Sunday, September 30, 2012

Shame on the Washington Post
That Newspaper Can Do Better

Letters, We Get Letters, We Get Stacks and Stacks……..

I remain upset—and angry—that the Washington Post refuses to report on its news pages the fact that federal Judge Richard Leon issued a summary judgment ruling to Frank Raines in a plaintiffs suit claiming violations of federal securities rules.

Judge Leon said that he found no evidence linking Raines, Fannie Mae’s former CEO from 1999 until 2004, to those complaints.

The shareholders action—started eight years ago--was based on two federal financial regulatory agency reports from 2004, which suggested the violations, one came from Fannie’s immediately regulator in 2004, the Office of Financial Enterprise Oversight (OFHEO) and a was done by the Securities and Exchange Commission (SEC).

As noted at the time, both agencies may have been part of a GOP cabal to destabilize and shutter Fannie Mae and Freddie Mac. (This was—called “Project Noriega”—and initially discussed in Bethany McLean’s and Joe Nocera’s book about the 2008 financial debacle, "All the Devils are Here.")

The Wall Street Journal, the New York Times, and Bloomberg News all have carried some reference to the Leon finding, but not the Washington Post, despite the fact that it involves a prominent local people who worked at a major local company, a company employing thousands and which continues to be the reliable foundation of the nation’s secondary mortgage market.

Maybe the Washington Post editors see--as I do—the Leon decision elements in the hearing record possibly forcing people to re-examine and change their opinions of Fannie Mae which has been demonized for most of the past 10 years.

Below are two epistles which I sent to the Post--late last week--urging some news coverage of the court ruling. The first was sent to the “Letters to the Editor” site, with a copy to the Post Ombudsman and the second, exclusively to the Ombudsman.

My communications may yet cause a 1000 flowers to bloom, but to date I haven’t seen one blossom.

Maloni Letter to Washington Post (copy to Ombudsman):

A week ago, Judge Richard Leon granted summary judgment to Frank Raines, former Fannie Mae CEO, dismissing him from a shareholder law suit, filed almost eight years ago, alleging securities violations at the company.

To date, the Post--which seemed regularly to enjoy berating Raines and Fannie Mae in its news stories and editorially--has ignored reporting on the Leon decision.

Could it be that this court finding calls into serious question many of the erroneous arguments thrown at Fannie Mae (and Freddie Mac) by business and conservative enemies and--more importantly--with some of those same themes picked up in Post editorials?

The Court concluded that no facts in the voluminous hearing record could sustain charges against Raines.

Even before the Judge Leon's finding, there was evidence that certain Bush financial regulators, including Fannie Mae's own regulator in 2004, the Office of Financial Enterprise Oversight (OFHEO), since renamed the Federal Housing Finance Agency (FHFA), employed a variety of questionable tactics and worked in concert with Fannie's political opponents to hobble the company.

Post editors should be ashamed that they cannot find space to report something positive about a former Fannie Mae executive the paper regularly pummeled.

Maloni Email to W Post Ombudsman:

I copied you on the letter to the editor I sent the Post decrying the fact that it has nothing printed nothing about the referenced court decision, a week after it was announced.

Stories on the decision have appeared in the WSJ and the NYT, but "nada" in the Post.

I know there is an anti-Fannie element at the Post but, news still is news, especially when it involves a local company and a local resident, who has been pilloried in Post editorials.

I retired from Fannie eight years ago and have stayed retired, not working for anyone in the mortgage finance or PR field. I am most familiar with all of the details of the pre-2005 Fannie. I was no longer there when Dan Mudd became Chairman and went on his subprime follies.

In a financial services blog that I write occasionally, I have heavily criticized those decisions and the company's actions.

Those recent sins, incorrectly, often have been visited on Raines and others who were long gone.

Choosing not to parse, opponents, using the bogus OFHEO report-- which a slavish SEC endorsed (shortly after Raines sent a strongly worded letter to Andrew Card, which the White House CoS viewed as impudent--the letter has been discussed in books on Fannie)--launched a political and media blitz (35 or so WSJ editorials) from which the company never recovered. (Once again, in my view, that also paved the way for Raines inexperienced successor to make calls dooming the company.)

For me, the OFHEO/SEC actions, much of which were rebuffed in Leon's decision, was the keystone to the later attacks on Fannie, albeit it a campaign which had been going on for years. Those reviews allowed the "bad guys" to say "and they cooked their books to pay themselves huge bonuses."

Rejection of those securities violations claims is embedded in the Leon decision, if one goes through the thousands and thousands of reports and notes which are part of the case file.
Another thing worth bearing in mind is that the issue of "what will be the US secondary mortgage market structure?" is not going away.

Right now, because of the subprime history and takeover, nobody--D or R--wilt look at the early Fannie Mae model (pre--subprime purchases) and consider it a possible solution, with better regulation and caps on earnings.

Those of us who have studied the mortgage market know that, absent some federal involvement, there will be no affordable 30 year mortgages, since most banks can't hedge them and prefer not to make them, unless they are first sent to Fannie and Freddie and securitized with their guarantee.
If you have an opportunity to weigh in on these matters, I hope you will consider these related issues.



Watch the Presidential debate, October 3!

Maloni, 10-1-2012

Wednesday, September 26, 2012


The Wheels of Justice Turn….

Judge Leon, the Fed, and Mitt-Speak

Initially, I planned to comment on the outrageous Mitt Romney remarks—taped at a Florida fundraiser—and the candidate’s and his handlers’ subsequent spin on those. I also wanted to add some perspective on the Fed’s recent QE3 action.

I’ll do both, but later in the blog.

My priorities changed late last week, when federal judge Richard Leon issued a summary judgment decision to Frank Raines and dismissed a major Fannie Mae shareholder lawsuit, filed 8 years ago against him.

If the nation’s capital--which once was consumed by Fannie Mae (with some still being obsessed)--carefully reads the opinion and realizes how early allegations were used to attack the company and its officers, they should arrive at the conclusion that Fannie Mae’s business and political enemies engaged in a violent, sustained ideological assault on the mortgage giant.
(It’s worth noting, as of this writing, the Washington Post hasn’t written one word about the Leon decision, let alone any speculation of its significance.)

The lawsuit’s plaintiffs justified their suit based on allegations first made in 2004 by Fannie Mae’s regulator--The Office of Financial Enterprise Oversight (OFHEO), now renamed the Federal Housing Finance Agency (FHFA). That report--alleging securities violations based on unacceptable company implementation of new Financial Accounting Standards Board (FASB) accounting standards.

OFHEO’s venomous tome later was seconded by the Securities and Exchange Commission (SEC), in effect a George W. Bush administration partisan “double team.” (See discussion of “Project Noriega” in “All the Devils are Here,” the book by Bethany McLean and Joe Nocera.)

When OFHEO first came out against Raines and Fannie, most Fannie allies believed, correctly in my view, this was a political hatchet job having little to do with real accounting issues. It just was another conservative ploy—relying on willing Bush financial regulators--to go along and besmirch Fannie Mae and its officers.

The Speed and Destruction of Lies

But the reputation and systemic carnage began to flow almost immediately as the charges of fraud and big bonuses.

Eight years later, Judge Leon wrote that Raines did not knowingly violate those accounting rules nor was he aware of any such violations, reminding me of comments attributed to Mark Twain (although never verified as his), “A lie can travel halfway round the world while the truth is putting on its shoes.”

In my opinion, the initial OFHEO report reflected a professionally overmatched regulator, lagging but unable to keep up with its responsibilities (an entirely separate story), trying to smear Fannie Mae officials.

OFHEO long had coordinated its actions with Fannie’s business and ideological opponents, which then joined the regulator and the SEC to assail and batter the company.

My friend and former Fannie colleague Barry Zigas wrote a review of the decision, with an excellent discussion of Judge Leon’s ruling and its meaning.

Here is a link to Barry’s work.

Barry may have overstated things a bit, however, when he wrote it was "not in dispute" that "the company misapplied generally accepted accounting principles in a number of areas."

In the minds of many, the GAAP issue was and still is “in dispute.”

In 2004, the SEC's Chief Accountant opined that Fannie Mae misapplied GAAP only in two areas, FAS 133 (accounting for derivatives) and FAS 91 (accounting for the premium and discount on mortgage purchases).
Some believe that this SEC official ruled against Fannie Mae because OFHEO was so insistent that he do so and by going along he also appeased some White House bully boys.

What’s not in dispute is that two years later a new/different SEC Chief Accountant approved the same types of FAS 133 applications as Fannie Mae had been using in 2004, the applications which caused OFHEO to attack the company in its sham accounting finding.

At the time, the 2004 OFHEO report was added to a bubbling cauldron of anti-GSE witch’s brew, featuring GOP and conservative think tank attacks on former Fannie Mae Democrats spiced with charges of fraud tied to enhanced compensation.

 When The Good People Leave?

The thugs, who managed to assail the integrity of Raines and other company officials, likely planted the seeds of the subprime debacle created when all of good folks the GOP considered “bad guys” left the company and their successors leaped face first into the subprime trough.

In dismissing Raines from the suit--roughly 96 months after hired guns and their ideologue associates used the new and confusing accounting rules (since changed by FASB, in recognition of some of the issues Fannie first raised)--the court now has made clear that the accusations of fraud against Raines were wholly invented by OFHEO.

After so much lying, skullduggery, and Fannie Mae scapegoating, Judge Leon’s decision needs recognition and context, based on accumulated the damage which flowed from a tarnished and imperfect regulatory accounting review.

As noted, Washington takes no prisoners and it’s a mean town where truth travels glacially while lies speed.

Here is a link to Judge Leon’s decision on Raines.

The Fed’s QE3 and the Romney Gaffes

In the comments section of my last blog, I noted how surprised I was by the timing of the Fed’s QE3 action buying $40 billion of mortgage bonds each month until the economy starts to rejuvenate and unemployment falls.

As noted, I don’t think the Federal Reserve decision was partisan or politically craven. But, the timing may have been Bernanke’s subtle way of smacking down Mitt Romney who has roamed the country telling audiences his intent to fire Bernanke if he wins the White House.

Recent news reports on QE3 say the big banks are not lending the new money, claiming if rates fall, they won’t be able to keep up with the demand. What they are not saying is that the more they hold onto the cash, the more money they make.

Mitt Said What?

Republican presidential candidate Mitt Romney offered the following GOP political wisdom to a group of contributors, as recorded at a May 2012 Florida fundraiser.

"There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what….These are people who pay no income tax.... [M]y job is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives."

As soon as those remarks were made public, somebody needed to help Mitt remove his foot from his mouth. But Romney--not recanting his patronizing and political heresy--now appears to be doubling down. (Of course it does give voters something else to discuss beyond Mitt's mystery tax returns.).

This was the Weekly Standard’s William Kristol’s sharp rebuke for Romney’s fundraiser comments.
It's worth recalling that a good chunk of the 47 percent who don't pay income taxes are Romney supporters—especially of course seniors (who might well "believe they are entitled to heath care," a position Romney agrees with), as well as many lower-income Americans (including men and women serving in the military) who think conservative policies are better for the country even if they're not getting a tax cut under the Romney plan. So Romney seems to have contempt not just for the Democrats who oppose him, but for tens of millions who intend to vote for him.

Is everything federal bad, including mortgages?

One mortgage finance takeaway from Romney dissing almost half the nation is that his “47%” includes the more than 5 million or so families and individuals whose loans—made by commercial banks and their subsidiaries (pre-QE3)—have been turned into safe and liquid Fannie Mae and Freddie Mac mortgage backed securities, since 2008, when the Bush Administration took over the mortgage giants making them wards of the federal government.

And then there are the millions more families (voters) whose mortgages came directly through the government’s Federal Housing Administration’s (FHA) insurance program.

Those of you with FHA or GSE mortgage loans should take umbrage when Romney says you believe you are “victims,” who want the federal government to take care of you, and that you won’t take responsibility for your own lives.

All this Romney abuse because you took out a mortgage loan? It gets worse.

If Governor Romney's remarks are believable, as he campaigns to become your President, he won’t concern himself with you forty seven percenters.
Take that to the polling booth with you.
GOP incumbents and first time office seekers already are racing away from Mitt Romney’s political hari kari tendencies.

Maloni, 9-26-2012

Thursday, September 13, 2012


Decisions The Maloni blog flame has been dark this summer. But now with Labor Day and the two national conventions behind us—not to mention professional football underway (I am afraid this year won’t be kind to my Steelers)—it’s time to rekindle that blog beacon. What I did this summer instead of blogging? In the past several weeks, I’ve enjoyed the four Maloni grandchildren—under age seven—who stayed a month with Grammy and Grandpa and learned that each brother and sister set (west coast/east coast) will welcome a sibling around Christmas; the annual summer camping trip with the “grands” produced our first sighting of bears in the wild in 40 years of tenting; I lost some more useless appendages to the Georgetown surgeons; and attended my 50th high school reunion in Pittsburgh. My wife and I had a blast but, man, it's a shame my fellow grads aged so much!!! Fannie Mae and Freddie Mac As predicted here, both companies seem solidly earning money (black ink scares bureaucrats) and the Obama Treasury decided the best thing to do with that development was, first, do away with the 10% dividend which the former GSEs were charged when paying off Uncle Sam and, then, just take all of the income the two produced. As politically radical as that sounds, it’s more a good than bad, although the Fannie and Freddie preferred stock holders were all but wiped out, much as the common stock holders were three years ago. In this man’s humble opinion, the positive part of this change—reflecting the fact that neither party yet knows what to do about insuring the existence of a national secondary mortgage market—is that it keeps Fannie and Freddie alive and involved daily in the mortgage market, albeit run by regulators who don’t often show any creativity or market savvy. Now, part of this reality (play close attention policymakers) is that large numbers of mortgage lenders must still rely on the two to purchase or securitize their mortgage loans. This allows lenders to transfer the interest rate and credit risk to F&F security investors and also keeps the 30 year fixed rate mortgage alive. In short, the White House kicked the GSE can down the road, gutlessly ignoring the most obvious solution. There are only two options for a future secondary mortgage market, unless the federal government chooses to underwrite or guarantee every mortgage loan made. Either the commercial banks (which aren’t really “private” given their deposit insurance federal subsidies) step up and do the job without Fannie or Freddie or the next Administration and Congress turn to some hybrid like…..well, Fannie and Freddie (change the names, if necessary). I’ve stated my preference and will repeat it. As currently regulated by the Federal Housing Finance Agency (FHFA), neither Fannie nor Freddie can acquire shoddy low quality loans which gave the Bush Administration the excuse to take them over. In fact, the two companies’ financial success, since 2008,in part reflects that strong regulatory filter. But today Fannie and Freddie are more relied upon than ever, which is both mortgage market and political reality. With that said, there is no reason that the F/F secondary mortgage model, which now supports the entire US secondary mortgage market for conventional loans, easily could continue for many years into the future. Below is a link to an interesting and recent Fannie Mae/Freddie Mac article. Democrats and Republicans and the Presidential Election For most of this year, I’ve been grumbling “a pox on both your houses” when it comes to Democrats and Republicans and the looming elections. Barack Obama disappointed me. I found very little, save his help for the auto industry, which argues for his re-election. I though he accomplished very little with his financial reforms and I still don’t understand all facets of his health care, which suggests lousy messaging. The President and his early congressional Democratic majorities squandered important governing opportunities because they couldn’t agree on policy or tactics. President Obama let himself get rolled by the Republicans and their allies, let the GOP bully him and force their way on him. Consequently, I was talking myself into the need for a “change” in the White House—hoping a Portman or Pawlenty might emerge from the otherwise smarmy GOP presidential candidate pack. I rationalized that the R’s might try something new and energize the economy, and if they resorted to form and just lined the pockets of the rich, then Democrats would cruise in 2016, including taking back the Congress. I lied to myself and thought maybe I even could like Mitt Romney? Romney and the GOP But the GOP nomination politicking, where each candidate tried to get farther to the right than his party colleagues, the internecine warfare when they tried to out “extreme” one another, all capped by the Tampa Republican convention phoniness, drained me of my whimsy and naivety. The constant blaming Obama for everything under the sun—including much of which was birthed by “W’s’ service—was my cold water in the face. Then I asked and answered myself, "To whom does this GOP candidate turn to future executive appointments but to the Koch brothers, Sheldon Aldelson, or Karl Rove or their ilk?" I can't support, even by default, a return to Washington of the George W Bush mob, which is all the GOP has to offer, since there are no more Republican moderates anymore. I can’t support a party of rich folks and religious fanatics, who yearn for the 1800s and choose to ignore the fact that this country is increasingly a black and brown nation. I can’t support people who lie and bray that they won’t let “fact checkers” run their political campaigns and brag (see Senate Minority Leader McConnell) that his primary goal is to deny President Obama any legislative success which could support Obama’s re-election this November. I hope Americans look closely at how McConnell responded to their needs and crossed them off his priority list when the White House went looking for GOP support on jobs and deficit reduction legislation. “Yes we’ll help” (paraphrasing) “but you can’t tax the wealthy.” Why haven't those same Buch tax cuts helped our economy since they've been in place for years? I can’t be for a man who builds elevators for his cars, who has flipped flopped more than newly caught fish in a rowboat; a man who speaks in rhetorical generalities and refuses to provide any specifics on what the Romney economic reforms would look like; ditto his health, financial, foreign policy, military and tax reform proposals. Romney’s campaign has been about why Obama is bad. The Republican presidential nominee has offered nothing tangible which he might undertake to ameliorate high unemployment. Lies and Damn Lies After earning GOP political points by insisting, “On day one I will undue Obamacare,” Gov. Romney flipped on that, too, just this past Sunday, citing the elements of Obamacare he likes and would embrace. Just what does Mitt Romney believe? Does he think the average American family can relate to dressage? Mitt Romney’s tax returns contain what? He refuses to share them, as most presidential candidates have, including his father. (Could Mitt have one of those UBS Swiss accounts which display US tax avoidance maneuvers?) On Wednesday, Mitt used the murder of US Libyan Ambassador Chris Stevens to once again assail Obama. I can’t support a candidate who succors the congressional tri-corner reactionaries now representing the GOP in Congress and feeds red meat to them. If Barack Obama wins re-election and the GOP controls Congress, it will be up to Republicans to move towards reconciliation and support budget cuts and other initiatives needed to solve our nation’s financial problems as well as stimulate hiring. The rich can wait a bit to get richer. There still is a ton of money in those big banks that would look much better invested in American communities and states--facilitating new business and job growth--rather than sitting on the sidelines. Besides giving tons of campaign money to the GOP, is paltry lending how the large financial institutions are trying to dim Obama’s political future? As the election nears, we’ll see if the instincts of core Republicans, who seem to dislike and/or distrust Mitt Romney, manifest themselves more broadly. Maloni 9-12-2012