Wednesday, October 31, 2007

Lockie: “You Have the Right to……………”

“Hot potatoes” only can be passed, never kept or the holder gets burned. That’s why to win this game; you need to move them on.

That’s part of what is happening with the subprime investors and all of the schemes to “buy this and transfer that,” with SIVs (wish I had beaten Allan Sloan to the term “Sivilis,” which is so descriptive and for which he earns special honors) and MDOs, etc.

Some of the loans in these securities are just bad and the sooner those losses are posted, the better for the system. (See Bear Stearns, UBS, and Merrill.) Others can be saved—but at a cost, albeit less than full default and foreclosure—by reaching out to those borrowers and re-underwriting them, putting them into loans they can afford and have a likely chance of “surviving,” as their own financial situation solidifies (see Countrywide and a few others).

Other poorly underwritten loans never will go bad, because the people who took them out will bust their guts to make those payments come whatever. Good for them. But those families are a small piece of the 2,000,000 possible subprime mortgage defaults and foreclosure the market faces.

There is a big slug of loans that some investors are hoping get “floated” the traditional way, when the good times return and rising housing values wipe out their mistakes and the housing asset because worth more than the debt. If that occurred, then those subprime borrowers have a viable market option to pay off their notes and have some cash for another house. That, too, bails the big boys out of their mistakes.

Those of you, who see that happening in the next two years, raise your hands, “Class, class, Buller, Bulller…?”

It’s that group of loans where you are going to see a bunch of creative “hot potato” games. No investor wants to accept their failure and nobody really wants to keep holding them for long.

Holding out and hoping for asset appreciation to me doesn’t seem like a viable option, but it is an option. I think the sooner the big boys own up to their mistakes and swallow the red ink, the better for the nation.

There might be some surprising financial failures and major business mergers and takeovers, as the subprime dust settles. But, as many others before me have said and written, you have no market discipline, if the Treasury and Fed just cobble something to protect those who juiced the subprime process, hoping that home price appreciation never would stop, and now have been caught borrowing short and lending long.

Most of the investors are well known large commercial and investment banks. The Treasury should be in close and constant communciation with all of them, monitoring how decisions are being made how to record the mortgage fallout.

Also, when the inevitable takeovers and buy-outs come, I hope our federal financial regulators don’t forget all of their “systemic risk” and the “too big to fail” concerns which they freely have applied to the GSEs, whose business activities seem quite mundane compared to what the really big guys have done.


Do you think I’ve forgotten you? No way man. Happy Halloween!

(BTW, nice mask; hope you get plenty of goodies tonight.)

Did your minions really inquire at the GSEs if someone there was feeding me information about OFHEO?

I am glad that I’ve apparently pierced your annoyance threshold, but what did you see in my blog blatherings that could have reflected someone “dropping a dime on you or your troops?”

I couldn’t name twenty current officers at either Fannie or Freddie and the ones I do know I couldn’t tell you what they’re working on and to whom they report. I can’t tell much about their business initiatives, either, other than it looks pretty “vanilla” and tame.

If such an inquiry was made, it is even sillier when you look how I blog. I comment on what I believe are ideological and partisan regulatory actions, which are discussed in the national and trade media every day. I put them in the context of what I know about congressional/national politics and then offer my opinion, with a dash of humor.

Where, in anything that I have written, can you find “OFHEO secrets” (I was going to say “intelligence,” but that’s an oxymoron) regarding agency interactions with Fannie or Freddie?

Must have been a slow day at the office, when that one was hatched.

What were you going to do, send Alfred Pollard and David Roderer (two old friends/colleagues, now OFHEO lawyers) over to “waterboard” me??

C’mon Lockie. Don’t rendition me, Bro!

David Maxwell

Best wishes to former Fannie Mae Chairman and CEO David O. Maxwell, a formidable figure with great character and intellect, for a prompt recovery from elective bilateral knee replacement surgery.

David decided he needed to exchange the knees God gave him for a new set of bionic ones, to insure that he could continue to win senior tennis tournaments when he turns one hundred, still more than a generation from now.

The jury still is out on whether David should have had those skulls and crossbones tattooed on each of the new knees. But if it unhinges your opponents, I say go for it!

Maloni 10-31-2007

Thursday, October 25, 2007

Stein and Operation Noriega

Hold onto your under britches, Aunt Gertrude, the world is going to turn upside down because I am about to agree with a Wall Street Journal mortgage editorial. Well, not the entire editorial, just one line or so.

That’s the bad news; the better news is that a far superior writer, economist, and voice of reason said the same thing, but better and earlier in the week. So let me associate myself, first, with that writer’s observation, but in fairness--a commodity not often seen at Mr. Murdoch’s newest toy--let me note that the WSJ said the same thing this week, albeit as part of a far longer diatribe against something useful.

In that context, let me again recommend the work of Ben Stein, writing in last Sunday’s New York Times business section (sorry, don’t have the authority to provide a link), in which he sought to put into perspective what’s happening in our economy and more narrowly in our real estate markets.

Stein argues calmingly that most of today’s familiar housing/mortgage finance problems are manageable. Certainly there will be financial losses, but if they are experienced by right business interests, then the market is working and those companies are big enough to swallow their red ink.

In the case of subprime mortgages, Stein--as did the Wall Street Journal on Wednesday--demanded more focus be put on saving the families stuck in those contracts, not the lenders or the investors.

That’s a perspective with which I agree and which is quite doable, if the lenders and investors have the “cajones” to walk the walk, not just talk the talk.

Angelo Mozilo and Countrywide seem, not surprisingly; to have stood up first and tallest and said that they were going to try and reach 75,000 families and, in helping them stay in their homes, help themselves. I have no problem with that self interest and expect that Countrywide’s effort will produce far more positive developments than those who just want to make an announcement and say “I/We plan to help, too.”

The key to providing assistance is contacting the mortgagors who can be helped (not all fit that description) and walking them through the steps necessary to get into new mortgages. All of those servicers, who the mortgage investors use, should be beseeching those subprime borrowers, now, and alerting them to the options available to them. The trick is that the help available may not be with the companies which made the loans, so somebody is going to have to rise above their selfish interest and point some of these vulnerable creditors to other resources.

The market could do far worse than emulate Mozilo and Countrywide.

Friend Ben Stein is not a big fan of last week’s $80B Paulson/Wall Street announcement, since it’s a Wall Street/big bank sop to…Wall Street and big banks. But you should read Stein’s views yourself regarding that puppy.


The Mortgage Bankers Association tickled me twice in a little over a week.

The first time was when on of their subcommittees, meeting at the annual MBA convention in Boston, argued that Fannie and Freddie should not be allowed to finance jumbo mortgages or those larger than their OFHEO-approved $417,000 single family ceiling.

Flash back a few weeks ago, when MBA leaders and staff were running around Washington beseeching everyone who would listen, about the need to create more jumbo/non-conforming liquidity and urging the GSEs to do just that.

Do you think the membership knew their paid and elected officials were doing what they now say is undesirable? Is someone in MBA being duplicitous or is someone being hypocritical?

The MBA’s public position will last until the next time the commercial bank/Wall Street investors run from the jumbo market and help is needed.

The other MBA generated laugh comes from the trade group’s opposition to Chairman Barney Frank’s legislation requiring mortgage broker registration and brokers to discipline their offerings to the public. Please note that independent brokers are hired by lenders. Brokers get paid to find and underwrite potential borrowers, ”upstreaming” the applications to their lender employers.

It's a faster process. But, it’s a documented fact, even in good times, that broker generated loans perform worse than those produced by in-house employees or underwriters.

The bill was fine for the Mortgage Broker Association, which supported Frank’s legislation, but the Mortgage Bankers bleated about how such an action would change western civilization as we know it, bringing floods, droughts, locusts, whine, whine, whine. (You know the lines.)

How narrow and short sighted.

How can any systemic good come from the subprime experience and meltdown, if those with their fingerprints on the murder weapon can’t be sanctioned or re-directed?

With apologies to old tax writer Senator Russell Long, for marginally corrupting his famous statement about finger pointing when looking to raise revenues, the MBA is suggesting, “Don’t regulate you, don’t regulate me, go regulate the other guy behind the tree!”

Operation Noriega!!

The Bushies don’t do GSE regulation well, but their ideological skull duggery skills are right up there with the best.

There are fresh allegations that the DOJ sent out some political hit man to kneecap a prominent Democrat, just because he wasn’t of their party. But this time, it’s not the DNC, DSCC, DCCC, or some scrunchy liberal labor scalawag uttering those charges.

It’s a member of “the club.”

Look at the testimony this week, before the House Judiciary Committee, by Dick Thornburgh, former Reagan and Bush Attorney General, former GOP Governor of Pennsylvania, and as loyal and rock ribbed Republican as you can find.

Thornburgh is representing a prominent Pittsburgh area Democrat, County Coroner Cyril Wecht. The US Attorney has charged Wecht with a variety of nickel and dime charges, but Thornburg has focused on the timing of the charges and what some could read into that timing.

Wecht has been a 40 year fixture in Western Pennsylvania Democratic politics and is an internationally known forensic pathologist, often employed—privately—in headline making cases. (Dr. Wecht welcomes the limelight and handles it well.)

In his testimony, Thornburgh suggested that Wecht—in my words, not his—got swift boated because he was a “D” and nothing else. The formal charges against Wecht involved mileage reimbursements, use of his official fax machine, etc.

The “blogs,” however, went further and suggested that the indictment was a DOJ effort to help a beleaguered GOP Senator. Republican Sen. Rick Santorum, also from Pittsburgh, was in a tough re-election race (which Santorum lost). The thought was if the US Attorney could indict a prominent local Democrat, it might call into question the entire Democrat organization and help Santorum’s failing campaign.

The entire House hearing this week dealt with a variety of similar charges that the Bush Administration employed political retaliation against political enemies through Cabinet and regulatory agencies.

Other committee witnesses documented that the DOJ, under Bush, has tried to indict five times as many Democrat office holders as Republicans.

To read a little more of the same—but in the world of mortgage finance--check Frank Raines legal filings in his fight with OFHEO and his references to “Operation Noriega,” which was what one Administration participant labeled the effort to find Raines and Fannie guilty of something.

It astounds me, when people claim that this administration would never stoop to the unsavory “hurt the other party” lows, which show up in the Judiciary Committee’s hearings and Raines documents.

But, following all of the Bush “World War lll, Good job Brownie, Bring him on, I’m the decider, weapons of mass destruction, Saddam/Al Queda, I looked into his heart,” plus a daily ration of lying, distortion, misstatements, false statements, duplicitous and self serving statements, how can anyone reasonable person think that the Bush Administration is above character assassination, based on someone’s political differences?

Maloni 10-25-2007

Tuesday, October 16, 2007

Sword of Damocles or Damn Sword?


Whether it’s consuming the latest developments in the lives of personalities we adore or abhor, like Pamela Anderson, Lindsay Lohan, and Brittney Spears, or blogging about the conservative hordes going after the GSEs, certain behavior drives some of us to compulsive responses.

Now, anyone infatuated with the above personalities or topics will claim they have “no problems” and their interest is “normal.” But, the truth is that we watch each new incident and development and file it in a compartment which, generally, supports our predisposition and then we cite the new event as proof that we have been right all along.

But, in defense of we the obsessed, the “perps” make it so easy for us to become entranced, repeating the same bizarre acts over again, confirming the reason we are interested in the first place!

Think of Pamela Anderson’s marriage partners and her links to porn tapes or performers in same There's Lindsay Lohan, who already has “dried out” more times than a rented Ocean City beach umbrella, and who called her recent session “sobering.” Brittney Spears has had multiple and very vivid setbacks this year and that was before she shaved her head and the court took away parental control of her two sons!

I’m no different than the average Lindsay, Brittney or Pamela Anderson fan, save I prefer to spend my time cataloging what I think are outrageous, odd, punitive and ideological offenses that GOP interests and Administrations, most notably the current one, have carried out against the GSEs, since the early Reagan days.

Now here is where I have to offer my standard caveat. Yes, there have been any number of GOP Senators and Congressman who have not aided that effort, but they have been in the numerical minority and have found it tough to overcome the instincts and actions of their political cohort. I salute these “menschs” (I know that most aren’t Jewish, but the word fits) whenever I can, because--when they stand up inside the GOP--they are outnumbered and face a harsh ideological blowback.

The Democrats

Therefore it always has fallen to the Democrats--and will again--to preserve the key elements of the mortgage finance system and stop the Bush White House, now, from manipulating their regulatory primacy to scuttle Fannie Mae and Freddie Mac, two players in the mortgage finance system which most agreed have worked fabulously, as the subprime market and the “jumbo” mortgage markets suffered various degrees of failure and still are impaired.

Based on last week’s media reports, the D's are going to have to get to work, again. The two companies have come into the Bush cross hairs and the conservatives are considering regulatory plans to rock the structure of the GSEs, drain them of more working capital, citing “safety and soundness concerns,” and give Treasury control to govern (read "limit") the GSEs debt raising.

I guess while they “negotiate with the Hill” on one hand, the Bush Administration wants to construct a “sword of Damocles”--to hang over GSE heads--with the other.

It will come a no surprise to most who read my blog that I believe on every major policy issue, including Afghanistan, the Iraq War, Korea, Katrina, global warming, tax cuts, Valerie Plame and Joe Wilson, children’s health insurance, vehicular mileage standards, immigration, Guantanamo prisoners, domestic wiretapping, the firing of the US Attorneys, and many more, the Bush Administration has misled the American people consistently and distorted the positions of their opponents.

They Do Lie and A Lot

The Administration fabricates even to its own guys, withholds documents and facts, creates fanciful precedents (“the Vice President is part of no unit of government”), threatens whistle blowers, and tries to intimidate and otherwise bully those who disagree with them, all this while the “Leader of the Free World”—if one of his former aides can be believed—used his valuable time with Vladimir Putin arguing about chicken parts.

With this sorry history in mind, why does anyone think that this White House, Treasury, or OFHEO will be any more honest when it comes to GSE matters?

If the news reports are accurate, those in Congress laboring on GSE legislation should be major league PO’d—like gut wrenching, “I want to blast your nose into oblivion” mad--if Treasury tries to scuttle Fannie and Freddie debt raising activities and OFHEO suddenly decides that the GSEs still don’t have enough capital.

That’s “bad faith,” but I guess the Congress is used to seeing that. Plus, those regs—if put in final form--will hurt more than Fannie and Freddie.

Note to the world: OFHEO and its puppet masters never will believe that Fannie and Freddie have enough capital or enough constraints, certainly not in God’s lifetime!

As long as OFHEO is the GSE regulator, you will have guerilla warfare carried out by the regulator--with plenty of support from its political soul mates—because this OFHEO head thinks the GSEs should exist as only a shell of themselves, if at all.

The House has spent more time than the Senate trying to cooperate with the White House on GSE legislation. Yet Barney Frank’s hard work basically would get kicked to the curb as Paulson and Lockhart (or whomever in the White House is pulling the strings) tries to steamroll, via these proposed regulations, the legislation on which the House spent great time trying to construct a rational GSE regulatory paradigm.

The Senate--maybe realizing that the crew downtown speaks with more forks in their tongue than a two sets of table wear--has not drafted its “Chairman’s mark” dealing with GSE regularity restructuring and may never do so, given the new White House perfidy.

The Bush Administration could be engaging in well known tactics, saying one thing to the Hill about the GSEs regulatory future, while simultaneously considering new regulations to strangle Fannie Mae and Freddie Mac.

I am not sure what the solution is, but I believe that the congressional leadership, Senators Dodd and Schumer and Rep. Barney Frank and their colleagues—on both sides of the aisle--are up to the task and won’t be cowered or conned by the Administration’s brazenness.

If not Reason, Maybe a Stake in their Heart Will Do It?

Language in appropriations bills banning use of any appropriated agency dollars to implements regs of this sort may be one consideration the Congress should examine in dealing with those with those who insist playing only by their rules, rules which have left a lot of domestic and international ruin and unhappiness in their wake.

Lockie and his friends don’t like being challenged or criticized and--with this latest “in your face, Congress” maneuver--seem open in their disdain for the legislative process.

After years of meeting/exceeding their capital requirements and also achieving a multitude of affordable housing goals--representing 55% of their annual business volumes--Two Gun still can’t find anything good to say about the GSEs.

Yet, after trumping their “systemic risk,” in an exercise two years ago which allowed him to raise Fannie’s and Freddie’s required capital by 30%, Lockie may now decide that the companies still are short another $10 billion in capital or so, just when Treasury decides that Fannie and Freddie need to jump through hoops and get Treasury’s permission to go into the debt market for working capital.

The reported regs--if successfully implemented--will achieve some primary objectives in the Bush agenda, load the GSEs up with unnecessary costs and make them slog through regulatory delay. That will make Fannie’s and Freddie’s business operations more expensive, not to mention the cost of the homes they help finance, and slow down their operations and injure their competitiveness.

So the President’s men decide the best way to treat Fannie Mae and Freddie Mac, which didn’t abandon the mortgage markets, didn’t ignore their missions, and didn’t walk away from mortgage commitments--as so many others did over the past 6 months--is to assault them through the regulatory process. KnowwhatImean?

And just who do our erstwhile public servants seek to advantage, when they get done working over Fannie Mae and Freddie Mac? “Class, class, Buller, Buller…..?” Why, it’s the spoilers, the gang of mega-commercial banks and Wall Street firms who bragged for years that they were the equal to the GSEs and argued they were primed to replace old dumpy consumer friendly, fixed-rate-mortgage-facilitating Fannie and Freddie, if only given a chance.

Well they got their “big chance,” when the mortgage market gagged on the subprime seeds these same guys had planted. The Fannie/Freddie wannabes’ resolve got tested and the GSE pretenders responded by going limp, feigning injury and hauling butt to the safety of the side lines, where some still hide.

Those looming subprime financial losses can’t be dodged for long, but most of this White House crew will be well into their next careers when this red ink finally hits the investment houses, the big commercial banks, and possibly the American people.

Anticipating this, a bipartisan majority in Congress can’t allow the Administration’s anti-GSE ideologues to plunder Fannie Mae and Freddie Mac, leaving the nation’s homebuyers without these major homeownership resources, when the butcher’s bill comes due.

Maloni 10-16-2007

Monday, October 8, 2007

“Stinker,” A Tutorial on Misusing Systemic Risk

Before earning great acclaim as a prominent anti-smoking and health care advocate, Joe Califano not only was President Jimmy Carter’s Secretary of Health, Education and Welfare--before the agency was renamed “HHS,” for you kids out there--but he was also a very capable assistant to President Lyndon Johnson and played a significant role in privatizing Fannie Mae.

Califano told me about his responsibilities in 1968 when, in the midst of the Vietnam War and domestic spending challenges, Lyndon Johnson did not want to be the first American President to send the Congress a $100 billion spending budget. The President tasked Califano to make the budget come in below LBJ’s perceived “political third rail” budget figure.

The aide repeatedly went over the draft federal budget and finally identified some 30 domestic items and functions which—if he could get the Congress to end or remove them as government obligations—would allow the Johnson budget to fall under the magic number. One of these proposals was selling Fannie Mae to private investors. Since the Roosevelt days, Fannie Mae--part of the Department of Housing and Urban Development--had acted as a secondary mortgage market for government backed mortgage loans.

Califano said that he intentionally chose the Fannie Mae idea as a “lightning rod.” Knowing it was such a congressional favorite, he assumed Congress never would allow the agency to be jettisoned. It was a “stinker,” something that stood out by design and which Califano included it in the package, believing that later he would acquiesce to congressional pressure and “reluctantly” take Fannie back keeping it in government.

That was Califano’s plan. He really was hoping that Congress would rage over Fannie and that it would draw all of the congressional fire, while he managed to preserve the balance of the cuts so that he could meet President Johnson’s budget goal.

To Califano’s surprise, the Congress bought all of the proposed changes. Congress restructured Fannie Mae as a private company—with authority to purchase and securitize conventional, i, e, non-federally insured or guaranteed mortgages—and in 1970, the new privately owned and managed company first was traded on the New York Stock exchange under the symbol FNM.

GSE Systemic Risk Stinks or Is It a Stinker?

What brought Califano’s political strategy to mind is the noise now coming out of various Administration spokespersons, bleating about the “systemic risk” language, taken from the House passed GSE regulatory reform bill, when Financial Services Committee members Melissa Bean (D-Ill) and Randy Neugebauer (R-Texas) convinced 381 of their Democrat and Republican colleagues to vote for a floor amendment removing the White House required boilerplate.

The original Administration language, which Bean, Neugebauer, and their House stalwarts wisely quashed, 383-36, had no parallel in other financial services regulatory regimes. It would have allowed the new GSE regulator to employ “systemic risk”--a very subjective term hatched and husbanded by the Greenspan anti-housers--to legitimize any actions a GSE regulator chooses to take against the companies.

The now excised provision would have given the GSE regulator broad latitude to apply regulatory sanctions, employing a rationale which might have nothing to do with Fannie Mae’s or Freddie Mac’s business operations, but merely was the regulator’s perception of broader amorphous threats somewhere in the financial services world.

Could today’s “systemic risk” be masquerading as Califano’s forty year old “stinker?”

Are Paulson, Steel, Lockhart, Bernanke (yes, he has finally earned his “Junior Bushman GSE Badge”), and others--who insist on return of that language—talking for real or are they just engaging in a feint designed to position themselves for more extreme demand later, in the inevitable compromise when/if the Senate passes a GSE bill and a conference occurs?

Maybe they are, but then again, maybe not.

“Systemic risk concern” employed by this White House crew sounds a little like them defining pornography, “Um, trust us. Lockie’s successor will know what systemic risk is when he sees it. KnowhatImean?”

This speech excerpt is a pretty fair description of some recent and real systemic risks.

Shortly after the August FOMC meeting, however, financial market conditions deteriorated considerably further, following events that shook investor confidence, particularly in complex structured credit products. The disruptions to nonprime mortgage markets became more severe and problems even extended to high-quality loans, as rates for prime jumbo mortgages jumped after the secondary markets for them shut down. Importantly, the disruptions also spread beyond the mortgage markets. Most notably, investors' concerns about exposures to subprime mortgage credit risk caused them to shun commercial paper that might be backed by such assets, in both Europe and the United States. This aversion, in turn, meant that commercial banks that had written backup liquidity lines for commercial paper programs or had other connections with these programs might have to make good on their actual or implied support by extending credit. With leveraged buyout credit and some mortgage originations also possibly staying on the balance sheet unexpectedly, the banks faced substantial, but uncertain, calls on their liquidity and capital. All this uncertainty led the banks and other short-term lenders to turn very cautious; interest rates on bank deposits and other sources of credit beyond just a few days rose steeply, funding in money markets became concentrated in the very short term, and concerned and uncertain lenders generally became much less willing to extend the credit needed for liquid and efficient financial markets.

Those words were part of a talk delivered last Friday, Oct. 5, to the Philadelphia Chamber of Commerce, by Fed Vice Chairman Don Kohn. To his credit, Mr. Kohn did not try and blame the housing GSEs for these broader systemic challenges in the wake of subprime mortgage problems.

Garage Sales in McLean and at 3900

For years, the Bush Administration and their conservative think tank and media friends have labeled Fannie Mae and Freddie Mac as “systemic risks,” wrongly in my oft stated view.

If the current OFHEO had additional intervention authority, based solely on the Director’s systemic risk allegations, there is little doubt in my mind that the two companies boards now would be presiding over giant “garage sales”--in McLean ,Virginia and Northwest DC--hawking the GSEs furniture, drapes, pcs and cafeteria supplies at deep discounts. That is the level of disdain and political animus that the Bush appointees and their allies have for Fannie Mae and Freddie Mac.

The GSE opponents have tried very hard to make that case employing every communications and political trick at their disposal. I wonder if it ever has occurred to them that the reason they have failed so far is that they are wrong. Despite all of the mud, slurs, allegations, and heavy handed mugging, the two companies are well capitalized for the risks they take and operate soundly in their secondary market niche. They add value, plain and simple and most reasonable people seem to agree.

It also is why the Congress--primarily the Democrat leadership of the House Financial Services Committee and the Senate Banking Committee--can’t get fooled by the White House’s histrionics over what it “insists” must be in any bill which Congress passes. The last time I checked “W’s” party didn’t win the midterm elections and should get no grander seat at the table than the Democrats were given when the President was riding high and his party controlled the Hill.

In its arrogance, this White House would have the Congress ignore 383 votes in the “people’s house” against using systemic risk as a regulatory justification, plus years of the Senate’s own political wisdom. The Administration instead wants to tell us how “close” Congress is to producing a good GSE bill, if only it would “add this or put back that.”

It’s a “mug’s game.”

The anti-Fannie/Freddie financial crowd sits like jackals, hungering for the remains of a successful Administration hit on the GSEs, desperately wanting the new regulator to have some new power to add greater capital burdens to the companies or allow more interference in the product choices or initiatives. They'll take whatever GSE grief they can hustle.

This GSE fight always has been about money and which mortgage players will finance and hold the lion’s share of American home mortgages. The White House spins scary tall tales and hopes more mortgage financing and investing gets done by their Wall Street cronies and much less by the GSEs and their lender partners.

The Congress should never forget that the White House favorites in this conflict are the same unreliable mortgage interests who brought you the subprime and “jumbo illiquidity” messes, when they skittered and skulked away from the broader mortgage market as their subprime chickens first started coming home to roost.

Here is where that “stinker” comes into play. Either the “systemic risk” issue is a “stinker,” a phony issue stalking for something else they really want or it’s an ideologue's fondest dream, which the bad guys refuse to give up and the good guys can’t give them, in any way shape or form.

Remember, They Excel at Deceiving

Let me suggest one small note of political caution to the Democrats.

The WH will tease and offer carrots forever: “If the GSEs just did this to their books or did that to their securities, we will consider taking off their handcuffs.”

Don’t buy it. On these matters, they are not honest brokers nor have they ever been.

Just as they are talking with the Hill over elements of a GSE bill, the Treasury tries a sneak attack to hamstring the GSEs debt raising activities suggesting additional hurdles to efficient market access. That's "good faith?"

Responsible parties enter the debt markets when rates and conditions are optimal--and the timing for that changes hourly or more often--not when some Treasury GS 13 responds to a GSE debt request, following his/her morning latte break!

“Tomorrow is promised to nobody,” especially public officials. Even if the Democrat congressional majority thinks that the 2008 White House race already is in the “Blue bag,” its way too soon to act on it, even if they are correct.

Congress should not write comprehensive GSE legislation, now, contemplating that a more thoughtful, progressive, pro-housing regulator might oversee the companies two years from now. It is better to write legislation as if “Freddy Kreuger” is going to be the new GSE regulator—you know, someone like Lockie needing a manicure—rather than a housing soul mate to Mother Theresa.

“Stuff” happens!

The Congress can’t make it easy for the Bush Administration, thinking it won’t be around for long. Even a new GSE regulator needs a leash.

Offer Them What They Deserve

Consider giving the WH a “thin bill” now and, if the Democrats prevail in the 2008 elections and return as the majority, the Congress can complement any work done now or complete the job in 2009 with “a technical corrections package.”

Or, don’t give the Administration anything. Wait it out. Let Lockie whine to the appropriators and justify his budget and agency activities, until the White House/Treasury/OFHEO stop inviting you to shoot craps with their loaded dice.

In the meantime, expect the anti-GSE pack to continue their wearisome howling and guerrilla campaign against Fannie Mae and Freddie Mac.

Why shouldn’t they, most of them already own a home or two?

Maloni 10-8-07

Thursday, October 4, 2007

Please Keep Saying No, Lockie!


Can anyone who attended last week’s Brookings Institute panel discussion, featuring former and current Treasury officials Bob Rubin, Larry Summers, Robert Steel, tell me if Treasury Undersecretary Steel’s nose got longer, when he claimed that all Administration GSE policy is based on substance, not politics?

Where has Steel been and what was he watching for the past 6 years, or did he miss it all?

While I may have fallen from a hay wagon, it certainly wasn’t last night. When was the last time that ANY major policy issue was decided in Washington, without employing politics? Try “C,” meaning “never.” (Those multiple choice answers always are “C,” right?)

Any banks looking to sell their Florida subprime REO might want to contact Pinochi……, er Undersecretary Steel, at 202-622-2000. With that mindset, be could be a heavy investor.

Poor “Steelie,” a true Bush loyalist. He does a Brookings panel discussion with former Clinton Treasury officials and he gets ripped by Bob Novak for being a "closet Democrat."

(Think Lou Reed and “Walk on the Wild Side.)

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

“Hear Me Roar”

Every time OFHEO Director Jim Lockhart plays his tough guy part and says “no” to Senators Chris Dodd (D-Ct.) and Chuck Schumer (D-NY), and Rep. Barney Frank (D Mass.), he makes my day. Now he’s taking on Majority Leader Harry Reid and Speaker Nancy Pelosi.

That could put him on Whoopi Goldberg’s hit list? (See "The View" interview with the Speaker.)

Lockhart’s intransigence, belligerence, and political posturing have the effect, like nothing else, of driving the Democrats to insist on GSE policy changes that work for the mortgage market and consumers. He won’t be able to bully those officials or filibuster them out of their objectives.

As rumors grow of the Senate Banking Committee leadership working on GSE reform legislation, Lockie produced a timely Market News International interview, reminding the world of the Bush anti-GSE agenda and the same-old, same-old “the GSEs are still weak” story line. (It’s amazing how “available” these guys are when they want to spew negatives about Fannie and Freddie.)

In the interview, Lockhart did his best “Don Quixote” tilting at a threatening windmill and wailing and lamenting the language knocked out of the House-passed GSE regulatory restructuring bill—by a huge bipartisan majority, 383-36—which would have allowed a future regulator to use “non-GSE systemic risk” or other issues NOT related to Fannie Mae and Freddie Mac operations as a justification to thump the companies.

(Think Lou Reed and “Walk on the Wild Side.)

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

Many think that OFHEO seems to have plenty of clout to ride herd over Fannie and Freddie, even without that draconian authority in their regulatory closet. Lockie even brags about his ability to do that. Once again, the GSEs quietly have exceeded their quarterly capital requirements, as per OFHEO, and, oh yes, exceed their annual housing goals, as per HUD. But, Lockie never mentioned either of those two facts in his talk with the reporter.

I keep trying to think of an analogy which might make it easier for Lockie and his crew to understand why 383 House Democrats and Republican’s—that’s roughly nine tenths-- joined on the floor to knock out the White House’s overreaching language from the Committee bill.

Quarterpounder and Hershey Chocolates

Is it analogous if the D‘s decided that the FDA should have the authority to end all federal support to the cattle industry, if the agency didn’t like the price of McDonald’s Quarterpounder? Is it analogous if Agriculture Department could trash all sugar subsidies, because Hershey’s Christmas packaging offended the Secretary?

Are those out of kilter examples of causes and effects clear enough to help OFHEO understand the regulatory overkill which the Bush Administration wants to give OFHEO and why the Democrats will not give it to them?

What reason does the GOP see for giving OFHEO this death ray regulatory weapon other than to hope the agency does greater operational damage to the GSEs than they’ve attempted so far?

C’mon Two Gun admit it, the R’s have been trying for 25 years to knock the GSEs out of the batters box by whatever means possible. Now you are upset because D’s and R’s in the House wouldn’t let you cite the sun, stars, the rain, and the number Texas criminal executions as possible reasons to curtail Fannie’s and Freddie’s mortgage operations or jack up their already excessive capital?

Think Lou Reed and “Walk on the Wild Side.”

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

Lockie, who pretends to have no influence over GSE daily business operations, takes interview credit for keeping the GSEs out of trouble in the subprime mess, ignoring the fact that most of that product didn’t fit even the most diluted conditions under which either Fannie or Freddie would finance those mortgages.

Star Trek

Let’s see Mr. Director, did you employ your “Vulcan mind meld” to get that job done or are you taking credit for something the companies, wisely, did on their own?

The Director repeats the canard that the GSEs still are operationally weak and may need until next March before he might consider relaxing the politically motivated portfolio caps/limits, pushing that carrot out front a little further. In doing so, he totally ignores the fact that, by next March, he might not be in a position to help. He well could be spending his days greeting customer at the new WalMart bathroom fixtures store in Bugtussle, Oklahoma.

Go-o-o-o-d morning WalMart shoppers. Howdy. Hot out there, ain’t it. KnowwhatImean?

“Lookie, lookie here. I know you folks want to talk about other things, but first I got to ask you if you be the first ones in your neighborhood to own this hot new product, just come into the store? Hee-hee, KnowwhatImean? We call it our” stomp, wash-and-blowamatic,” a genuine Ginzu shower stall—just like you seen on TV-- complete with a kettle drum, three spritzers, a gentle air blaster, plus an optional bar of soap for you traditionalists.”

Now, thank you for visiting our newest store in Bugtussle. Don’t forget to spend a bunch.

As an aside, I wanted to answer your many questions about my time in DC and the guv’mint job my good friend “W” got me. Now you heard that I told some interviewer gal that Fannie Mae and Freddie Mac were a risk to this nation because of their “sheer size.” That’s right, they’s bigguns.

Now there are some other big ol financial boys out there, in fact bigger than Fannie and Freddie. Some are a lot bigger. We called those “fat bigguns.” But, heck, we didn’t worry nothing about them. They’s ours and we don't know if they are risky or not, since nobody ain’t never asked for one of them to get a sandpaper forensic accounting exams. Shoot, I spect that most of the fat biggun financial service companies don’t never get checked out, let alone have their innards flip flopped by hundreds of accountants and auditors, like ol Fan and Fred.

Some people, mostly them Capitol Hill Dummicrats, think if we ever did the same kind of work up on our fat bigguns, like we did Fan and Fred, we would come up with a whole mess—ooops, excuse me—a whole lot of problems that need fixing. But why ever would we do that? They’s usn’s, while we know that Fan and Fred belong to those D-boys over there. Nope, that ain’t never goin to happen. KnowhatImean?

(Think Lou Reed and “Walk on the Wild Side.)

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

Maloni 10-04-2007