenson’s article on the department SIGTARP,” Neal Barofsky, who was the federal government’s watchdog on Treasury implementation of all of the major deals with financial institutions wracked by the 2008 financial debacle.

As someone who believes that Secretary Geithner has erred on being too bank-friendly and working out sweetheart arrangements for these institutions, I call your attention to the problems that Barofsky had with that situation, detailed in Morgenson’s column.

http://www.nytimes.com/2011/03/20/business/20gret.html?_r=1&ref=todayspaper

And, now, Geithner wants to turn over the nation’s mortgage finance system to the large commercial banks. Tsk, tsk!

GSE Legislation

I was a bit intrigued by a new GSE proposal from Randy Neugebauer (R-Tex), a senior Member of the House Financical Services Committee, which he claims is designed to “totally privatize” Fannie and Freddie, in four years or so, and allow them to compete in the mortgage market on their own financial strength, probably against some large commercial banks on steroids, thanks to new Obama Administration proposals,

His “privatization” might be a desirable objective, if the Congressman sincerely want a national secondary mortgage market which features viable major non-bank players. Although I suspect that some of his colleagues--and maybe even RN, himself--would want to clip some of the GSE business capacities before setting them free.

Not Private Cash and Still TBTF

But Congress better realize—as I’ve been writing—that, no matter what some on the Hill pretend or even believe, banks only are another form of federally subsidized financial institution and most of their working capital comes via federal appliances, so don’t get too caught up in your rhetoric about "private capital" because it might turn around and bite you in your sensitive rumps.

The "federalization" problem that Neugebauer and others in Congress want to conquer is twofold. Claiming (wrongly) that they are bringing in all of this “private capital” and getting rid of the federal presence in the conventional mortgage market is almost beyond their ability to manage. Since banks are not going to give up their federal benefits and the congressional conservatives can't erase the very recent memory of the Bush Administration--and later the Obama crew—writing checks on the taxpayers because some financial institutions just are “Too Big to Fail.”

Yes in future financial secrecies legislating, Congress will write into law some version of “nothing in this statute should assume that (fill in your list of favorite financial services companies) are backed by the full faith and credit of the federal government,” hoping to erase the TBTF residual. But saying or writing it doesn't make it so.

Good Luck Congress; Markets Are Smarter and Faster Than You Think

I suspect, if Neugebauer has his legislative way, that hard economic erasure of TBTF will apply to the newly “privatized” Fannie and Freddie and others. But remember, old F&F had “not the full faith and credit” reminder clause in their charters but that didn’t stop Paulson and Bush, for the first time in the GSEs history, from infusing real federal cash into the companies. And, it certainly didn't limit the Bush Administration from doling out major bucks to the banks.

No sane Administration will be bound by that cautionary restriction if the failure of a behemoth internationally connected bank holding company might bring down the US banking system or the world’s financial network, especially after the unprecedented federal government actions in 2008.

Good luck Congressman Neugebauer.

Who’s talking About GSE/Mortgage System Policies?

Are Fannie and Freddie beginning to earn some business respect and, if so, does that translate into political success?

Tom Vartanian, well know DC financial services attorney, thinks the 5-7 years which most people claim is necessary to unwind the mortgage finance system from Fannie and Freddie might, in reality, be 10 years or more.

http://finance.yahoo.com/news/Fannie-and-Freddie-Earning-tsmf-34189239.html;_ylt=AithvdiYAEyF9xkpGXB5cnG7YWsA;_ylu=X3oDMTE2bGVza2ZzBHBvcwMxMARzZWMDdG9wU3RvcmllcwRzbGsDZmFubmllYW5kZnJl?x=0&sec=topStories&pos=7&asset=&ccode=

Paul Muolo

After scoffing at congressional efforts to restructure the GSEs, the National Mortgage News executive editor’ Paul Muolo suggests that Fannie Mae and Freddie Mac are too crucial to the national mortgage finance system, the economy, and to lenders to do away with them and that Congress won’t take any action until after the 2012 election. Muolo also notes that both companies are “profitable on an operating basis," meaning before they pay Treasury the unusually high 10% annual dividend which was a condition of the 2008 federal F&F takeover. (I never get tired of pointing out that Paulson and then Geithner charged the big banks 5 % on their Treasury borrowings.)

http://finance.yahoo.com/tech-ticker/fannie-mae-freddie-mac-too-big-to-wind-down-yftt_536040.html;_ylt=Al.5T2MisJZxRcv8IJ7kycDeba9_;_ylu=X3oDMTFnbzdocmZpBHBvcwMyBHNlYwNjb250ZXh0dWFsLXRlY2h0aWNrZXIEc2xrA2Zhbm5pZW1hZWZyZQ--

Mark Olson

Minnesota small banker, Mark Olson, discusses why the Fannie and Freddie based secondary mortgage market is crucial to the future of small bankers and small lenders.

http://www.treliant.com/wp-content/uploads/2011/03/Mark-Olson-Preserve-the-Secondary-Mortgage-Market.pdf

Robert Schiller

Yale’s Robert Schiller, of Case-Schiller fame, appearing in a Bloomberg News interview, says that getting rid of Fannie and Freddie only would weaken the US housing market.

http://www.businessweek.com/news/2011-03-15/shiller-says-fannie-freddie-phase-out-threatens-housing-market.html

A Question?

Why are the big banks and their allies so frightened of Elizabeth warren and new efforts in Washington to protect consumers? I realize that the GOP and most in banking want to kill any remnants of the Dodd-Frank bill which established minimal controls on bank operations, but Ms. Warren seems to have a bulls eye on her back,

It couldn’t have anything to do could it with the fact that some/many banks know that their product and marketing efforts are designed to gull consumers and therefore Warren might be able to stop that assault?

Maloni, 3-21-11

Five to Seven Years

2011-03-13T18:38:00.000-07:00

Okay, so a Middle Eastern foreign policy wonk I’m not. But, at the end of last week, I had to get myself on the record with my views about Libya and our President’s caviling. Maureen Dowd’s column in Sunday’s Times kind of put me in my place and settled me down.

http://www.nytimes.com/2011/03/13/opinion/13dowd.html?_r=1&partner=rssnyt&emc=rss

I have a more traditional comment about another overseas development. All hopes and prayers go to the Japanese people and government trying to manage the horrible results of the massive earthquake and Tsunami which hit their nation.

The words “fortunate” and “Japan” don’t easily go together. But, had the earthquake been closer to Tokyo—with the resultant Tsunami--the death toll and massive destruction would have been greater just because of the more dense population and supporting infrastructure systems.

As it is, I am sure the current estimated 10,000 casualties will grow much higher in coming days.

There also is a tragic irony Japan being the first nation struck in war by an atomic bomb now facing additional tragedy from radiation leaks caused by damaged nuclear power facilities, which the island nation employed to make their lives easier.

Fannie and Freddie

Some months ago, writing about the former GSEs and possible legislative changes, I speculated that-despite all of the angry “abolish them” rhetoric from both parties—it would take Congress five to seven years to complete any structural transition to a new national mortgage finance system.

Now I see the same “guesstimate” in articles and commentary, everywhere.

I’d like to think that I first identified and coined that epoch but I suspect I wasn’t.

Nonetheless, whether I am a seer or I’m one (of many) who better understands the difficulties facing policy makers and Congress, I thought I might try and establish a case for why it might take 60 to 84 months for this odyssey to end.

The Congress

First off, the Congress never does anything quickly, especially if the issue is complex, has lots of moving parts, and involves something beyond mumbling the buzz words du jour.

If there is a shift away from Fannie and Freddie, public officials and the media will need to confront—hopefully fairly—most of the following major issues and build a political consensus to remake the nation’s mortgage finance system and infrastructure. (Again, the following is not an exhaustive list, so I invite readers to share your own with me, in the “Comments” section or elsewhere.)

Politics, 30 year fixed rate mortgage, fair lending, lower income families, securities market, monetary policy, Wall Street, “Too Big to Fail,” billions in overseas investment, “the American Dream,” 2012 congressional and presidential elections, rating agencies, the SEC, “the economy,” bank structural problems, control of Congress, bank mortgage lending history, Republicans control the House, Democrats have the Senate majority, interest rate and credit risk, industry competition, conservatives in Congress, New York Times, systemic efficiency, liberal/progressives in Congress, simple answers to complex problems, community investments, do homeowners do more civically?, lies and distortions, marginal congressional mortgage finance comprehension, ideological opponents, the Fed, systemic risk, dog and pony show hearings, federal subsidies, bloviation, convincing experts on both sides of an issue, Tim Geithner and the Treasury, jobs, powerful big bank lobbyists offering big campaign contributions, AEI, congressional minority caucuses, congressional legislative bias to “leave it to the regulators,” media attention, paucity of credible congressional experts, middle class aspirations, the “Angelides Commission,” a major chunk of GDP, Wall Street Journal, minority homeownership aspirations, rental housing, Aegean stables, federal deficits, can’t call a halt while fix is debated, small lenders, the subprime debacle, previous regulatory indifference, deposit insurance, mortgage interest deduction, property tax deductions, “If it ain’t broker, don’t…..,” and more politics.

Skeleton Music

Think of the old song, “Dem Bones,” as in the “toe bone connected to the foot bone, the foot bone connected to the ankle bone…”--and look at the list, again--also the fact that Congress doesn’t do "disassembly" well or sometimes, at all.

Historically, Congress tends to leave institutions around or functions alive to be reinvigorated if the need is there.

Need proof? You can cite all of the reasons you wish, but the much abused Fannie and Freddie (maligned incorrectly I need to repeat) not only still are around, but still do about 90% of all the “conventional loan” financing and, it appears, that both could start generating positive earnings soon, if the Treasury and FHFA removed their boots from the former GSEs necks.

What I tried to explain with the long list above--plus all of the similar elements about which you will remind me—is that they are related in substance or certainly politically (which is why politics gets mentioned twice!) and hardly can be examined for a congressional “fix” in isolation.

You can’t talk about getting rid of Fannie and Freddie, without dealing with the fate of the 30 year fixed rate loan. You can’t address GSE successors or replacement institutions without looking at what large commercial banks and the Wall Street investment banks (many of which now are own by the big depositories)—the obvious successor candidates--did when they controlled a large swath of the mortgage market, i.e. see “subprime.”

Tell Me, Again, Why We Are Angry?

We have a Congress and many in the nation upset over Fannie and Freddie but not sure why. This was the result of an effective campaign—run by their political and business enemies and helped by their own subprime follies-- that demonized both companies and took advantage of how little was known and understood about the two.

I see the Obama Administration seeking mightily to both endear itself to the large commercial banks and voters, but unsure just how to do that and still pass a Democratic political “smell test”

Most D’s know the big banks abandoned them in the 2010 campaign but now see Tim Geithner trying to smother the banks in new federal revenues and subsidies. Instinctively, that bothers the D’s but since so few spent time understanding the whys and wherefores of the financial meltdown; they’ll keep their heads down and play “follow the leader.”

Most public officials, including all Members of Congress, will tell that they are wizened and cynical, but that’s not true. Most among them, even the Democrats, want to believe the banks and believe that the banks will do the “right thing” if only the government gets out of their way and permits them.

It won’t take these folks very long to realize that the banks are for the banks and they are whippet fast, faster than those who regulate them, and will take advantage of every opportunity to fill their coffers at the expense of their customers and clients.

Which is a major reason to have secondary mortgage market institutions which the banks don’t control and which operationally can control bank treatment of mortgage products, consumers, and system prices.

The big banks play a game of “catch me if you can” with Washington regulators. Once a regulatory whistle gets blown, there are the inevitable “mea culpas,” exchanges of letters, and written understandings, in which the perpetrating bank will not admit wrongdoing, but agree to stop what angered the federal financial regulator.

Could 5-7 Years Become 7-11 (Aside: What a Great Store Name!)?

These obstacles are only some of why I see Congress needing five to seven years, or more, to resolve “issues,” which might be more gossamer than reality. But, admitting that possibility and dumping the empty fluff is what Congress does worst of all!

To further add to your intellectual please, let me add a few links to articles which suggest atomizing Fannie and Freddie is not the best public policy.

Links to F&F Articles

http://www.politico.com/news/stories/0311/51008.html

http://www.nytimes.com/roomfordebate/2011/03/07/should-fannie-and-freddie-be-disssolved/the-middle-class-still-needs-help

Maloni, 3-14-11

Let’s Talk Libya Today, Mortgages Next Week

2011-03-10T17:40:00.000-08:00

Does anyone really believe that within six or eight weeks, the United States won’t be militarily involved in Libya?

Something will happen which suddenly “forces Americans into this dispute”: think “Gulf of Tonkin.”

Picture two scenarios, if Muammar Gadaffi isn’t deposed, killed, or leaves his country:: he survives and begins exacting revenge on his citizens who challenged him, and blames the “West” for his troubles. He threatens us and Europe withholding his oil from the world market (can you say $150 a barrel and a plummeting stock market) and we develop a sense of greater outrage (meaning fear of spiraling oil prices) and we jump in, literally, to….(fill in the explanation du jour).

Or, NATO finally gets its weak ass together, again because of oil concerns cloaked with rhetoric about the civilian carnage and, we lead the effort with a few French and British soldiers and try and save the Libyan people from Gadaffi. Before you know it we are fighting on the shores of the Med.

Personally, since we will get blamed no matter how a Libyan war starts or ends, I would hope President Obama and his national security “team” go to the mattresses, now, before Gadaffi attracts too much support and the Libyan rebels’ ardor dwindles because they are being killed off.

What’s not to like about this fight?

Gadaffi is a scumbag and no friend of the US; he’s responsible for the Lockerbie bombing; he's killing his own people who want to be free of his yoke, in fits of megalomania, and we have a major economic interest in Libya’s oil. He’s also screwing up the “Arab spring.”

If Gadaffi survives, does anyone doubt that radical Muslims, whether Al Queda, the Taliban, or others will find a home in Libya?

So, wipe him out along with his extended family and get onto tomorrow’s crisis.

The Middle East is in active strategic and political play and we are either going to sit back and reap a bitter harvest--because we kept a low profile and did little--or we are going to engage and try and shape the "Arab summer and fall," which follows today’s “Arab spring.”

If it’s a lose/lose for us, let’s at least kick some Libyan bad guy butt.

Via NATO, let’s embarrass the French, British, the Germans, the Dutch, Turks, Italians, et al to join us in a “humanitarian” military engagement, quickly arm the Libyan insurgents and let them fight whoever remains after we take out Gadaffi in the literal sense.

We missed Gadaffi after Lockerbie, let’s not miss this time.

President Obama looks callow with all of this huffing and puffing producing no action. Why be the world’s strongest country if you won’t use your might in a good cause, if not a just cause?

Where is the closest “Tea Party” recruiting office? I am heading for it!!

Maloni, 3-10-11

Kindergarten and the GSEs

2011-03-07T16:46:00.000-08:00

Something bad happens to many individuals when they become Members of Congress or United States Senators, they lose their common sense.

Most get carried away in some ego trip rants about “their district or state” and the federal laws they plan to change, when all they should do--in the two decade old words of author/poet Robert Fulgham—is remember “what they learned in kindergarten.”

I started thinking about this because of the many positive things I’ve been reading and hearing lately about the current mortgage finance system still with Fannie Mae and Freddie Mac, playing their historic roles as national mortgage investors.

Yet, there persists this ongoing debate, from people who presumably attended kindergarten, about why and how we should change our national mortgage finance system and scramble many of the institutions and business relationships that have allowed our nation to become so well housed. This systemic revamping could also might cost us many of the societal benefits which go with homeownership as some disdainfully would treat all existing home finance structures as just so much economic flotsam and jetsam.

Not Right or Wrong; What Works and What Hasn’t

Nobody is suggesting that Fannie and Freddie were always correct and everyone else wrong. Far from it, the errors of commission both made in choosing to buy copious amount of subprime mortgage backed securities--with high yields and hints of enormous finance returns to the two companies—never should be forgotten and never should happen again and likely won’t.

It happened and the GSE people responsible for those subprime decisions were identified and removed when the federal government took over both companies in 2008.

But that is history and today the Obama Administration and a very conservative Congress grapple over a replacement “system” for Fannie and Freddie, sharing far less common ground than folks like to think.

Good Bye 30 Year FRM?

Indeed, as the New York Times editorialized last week (link below), the very fate of the 30 year fixed rate mortgage, the choice of most Americans, may hang in the balance as this legislative odyssey plays out and the world learns if some version of the former GSEs get s to survive..

http://www.nytimes.com/2011/03/04/business/04housing.html?_r=1&hp

But, back to the simple things these bright men and women in Congress learned early in their lives and need to apply as they consider what the Congress should do with Fannie and Freddie and the system for which they are the keystones and continue to dominate.

After listing many of his life lessons, Fulgham reminded us, “
”Everything you need to know is in there somewhere.
The Golden Rule and love and basic sanitation.
Ecology and politics and equality and sane living.”

How should today’s Washington solons apply Fulghum’s wisdom to this to the GSE debate?

Future Do’s and Don’ts

One is Fannie and Freddie was not the cause of the 2008 debacle and before the introduction of massive subprime balanced many of the corrosive interests in the market and produced a very efficient and consumer friendly mortgage market place, pretty much as Congress deigned.

That model, with minor variations, has value and can be sustained, as long as national mortgage investors never engage in any business activity which involves trading in subprime mortgages. (That likely already has been addressed through regulations which followed the 2008 financial meltdown.)

Fannie and Freddie—if perpetuated--should not have federally imposed low income housing goals and targets, which might cause them to succumb to some well meaning but naïve financing for people who don’t have the wherewithal to afford the mortgage, i.e. those closest to needing the flexible underwriting that characterized subprime financing. It looks like that federal government already has solved that problem, with its major expansion of the Federal Housing Administration (FHA) primary single family loan program, which allows virtually any family or individual with five percent down to qualify for a federally insured mortgage loan.

Three, Fannie and Freddie shouldn’t finance risky conventional loans which structurally could encourage defaults. To wit, “Uncle Sam” is in the process of defining the minimum equity and capital of a “qualified residential mortgage” (QRM), so lenders selling loans to Fannie or Freddie would retain some “skin in the game” regarding that mortgage’s long term health.

The point of all of this is that rather than posture, bloviate and gas bag for months (years?) about Fannie’s and Freddie’s past subprime sins, the Congress can—and should--quickly return strength and normalcy to the nation’s mortgage markets.

It’s Ready to Go, Just Add Political Guts

The foundation already is in place to move forward with minimal GSE enhancements, starting with better regulation, which will maintain standardization, efficiency, and mortgage market competition, the latter being essential

Congress and the Administration might have to admit that the GSE “sins” were not so grievous given how many financial institutions, both domestic and foreign made the same mistakes; that future aberrant subprime investing has now been euthanized by regulations; and the fact that the two still, still are financing 9 of 10 US conventional mortgages, while being run by a bunch of bureaucrats.

The nation’s mortgage finance system works now and can work better. Congress doesn’t have to risk turning everything upside down and bringing in new names and institutional faces, which may not execute the job most Americans want accomplished.

Understand the New York Times editorial above and why many thoughtful individuals have warned about the possible loss of future fixed rate financing, as Tim Geithner seems willing to risk. Understand the structural and systemic shortcomings of banks holding mortgage loans in their portfolio, which makes the Times’ concern relevant.

Geithner, who should know better (bad kindergarten experience?), wants to turn the entire mortgage finance system over the large commercial banks and bank holding companies, the lenders which refuse to hold fixed rate loans on their books, unless they first have been securitized by Fannie or Freddie or they receive new federal securities reinsurance subsidies.

It may be that Speaker John Boehner’s “new Congress” is ready to pay back last year’s banking industry campaign favors, or the White House with an eye on 2012 has forgotten its “kindergarten experience,” and the Treasury Department leadership wants to hand the nation’s daily commerce over to the big financial guys. All are acting as if the right public policy is to establish few controls over big bank authority to conduct almost all of the nation’s commercial and consumer business.

Didn’t that fail, disastrously, once already?

Even when Mr. Geithner and others testify to Congress or to the Angelides Commission that it will take years to wean the mortgage finance system from Fannie and Freddie and then reconfigure it in some new structure, elected officials and media need to ask why and then question the wisdom of doing it compared with risks and benefits.

Homeownership Has Myriad Values and Matters

I hope that some of the recent discussion questioning the continued appeal or desirability of homeownership is just a witless carryover from the financial shock of three years ago and not some fundamental review of one of the elements which made this nation great and which acts as an aspiration for so many young families.

Right now, the D’s get to kick Fannie’s butt, while still getting mortgage finance, and the R’s get to scream about the GSEs while proposing but not producing any real legislation. And the banks get to sit on the sidelines and contemplate future earnings—with few systemic responsibilities—and near term take full advantage of F&F Fannie still being forced to take all of the loans the banking industry can generate.

I have no idea if there is any truth to the rumor about t-shirts showing up in money centers stenciled, “I am a now a ‘GSE bank’ and there’s nothing you can do about it!”

As Fulgham suggested our world would be a better place if “...all governments had a basic policy to always put things back where
they found them and to clean up their own mess.”

Last Week in the Baltimore Sun

http://www.baltimoresun.com/news/opinion/oped/bs-ed-fannie-freddie-20110303,0,1799402.story

Maloni, 3-7-2011

GSE Stuck in Dividend Tail Chasing

2011-03-02T08:03:00.000-08:00

“Tell Me Lies, Tell Me Sweet Little Lies, Tell Me….”
--Fleetwood Mac

I will list the things that most people associate with not telling the truth.

First, as Pinocchio knows, your nose gets longer; second, you turn to stone and-- depending on your religion--you’ve committed a major sin or denied yourself God’s respect. Worse, you may have to keep telling the lie, so that it becomes the “Big Lie,” which certainly didn’t help Stalin or Hitler.

I am sure that I overlooked one or two horrible results, but my purpose here is to warn Mrs. Timothy Geithner of all of the bad things that likely could befall her husband from his testimony about Fannie and Freddie yesterday before the House Financial Services Committee.

Treasury Secretary Geithner either believes the stuff he was saying to the House on Tuesday or he doesn’t and I am not sure which is worse.

In my view, Geithner’s testimony contained a conflation of two major fibs, paraphrasing, “We (the Obama Administration) want to get more private capital into the mortgage market and we want to get the federal government out of that financial responsibility.” Is that close enough Mr. Secretary?

I have problems with that statement. The large commercial banks, which Geithner seems to want more into the market, hardly are “private” and I will—once again—define why that is true.

Second, his “Option 3” plan puts the federal government right into the thick of financial obligations, providing “reinsurance” to the very institutions that created and sold worldwide the “private label” subprime mortgage securities that bankrupted many ongoing concerns and caused world havoc just a few years ago.

“You don't want to run a system where the taxpayer is on the hook when things go bad," Geithner said. (From Secretary Geithner, before the House Financial Services Committee, March 1, 2011.)

One of the major indictments against Fannie and Freddie is that they lost their way, confusing their public mission with their private nature and invested in lousy subprime assets to increase their profits,

People seem to forget that since 1970—when Fannie was first privatized—it was given a profit making function and despite the fact that it (later joined by an equally incented Freddie) did an excellent job on the mission side, helping millions of families become homeowners and making the secondary mortgage market efficient, its profit making side--post subprime--is what ended up indicting the company in the eyes of many.

We now have Secretary Geithner and others saying get rid of F&F and let’s pretty much turn everything over to the big commercial banks.

But wait, the banks have all of the authority to make profits at almost any asset generating activity they choose, but they have no federal mortgage finance mission or commercial lending mission, save some broad geographic requirements.

So commercial bank control of the mortgage markets, which is the stated Obama/Geithner objective—complete with their invitation to charge whatever the market will bear—is desirable, but the former GSEs market model can’t be trusted because the latter involved profit making?

Geithner would give big bank management the same basic tools as F&F (as memorialized in friend Rob Zimmer’s “GSE banks” description) and assume they’ll do the right thing. (I thought TG understood banks?)

Big Banks Live On Federal Handouts; Tim Wants to Create More

The large commercial banks—with their investment banking subsidiaries—are way beyond “too big to fail” and Geithner helped make them that way in the wake of the Dodd-Frank bill. The federally subsidized deposit insurance they enjoy, which attracts the majority of their working capital into low paying savings and checking accounts, is woefully insufficient to cover the vast amount of deposits covered. That’s a major federal subsidy.

First Republican Hank Paulson and later Geithner stuffed those banks with hundreds of billions of “free” taxpayer dollars and required no reciprocal lending for that money. How can those "firm up the bank's bottom line" deposits not be federal subsidies?

The Obama Administration’s newest regulations--scaling back the definition of “conforming mortgage loan”--cedes more of the mortgage market to the big banks without any competition. The Secretary—personally—seems to want to provide a new industry-demanded “federal mortgage securities reinsurance,” which the banks legally don’t need to issue mortgage backed securities but want desperately to protect them against losses.

This red, white, and blue lucre is the so called “private money” for which Treasury is the primary cheerleader?

Why does Tim Geithner think these big banks--which helped produce a "financial Armageddon" three years ago--won’t screw up the same way, but now with explicit federal reinsurance?

The large commercial banks—unlike their smaller brethren—have never shown themselves to be stable partners or pro-consumer in their mortgage dealings, elements of which are vital to stability, standardization, and an efficient secondary mortgage market.

Besides just “not being Fannie or Freddie,” what have the big guys done to deserve all of this faith and support?

Their Money Isn’t Private

Secretary Geithner, how can it be private money when so much of it comes directly from the taxpayers or through federal channels and easements? At least accurately define this “new” bank capital you advocate as “federally provided” or “taxpayer subsidized.”

Who cleans up the mess if the big guys foul up, again?

Mr. Secretary have you no shame, when you disingenuously describe actions you are promoting with phrases which are not accurate?

Even with insistence on a punitive 10% GSE interest repayment rate and forcing them to operate under intrusive over-regulation, Fannie and Freddie slowly are making their way back to financial equilibrium and soon will be generating black ink, which must scare the crap out of the Treasury and its toady bank friends.

Both Fannie and Freddie showed that resiliency in their most recent quarterly earnings reports and the limited amounts of cash they had to borrow from Treasury to cover that gap.

It’s now common talk that the former GSEs—even though you still have them financing most of the conventional loans in the nation—could wind up costing the federal government very little and possibly earning money for the taxpayer.

It took the Wall Street Journal, of all publications, to point out the absurdity of the two companies having to borrow money from the Treasury in order to afford to pay the Treasury its punitive 10% interest rate. Why punitive, because the banks that you helped make fat with limitless TARP—which also was given freely with no reciprocal bank lending required—was repaid at a 5% rate! (Hmm. If we offered that rate to Fannie and Freddie obligations, they might get healthier faster. Now, we wouldn’t want…….!)

(Link to WSJ article.)

http://online.wsj.com/article/SB10001424052748704615504576172420039570798.html?ru=yahoo&mod=yahoo_hs

Help the American People Not Just Your Political Opponents

For the Secretary: Why do you think you are earning GOP huzzahs? It’s because you are doing their heavy lifting.

You are paving the way to financial paradise for the big banks, which I should remind you abandoned the Obama Administration in record numbers—not to mention the American public--and threw their major financial contributions and their support to the Republican Party in the 2010 elections.

Do you think those campaign contributions had anything to do with the election tsunami D’s faced last November?

There is a much better way to “fix” the nation’s mortgage finance system and you know what it is, but it will take all of the GSE haters—Democrats and Republicans--eating a little crow to move in that pragmatic direction.

I feel confident saying the American people would support it, even if the GOP, the Wall Street Journal, the Washington Post, and the Obama Administration had some issues.

Small changes to the status quo can achieve efficiency and good housing finance policy.

The fallout from the President’s health care fight will be small potatoes compared to the damage you can cause pretending you are “taking the federal government out of conventional mortgage finance” and introducing “private capital.”

You wax eloquent about the 30 year fixed rate mortgage loan, but what in anything you’ve said will guarantee its continued availability if the banks decide they don’t want to offer FRM? Without Fannie or Freddie or your new federal reinsurance, the big banks cannot manage the mortgage loan’s interest rate risk? The bank credit risk systems didn’t exist or were shut down intentionally during the subprime experience, too.

TBTF

At least be honest about the fact that “too big to fail” is still a likely federal government financial response if one of the big guys go belly up.

TBTF—which has been an implicit Fed power for decades--is a totally subjective tool, an almost existential concept, made more so by the Dodd-Frank legislation. And no responsible government will let one of these banks-cum-investment-bank-behemoths fail, for fear of what that collapse might do financially and economically to the nation and the rest of the world.

In that context, giving the big banks more market share and greater federal subsidies—as you champion—is a greatly flawed approach. I hope that policy makers, academics, the media, and the public begin to understand this dark reality.

I keep waiting for the two most experienced Hill Democrats, Chuck Schumer (D-NY) and Barney Frank (D-Mass), to respond to this one sided policy and begin putting their formidable intellects and political skills to work denying the banks this victory. I believe that Tim Johnson (D-SD) would be a most able ally in the cause.

In the meantime, here’s another voice that disagrees with your conventional wisdom.

http://seekingalpha.com/article/255727-don-t-dissolve-or-fix-freddie-and-fannie-they-were-never-the-problem?source=feed

Maloni, 3-2-2011