Thursday, April 29, 2010

The GOP and Fannie and Freddie

Did the Senate R’s Blow It, Again?

It appears as if the wobbly Senate Democrats—in negotiations over a broad financial reform bill--gave into their GOP counterparts and dropped the $50 billion Wall Street/big bank prepaid fund, which would cover initial costs of future bailouts.

The Washington Post editorialized last week that was an acceptable removal, especially if the fund’s existence caused Wall Street firms to think there was bailout money available for future exploitation and risk taking.

Excuse me if I disagree with the Washington Post editorialists one more time.

I think it is better to have the money paid in before any more financial crap hits the fan, since virtually any Administration when faced with a “Too Big To Fail” (TBTF) dilemma will turn on the money spigots because failing to do so could cause the “unthinkable.” If in 10 years we have no TBTF incidents, then the Congress in 2020 can decided if the fund still is needed or should be disassembled and used to pay for more fences in Arizona (to keep Arizonians in state or out of Mexico), or whatever the WH of that era is pushing.

Of course that option always is there for the Congress—as part of this bill—to say that the federal government never will bailout a large financial services company, just let it go through bankruptcy procedures. But, just as the Congress passed an explicit provision in the Fannie and Freddie charters that neither was the “full faith and credit of the United States government,” both the Bush Republicans and then the Obama Administration ignored that tiny legalism, because each decided, independently, that F&F were “TBTF.”

Speaking of the former GSEs and the Senate regulatory reform bill, I am writing this on Thursday, 4-29, with no idea if the GOP made good on its Senate demand to get language into the Senate bill on the two mortgage giants.

If the R’s were smart and really objected to how the Treasury--through the Federal Housing Finance Agency is managing F&F—GOP senators would insist that the Treasury begin to force F&F to market price accurately their services with an eye toward maximizing revenue, not for their lonely common stock investors--who only own 20% of the company, with Treasury owning 80%--but because it would bring integrity and discipline back to national mortgage pricing and also give the Fannie and Freddie staffs some incentive to run their operations like a businesses.

An added benefit to putting more “market sense” back into the mortgage business is that the two companies can begin earning revenue to pay back the Treasury what they’ve “borrowed” and mimic the auto companies and the big banks.

If the Senate Republicans really believed in the “market” working, since Fannie and Freddie right now are the only real secondary mortgage market participants, you would think the Republicans would encourage that development. If for no other reason than future F&F revenues largely would go back to Uncle Sam.

It’s probably asking too much of this mainly screwy group of conservatives, whom—I’ve argued—really could have made a major improvement in the healthcare bill--which they totally scorned procedurally--if they insisted on adding limits on healthcare legal damages as their price for going along and making it truly a bipartisan bill.

I believe that provision would have been approved, despite the fact that the trial lawyers heavily support the Democrats. It makes sense and it would have cut doctor’s malpractice insurance fees by huge amounts, as well as lower patient costs. But the GOP decided, instead, figuratively to hold their party’s breath and turn blue, rather than try to participate legislatively and add provisions that might have helped.

That was a one missed opportunity which won’t come around again soon.

Spencer Bachus

Once upon a time, Rep. Spencer Bachus (R-Ala) was a good guy, someone who supported housing and the then-GSEs. Now, he’s become the ranking minority member on the House Banking and Financial Services Committee and he has consumed the right wing kool aid and—in an anti-Democrat article in Politico newspaper-- is excoriating Democrats for all of Fannie and Freddie’s “shortcomings,” ignoring the role that the GOP played in that which he laments (most recently under President George W. Bush and when the Senate and House were controlled by the Republican party from 2000-2006).

I guess Mr. Bachus refuses to face those realities and instead wants to hide behind talking points which continue to blame Fannie and Freddie for the financial debacle. Yes, they had a hand, but the source of the problem really was massive subprime mortgage lending, started and stoked by Mr. Bachus’s Wall Street friends and the large commercial banks which supply him and his fellow R’s on the Committee with plenty of campaign cash.

I’ve written this ode before, but I’ll do it again for Spencer Bachus. Nothing that Fannie and Freddie did in carrying out its congressional housing mission, putting 55%of their business into mortgages which served low, moderate, and middle income Americans, significantly harmed the companies.

There were flawed decisions by CEOs at both companies, in 2006 and 2007, to purchase huge amounts of Wall Street underwritten subprime loans, put into Wall Street guaranteed subprime mortgage backed securities, and then sold throughout the world by, you guessed it, Wall Street, which overwhelmingly failed and shellacked Fannie and Freddie and dozens of other financial institutions worldwide.

Fannie and Freddie were guilty of buying that garbage for their portfolios, a fact for which former Fannie CEO Dan Mudd apologized and took personal responsibility for--with regard to Fannie Mae--when he appeared before the Angelides Commission recently. Those wretched Wall Street loans still in GSE portfolios continue to bleed red ink.

The House GOP Banking staff could do worse then compare those loans to the Fannie and Freddie MBS which contained their standard or “prime” mortgage loans and note the marked performance differences between the Wall Street “sub prime loans” and the F&F "prime" business.

That might kill a Republican talking point or two but it would make Mr. Bachus look a little more informed.

C’mon Spencer give up the cheap political rhetoric, show your independent thinking and look at the facts. A lot of your constituents got quality mortgage financing through Fannie Mae and Freddie Mac, a fact that you celebrated when the companies were riding high.

You had no problems then, with their affordable housing goals, neither did the Bush Administration, which certainly never lowered but celebrated them and then made the goal tougher to reach when it disallowed certain financed units from being counted toward the goals.

And, as I pointed out, it was you and the rest of the GOP which controlled this town politically from 2000 to 2006, but I don’t remember you leading the any charges against the former GSEs.

Mr. Bachus, who do you think is going to finance housing in this nation, if the federal government doesn’t participate somehow?

Will it be your friendly large commercial banks and Wall Street? Read the headlines about Goldman, my friend.

Read just how much lending your friendly banks are doing. When will they come back and lend mortgage money in Alabama or any other state? If I were you, I wouldn’t bet my political future on the banks doing the right thing.

You have a partisan role to play, I understand that, but when you get ready to seriously legislate and not blame the D’s, realize that the Congress—as I have been writing—has very few options. All of your ranting and hyperbole won’t change the fact that, for now, Fannie and Freddie are all that stand between plentiful mortgage finance, still dispensed rationally with national underwriting standards or—if F&F disappear or are “abolished” with nothing meaningful replacing them--very little mortgage money with your friends the banks calling every underwriting shot.

Do you really think the little people of Alabama will be well served with that arrangement and happily re-elect the Congressman who put them in that shaky and unstable mortgage lending environment, where all of the cards are held by the banks?

Maloni, 4-29-2010

Monday, April 19, 2010

The Russians and Lech Kaczynski

In one of my earliest blogs, I admitted to believing in UFOs, another Dallas gunman, and yes, a Loch Ness monster. I guess that makes me prone to being a “conspiracy theorist.”

Ok, guilty, as charged! But, am I the only one who thinks there is a possibility that the Medvedev/Putin government (more the latter than the former) could have had something to do with the crash of the Polish President Lech Kaczynski’s plane, which killed the President, his wife, many senior Polish military and government officials?

It was a more than 20 year old Russian jet, serviced by a Russian company, and it all but wiped out the progressive thinking Polish political leadership, ironically, while on the way to help memorialize an event where 20,000 Polish military officers were murdered in World War II by Soviet Red Army troops. Nah, not the Russians. They wouldn’t be involved in anything like that, would they? (“So what you are saying Mulder…..?”)

Call McConnell’s Bluff

Are the Democrats going soft already? What’s with the “Nancy talk” about dropping from the Chris Dodd (D-Conn) financial reform bill the $50 Billion fund—paid for by Wall Street firms—which would be cover the first losses for any “too big to fail firms” which weren’t?

It’s hard to read McConnell and the R’s any differently than, suggesting, strongly, that the GOP doesn’t’ want to change the status quo and see Wall Street financially nicked. McConnell and the Republcians would prefer any future financial failures to be paid for the taxpayers.

The Dodd “Fund “ was designed to forestall that need, but where there is a trough you’ll find the GOP pigs, as long as their peeps are the only ones who can wallow in it.

All forty one Senate Republicans already have signed a letter signaling their opposition to Dodd’s efforts, but so what? One of the best election moves the Dems could receive is for the entire GOP Senate to hold that position and carry it through to the November elections. “We the GOP oppose financial reforms trying to fix Wall Street excesses.”

As someone observed, which could “fund Dodd’s Fund,” but left in Wall Street hands, likely will go to GOP coffers and aid their candidates running against Democrat incumbents and in open seats.

Let those R’s who face back home political trouble justify protecting “The Street” from more and better regulation. Those move might pass muster with some “Tea Partiers,” but I expect it won’t cut it with all of the voters and certainly not with many independents.

(Read my friend Ken Guenther’s blog from this past weekend on the matter. )

Democrats should not compromise on this issue and dare McConnell and his merry men and women oppose it. I think, soon, some R’s will “turtle” once a strong Senate majority votes on the Dodd bill. Then, let Harry Reid and his lieutenants figure out a way to pass the legislation in the face of 41 possible obstructionists, who I expect won’t be able to hold their numbers.

The Democrats bust some healthcare china and now they consider backing off their success and pushing their majority numbers? There are many expressions for that conduct and one is “candy-assed.”

The D’s should ride that healthcare horse harder and see how much resolve Mitch and his team has for protecting the big money guys.

Goldman and the Other Paulson

The SEC provided most of the financial community here and in New York with a ton to talk about over the weekend when it brought suit against Goldman Sachs for not disclosing a deal it structured with John Paulson (no relation to Fannie/Freddie-Killer Henry), based on Paulson’s belief that the housing market would drop and that he could make a ton of money with a designed investment.

Goldman may have erred when, after creating the fund filled with bonds and marketing them, it did not disclose that Paulson helped shape the fund with the hope that they would go bad and, indeed, invested to that very end, making a cool billion dollars.

I’ll let the SEC and others worry about if what the august firm did was legal or not, but Goldman probably has more Democratic Washington ties than your average investment banking firm and I am curious to see what support, if any, Goldman gets from the White House and Hill Democrats.

Bellicose Ahmadinejad

Iran’s Jew-hating President seems to be taunting the US and other countries about his newly produced nuclear capacity and his country’s military might.

What a dreamer, I guess he hasn’t realized that author Vince Flynn and his rugged, non-PC security agent hero, Mitch Rapp, destroyed Iran’s primary nuclear facility about three years ago—in his novel “Protect and Defend”--with the help of Israeli spies strategically imbedded as employees in the nuclear facility. No missile strikes or nuclear on nuclear hits, just some well placed bombs in the basement of the underground plant and the things crushed itself and lots of folks inside, giving plausible deniability to everyone, since Iranian construction is so shoddy!

Oh, if it were only as easy as Flynn wrote.

But, maybe it is.

Defense Secretary Bob Gates has acknowledged that the US doesn’t have enough policy options to deal with Iran’s nuclear aspirations—and he is creating a new such laundry list-- and the Israelis were born with itchy trigger fingers when it comes to Muslim nukes.

President Obama—having a snoot full of Iran’s Mr. A--could enlist Gates to call Netanyahu (and Vince Flynn) and activate the plan laid out three years ago in Flynn’s “P and D” and make sand and glass out of Iran’s prize nuclear facility. That would force the Iranians to do something really stupid militarily giving us the right to go in and test Mr. A’s vaunted military.

But at 72 virgins per Iranian fatality, would there be enough women in their heaven for the new residents?

I’ll bet the Israeli’s aren’t without a list of how they would “fix the problem.”

Maloni, 4-19-2010

Wednesday, April 14, 2010


With Congress gone for its spring break, I have been keeping track of the Financial Inquiry Commission’s hearings on the 2007-2008 financial debacles.

It’s hard not to compare the Commission hearings to what the House Banking Committee has been doing with Fannie and Freddie (in part because both sets of hearings have been conducted in the same room).

The bi-partisan Commission, headed by former California State Insurance Commissioner Phil Angelides, seems to be doing better than the Committee in its inquiry but for explainable reasons.

The men and women on the Commission were chosen for their familiarity with the field of inquiry and bring a little more substance to the game than your basic Banking Committee Democrat or Republican, with the eternal exception of its brainy Chairman Barney Frank (D-Mass.).

That doesn’t mean the Angelides Commission members have no political instincts or agendas, quite the contrary since many them by virtue of their career choices were appointees or public officials. They just manage their personal partisan agendas more smoothly than the Members of Congress.

Most MoC wear their priorities on their sleeves and seldom put away their talking points to listen to what others believe, because they need to get their next point made before their allotted five minutes expire. Then they issue press releases with outrageous charges—designed for back home and re-election consumption—and wait until the next opportunity to do it all over again.

Commission members tend to be more subtle.

One Commission highlight for me, was when Dan Mudd--Fannie’s former CEO--appearing before it and delivered a very forthright acceptance of personal culpability for the decisions made on his watch, primarily the purchase of subprime private label mortgage backed securities (PLS), which went sour and led to huge losses and Fannie (and Freddie which did similarly) being taken over by the federal government.

I thought it spoke well of Mudd that he didn’t equivocate about his corporate responsibilities and his actions.

Barney and the Banking Committee

The House Banking Committee will take up the Fannie Freddie cudgels again and on its plan to demolish the former GSEs.
As an aside, some Washington cognoscenti were a bit surprised at the outrage shown by House Banking Committee Chairman Barney Frank toward a departing staffer, who—after first discussing it with Barney—chose to take a job with a trade group affected by legislation on which the staffer worked.

House rules ban the former Hill employee from lobbying his House colleagues for a year, but not lobbying the Senate. Barney’s laser like anger means the kid may never get a meeting with House D’s even after his 12 month cooling off period. Certainly Banking Committee staff may be reluctant to deal with him or the group which hired the young man. But, then others might, just because Barmy was so publicly angry.

Political observers should not have been surprised because Barney Frank, known for his volatility, did this once before when a Committee staffer left his employment and after a stop or two wound up working for one of the Wall Street firms.

Staffers becoming lobbyists happens all of the time and why the Chairman should have been so irked was beyond most. Just because someone worked on a piece of legislation or issue doesn’t make them all knowing.

As someone who hired congressional staffers to lobby the Hill, it’s never a slam dunk. Some turn out to be great and others never cut it.

Put in its best light, it’s clear that the Chairman values loyalty and must feel that it was not shown to him by those leaving the Committee for financial services positions.

Related Thoughts

I’ve written previously about what I think of the House Banking Committee and its efforts to redesign the mortgage finance system, but they bear repeating since spring is here and hope springs eternal.

As they go about their work, some of the congressional berserkers should dial back the frothy rhetoric and confront the reality of mortgage lending in the post financial debacle era.

They are no silver bullets or magic formulas when it comes to determining the role of the federal government and that of “private lenders,” when designing a national mortgage finance system.

You either feature one, the other, or an amalgam of both.

If you have exclusively private money, with no government involvement, then the rules will be minimal and likely the money not bountiful. If you have government money financing mortgages then you’ll have plenty of money and plenty of rules.

Currently, we have a near total federal system of mortgage finance with the government everywhere, in both the primary and secondary mortgage markets.

Commercial banks, today, don’t want to lend because they fear the risk associated with home mortgage lending and want the government to safeguard their business activities.

If the providers of mortgage money are “truly private” and the feds butt out—which many in the GOP claim is their goal--then the Congress’ ability is stunted when directing those lenders toward who they can serve, how they do that, and under what conditions they must lend.

In that model, which we don’t have but some want, the lenders make most of the decisions and the nation lives with it. And don’t look for lenders to cut anyone any breaks or recognize any social issues which need addressing. That’s not what money brokers do.

That’s the government’s job, assuming the government stays in this business (which would save a lot of federal cash if it didn’t but likely “PO” a lot of would be home buyers, businesses, industries—not to mention lobbyists—since it does represent about a fifth of our national GDP).

If, however, the Congress wants to insure that loans are made in certain ways, sizes, to various demographic groups and umber reasonable regulation, then that’s a “government driven mortgage fiancé system” and the nation should just get ready to live with it, again.

Until 2007, Fannie and Freddie were a successful hybrid of those options and worked well. But, one of the reasons the Banking Committee is holding its hearings is the perception that F&F failed because you can’t “marry profit to public good.”

If that’s the true case, then—when Congress completes its work--look either for private money funding limited mortgage choices or public money, with the inevitable complaints from the Right, doing the job but differently.

Or, as I’ve said, the Congress will go back—swallow all of the hot rhetoric—and create something which functions like Fannie and Freddie and pretend that it didn’t, which is my bet.

To repeat the premise, there just are not a ton of options in core approaches to systemic mortgage finance.

Any one of the options I listed can be effective and even integrated--achieving different business and societal objectives—when you have superior federal regulation and common political purpose.

But, the ugly fact is that we don’t have either.

Maloni, 4-14-2010