Sunday, November 30, 2008

Let Me At Those Banks

It looks like this will be shaping up as my “beat up on the big commercial banks” blog. Someone needs to do it and with regularity and force. Oh, and I might as well take a shot at a local newspaper, too.

Last week, the Washington Post editorialized how happy it is that Larry Summers, who will be the new head of President-elect Obama’s National Economic Council, was in a position to deliver some final solution to the Post’s perception of an ongoing Fannie and former Freddie problem? (Aren’t the former GSEs already all but dead and merely servants of the Treasury, which seems to be doing a lousy job at being a “Conservator,” since the Paulson-led Treasury seems to be acting more as “receivers” and liquidators than conserving the companies’ resources for future revival/use.)

Gads, suggested the Post, we cannot have any more of this confusing private/public
partnerships, in which an entity--using private capital and traded on the world’s stock exchanges—carries out some congressionally mandated broad public policy mission, in this case creating a national deep and liquid secondary market for US home mortgages. The newspaper’s hope is that Summers will be their Administration avenging angel.

(I don’t remember the Post in such high dudgeon when the companies were leading the residential real estate markets and helping millions of low, moderate, and middle income families secure a house of their own. Twenty plus years of solid performance in that regard should not get wiped out by business mistakes made in 2006 and 2007, when the company leaders moved away from their traditional financing role and put tons of toxic junk on their books. That’s bad judgment not a structural flaw.)

That editorial, coming from I now call the “Wall Street Journal-South,” located on 15th Street in Washington, DC, generated the following letter to the editor (one of many in the past several months, which the Post never prints).

So, for your edification, here’s my response to the Washington Post’s cheering for Summers to smite the GSEs.

Maloni’s Letter to the Editor

To Washington Post:

You can bash these companies all you want and call for their atomizing, but--so far--you've ducked the real issue and the consequences of someone making that implicit call.

It is not Fannie and Freddie which are vital to our residential real estate market, it is their function, i.e. a dedicated conventional mortgage market investor, the constant market presence of which allows thousands of local lenders to make mortgage loans at all times on a standardized and consistent basis, so that virtually every community in the nation is supplied with available mortgage credit at comparable costs

With Fannie and Freddie consigned to dust, should the banks conduct that mission, since--without significant charter enhancements--they have shown they can't and won't, or should that be a government (Treasury/HUD) responsibility?

The Post fails to explain that fixed rate mortgages--the American loan of choice--likely won't be offered or only offered at huge premiums over bank borrowing costs, if banks become the nation’s mortgage originators and the mortgage investor.

If you advocate for a new mortgage market structure, at least be honest with your readers regarding the likely consequences of that change. And while you are arguing against "public/private" lending entities--and in this instance which had huge affordable housing lending obligations--what have banks become with their huge federal subsidy of deposit insurance and, now, the various Treasury and Fed subsidies added in just the past few months?

(This was not in my letter, but it’ always is important to note that commercial banks and their mortgage banking subsidiaries, which now dominate the primary mortgage market, where consumers go to shop for mortgages, have no numeric or percentage of business affordable housing requirements.)


In this week’s Barron’s the following observation about commercial activity appeared in Michael Santoli’s column,

AT THIS POINT IN AN UNFORGIVING YEAR, it's worth recalling that the first Thanksgiving at Plymouth Colony in 1621 -- where there may or may not have been turkey on the table and the day's football scores went unrecorded -- was effectively a celebration of having merely survived for a year in an inhospitable environment.
Survival alone as cause for gratitude? Eleven months into 2008 and more than a year into a bear market that has shown a vicious flair for outdoing its antecedents, investors probably can relate to this sentiment.

Banks, the ones still with us, certainly can. They are hunkering down to ride out the year, counting the taxpayer-furnished capital that recently has arrived and sitting on it, earning what for these times is a handsome spread in safe-ish assets and getting healthy enough to fight another day.

What loathsome commercial banking behavior and responsibility shirking!

Excuse me, but are the departing Bush Administration and the staying here Fed telling us that the large banks can’t even be compelled to lend, when the Treasury and the Fed are feeding them billions in taxpayers’ dollars and other forms of relief?

Give me a break. Better yet, stop giving breaks to those financial institutions which seem to feast at the government’s breast, but refuse to help out, until they are ready. Translation: When the government ponies up even more gravy for them.

Aren’t most of those large lending institutions chartered by the federal government?


Did I miss something or when the Treasury and Fed did their “thing” for Citi, was the bank asked to stop lobbying Congress? Were any of the senior officers removed or even asked to pick a hurried retirement date, soon?

Talk about disparate treatment.

Fannie and Freddie were treated like town drunks and Citi gets velvet gloved.


Stiglitz on Treasury

And, while I am bank bashing, for those of you who haven’t read it, seek out Joe Stiglitz’s column of advice to the incoming Obama Administration, which appeared in yesterday’s Sunday New York Times editorial pages.

I think—in addition to a beat-up on the banks for their aforementioned perfidy—his opinion of what the Obama Administration owes the “Paulson Plan” is refreshing.

This is just an excerpt, as Stiglitz discusses the Treasury’s progress.

Stiglitz in the 12-30-2008 NYT

“But what you do with the money counts, too. The money needs to be spent carefully to ensure that every dollar provides as much stimulus now as possible while also contributing to long-term growth. That is why it is imperative to restructure the Troubled Asset Relief Program. Treasury Secretary Henry Paulson has already given away close to half of the $700 billion on very generous terms and without adequate restrictions on the use of the money.
“The intent of the program was not just to give money to banks but to get them to increase lending. It has not worked, so it needs to be changed. If taxpayers pour our hard-earned money into banks, then the banks should not be allowed to pour out the money as dividends to their shareholders or bonuses to their executives. Nor should they be allowed to use the cash to purchase healthy banks, in further efforts to become “too big to fail.”
“The Obama administration should not treat Mr. Paulson’s plan as immutable simply because “a deal is a deal.” The banks knew there pro quo. Besides, the terms of the relationship between the banks and the government (including the Federal Reserve) have repeatedly been adjusted, though almost always in favor of financial companies. The Fed used to accept only Treasury bills as collateral when it lent to banks. Now it accepts risky assets — junk.”


(Happy 39th birthday, today, to our first born and oldest of four sons, Jason Wynn Maloni. He and his wife, Andi, had their first child-- a daughter--seven months ago, and may Daryn give you guys as much pleasure and pride as Jason has given his mother and me, including that scary but educational “Beach Week” incident, more than 20 years ago!!)

Maloni 12-1-2008

Thursday, November 20, 2008

Grip and Grin

I am doing these days what a lot of “experienced Democrats” are doing, as I hear the familiar names and see the faces of all of the people I worked with in years past, being named to or rumored for key Obama positions. I am thinking, “Do I want to try and get back into that rat race?”

At home, I look at my “grip and grin” pictures and staring back at me from one section—beneath my most beloved photo, former Steelers Quarterback Terry Bradshaw and me "BS-ing" at a Realtors conference in Texas--are the smiling faces and/or extended hands, of Paul Volcker, Rahm Emanuel, Tom Daschle, Steny Hoyer, Charlie Rangel, Bill and Hillary Clinton, Ted Stevens, oops (must have been that damn celebration of the Alaska Partnership Office opening) and, again, I think, “Do I really want to start working 60 hours a weeks, again?

Nope, not at my age! And “hell, no.”

And then I look at my 401 (k) which has shrunk to a 101 (AA) size and think, “Hmm, maybe I should do, say, just 20 hours somewhere?”

Now, I begin to sweat those 6 dozen questions Obama job applicants must answer. I’d need about five dozen extra pages just to do my “enemies list,” those who have me on theirs and those whose names appear on mine, and that’s just Hill colleagues! , on upper

While walking my dog and pondering these weighty matters, on upper Connecticut Avenue earlier this week, I cross paths with an old friend and neighbor, the always handsome and suave Julian Bond. We shake hands as fellow conspirators in the post-Obama time might and I asked the former NACCP head and civil rights warrior, which Obama Administration job he most wants? He laughed and said, “Court of St James.”

I wished him luck, but before separating. I remind him that if he needed a chauffeur, I know how to drive an automatic, even on the left hand side of the road! (Note to self. Consider substantive overture to Bond my initial Obama job application!)

I think to myself I could get by the “Obama no lobbying standards,” since I haven’t been paid to lobby anyone or advise them how to lobby, since 2004, even though—certainly with my blog—I have been an advocate. Maybe just being in advocacy doesn’t disqualify you, at least from driving for an ambassador!

The old surge, the power in the belly returns. I feel it. I’m in play, especially if "neighbor Bond" gets his British job! I now realize that a low key job in quiet Merry Olde England, working for Mr. J Bond as his driver, could provide me with a real “Quantum of Solace!”

Oh, oh. I now am feeling seven times happy!!

Hillary and Andrew

Where do the Democrats want to put Andrew Cuomo, if Hillary Clinton is named Secretary of State? No, seriously, this is a real question, not a request for a multiple listing of vile places and ribald jokes.

Can you imagine what kind a campaign Andrew would lay on New York Governor David Patterson demanding that Patterson appoint him to fill Hillary’s unfinished Senate term?

Does Patterson want Cuomo the hell out of the state? Does Chuck Schumer want Andrew’s competition for all of those cameras in DC? Do the Senate Democrats need another “shy, retiring, team player” like Andrew, issuing multiple daily press releases?

Arguing that it would be impossible to comb through Bill Clinton business records, partnerships, and dealings might be the easiest answer, plus it keeps Andrew in the New York AG’s office, which is not a bad fit for him (noted with a left handed compliment!).

Help for Detroit?

The only guy I worked for in my 11 years in Congress, Rep. Bill Moorhead (D-Pa) was the chief sponsor of the Chrysler loan guarantee legislation in the 1970’s, the last time Washington helped the auto industry.

Ironically, this time, I would let one of the Big Three, likely Chrysler, declare bankruptcy and then maybe help the remaining two, Ford and GM, but only in return for stiff corporate and labor give ups.

The problem is that there are better and cheaper cars available to us, made in the US by American workers—even though they carry Japanese names--and until that market dynamic changes, Ford ,GM, and Chrysler wont’ succeed.

The “Big Three” also are gluttonous and the unions have to kick in, too.

Listening to the senior auto officials plead their case, watching AIG seek/demand $150 billion in federal assistance--almost double the $75 Billion the Treasury offered—and complain they need to accelerate their officers deferred compensation or risk losing these talented people, and then hearing the commercial banks ask for money but refuse to lend what they have or what they are getting from Treasury to consumers and small businesses, really makes me sick.

Can those with their hands out begging understand that “you have to give to get” and, if you don’t want to, you shouldn’t get!

Supplicants never should be selfish!

GSE Issues

There was supposed to be a hearing before the Henry Waxman (D-Cal.) Investigations Committee today, featuring former Fannie and Freddie CEOs, Frank Raines and Dan Mudd, and Leland Brendsel and Dick Syron. It’s been postponed until Dec. 9, so that the Committee Republicans can bring some witnesses of their own. (Congrats to Waxman who toppled “Old Bull” John Dingell for in the contest for Chairmanship of the House Commerce Committee? I wonder if tat success came from Dingell’s life long support for the auto industry at a time when those Detroiters don’t look very good?)

Rep. Waxman and his staff have run a super set of hearings soliciting informative and revealing testimony from major players in the economic and mortgage meltdowns, which have laid so low our economy.

But, what else could the GOP be trying re Fannie and Freddie, with its new witnesses? On the Committee first day of hearings—with the then McCain campaign in full bloom—the GOP brought forth a “minority report,” filled with errors and distortions which tried to blame the entire economic collapse on Fannie Mae and Freddie Mac, as well as the subprime mortgage fiasco which came courtesy of Wall Street and lax or non-existent GOP federal regulation.

That didn’t stop the R’s—and Tom Davis of all people who supped so deeply at the Freddie trough—from trying to blame the local companies for everything (including the “heartbreak of psoriasis”). Those allegations now largely has been swatted away by a variety of media and businesses sources not connected with the former government sponsored enterprises, which shows the mistakes they made but equally makes clear that Fannie and Freddie were not the root cause of much beyond their own demise (which itself may have been premature and politically dictated).

So, now that the McCain camp which tried to use this same “Fannie/Freddie did it” fairy tale in its anti-Obama campaign—is history, as is most of Fannie and Freddie--what are the Republicans going to dredge up to in an effort to sanitize their regulatory shortcomings and, once again, blame Fannie Mae and Freddie Mac?

Most observers point to the seminal actions by Mudd and Syron, respectively, to purchase large amounts of toxic Alt A and private label subprime securities (PLS) in 2006 and 2007, as the major red ink causes.

But, almost as important, is the fact that virtually every aspect of the two mortgage companies business was presided over and blessed by their former regulator the Office of Housing Enterprise Oversight (OFHEO), following the May, 2006 consent agreements both companies signed with OFHEO. From that point on, the regulatory agency had their own employees in both companies every business day of the week reviewing all transactions and decisions.

If the former GSE managements made bad business calls, what’s that say about the OFHEO staff who shared in their meetings and machinations?

This next Waxman hearing should be fun to watch as the Committee GOP has to perforce blame other Republicans for mortgage misfeasance or malfeasance!

(Mt deepest condolences to the children, grandchildren, and other relatives of Angelina Luchetti Maloni, my brave sister-in-law, who passed away on Thursday afternoon. Angie was my late brother’s wife and had just turned 69 last week. Rest in Peace, Angie, I'll keep and eye on the kids.)

Maloni 11-20-2008

Tuesday, November 11, 2008

Big Bad Paul

Kinda narrow at the shoulders and broader at the hips, but everyone knew that you give no lip to Big Paul, Big Paul, Big Bad Paul……!

I apologize to songwriter and successful sausage maker Jimmy Dean for ripping off a line from his famous “Big Bad John” lyrics, but Paul Volcker deserves the accolades and more.

If President-elect Obama just will name Paul Volcker to Treasury—even for a year, keeping Larry Summers at the NEC in waiting—I’ll feel vindicated and like a seer for suggesting on November 5 that Obama choose Rahm Emanuel and Paul Volcker for WH CoS and Treasury Secretary, respectively. As competent as Larry Summers and Tim Geithner are, neither has the domestic and international heft of Paul A. Volcker.

His insight and steely resolve to keep interest rates high in the early 1980’s, which successfully squeezed the remaining life out of Post-Vietnam inflation—and ushered in years of U.S. economic expansion and positive growth-- is considered Herculean and heroic by most economists and students of public policy. I worked for the Fed and Volcker in those days and watched as he was excoriated by the nation’s housers and vilified by Congress because he kept interest rates in the high teens.

Volcker would be an exceptional choice for Treasury Secretary.


Just as Paul Volcker gives gravitas and strength to how President Obama will go about achieving the Obama financial priorities, so too does Rahm Emanuel provide the same as the President’s conductor keeping the trains running on time.

I have to laugh at all of these pundits (mostly Republican) who reacted in mock horror to Obama choosing Rahm Emanuel as his White House Chef of Staff.

So what if Emanuel’s buddy, Paul Begala, respectfully describes the new CoS as a “pain, somewhere between a hemorrhoid and a toothache.” Rahm Emanuel has a reputation for hard ball, success and achieving his objectives. A new President facing the mountainous challenges staring Obama in the face needs someone just like that at his side and watching his back. So, he’s the iron fist inside of Obama’s velvet glove. Obama knows warmth and charm, alone, can’t drive policy changes, and major ones at that, in Washington. They call those interests “vested” for a reason.

If you are going to make legislative and policy “omelets,” I can think of few Democrats I’d rather have breaking those eggs than Rahm Emanuel, which was why I touted him last week.


Is anyone besides me upset at the behavior of the Administration and the big banks? The whole drill about giving the banks federal cash infusions was for them to use the cash to “unclog the credit markets,” by making commercial and personal loans, not to pay/boost dividends and take over weaker institutions.

It’s a simple model to implement, if the bank regulators showed some guts.

The banks get additional cash, if the banks agree to make loans--not to “everyone” or the “less credit worthy,” as the bank flacks try and imply--to those individuals who can repay the loans and those businesses seeking to expand and hire more employees.

And, yes, that criteria and performance can be measured by serious financial regulators and, yes, the banks can be held accountable.

Must the nation suffer even more before the large banks—which caused some of the mess—decide to get off their butts and do what they do best and that’s lend money?

When Fannie and Freddie both were given the significant housing goal challenges in the early nineties and some company officials asked if that large a percentage of credit worthy “low, moderate and middle income families, existed out there,” their regulators bluntly told the GSEs to “find them.” The banks should be given the same direction.

Election 2008

Many people are asking some variation of the question, “What does the GOP have to do to make itself relevant and competitive, again?” First the GOP has to stop blaming the media, fate, Palin’s wardrobe or her geographic educational gaps for Obama’s win

The dogs didn’t like your dog food. You lost the election. Your numbers dropped in both the House and Senate and there are still a handful of Senate and House races yet to be decided. The best thing the GOP could do is look critically at the election night tapes from Grant Park in Chicago and the same crowd scenes from John McCain’s Phoenix campaign hotel. There was a lot of happy diversity in Chicago and a bunch of Caucasians in Arizona. I know you R diehards hate to hear this, but the United States no longer is a white nation, politically. At some point the GOP will awake to that fact and truly open its policy doors and invite in blacks and Latinos.

Just adding some more white faces and fair hair, as I saw at the convention in Minneapolis and on the ball room floor in Phoenix, isn’t going to cut it or win future elections. That’s not a cheap shot, just demographic reality.

By actively opening your tent flaps and welcoming in others, your party platform should change and also reflect the needs of those not so well off and headed to the Ivy League, either scholastically or socially.

Your crew on Wall Street ended—for the near term—your “less regulation and more tax cuts for business” political mantra. Plan for that change.

“W” murdered your “less government, less federal spending” party platform planks. Paulson and Treasury, with its nationalization and forced bank equity investment, put “socialism” in a whole new light, especially as it was carried out by a Republican administration,

Oh and although she won her election, drop Rep. Michele Bachman (R-Minn.) as a party spokesperson. Calling for media exposure of “anti-Americanism” in the Congress is wing nutty and loopy enough to resurrect J. Edgar’s cross-dressing ghost.

Fannie, Again

The Washington Post had a front page story, today, discussing the problems of Fannie (and Freddie) especially since the government/Treasury seems to have reneged on parts of its deal with the former GSEs.

Note: Treasury still hasn’t put a dime into Fannie Mae, but that hasn’t stopped the Paulson mob from demanding that it to do more mortgage finance.

Yet, with rising debt costs due in large measure to Treasury’s policy of not making clear the status of those debt securities (are they backed by the government or not?), Fannie can’t borrow cheaply enough to keep the conventional mortgage market liquid. So, that market will stay turgid.

Congress may want to begin asking questions about the real motives in the GSE “Sunday Smashdown” takeovers, since making the companies more effective clearly hasn’t come to pass and likely wasn’t on the GOP’s real agenda.

The conventional mortgage market just won’t function smoothly without a dedicated mortgage investor, buying product 24-7. from lenders in all communities in the nation.

The Government National Mortgage Association or “Ginnie Mae” does that for FHA and VA government loans. But, until the Treasury takes its boot off the necks of the former GSEs, you won’t have a similar operation in the conventional markets. And, most mortgage observers understand that.

So, I’ll keep saying it to the Congress, “Get ready to create a new “Fannie and Freddie” or take a smart shortcut and figure out how to breathe a little life into the ones you have, before Treasury sucks all of the life form them and you have no options and a rapidly deteriorating conventional mortgage market.


Temporaily, I am putting away my political six guns back, since I assume it wasn’t lost on anyone that two major GSE antagonists (John Sununu and Chris Shays) were defeated last Tuesday and a third “wannabe” (Elizabeth Dole)--who frankly didn’t have the smarts to do anything original on GSEs--also went down. Just call it “mortgage frontier justice.”

Add the retiring Chuck Hagel *R-Neb,) to that list and a lot of GSE animus will leave the Congress this year. When the next Fannie/Freddie issue arises, Senator Shelby (R-Ala,) may have to caucus in a phone booth.

Maloni 11-11-2008

Tuesday, November 4, 2008


So long sad times
Go long bad times
We are rid of you at last
Howdy gay times
Cloudy gray times
You are now a thing of the past

Happy days are here again
The skies above are clear again
So lets sing a song of cheer again
Happy days are here again

I think it’s safe to say that Barack Obama’s stunning victory can be grounds to drag out this “Tin Pan Alley” standard--which is most associated with Franklin Roosevelt’s the 1932 election win and subsequent Democratic victories--and begin to celebrate this new day for our nation and the world.

We still have about 10 weeks of George W. Bush and his cabal, but most of those appointees will melt away before “W” gallops into that helicopter on the White House lawn on January 20, 2009, and finally departs.

Obama and his team now need to ask themselves the question that military commanders have asked themselves, literally and figuratively, since time in memoriam, “We’ve taken this hill now what in the hell are we going o do with it?”

I won’t offer President-elect Obama my “to do” list, since I am sure that he has a long list of his own. But one idea which appealed to me came in a recent letter to the Washington Post from a college student’s father.

He suggested as long as the federal government is giving billions to Wall Street, why not take some of that money and “forgive every college student loan,” made during the Bush years, so these kids and their parents can put that money into the economy and not give it all to the banks, since their “Uncle” seems to be nicely taking care of those financial institutions.

Once you iron out the details, that idea makes a lot of sense to me, as long as we are “forgiving” some debts and throwing federal dollars around. I think that is a symbolic and solid investment in our future and removes some financial burdens for lots of middle class kids and their tuition-paying parents.

Those GSEs, Again

I hope that idea fares better than my “Find a way to use Fannie and Freddie” to help with the Treasury’s not yet undertaken, “but I promise you soon to be,” massive mortgage backed security asset sales that the Treasury has promised us shortly will be forthcoming, once they give all of their Wall Street friends the jobs and opportunities to move those failed “private label” mortgage backed securities, meaning non-Fannie Mae and Freddie Mac securities.

In the meantime, Fannie and Freddie sit on their hands, waiting for Henry Paulson to state unequivocally if the former GSEs debt—as the Bush Administration advertised--is backed by the federal government, which should bring mortgage arts down, or is their debt “almost/nearly, a scosh/kinda/maybe” backed by the full faith and credit?

Confusion over this fact just makes the job tougher for everyone in the market.

I wonder if it has occurred to the Hill Democrats, who invited “the GSE nationalization,” that nobody in the Bush Administration really seems to know what to do with Fannie and Freddie now that the companies have been subsumed by the government and our national mortgage market continues to suffer.

It appears that the Republicans’ only policy goal was to destroy Fannie and Freddie, as per the early Reagan mandate. Now that they’re put the companies in the crapper, the GOP is headed out of town and will let the new Obama Admin dispose of the bodies.

Even Ben Bernanke, last week, in his “we hate Fannie and Freddie but we need them” speech hinted at the reality. While Fannie Mae and Freddie Mac as corporate entities may not be needed, but their exclusive function as dedicated investors is needed to create and maintain the United States secondary mortgage market.

Until the Congress (re) creates a dedicated mortgage investor, we will continue to have flawed and illiquid conventional mortgage markets and unnecessarily high mortgage rates.

I still haven’t heard anyone rebut this analysis or offer a viable option, beyond letting HUD make every mortgage to American families.

Senators Obama and Biden. You have New Jobs, Dudes!

Congratulations Senators Barack Obama and Joe Biden, now Mr. President elect and Mr. Vice-President elect. May you both serve long and well and may this nation and the world enjoy the benefits of your success!

(While you haven’t asked me Mr. President elect, I would name Paul Volcker your Secretary of Treasury and Rahm Emanuel your White House Chief of Staff.)

Maloni 11-04-2008