Thursday, October 28, 2010
“Speaker Boehner?”
Steeling Myself for Major Setbacks
It’s hard not to anticipate major Democrat losses on Tuesday given both the poor job that Democrats have done at all three levels of government and the amount of distorting ads aimed at congressional Democrats which the GOP and the Supreme Court purchased third party money have produced.
But opposition to those in power always will be there in our nation and Republican/Right Wing money generation is well understood.
Democratic Party policy and political mistakes—in my opinion—have fueled the Tea Party and other right wing efforts far more than Karl Rove and his posse’s money raising.
Can anyone really explain where the “health care savings” are or will be?
How about how the regulatory reform law will help consumers and rein in Wall Street avarice or financial industry remuneration?
Those are just two examples or bad messaging and weak statute, both D responsibilities.
No matter what Tuesday brings, Democrats need to look in the mirror and, like Walt Kelly’s Pogo, realize that “The enemy is us.”
Democrats need to learn how to govern, not just win a lay-up election in the wake of a crappy, crummy GOP President.
Apparently, the Democratic Party hasn’t mastered that governing art, yet.
We’ll know on Wednesday if it will be “Speaker Boehner.”
Privatizing Gains
I have never understood the right wing allegation against Fannie Mae and Freddie Mac that they “privatized their gains but stuck the federal government with their losses.”
I challenge those who hurl that falsehood at Fannie and Freddie. Offer one example of that behavior, before the government slapped both companies into "conservatorship,” effectively federalizing them, and all but stopping any entrepreneurial behavior at the formers GSEs.
It’s a myth and great hyperbole which appeals to the Tea Party types, but when, where, how did it happen and what’s the evidence?
Having been in the “beast’s belly,” as one national newswoman described my time at Fannie, I cannot remember one company officer saying or acting on, “OK we can take these risks because Uncle Sam stands behind us and it won’t matter if we fail, because we will get bailed out.”
The truth was that any corporate official who ran his or her division on the assumption of a federal bailout would have been canned, since the business never worked that way and no rational executive officer would have permitted business plans based on that shaky contingency.
Not the Full Faith and Credit
Quiet the contrary, we operated on the opposite premise—because that’s what the charter said and that’s what was printed on all of our securities—that we were not the full faith and credit of the US government (which our higher than Treasury borrowing costs everyday re-enforced).
While many of us understand that the federal government had the authority to virtually do whatever it wanted in an economic or financial free fall, only a few of us had any direct experience working on the federal bailouts of non-government entities, Continental Illinois bank, New York City, Chrysler, or the Lockheed corporation, actions (which were far smaller than the TARP or picking up Fannie and Freddie’s tab).
Ironically, NYC, Chrysler, Lockheed, and CI all occurred when I worked for a senior Democrat on the “House Banking and Finance Committee,” its official title then.
In its pre-Paulson takeover days, Fannie incurred losses every year. Those weren’t magically passed on to the federal government but were consigned to the corporate balance sheet and outweighed by larger gains.
So, let me reiterate my challenge request or whatever you call it for anyone who has some specific example of Fannie Mae (forget Freddie for the moment) “privatizing gains while passing losses onto the government” to please show that evidence to me.
Too Much Housing and You’re Guilty?
I also am trying—desperately—to grasp the point now being made by some critics that the nation is over housed and that housing principals in the political, policy, media and housing industries (production and real estate) intentionally and for selfish and self aggrandizing reasons drove an unsustainable interest or desire to own a home, especially among those perceived as not financially able to afford a mortgage.
Wow, that is a major indictment—and mouthful—but that’s what some claim today.
Let me remind the Republicans—who generally, but not always, oppose federal homeownership efforts—that they are speaking about one fifth or more of our national GNP, each tiny element pursuing its own private market business interest. That hardly was some monolithic Democrat generated tsunami.
“Housing Mission” Was Not Subprime and PLS
It’s necessary, too, to call to the attention of current Monday morning quarterbacks that many conflate Fannie’s (and Freddie’s) low income “housing mission” --statutory requirement that 55% of its business must got o finance low, moderate, and middle income families living in central cities or other underserved areas”--with a different scenario, the subprime debacle, when senior GSE management brought billions of dollars of “Alt A” and Wall Street originated private label subprime securities (PLS).
Two different acts, albeit in same companies.
We know the subprime extravaganza went on to fail horribly, costing the GSEs and dozens of other companies who acted similarly—and those that pioneered the garbage—to cost the companies and the government billions.
But those who employ hindsight’s 20-20 backward look need to appreciate that GSE PLS subprime purchases was about market share and greed, not affordable housing missions.
Those actions deserve to be measured and evaluated separately.
From 1992 (when the housing goals became law) to 2005--roughly when Wall Street subprime sales to the world kicked into high gear--the GSEs low income housing mission work not only was the law of the land but it was lauded, expanded, and warmly welcomed by Presidents Clinton and Bush and Congress controlled first by the GOP and then later the Democrats.
Aberrant GSE behavior? Hardly!
Everybody was supporting more homeownership for the nation and greater inclusion of minorities in the owners group.
Yes, there were some skeptics, but when aren’t there? For those 14 years or so, Fannie believed in—and was encouraged to support—greater homeownership and to lead efforts to achieve that desirable national good. At least every time it did so, it heard wonderful things from those in charge of them, their charter, and their public support.
Don’t Forget: Homeownership is a Positive
I get tired quoting all of the studies which show the economic and social benefits of home ownership, but they exist in droves. (See link below to a recent National Association of Realtors study on homeownership and parenting.)
http://www.realtor.org/research/economists_outlook/commentaries/commentary_home_ownership_parenting
If you lived and, more importantly, worked "in the housing business” in that era—roughly the five or ten years preceding the economic fallout of 2008—you were part of expanding the American dream for all comers.
Fannie's and Freddie’s financial losses in those years were negligible, because the loans they underwrote, acquired or securitized were high quality “prime loans,” not the marginal variety which correctly earned the name “subprime.”
Which is why thoughtful need to distinguish between the early more positive GSE experience and afterwards, when they purchased large amounts of Alt A and PLS subprime securities.
I know that’s like asking Redskin and Steeler fans to pray for Dallas’ and Baltimore’s NFL success, but miracles do happen?
Critics
It doesn’t take much to be a GSE critic, just access to the Internet and some extreme opinions.
When you aggressively self promote, possibly overly so, you can add to your allure.
So, who is Craig Whalen and why are people reading him? (See preceding sentences for the answer.)
I noticed that Craig Whalen is associated with more unknown entities and their task forces or boards than any two Fannie critics. I guess I missed his “Croix de Guerre in MBS” or the “Iron Cross in Privatization”—awarded by Heritage or Cato--but I am sure that they are somewhere on his resume along with several University of Phoenix degrees or the equivalent.
There might be a group of more obscure institutions out there with which he could be affiliated, but it will be tough finding them.
Like others, he wants to do away with the GSEs (and the Fed?).
The GSEs and MI
He accuses the GSEs of perpetuating mortgage insurance and forcing people, who only can put down 5% or 10% on a mortgage loan, into an “Orwellian world” where F&F make profits by charging borrowers—through the lender network—too much money.
Hose this boy down, read him some history, and also remind him that the companies currently are being run by the regulator not management, so his complaint is with the Treasury.
Whalen should know that Fannie didn’t invent mortgage insurance. It was part of Congress’s plan in 1970 (long before Fannie had the “lobbying army that “won all Washington wars”) to help borrowers with meager savings afford a down payment.
The truth is that F&F didn’t like the MI industry and thought it was inefficient and costly.
Freddie went so far as to legislatively advocate a non-MI option for low down payment borrowers—which would have been far cheaper for them--which failed in the Senate, after initially passing. (Fannie, while sympathetic, stayed out of that fray. Ergo, only Freddie’s charter would have been changed.)
Craig, while I may disagree, I think your fanciful writing has earned you consideration for an award from the “Order of the Merkin” and I will gladly submit your credentials to that august society?
Russians in Afghanistan, Again?
Do I really want the Russian military back in Afghanistan and as part of a broader NATO effort??
No and no. “They’ll steal your eye teeth, if they are rooted in your mouth.”
In my narrow view, the Russians taint almost everything they touch and they
can’t see or work for anything resembling a “common good.” Plus, I suspect that, in Afghanistan, part of their security operations will be stealing US military and commercial secrets and suborning the Afghans, so they later dance to Moscow’s drummer, which no doubt will employ stolen US dollars to pay for the perfidy.
Sure Hamid Karzai would welcome the Russian, because that’s one more potential “donor” to his executive slush fund
I realize that my Russian views consign me to near John Birch thinking but so what, if that’s what my experience and instincts tell me.
How many times do we have to be hoodwinked by Putin and his thug homies before we wake up?
Anyone tired of seeing the long time “sleeper” Russian spies we arrested and deported being honored in their homeland. And does anyone think there still aren’t more in the US?
Although spy “Anna Chapman’s” (sic) cover photo on the Russian version of “Maxim” was revealing, so to speak!
http://www.myfoxdc.com/dpp/news/video-photos-russian-spy-anna-chapman-poses-for-maxim-magazine-102010
Maloni, 10-28-10
Sunday, October 24, 2010
Ginni WHY!!
Women?
(I wrote this segment before it was reported by WJLA-TV and the Washington Post, that Clarence Thomas’s ex-girlfriend Lillian McEwen, with whom he once had a romantic relationship, has written a book accusing Thomas of behavior which parallels the sexual harassment charges Anita Hill leveled against Thomas when he was nominated for the US Supreme Court.)
Why would Ginni Thomas, the wife of Supreme Court Justice, Clarence Thomas,
Suddenly telephone Anita Hill, Thomas’s chief protagonist during his Senate confirmation hearings nearly 20 years ago, seeking an apology for her husband?
I can suggest a few answers, but rather than play that game, I’d ask why would Ginnie Thomas resurrect and force attention to that incident and her husband when most people have put it aside and moved on, allowing Thomas to carry on a very undistinguished judicial career on the nation’s highest court.
Thomas rarely questions lawyers who appear before the Court and predictably sticks to his very conservative interpretation of the Constitution or whatever is the latest Right Wing line and has been a perfect GOP judicial “cipher,” whose opinions mirror Judge Scalia and/or Chief Justice Roberts.
But, that is Thomas’s right and it was the first President Bush's (corrected from "Reagan," see "Comments right to appoint Thomas, seemingly getting just the type of justice that he wanted, a man smart enough to keep his mouth shut and not show the world just how little he knows or understands.
Hill won’t recant her allegations that Thomas sexually harassed when they worked together, just like Thomas now will never admit that he did so. There is no need for that except in Ginnie Thomas’s mind.
But, I wonder what came up in the Thomas’ household which made this an issue now? Only Hizzoner and Mrs. Thomas know and I’ll bet they’re not talking about it publicly.
(Of course, now we know that the “what” could have been leaked word of the McEwen book.)
Private GSEs
I’ve noted before that there are few “bad ideas” regarding our future mortgage finance system, even though I may not agree with them.
John Dalton, President of the Financial Service Roundtable and someone for whom I worked, briefly, when 30 years ago he was acting Chairman of the Federal Home Loan Bank Board, recently proposed letting Fannie and Freddie slowly evolve into any number of private “mortgage insurance securitizing companies (MISCs),” which he envisions as securitizing entities, that have the authority to package whole loans into mortgage backed securities and sell them to investors.
Dalton sees these institutions replacing F&F securities MBS activity and goes onto cite all of the virtue of “private institutions,” etc. etc., with the only little bit of federal help these companies would need being some federal “catastrophic insurance,” the premiums for which they would pay to the government. (I guess that makes them “mainly private,” but not quite. There is a "degrees of pregnancy" joke here somewhere.)
They would have a “strong, independent regulator,” (Everyone proposing something new seems to link those words when describing a novel financial regulatory arrangement!).
I welcome John Dalton’s contribution to the debate, but only would point out that some of his large bank members—or other interests his association represents—already have these powers in their bank holding company structure.
The banks can raise the money cheaply and their investment bank subs can securitize and attach their private label guarantees around the mortgage bonds.
The problem that Dalton must confront, but which eludes his rhetoric, is that Wall Street firms and banks did that very thing just a few years ago (see PLS subprime) and they did a horrendously poor job.
The banks and investment banks, which created and pushed PLS subprime mortgage securities across the world cost themselves, their company stock investors, the institutions which invested in their securities, as well as the federal government hundreds of billions of losses, not to mention the societal deficit from the massive failure, layoffs, lost family fortunes, etc.
I guess someone envisions the “strong, independent new regulator” doing a much better job then the Fed, SEC, FDIC and others did three or four years ago on private label securitization and it could.
But, the Financial Services Roundtable shouldn’t sugar coat the potential for losses here, too. You cannot hide the mortgage risk “hot potato.” Someone has to hold it, because mortgages and mortgage securities come with structural risks. At the end of the chain Dalton has the US government holding it.
Dalton called for his “MISCs” being in a “first loss” position as if that’s all that matter.
Fannie and Freddie were in a “first loss” situation—which isn’t unique—but that didn’t stop them from losing roughly $60 billion each in market capitalization, and approximately another $40 Billion and $30 Billion, respectively, in regulatory capital losses. Then the Treasury picked up their corporate red ink, which has added @$140 Billion to those amounts.
If John’s members want to do this and use their new financial execution as the latest remedy to Fannie and Freddie, more power to them, but do it cold turkey, without Uncle Sam’s backing.
I believe that would make those who create and operate MISCs far more responsible then they might be, with Uncle quietly standing behind them, since “federal insurance is federal insurance.”
Mr. and Mrs. Democrat
With the Democrats in power, normally the title above would go to the President and his wife.
Arguably, however, it really belongs to former President Bill and Secretary of State Hillary Clinton because of their national popularity within and outside the party, the gargantuan media appeal of each when they travel, and the professionalism and smoothness of how they interact and communicate with crowds.
Bill Clinton is the single best politician in my lifetime. One of my “grip and grin” pictures with him in right in the center of my office wall. (You see the left side of then President Clinton’s face in that photo and my full face, complete with adoration, but Clinton is “locked in.”)
I never have seen anyone work a room like Clinton or make every single individual he encounters in those four walls feel that eh is connecting exclusively with them and none of the surrounding throng. It’s a high art.
Hillary has much of that, too, and a tough cerebral quality to boot.
Bill Clinton’s strenuously working the nation on behalf of the Democratic Party is the best thing the current Congress and the White House has going for it, leading to the November 2 midterm elections.
Return of Cram Down???
Could the current hugely negative press and confusion being generated by mishandling of mortgage defaults cause a Democrat controlled Congress to consider “cram down legislation” in their lame duck session after the elections?
A bill allowing judges to restructure mortgage debt and reduce principal amounts owed lenders passed the House only to die in the Senate this year. It’s possible that angry Democrats—who lost their seats—or happy Democrats who held on and won re-election might choose to “strike a consumer positive” stance and move the House passed cram down bill, which naturally was opposed by all of the banks (a strong reason to vote for it, if that bank money negatively influenced that Senator’s or Congressman’s race).
Watch But Don’t Bet
--It wouldn’t tonally shock me if New York’s Chuck Schumer managed to win the Senate Majority Leader’s post if the D’s maintain control of the chamber, even if Harry Reid survives his race against the Tea Party’s Sharon Angle.
--It will come down to Schumer versus Dick Durbin (D-Ill), but don’t underestimate the wily Schumer (think Barney Frank-smart but with more friends).
--It can’t be good that Chairman Barney Frank (D-Mass) lent his re-election campaign $200,000. In my view it would be a stunning and disheartening defeat, if Barney didn’t prevail in his race.
Maloni, 10-25-10
(I wrote this segment before it was reported by WJLA-TV and the Washington Post, that Clarence Thomas’s ex-girlfriend Lillian McEwen, with whom he once had a romantic relationship, has written a book accusing Thomas of behavior which parallels the sexual harassment charges Anita Hill leveled against Thomas when he was nominated for the US Supreme Court.)
Why would Ginni Thomas, the wife of Supreme Court Justice, Clarence Thomas,
Suddenly telephone Anita Hill, Thomas’s chief protagonist during his Senate confirmation hearings nearly 20 years ago, seeking an apology for her husband?
I can suggest a few answers, but rather than play that game, I’d ask why would Ginnie Thomas resurrect and force attention to that incident and her husband when most people have put it aside and moved on, allowing Thomas to carry on a very undistinguished judicial career on the nation’s highest court.
Thomas rarely questions lawyers who appear before the Court and predictably sticks to his very conservative interpretation of the Constitution or whatever is the latest Right Wing line and has been a perfect GOP judicial “cipher,” whose opinions mirror Judge Scalia and/or Chief Justice Roberts.
But, that is Thomas’s right and it was the first President Bush's (corrected from "Reagan," see "Comments right to appoint Thomas, seemingly getting just the type of justice that he wanted, a man smart enough to keep his mouth shut and not show the world just how little he knows or understands.
Hill won’t recant her allegations that Thomas sexually harassed when they worked together, just like Thomas now will never admit that he did so. There is no need for that except in Ginnie Thomas’s mind.
But, I wonder what came up in the Thomas’ household which made this an issue now? Only Hizzoner and Mrs. Thomas know and I’ll bet they’re not talking about it publicly.
(Of course, now we know that the “what” could have been leaked word of the McEwen book.)
Private GSEs
I’ve noted before that there are few “bad ideas” regarding our future mortgage finance system, even though I may not agree with them.
John Dalton, President of the Financial Service Roundtable and someone for whom I worked, briefly, when 30 years ago he was acting Chairman of the Federal Home Loan Bank Board, recently proposed letting Fannie and Freddie slowly evolve into any number of private “mortgage insurance securitizing companies (MISCs),” which he envisions as securitizing entities, that have the authority to package whole loans into mortgage backed securities and sell them to investors.
Dalton sees these institutions replacing F&F securities MBS activity and goes onto cite all of the virtue of “private institutions,” etc. etc., with the only little bit of federal help these companies would need being some federal “catastrophic insurance,” the premiums for which they would pay to the government. (I guess that makes them “mainly private,” but not quite. There is a "degrees of pregnancy" joke here somewhere.)
They would have a “strong, independent regulator,” (Everyone proposing something new seems to link those words when describing a novel financial regulatory arrangement!).
I welcome John Dalton’s contribution to the debate, but only would point out that some of his large bank members—or other interests his association represents—already have these powers in their bank holding company structure.
The banks can raise the money cheaply and their investment bank subs can securitize and attach their private label guarantees around the mortgage bonds.
The problem that Dalton must confront, but which eludes his rhetoric, is that Wall Street firms and banks did that very thing just a few years ago (see PLS subprime) and they did a horrendously poor job.
The banks and investment banks, which created and pushed PLS subprime mortgage securities across the world cost themselves, their company stock investors, the institutions which invested in their securities, as well as the federal government hundreds of billions of losses, not to mention the societal deficit from the massive failure, layoffs, lost family fortunes, etc.
I guess someone envisions the “strong, independent new regulator” doing a much better job then the Fed, SEC, FDIC and others did three or four years ago on private label securitization and it could.
But, the Financial Services Roundtable shouldn’t sugar coat the potential for losses here, too. You cannot hide the mortgage risk “hot potato.” Someone has to hold it, because mortgages and mortgage securities come with structural risks. At the end of the chain Dalton has the US government holding it.
Dalton called for his “MISCs” being in a “first loss” position as if that’s all that matter.
Fannie and Freddie were in a “first loss” situation—which isn’t unique—but that didn’t stop them from losing roughly $60 billion each in market capitalization, and approximately another $40 Billion and $30 Billion, respectively, in regulatory capital losses. Then the Treasury picked up their corporate red ink, which has added @$140 Billion to those amounts.
If John’s members want to do this and use their new financial execution as the latest remedy to Fannie and Freddie, more power to them, but do it cold turkey, without Uncle Sam’s backing.
I believe that would make those who create and operate MISCs far more responsible then they might be, with Uncle quietly standing behind them, since “federal insurance is federal insurance.”
Mr. and Mrs. Democrat
With the Democrats in power, normally the title above would go to the President and his wife.
Arguably, however, it really belongs to former President Bill and Secretary of State Hillary Clinton because of their national popularity within and outside the party, the gargantuan media appeal of each when they travel, and the professionalism and smoothness of how they interact and communicate with crowds.
Bill Clinton is the single best politician in my lifetime. One of my “grip and grin” pictures with him in right in the center of my office wall. (You see the left side of then President Clinton’s face in that photo and my full face, complete with adoration, but Clinton is “locked in.”)
I never have seen anyone work a room like Clinton or make every single individual he encounters in those four walls feel that eh is connecting exclusively with them and none of the surrounding throng. It’s a high art.
Hillary has much of that, too, and a tough cerebral quality to boot.
Bill Clinton’s strenuously working the nation on behalf of the Democratic Party is the best thing the current Congress and the White House has going for it, leading to the November 2 midterm elections.
Return of Cram Down???
Could the current hugely negative press and confusion being generated by mishandling of mortgage defaults cause a Democrat controlled Congress to consider “cram down legislation” in their lame duck session after the elections?
A bill allowing judges to restructure mortgage debt and reduce principal amounts owed lenders passed the House only to die in the Senate this year. It’s possible that angry Democrats—who lost their seats—or happy Democrats who held on and won re-election might choose to “strike a consumer positive” stance and move the House passed cram down bill, which naturally was opposed by all of the banks (a strong reason to vote for it, if that bank money negatively influenced that Senator’s or Congressman’s race).
Watch But Don’t Bet
--It wouldn’t tonally shock me if New York’s Chuck Schumer managed to win the Senate Majority Leader’s post if the D’s maintain control of the chamber, even if Harry Reid survives his race against the Tea Party’s Sharon Angle.
--It will come down to Schumer versus Dick Durbin (D-Ill), but don’t underestimate the wily Schumer (think Barney Frank-smart but with more friends).
--It can’t be good that Chairman Barney Frank (D-Mass) lent his re-election campaign $200,000. In my view it would be a stunning and disheartening defeat, if Barney didn’t prevail in his race.
Maloni, 10-25-10
Sunday, October 17, 2010
They Got “Punked!”
Yep, They Did
“Punked” is a contemporary phrase meaning that someone took advantage of you.
Growing up, I can remember using far more colorful language to describe “punked” victims, but that was kid trash talk.
However, to me “punked” certainly describes what the large commercial banks did to the Obama Administration once the financial institutions loaded up on their federal TARP slice.
As documented by recent Treasury Department reports, the banks neither lent it to small businesses, mortgage seekers, or very many others. In the main, the large banks have arbitraged the funds, invested it overnight at the Fed, making 25 basis points, or in Treasury securities which are as safe as the US government.
Yes, some banks somewhere have made loans but not enough to make an economic difference.
The big guys have hoarded their money and pleaded there is a lot of market risk, still. But, that hording stifled any hope of a US economic resurgence.
Now, the Federal Reserve is going to start generating even more bank working capital when it begins a major securities buy from those banks. The only question according to the Fed Chairman is “how much should the Fed buy?”
The Fed purchases will increase the money supply (just as the reverse does the opposite), lowering already low rates and offering banks the chance to help stimulate the economy by lending that money to commercial and personal borrowers.
But this time, the Fed and the nation needs those banks to cooperate, especially since they didn’t last time.
Where are the Fed’s and Obama’s in-house ass kickers to urgently bring home this point to the bankers? Can we get Rahm back for a few weeks after he runs for Mayor?
Can We Bank on the Big Bankers?
If the Fed gives “Big Bank America” even more money, after they did “bupkis” (nothing) with TARP’s first $500 or $600 Billion, who is going to insure that the second round is any more effective than the first.
Current robust bank earnings are not coming from active bank lending, which is a bank’s traditional role.
Yes, the Fed is “independent” and charts its own course but I hope people aren’t naïve enough to think that Geithner and Barr don’t speak daily with Bernanke and Yellen. But, the White House doesn’t have to keep hands off.
Even though “punked” may be a new term for standard behavior, “Fool me once, shame on you. Fool me twice, shame on Me,” still applies. President Obama and the Federal Reserve should not let themselves be duped a second time.
If Bernanke and Geithner are not up to the job, maybe being “ bad cop” will fall to Congress, Barney Frank (D-Mass), Tim Johnson (D-SD), Chuck Schumer (D-NY), Alabama Republican Senator Dick Shelby (Ha!) and others,
Washington used to be a place where you find some “cajones.”
Will our elected and appointed officials find theirs in this situation?
Hooray for the Chileans!!!
With no connection to Chile other than humanity, I got teary eyed seeing those miners brought out safely from their underground trap. I was so happy for them and proud of how that country’s officials responded to that horrible accident and the Chilean rescue efforts of their brave miners.
I am sure that we will hear a dozen stories that might tarnish some of the individuals and events, but for now, we should applaud the efforts of everyone involved and join the Chileans in their national pride and joy at their returning family members and countrymen.
(Was I the only one who noticed that someone in that crowd surrounding the safety capsule carried a sign urging the House not to destroy the GSEs? Kid must have a relative working at Freddie Mac.)
Who’s in Charge or Who Wants to be in Charge??
Let me return to an earlier theme, this time with the subject being straightening out the nation’s defaulted mortgage mess.
The latest debacle has been horribly mismanaged both by the federal government and the lenders that made, bought, or wound up owning all of those bad loans.
Let me make clear that this next thought is based on nothing but “gut.”
But, I believe that most lenders slow walked the remediation process because they were hoping that the federal government will come in and offer them far more for their dead mortgages than the banks could generate through normal market procedures. Yes, now there are important “new issues” about who owns what and what documents are legal or not, further clouding future as well as past mortgage settlements.
But that—in my opinion—is not the major bottleneck. Once again, it’s avarice on the part of those slow to fix their own problems and slow to fix the systemic problem, with equal blame for the federal government—largely the Obama Administration—for putting forward some soggy “fix it” plans with few teeth to bite mortgage restructuring procrastinators.
Voters, upset over this development, should remember which Senators and Members opposed “cram down legislation,” which would have required some banks to reduce the debt they were owed and allow borrowers to pay back less. The bill passed the House but wilted in the Senate with opposition from the American Bankers Association and it functional subsidiary The Mortgage Bankers Association.
Banks balked and the associations claimed it would drive up mortgage rates with no real evidence of that. Their true position was the legislation might cost them some revenue. But that’s what is happening today, they are losing money on failed assets which they are paying to “carry” and now face more losses as the bank regulators (just like the stock market) see possible greater industry red ink.
But, we can fix this mess, if we get the cooperation of all those with “skin in the game” plus have a singularly leader.
Having said that the question I have for whatever becomes the latest federal amelioration plan is, “Who will lead it; who is in charge? Who will make it work?”
Really, who is in charge? Unlike earlier unsuccessful efforts, on whose desk does the buck stop and does he or she have broad muscle to succeed?
Ideally, it would be a tough Treasury Secretary telling the banks what they must do—under penalty of huge Treasury anger—to get their financial butts in gear.
Or, it would be a fearsome Fed Chairman telling the banks about how he will implement their “worst nightmare,” if they fail to carry out exactly his orders on fixing foreclosure problems.
Maybe it would be President Obama, with those two officials at his side—indicating their total support--saying that the Treasury and Fed will bring down hellfire on any business or industry that doesn’t follow exactly his Administration’s or the Fed’s regulatory instructions to fix the greatest part of the mortgage foreclosure mess.
Nobody else matters in Washington or else they easily can be ignored, so forget like the Secretary of HUD or head of the VA mortgage operations, Fannie or Freddie’s regulatory head, or the Consumer Protection Agency’s Elizabeth Warren (although her work here, loudly backed by the WH, Fed and Treasury, might be very refreshing). And even Attorney General Eric Holder has too many other things on his plate and using the courts is too slow.
A fire breathing, “take no prisoners” top official from the Treasury or the Fed might do, if there was no mistake that he/she was backed up by the agency heads and the President.
Tim Geithner could make himself a folk hero if he took on this important mission and worked it daily, but—if done properly—he would have to anger the big financial institutions! (Oh, darn, haff kaff, harrumph, I shouldn’t want to do that!)
Maloni, 10-18-2010
“Punked” is a contemporary phrase meaning that someone took advantage of you.
Growing up, I can remember using far more colorful language to describe “punked” victims, but that was kid trash talk.
However, to me “punked” certainly describes what the large commercial banks did to the Obama Administration once the financial institutions loaded up on their federal TARP slice.
As documented by recent Treasury Department reports, the banks neither lent it to small businesses, mortgage seekers, or very many others. In the main, the large banks have arbitraged the funds, invested it overnight at the Fed, making 25 basis points, or in Treasury securities which are as safe as the US government.
Yes, some banks somewhere have made loans but not enough to make an economic difference.
The big guys have hoarded their money and pleaded there is a lot of market risk, still. But, that hording stifled any hope of a US economic resurgence.
Now, the Federal Reserve is going to start generating even more bank working capital when it begins a major securities buy from those banks. The only question according to the Fed Chairman is “how much should the Fed buy?”
The Fed purchases will increase the money supply (just as the reverse does the opposite), lowering already low rates and offering banks the chance to help stimulate the economy by lending that money to commercial and personal borrowers.
But this time, the Fed and the nation needs those banks to cooperate, especially since they didn’t last time.
Where are the Fed’s and Obama’s in-house ass kickers to urgently bring home this point to the bankers? Can we get Rahm back for a few weeks after he runs for Mayor?
Can We Bank on the Big Bankers?
If the Fed gives “Big Bank America” even more money, after they did “bupkis” (nothing) with TARP’s first $500 or $600 Billion, who is going to insure that the second round is any more effective than the first.
Current robust bank earnings are not coming from active bank lending, which is a bank’s traditional role.
Yes, the Fed is “independent” and charts its own course but I hope people aren’t naïve enough to think that Geithner and Barr don’t speak daily with Bernanke and Yellen. But, the White House doesn’t have to keep hands off.
Even though “punked” may be a new term for standard behavior, “Fool me once, shame on you. Fool me twice, shame on Me,” still applies. President Obama and the Federal Reserve should not let themselves be duped a second time.
If Bernanke and Geithner are not up to the job, maybe being “ bad cop” will fall to Congress, Barney Frank (D-Mass), Tim Johnson (D-SD), Chuck Schumer (D-NY), Alabama Republican Senator Dick Shelby (Ha!) and others,
Washington used to be a place where you find some “cajones.”
Will our elected and appointed officials find theirs in this situation?
Hooray for the Chileans!!!
With no connection to Chile other than humanity, I got teary eyed seeing those miners brought out safely from their underground trap. I was so happy for them and proud of how that country’s officials responded to that horrible accident and the Chilean rescue efforts of their brave miners.
I am sure that we will hear a dozen stories that might tarnish some of the individuals and events, but for now, we should applaud the efforts of everyone involved and join the Chileans in their national pride and joy at their returning family members and countrymen.
(Was I the only one who noticed that someone in that crowd surrounding the safety capsule carried a sign urging the House not to destroy the GSEs? Kid must have a relative working at Freddie Mac.)
Who’s in Charge or Who Wants to be in Charge??
Let me return to an earlier theme, this time with the subject being straightening out the nation’s defaulted mortgage mess.
The latest debacle has been horribly mismanaged both by the federal government and the lenders that made, bought, or wound up owning all of those bad loans.
Let me make clear that this next thought is based on nothing but “gut.”
But, I believe that most lenders slow walked the remediation process because they were hoping that the federal government will come in and offer them far more for their dead mortgages than the banks could generate through normal market procedures. Yes, now there are important “new issues” about who owns what and what documents are legal or not, further clouding future as well as past mortgage settlements.
But that—in my opinion—is not the major bottleneck. Once again, it’s avarice on the part of those slow to fix their own problems and slow to fix the systemic problem, with equal blame for the federal government—largely the Obama Administration—for putting forward some soggy “fix it” plans with few teeth to bite mortgage restructuring procrastinators.
Voters, upset over this development, should remember which Senators and Members opposed “cram down legislation,” which would have required some banks to reduce the debt they were owed and allow borrowers to pay back less. The bill passed the House but wilted in the Senate with opposition from the American Bankers Association and it functional subsidiary The Mortgage Bankers Association.
Banks balked and the associations claimed it would drive up mortgage rates with no real evidence of that. Their true position was the legislation might cost them some revenue. But that’s what is happening today, they are losing money on failed assets which they are paying to “carry” and now face more losses as the bank regulators (just like the stock market) see possible greater industry red ink.
But, we can fix this mess, if we get the cooperation of all those with “skin in the game” plus have a singularly leader.
Having said that the question I have for whatever becomes the latest federal amelioration plan is, “Who will lead it; who is in charge? Who will make it work?”
Really, who is in charge? Unlike earlier unsuccessful efforts, on whose desk does the buck stop and does he or she have broad muscle to succeed?
Ideally, it would be a tough Treasury Secretary telling the banks what they must do—under penalty of huge Treasury anger—to get their financial butts in gear.
Or, it would be a fearsome Fed Chairman telling the banks about how he will implement their “worst nightmare,” if they fail to carry out exactly his orders on fixing foreclosure problems.
Maybe it would be President Obama, with those two officials at his side—indicating their total support--saying that the Treasury and Fed will bring down hellfire on any business or industry that doesn’t follow exactly his Administration’s or the Fed’s regulatory instructions to fix the greatest part of the mortgage foreclosure mess.
Nobody else matters in Washington or else they easily can be ignored, so forget like the Secretary of HUD or head of the VA mortgage operations, Fannie or Freddie’s regulatory head, or the Consumer Protection Agency’s Elizabeth Warren (although her work here, loudly backed by the WH, Fed and Treasury, might be very refreshing). And even Attorney General Eric Holder has too many other things on his plate and using the courts is too slow.
A fire breathing, “take no prisoners” top official from the Treasury or the Fed might do, if there was no mistake that he/she was backed up by the agency heads and the President.
Tim Geithner could make himself a folk hero if he took on this important mission and worked it daily, but—if done properly—he would have to anger the big financial institutions! (Oh, darn, haff kaff, harrumph, I shouldn’t want to do that!)
Maloni, 10-18-2010
Sunday, October 10, 2010
My Aunt Goldie and Other Things on My Mind
Afghanistan, Pakistan, and India for Dummies!
If you sometimes get confused as I am about what is going in Pakistan, Afghanistan and the region—and why—Helene Cooper writing in Sunday’s New York Times establishes some helpful easy to understand facts, relationships, and history. (With or without intent, she begs the question, “Why are we still in Afghanistan?”)
http://www.nytimes.com/2010/10/10/weekinreview/10cooper.html?_r=1&ref=todayspaper
I’d Spruce Up My Resume, But ….
A few weeks ago, I wrte that former Fannie Mae General Council and EVP Tom Donilon was a candidate to be President Obama’s White House Chief of Staff. Not anymore.
Last week, Donilon was named the President's top National Security Advisor, after Donilon’s incumbent boss, Gen. Jim Jones, chose to leave that post.
At the same time I wrote about Donilon, it was announced that Tom Nides, another former Fannie colleague of mine, late of Morgan Stanley’s senior management, was joining Secretary Hillary Clinton to be her #2 at the State Department.
Good for both of these men.
I hope these appointments are an indication--in most senior parts of this Administration—that Fannie Mae service or affiliation is not the “career killer” it once seemed.
If that is the case, now that President Obama has tabbed Donilon and Nides, the “star pupils,” what is stopping him from bringing onboard their mentor, James A. Johnson, who is more than 10 years gone from Fannie Mae?
JAJ
I mean if you are going to tap two “little Fannies,” why not go for the biggest Fannie of them all, figuratively speaking, Jim Johnson. (Sorry Jim, couldn’t resist that line!)
Jim has long been a positive and helpful factor in the professional careers of many individuals, including both “Toms.” Although few like to think of themselves as “protégés,” Donilon and Nides will admit that each has benefited greatly from their personal relationship with Jim Johnson.
Nides came out of Johnson’s native Minnesota and worked in the Carter/Mondale campaigns and later Mondale’s presidential bid.. Donilon was a White House intern during Carter/Mondale, when Jim Johnson was Mondale’s CoS. Both “Toms” went on to play significant roles in the Party, the Congress (Nides), Clinton Administration and the State Department (Donilon), before working at Fannie Mae.
After Fannie, Nides went to Wall Street and Donilon back to his old law firm O’Melveny and Myers, where he was working before he joined Fannie. Donilon and his wife Kathy also are friends and trusted allies of the Vice President and Mrs. Biden. (KD is Mrs. B’s CoS.)
As the Vice Chairman of Perseus LLC, a private investment banking firm, Johnson may be perfectly content where he is right now. But at one point he was mentioned as a possible Chief of Staff candidate for President Obama (although Peter Rouse has now succeeded Rahm Emanuel in that post) and easily has the ability to be Obama’s next Secretary of Treasury, if Tim “Too Close to the Big Banks” Geithner decides to return to NYC. (Unrelated to Johnson, I hope and wish for that departure.)
Jim Johnson has many talents and has enjoyed multiple successes (business, leadership, head of the Kennedy Center and Brookings Institute, prominent corporate board memberships), but the keenest of his positives is Johnson’s political instinct.
At Fannie, he was creative and energetic on the mortgage finance side, as well as external affairs and politically. He worked very successfully with House and Senate Democrats but also the minority Republicans. He was welcomed by the Black and Hispanic Caucuses into their councils, and his Minnesota roots-- not to mention his long time political work in Illinois, the Dakotas, and Iowa--keeps him in regular contact with those states' congressional and government leaders (Tim Johnson, Kent Conrad, Jim Oberstar, and Earl Pomeroy. Tom Harkin, Iowa Governor Chet Culver, the Daley family, et al.).
President Obama—if he truly is over fear of the “Fannie stigma”--as well as the nation-- could benefit from Jim Johnson manning a senior White House or Cabinet post.
A Senate approval would generate angry Fannie Mae questions, but few that Johnson couldn’t answer, since he was long gone when Dan Mudd--his successor once removed--invested in the subprime and Alt A mortgages which failed, costing the company billions.
Why is Fox News Scaring My Aunt Goldie?
My 88 year old aunt, Goldie Weinstein—my late mother’s sister--is the last surviving member of her nuclear family, which had 8 sisters (one of whom died at birth) and one brother.
She never married and lived most of her life with another sister, my Aunt Honey, who also never married and who passed away from cancer a few years ago. Thanks to Honey--who worked in a bank and managed their financial matters--the two lived within their means, always rented, and made some prudent investments with their spare change.
Today, Goldie doesn’t have to worry about her heat or electricity being turned off or not having enough money for food or the occasional dinner out. She gets her hair done weekly and contributes to charities she believes are really helping people.
Right Wing Network Generated Fear
But rather than enjoying these years in relative comfort, she is bedeviled by all sorts of ideas and individuals being represented to her as personal threats.
Age not withstanding, Goldie is a current events marvel. She devours books and newspapers and listens to talk radio, but—unfortunately—is fascinated by Fox News.
We have grand debates and discussions. During the BP Gulf of Mexico disaster I remember her being critical of the “Jones Act,” which I told her meant nothing to me. She was right, this post World War I statute--which prohibits the number of foreign owned vessels traveling in US waters--created a problem for BP and others when foreign ships, which could have helped in the clean up effort, figuratively ran afoul of our laws.
Afraid of Soros and Stern?
The other night, in a telephone conversation, she said to me, “Now Bill, no BS, tell me, as an American citizen should I be fearful of George Soros and Andrew Stern?”
Whoa, where did that come from? It didn’t long to find out. It was Fox News, which regularly has been demonizing those men and a host of others who have some connection to the current Administration.
I tried to dismiss her concerns, noting that Stern reportedly is under FBI and DOJ scrutiny for some of his union activities and that Soros is just another international tycoon trying to use some leverage with the Obama Administration to further his financial interests.
None of that satisfied her.
When she started in about “Bill Ayers and the Weather Underground,” I said that I would do some research and get back to her.
I tried to be helpful and review some of the issues and people she mentioned, all the while wondering why she never worried about the Saudi princes and oil officials who surrounded the two Presidents Bush? (I guess because Fox thought those Muslims were pro-American.)
The conservative network does a great job playing on elderly worries and certainly lots of others.
Checking into her “fears” and I came across Dana Milbank’s excellent article from the Washington Post about Fox’s Glen Beck and how he seeks to incite his audiences scaring some of them in the process.
I don’t know if reading Milbank’s article will get my Aunt Goldie over her “ghosts in the attic” concerns, but it’s an excellent story. (Link below.)
http://live.washingtonpost.com/outlook:--.html
“W” Screwed the Small Banks; Obama Should Fix It
The Washington Post last week editorially blamed Barney Frank (D-Mass) and Maxine Waters (D-Cal) for forcing the Treasury to send TARP money to United First Bank (UFB), a small minority owned institution in California, where Waters’ husband held a board position.
The Post conveniently pointed out that the bank had invested heavily in “Fannie and Freddie stock,” obviously hoping that fact would further soil the bank’s tawdry reputation and maybe even those of the bank’s congressional supporters.
What the Post failed to explain was that UFB--and hundreds of other small financial institutions, most of which were “majority-owned”--obligingly invested in that Fannie and Freddie “preferred stock” for the exact same reason. The Bush Treasury Department strongly steered them into those purchases, saying it was a safe investment, enjoyed an excellent yield, and would eligible for treatment as bank capital.
Paulson Cast them Overboard
Even without the heavy Henry Paulson steering, that “win-win-win” review generated a logical $20 Billion investment for small banks, with the Treasury all along assuring them of the preferred stock’s utility and value.
But when Treasury Secretary Paulson, in 2008, pushed Fannie and Freddie into “conservatorship,” he reduced the worth of that preferred stock to near and turned billions of small bank book capital into instant losses, in the process “punking” the small banks.”
The Bush Administration saw to it—and their successor insured—that the big banks were TARP rich. But, the little guys got hind nipple.
If “big now is bad” and “small now is good”--just based on how the behemoth financial institutions are playing their political cards--the Obama Treasury needs balance those scales and revalue the GSE preferred stock.
It can’t be repeated enough that the small guys bought (and still own), because the Bush Treasury “Pied Pipered” them into buying it and then coldly changed the rules and. beggared the small financial institution.
Creating value in these dead securities won’t make F&F’s situation any less daunting, but it would give those community banks additional capital with which to make loans, a good move for the economy, right now.
Through no fault of their own, the small guys were lied to by Paulson et al and—with the artificial takedown of the GSEs--became financial collateral damage.
The Democrats should right that Bush/Paulson wrong!
Maloni 10-11-2010
Sunday, October 3, 2010
Successors to Fannie and Freddie?
Peter Wallison is a “GSE gadfly,” who has maintained a constant anti- Fannie/Freddie drumbeat for the past several years, often asserting that most of civilization’s problems begin with the existence and practices of the two companies. (Hmm. “Gadfly.” Proof that I am mellowing? I am sure that in my “warrior years,” I called Wallison much worse.)
To his credit, Wallison’s writings were an asset to the “hog tie the GSEs” crowd, although his musings never were truth filled.
Wallison’s Reagan Treasury and Reagan White House experiences give him a veneer of credibility with conservatives and he still is peddling snake oil, most recently in Bloomberg, where he suggested that—after chopping off Fannie’s and Freddie’s head-- the nation could replace them with a system that featured a combination of private mortgage securitization (private label securities), covered bonds, and employing the “Danish system” of refinance, which is not about pastries.
PW now is working out of the American Enterprise Institute (AEI).
http://www.bloomberg.com/news/2010-09-23/how-to-get-housing-off-government-s-juice-commentary-by-peter-j-wallison.html
Will/Can it Work?
There are no “bad ideas” about our future when it comes to new ways to finance mortgages, even Peter’s. I just don’t think his suggestions will improve or even equal the current system, which would run more efficiently if the Administration took its foot off Fannie’s and Freddie’s necks.
As noted, I don’t think Wallison’s scheme could match the secondary mortgage market systemic benefits which F&F continue to offer, even in their weakened state.
For success, the Wallison plan would need instantaneous and total acceptance from the public as well increasingly skeptical institutional investors. Whether they are amendable or not, it’s the institutional buyers who Wallison would have purchase copious amounts of bank issued “covered bonds” and private label mortgage backed securities to finance tomorrow’s consumer mortgage lending.
Let me start with the most obvious “private label securitization,” which has been around for 30 years and the development of which Peter says has been squelched by the presence of F&F’s own securitization of prime mortgages, turning those into mortgage backed bonds for efficient sale.
Peter, good Lord man, where have you been for the past five years?
Your “private label” friends on Wall Street introduced nearly a trillion dollars of private label securities (PLS)—which you believe should be encouraged and enhanced—and it nearly brought down the world’s financial systems and ushered in another Great Depression.
It’s not that we don’t have enough PLS, we’ve had far too much and most of that worthless.
From 2005 through 2007, mega billions in “subprime” private label securities were hatched by the big investment banks and large commercial bankers, rubber stamped by the rating agencies, festooned with worthless corporate guarantees, sliced, diced and sliced and diced, again, as wall Street figured out ways to sell and re-sell the same bonds and their hedges.
After the recent avalanche of PLS failures, IMO, the device Wallison wants to be the rampart of his three legged Fannie Mae and Freddie Mac replacement, would be a shaky foundation on which to rest our nation’s mortgage finance system.
Can Americans Trust those on Whom Wallison Would Rely?
The losses from “private securitizations” still are coursing through our national and international markets and Wallison says “Do more.”
“Fool me once, shame on…..” Will the Congress and the public trust or have faith again in the investment banks, large commercial banks, and rating agencies which were most responsible for the horrendous 2007-2008 financial meltdown?
I don’t think that big dog will hunt on its own for a while, Pete. Dressing it up, in some red, white and blue would help.
Good luck on selling the American people on the “Danish system,” which allows borrowers to buy back their mortgage debt-- once they have 20% equity in their homes—if rates move in an advantageous direction for homeowners.
Homeowners’ equity indeed has risen but it’s more because of changes in the measurement’s components than appreciating property values.
For success, try changing the name and calling it the “Michigan Plan” or the ”Pennsylvania Payoff.”
Americans like their own institutions and although not totally xenophobic, they believe that “Made in America”—not Denmark--is the right way to go in mortgage finance, including the all important 30 year loan.
But keep pushing the “Danish system,” since I am sure the House Republicans would welcome with open arms a dash of overseas financial gusto for their “Pledge” manifesto.
(I just can see Jed Hensearling (R-Tex) telling John Boehner (R-Ohio): “Sorry Leader Boehner, I can go for the Pledge's public flogging, trial by fire, and the branding stuff for deficit spending, but to hell with this Danish financing. 'Daneland', isn’t that close to France? And you know all about them Frenchies, don’t you?”)
Peter’s last suggestion, as a way to get rid of Fannie and Freddie and keep the government out of housing finance, is to give the banks still another chance to “help” the American people with “covered bonds.”
These debt instruments are a little like a mortgage backed security and a little like a straight corporate IOU, in that a bank raises money with a security backed by assets (the mortgages), sells shares in it and keeps some on their books as their “skin in the game.”
These are popular in Europe and were very popular a few years ago with the Washington Mutual Bank or WAMU, another major financial casualty of the subprime mess (the failure of which didn’t relate to “covered bonds.”).
How Much $$$$ Can They Raise?
A covered bond might draw some money into banks, but how much and from whom? These aren’t Mom and Pop “Christmas Club” accounts. Getting ready acceptance from that same frightened and squirrelly bunch of institutional investors, who you also want to buy PLS, may not be easy.
The amount of money that a bank lends for housing finance largely will be influenced by how much they raise in bond proceeds.
As with any new structure, there might not be enough investor interest in covered bonds—not a uniquely American product either and somewhat ‘clunky”—to finance $1.5-$2 trillion in mortgages?
That is a modest total compared to what mortgage demand might be when the economy and jobs comeback and the financial markets heat up.
Can our secondary mortgage market rely on unproven products which may have inherent limits or are so star-crossed that they may never appeal to funders?
Banks Are Private, Aren’t They??
Peter is one of the American Enterprise Institute’s in house warriors, with limitless faith in the “private sector.” He’s convinced that the nation doesn’t need the federal government in housing and the sooner Uncle gets out, the better for all right thinking Americans.
I wonder if Peter and his AEI soul mates ever will address the fact that his “private sector banks” aren’t really private and are heavily subsidized by Uncle Sam with deposit insurance—for which they never have paid enough and for 10 years didn’t pay anything—and enjoy access to low cost federal funds at the Federal Reserve window or the Home Loan Bank Office of Finance?
Given what they pay for us deposits, how many banks could raise $100 million, if they didn’t have that Federal Deposit Insurance Corporation (FDIC) seal on the door? My answer is very few, without setting off a rate war reminiscent of the 1970’s and money market mutual funds vying for bank deposits.
As blog readers know, I think Congress needs to reconsider extending Fannie and Freddie, because of all of the strengths they bring to the system, its professional users and the public.
This example best was demonstrated before Fannie and Freddie engaged heavily in acquiring private label subprime loans and Alt A mortgages.
The 2011 legislative atmosphere looks poisonous: a still recovering economy, with high unemployment; commercial bank reluctance to make or book mortgage loans which aren't F&F securities; the national political parties—not to mention the Tea Party--creating a bloody political terrain for the 2012 elections; and the possibility that next month’s congressional elections could bring a GOP majority to House or Senate (both?).
If the two parties really want to achieve a legislative national mortgage finance "fix," the proposal needs to be simply constructed, easy to understand and effective.
Kick the Tires Again on the GSEs
A bipartisan agreement on new regulation of F&F--with limits on their growth (and profits), and insures no more subprime dalliances--saves valuable time and would allow Congress to get back to policies which improve the national jobs picture so the country can move forward again.
Before throwing the GSE babies out with the bathwater, Congress needs to examine the basis for its Fannie/Freddie hostility and what it owes the American people regarding mortgage finance. The GSEs work, still financing more than 90% of US conventional mortgages, while wrapped in their Treasury Department “conservatorship” chains.
Even Hank Paulson, who drove the 2008 Fannie/Freddie takeover, would keep them alive as “well regulated” utilities.
Peter Wallison and other GSE critics might be more successful, if their proposals for a new mortgage finance system looked to the GSEs for what they did well and build on that, rather than coming up with a de novo mortgage financing scheme—which by definition—will require a long slow and choppy break in period.
The American people can have and deserve better.
Rick Sanchez
I feel sorry for CNN’s Rick Sanchez. I can’t countenance his “perceived” anti-Semitism (I don’t know him so I can’t affirm it either), but to be a network anchor and still carry around the neurotic lack of self confidence which made him strike out at Jon Stewart and Stephen Colbert is what’s sad.
Sanchez would have been better responding in kind and sending up the Comedy Central duo—much as they did him--than going off on Jews controlling all media.
I expect that Sanchez will land at another network and hopefully be wiser for this experience.
Rand Paul, Meg Whitman and Carl Palandrino
Three people for whom I don’t feel sorry!
Maloni, 10-4-2010
To his credit, Wallison’s writings were an asset to the “hog tie the GSEs” crowd, although his musings never were truth filled.
Wallison’s Reagan Treasury and Reagan White House experiences give him a veneer of credibility with conservatives and he still is peddling snake oil, most recently in Bloomberg, where he suggested that—after chopping off Fannie’s and Freddie’s head-- the nation could replace them with a system that featured a combination of private mortgage securitization (private label securities), covered bonds, and employing the “Danish system” of refinance, which is not about pastries.
PW now is working out of the American Enterprise Institute (AEI).
http://www.bloomberg.com/news/2010-09-23/how-to-get-housing-off-government-s-juice-commentary-by-peter-j-wallison.html
Will/Can it Work?
There are no “bad ideas” about our future when it comes to new ways to finance mortgages, even Peter’s. I just don’t think his suggestions will improve or even equal the current system, which would run more efficiently if the Administration took its foot off Fannie’s and Freddie’s necks.
As noted, I don’t think Wallison’s scheme could match the secondary mortgage market systemic benefits which F&F continue to offer, even in their weakened state.
For success, the Wallison plan would need instantaneous and total acceptance from the public as well increasingly skeptical institutional investors. Whether they are amendable or not, it’s the institutional buyers who Wallison would have purchase copious amounts of bank issued “covered bonds” and private label mortgage backed securities to finance tomorrow’s consumer mortgage lending.
Let me start with the most obvious “private label securitization,” which has been around for 30 years and the development of which Peter says has been squelched by the presence of F&F’s own securitization of prime mortgages, turning those into mortgage backed bonds for efficient sale.
Peter, good Lord man, where have you been for the past five years?
Your “private label” friends on Wall Street introduced nearly a trillion dollars of private label securities (PLS)—which you believe should be encouraged and enhanced—and it nearly brought down the world’s financial systems and ushered in another Great Depression.
It’s not that we don’t have enough PLS, we’ve had far too much and most of that worthless.
From 2005 through 2007, mega billions in “subprime” private label securities were hatched by the big investment banks and large commercial bankers, rubber stamped by the rating agencies, festooned with worthless corporate guarantees, sliced, diced and sliced and diced, again, as wall Street figured out ways to sell and re-sell the same bonds and their hedges.
After the recent avalanche of PLS failures, IMO, the device Wallison wants to be the rampart of his three legged Fannie Mae and Freddie Mac replacement, would be a shaky foundation on which to rest our nation’s mortgage finance system.
Can Americans Trust those on Whom Wallison Would Rely?
The losses from “private securitizations” still are coursing through our national and international markets and Wallison says “Do more.”
“Fool me once, shame on…..” Will the Congress and the public trust or have faith again in the investment banks, large commercial banks, and rating agencies which were most responsible for the horrendous 2007-2008 financial meltdown?
I don’t think that big dog will hunt on its own for a while, Pete. Dressing it up, in some red, white and blue would help.
Good luck on selling the American people on the “Danish system,” which allows borrowers to buy back their mortgage debt-- once they have 20% equity in their homes—if rates move in an advantageous direction for homeowners.
Homeowners’ equity indeed has risen but it’s more because of changes in the measurement’s components than appreciating property values.
For success, try changing the name and calling it the “Michigan Plan” or the ”Pennsylvania Payoff.”
Americans like their own institutions and although not totally xenophobic, they believe that “Made in America”—not Denmark--is the right way to go in mortgage finance, including the all important 30 year loan.
But keep pushing the “Danish system,” since I am sure the House Republicans would welcome with open arms a dash of overseas financial gusto for their “Pledge” manifesto.
(I just can see Jed Hensearling (R-Tex) telling John Boehner (R-Ohio): “Sorry Leader Boehner, I can go for the Pledge's public flogging, trial by fire, and the branding stuff for deficit spending, but to hell with this Danish financing. 'Daneland', isn’t that close to France? And you know all about them Frenchies, don’t you?”)
Peter’s last suggestion, as a way to get rid of Fannie and Freddie and keep the government out of housing finance, is to give the banks still another chance to “help” the American people with “covered bonds.”
These debt instruments are a little like a mortgage backed security and a little like a straight corporate IOU, in that a bank raises money with a security backed by assets (the mortgages), sells shares in it and keeps some on their books as their “skin in the game.”
These are popular in Europe and were very popular a few years ago with the Washington Mutual Bank or WAMU, another major financial casualty of the subprime mess (the failure of which didn’t relate to “covered bonds.”).
How Much $$$$ Can They Raise?
A covered bond might draw some money into banks, but how much and from whom? These aren’t Mom and Pop “Christmas Club” accounts. Getting ready acceptance from that same frightened and squirrelly bunch of institutional investors, who you also want to buy PLS, may not be easy.
The amount of money that a bank lends for housing finance largely will be influenced by how much they raise in bond proceeds.
As with any new structure, there might not be enough investor interest in covered bonds—not a uniquely American product either and somewhat ‘clunky”—to finance $1.5-$2 trillion in mortgages?
That is a modest total compared to what mortgage demand might be when the economy and jobs comeback and the financial markets heat up.
Can our secondary mortgage market rely on unproven products which may have inherent limits or are so star-crossed that they may never appeal to funders?
Banks Are Private, Aren’t They??
Peter is one of the American Enterprise Institute’s in house warriors, with limitless faith in the “private sector.” He’s convinced that the nation doesn’t need the federal government in housing and the sooner Uncle gets out, the better for all right thinking Americans.
I wonder if Peter and his AEI soul mates ever will address the fact that his “private sector banks” aren’t really private and are heavily subsidized by Uncle Sam with deposit insurance—for which they never have paid enough and for 10 years didn’t pay anything—and enjoy access to low cost federal funds at the Federal Reserve window or the Home Loan Bank Office of Finance?
Given what they pay for us deposits, how many banks could raise $100 million, if they didn’t have that Federal Deposit Insurance Corporation (FDIC) seal on the door? My answer is very few, without setting off a rate war reminiscent of the 1970’s and money market mutual funds vying for bank deposits.
As blog readers know, I think Congress needs to reconsider extending Fannie and Freddie, because of all of the strengths they bring to the system, its professional users and the public.
This example best was demonstrated before Fannie and Freddie engaged heavily in acquiring private label subprime loans and Alt A mortgages.
The 2011 legislative atmosphere looks poisonous: a still recovering economy, with high unemployment; commercial bank reluctance to make or book mortgage loans which aren't F&F securities; the national political parties—not to mention the Tea Party--creating a bloody political terrain for the 2012 elections; and the possibility that next month’s congressional elections could bring a GOP majority to House or Senate (both?).
If the two parties really want to achieve a legislative national mortgage finance "fix," the proposal needs to be simply constructed, easy to understand and effective.
Kick the Tires Again on the GSEs
A bipartisan agreement on new regulation of F&F--with limits on their growth (and profits), and insures no more subprime dalliances--saves valuable time and would allow Congress to get back to policies which improve the national jobs picture so the country can move forward again.
Before throwing the GSE babies out with the bathwater, Congress needs to examine the basis for its Fannie/Freddie hostility and what it owes the American people regarding mortgage finance. The GSEs work, still financing more than 90% of US conventional mortgages, while wrapped in their Treasury Department “conservatorship” chains.
Even Hank Paulson, who drove the 2008 Fannie/Freddie takeover, would keep them alive as “well regulated” utilities.
Peter Wallison and other GSE critics might be more successful, if their proposals for a new mortgage finance system looked to the GSEs for what they did well and build on that, rather than coming up with a de novo mortgage financing scheme—which by definition—will require a long slow and choppy break in period.
The American people can have and deserve better.
Rick Sanchez
I feel sorry for CNN’s Rick Sanchez. I can’t countenance his “perceived” anti-Semitism (I don’t know him so I can’t affirm it either), but to be a network anchor and still carry around the neurotic lack of self confidence which made him strike out at Jon Stewart and Stephen Colbert is what’s sad.
Sanchez would have been better responding in kind and sending up the Comedy Central duo—much as they did him--than going off on Jews controlling all media.
I expect that Sanchez will land at another network and hopefully be wiser for this experience.
Rand Paul, Meg Whitman and Carl Palandrino
Three people for whom I don’t feel sorry!
Maloni, 10-4-2010
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