Tuesday, November 17, 2009


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

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

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

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

President Johnson got every saving he sought from the Congress.

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

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

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

Dodd’s Federal Financial Regulatory Proposal

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

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

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

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

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

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

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

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

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

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

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


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

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

Berkshire Hathaway and Fannie Mae?

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

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

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

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

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

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

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

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

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

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

Maloni 11-17-2009

Tuesday, November 10, 2009

Obama Should Have Named Volcker Treasury Secretary…..

Woulda, shoulda, coulda…

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

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

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

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

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

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

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

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

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

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

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

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

Treasury/FHFA and Fannie Mae

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

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


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

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

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

The NAR Scores a Possible Huge Pro Consumer Acquisition

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

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

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

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


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

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


More Humor

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


Maloni 11-9-2009

Wednesday, November 4, 2009

Thank You Dede, You're a Hero

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

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

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

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

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

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

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

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

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

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

All Politics Are Local

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

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

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

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

The public is sending that message

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

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

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

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

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

Brits and Volcker Are Right……

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Maloni 11-5-2009

Sunday, November 1, 2009

The World of Mortgages and Financial Services

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

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

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

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

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

That salvo will be FM Watch’s opening round.

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

Dede Scozzafava and Conservative Politics

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

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

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

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

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

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

The Beat Goes On

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

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

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

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

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

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

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

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

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

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

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

I think they are wrong and I hope I am.

Maloni 11-1-2009