Sunday, January 27, 2013

Obama, Fiderer, Blinder, and the Banks;

Daivd Fiderer is in the House, not on the Roof

How about President Barack Obama!!

He gives a great inaugural speech, showing lots of cajones and vision, but can he follow up with enough action and success to fill in behind the words?

It’s the difference between taking the talk and walking the walk.

The GOP is pissed at the speech's content/tone and already is planning on waging more political/legislative war with him over his words and vows.

Lets’ see what happens; conflict isn’t bad if it is constructive. It’s just democracy in action, although what largely has been missing is the inevitable thoughtful R/D compromise.

The nation and both political parties would win, if there was agreement on dent limit, spending cuts—which frankly must include some entitlement savings—and that’s before they even contemplate taking on tax reform.

Our tax code is festooned with bennies for so many industries, companies, and interests that it groans under the weight. I still am waiting to see GOP list of what it would cleanse from our, which alone could function as Deficit Reduction 101, since most of those exemptions or carve outs for favored tax and non-tax payers represent lost revenue to the U.S. Treasury.

Hold onto your seats.

What Else is Happening? Fiderer is Happening!

I found David Fiderer’s work and I am not going to let it go. See why.

The pre-2005 Fannie and Freddie secondary mortgage market model worked extremely well for the entire nation, despite a crusade to sully them. But now we just may be getting more proof of the political antecedents of how and why the mortgage giants were diminished.

The undeniable post-2005 excesses of Fannie and Freddie management, which featured lame management decisions to purchase billions in poorly documented Alt A mortgages and Wall Street private label subprime securities, all but wiped out respect for a private sector model which efficiently served million of families and well.

Fannie’s business and political opponents successfully helped erase their pre-2005 positive history with campaign which demonized the two companies.

Ironically and unwittingly Fannie (and Freddie), with their post-2005 subprime mortgage purchases, aided those who would obliterate them.

The fallout from Fannie’s and Freddie’s takeover by the Treasury in 2008 masked how the two, previously, had been screwed by their opponents.

Slowly the details of that campaign are being revealed to the world as more and more people analyze the facts and some delayed revelations are enjoying public attention.

As long as I write this blog, I intend to highlight evidence which rejects the popular view of Fannie as a wrong doer or as cause of the nation’s major financial woes several years ago.

I do this not to gloat or say “I told you so,” but for other salient reasons.

One is that Fannie/Freddie--still being cursed by many, wrongly in my opinion--continue to be heavily utilized by mortgage players and still, to the public’s delight, produce long term fixed rate financing, even with the clumsy hand of government wielding them. And two, the Congress soon will get back to examining Fannie and Freddie, as it struggles with legislative demands to replace the two entities.

Before they do this, however, Democrats and Republicans need to separate the wheat and chaff and see what was real and what was hokum before undertaking devising some new mortgage market structures.

With a few tweaks (and the federal government standing way back), we might just have in place fairest and most efficient mortgage model available.
In past blogs, I talked about the seminal attack leading to Fannie Mae’s eventual demise as a private company.

It started in 2004—with bogus regulatory accusation suggesting “securities fraud”—and like the proverbial downhill snowball, it grew and breeched all protective walls, swept away all political support and helped produce some of the international financial upheaval, when strong, responsible Fannie corporate executives were forced out and then succeeded by weaker ones who committed crucial business mistakes.

David Fiderer
The bogus 2004 Office of Financial Housing Enterprise Oversight (OFHEO) claim of “securities fraud”-- leveled at Fannie’s CEO Frank Raines, CFO Tim Howard, and Comptroller Leanne Spencer-- was the event which turned into a tsunami, as happens best in DC, when know nothings citing spurious reasons, piled on and forced out those three executives and the backwash brought in lesser successors who unwisely made horrendous and costly business decisions.

I began telling this story last year when federal Judge Richard Leon, eight years after the case first was began, produced three “summary judgment” decisions concluding that no facts existed in million of pages of hearings and testimony by which a jury could find any of the three Fannie execs guilty of the alleged OFHEO charges, but the damage to them and the company was done.

My writing merely touched the surface, but last week David Fiderer , Op Ed News, produced a zenith article on this topic, heavily researched and sharply written, showing why there was “no there, there” to the fraud charges and why Fannie’s regulators, as well as the “we agree” Securities and Exchange Commission—once called Wall Street’s Chamber of Commerce”--were both incompetent and culpable in this partisan assault.

Fiderer’s outstanding work is too lengthy to reprint, so I just link it, but read it and educate yourself about what really happened in beginning in 2004 and why? It’s a well written but sorry tale of regulatory incompetence, venality, and partisan bloodletting.

Fiderer has produced a solid documented tome, and it should be mandatory reading for every Financial Services Committee Senator and Member and their staffs, since as I noted Congress will again confront the working of the nation’s mortgage markets of which the two entities remain keystones.

Former Fed Governor Alan Blinder’s Book

As faithful blog readers know, I have challenged the work of Peter Wallison and Ed Pinto, two of the American Enterprise Institute’s finest fiction writers, who have produced thrilling but inevitably inaccurate reports concerning Fannie Mae’s past business activities.

They consistently have misstated Fannie Mae’s actions leading to 2008 financial meltdown and argued—despite overwhelming evidence to the contrary—that the company bought millions of bad loans in the 1990’s and later.

Numerous columnists, authors, and commentators have rejected the AEI accusations and the Pinto/Wallison work, either by name or by reference.

The Fed and Fannie Mae haven’t always agreed, almost quite the opposite. But occasionally, the Fed or one of his illustrious brethren speaks out and confirms something that “housers” believe and Fannie antagonists don’t.

Most recently this occurred--in the Washington Post’s Blog Wonk--when former Fed Governor Alan Blinder discussed his new book, “After the Music Stopped,” with an interviewer.

Below is Blinder’s response to mortgage finance questions in the period leading up to 2008 financial debacle. (Bold facings in Blinder’s answers are Maloni’s.)

DM: Do you think the Fed could have done more to prevent the crisis, or perhaps to pop the housing bubble as it grew?

AB: I half agree with that. The half I very much agree with is, not so much pop the housing bubble, but one of the enablers was the abandonment of sanity in underwriting. Banks were making many, many irresponsible if not downright foolish loans. The Fed could have cracked down on that and it didn’t. When I said the Fed has performed admirably, I’m talking about from post-Lehman Brothers on. I don’t agree with what they did on Lehman, I didn’t at the time and I don’t know. But that’s a long time now, when they’ve been absolutely terrific.

DM: Do you have any sympathy for the view that Fannie Mae and Freddie Mac, driven by the Community Reinvestment Act, drove down loan quality and contributed to the crisis?

AB: I have very little. If you make a long list, that belongs on it, that Congress pushed Fannie and Freddie into this subprime or alt-A market, less quality loans, more than it should have. But the facts of the matter are that they were not the major players in the mortgage craziness. They came in later because they were getting their market share decimated by the less responsible lenders. What’s more, they started getting out before the crisis, their portfolios were shrinking, not rising, and thirdly, within the universe of subprime and alt-A mortgages, it was clear that the workout has been going on for so long that Fannie and Freddie had the better stuff, not the worse stuff.

If you look at the performance of the loans in Fannie/Freddie’s portfolio, I’m willing to put them on the list of people or institutions that made mistakes, but they belong pretty far down the list. CRA, I mean man oh man, this was passed in 1977! It sure took a long time! When I hear things like that, I used to joke sometimes that if everything good in the 90s was because of Reagan’s tax cuts, why don’t they go back to Andrew Mellon’s from the 1920s? At some point you have to inject a little common sense.

Ed and Peter, with apologies to Matt Damon, “How do you like them apples?” It looks like Alan Blinder disagrees with you, too.

Banks Love Borrowers, Except When It Hurts Profits!!

The WSJ’s Alan Zibel and Leslie Scism penned an article last week (see link at the end of this paragraph) describing how major lender organizations are opposing a Fannie/Freddie proposal to substitute a cheaper version of necessary home owner’s insurance, which would save mortgagors @$2000 annually.

Cloaking their self righteous butts in arguments but the true one, the lenders claim that this proposal—which is under regulatory consideration—is outside of the Fannie and Freddie charters and risks GSE losses.

There will be losses, alright, but not to consumers or Fannie and Freddie if the “Zurich plan” is employed, but to bank income.

A fair translation of the lenders doubletalk is, “Don’t do this. If you save consumers money, it is going to come out of our profits and we oppose that!”

Banks and other lenders are enjoying record profits in mortgage originations and virtually all new home buyers can use that saved $600-$800 a year.


If the F&F regulator rejects this pro-borrower idea, consumers can lay blame on the Mortgage Bankers Association, the Financial Services Roundtable, and the American Bankers Association.

Maloni, 1-27-2013

Monday, January 21, 2013

“LBJ, Jr.” and Assailing the Big Banks!

Wily Fox or Same-o, Same-o??

Joe Califano, former White House assistant to President Lyndon B. Johnson, told me that in 1969, when Johnson wanted to reduce the federal budget request to below $200 Billion because he felt the zeroes would shock the public, and asked Califano to come up with budget cuts to achieve his political goal.

Knowing the Congress, LBJ and his staff agreed that their final list of 26 initiatives list had to have one “stinkeroo” which the Congress would oppose and insist on saving and “reluctantly,” LBJ would fight but then give in order to win out on the other 25.

That “stinkeroo,” according to JC, was kicking Fannie out of the government. But, Johnson’s team was shocked when the Congress accepted all of the proposals and which is how Fannie Mae then got “privatized” in 1970.

Has President Obama turned into Lyndon Johnson, a calculating schemer and who could cajole, steamroll, or confound his legislative opponents depending on the matter?

President Obama facing major budget and fiscal battles with the Republicans, including entitlement cuts, tax and immigration reform, and major foreign policy challenges, last week threw a football into a hornet’s nest, offering more than 20 legislative and regulatory proposals to tighten existing guns laws and make it more difficult to produce and sell to the public military style firearms and large capacity magazines.

The Right—responding to the Obama gun control agenda--has gone cationic with its distorted “threat to the Second Amendment” allegations, other extreme statements, vows, curses, warnings, threats, and bilious frippery about conspiracy theories.

There will be more.

But, Obama hasn’t talked about anything dramatic, save some greater/deeper background checks and controls, which a significant majority of Americans could support.

He has not proposed confiscating existing civilian owned military type weapons or their big mags. But that hasn’t stopped the GOP political noise machine, as well as the National Rifle Association, from churning out breathless calls seeking opposition to Obama and naturally for money. (I’ve gotten the calls, a legacy of having given to a few Republicans when I was a lobbyist.)

But as the “Gunnies” get apoplectic over this matter and rant all year--or “Reince Priebus” all year (sorry, I think his name is a little strange)--can Obama stealthily move in behind his registration plan and capture victories on the more substantive fiscal and economic matters?

I hope so.

How many fights can the GOP simultaneously wage, especially when they stand to look out of step with the nation opposing heftier weapons purchase background checks and other common sense things?

After Newtown, I wouldn’t label any federal or state government action as misapplied, but Obama could be ahead of us all and using his “gun fight with the GOP’s no-way Chorale” a bit like LBJ’s employed his Fannie Mae stinkeroo?

Too Big to Survive Without Major Changes?

I vacillate on the work of Gretchen Morgenson, the New York Times big hitter financial columnist, she of the Sunday Business Section front page left hand space.

On the one hand she produced a poorly researched anti-Fannie Mae book—based on a lot of specious work by the AEI’s Peter Wallison and Ed Pinto—blaming Jim Johnson, Fannie Mae’s Chairman and CEO, then, for what she/they claimed was the company buying poorly underwritten near subprime quality loans for much of the 1990’s.

The problem with her book was that her primary premise wasn’t true and the AEI and her books sales suffered when a number of serious observers pointed out that Fannie had minuscule mortgage losses in that decade and well into the next.

Since then, I think Ms. Morgenson has risen about that crappy work and her columns, at least, have focused on some serious issues facing the nation—and the Congress—including the overwhelming power of the country’s largest commercials banks, which--despite anything in the Dodd-Frank legislation--remain “Too Big To Fail” (TBTF).

Her much read Sunday column this past week highlighted a Washington speech from the President of the Dallas Federal Reserve Bank, Dick Fisher, who called for breaking up the biggest bank holding companies into smaller pieces which--if overtaken by failure--would not require a prompt federal bailout, which is the case right now.

Bravo Ms. Morgenson for highlighting the speech and the enigmatic Dick Fisher for shining the light on this prominent issue.

One of the benefits of the Fisher idea is that it would produce much more competition among lending institutions, as smaller institutions get access to markets and money the big banks now dominate.

One would think the GOP would warm to this objective, but—as the record shows—they might risk giving up a ton of large bank political cash if Jeb Hensarling (R-Texas), ironically whose district includes Dallas--and his Committee took on repair of this real structural issue rather than braying about Fannie Mae (a far lesser systemic problem which could solve itself).

Here are links both to the Fisher speech and to the Morgenson column.

Ritholz Rides

Speaking of good work, Barry Ritholz rose to smite the big banks and their enabler/defenders one more time last week with a column in his “Big Picture” blog.

As is becoming quite common these days, Ritholz nailed the AEI’s Ed Pinto for some of his gratuitous statements about the Federal Housing Administration (FHA).

As noted above and also in my last blog, Ed has spent a few years attacking Fannie Mae and the FHA.

Now people, who know better about the causes of the 2007 financial breakdown and the very shoddy mortgage underwriting which contributed to the dislocation, are beginning to turn the tables on Ed and his fellow travelers.

Jesse Eisenger, who writes for Propublica, had a column in the New York Times also challenging Pinto’s opposition to the federal government’s mortgage finance role.

It appears as if friend Ed should don his big boy pads for this contact sport.


Excellent uplifting speech, Mr. President. And to both sides of the Hill, do your best please to maintain today's mutual civility as you work on the issues most important tot he nation.

Maloni, 1-22-2013

Sunday, January 20, 2013

I'll publish next after Inauguration Day.

Sunday, January 13, 2013

David Fiderer Unchained

In This Corner, Wearing………

I first read David Fiderer’s work a few years ago when I was looking for anyone challenging the conservative bombast and rhetoric hurled at Fannie Mae and Freddie Mac, as well as the core federal government’s role in mortgage finance, by their GOP opponents and allies.

David has a strong progressive viewpoint and backs those views with facts. He’s a 30 year battle scarred financial services veteran, who worked for several major global companies in New York on energy matters, doing tax law, international originations, and mulling credit oversight issues.

Fiderer writes with an edge and he has a delightful way of dismissing opponents’ allegations with indisputable savvy, based on his long years working and watching the elements in the financial services industry.

I am going to post a link Fiderer tome which I just saw just this weekend in the “Daily Kos” because it dovetails with something I wrote last week about new Conservative efforts to challenge and undermine any federal role in the mortgage finance system.

As I’ve written, I think there is a necessity for that government role although not as large as there once was. I continue to believe that consumers in the upper end of the market can be supported by a Fannie/Freddie model which does not have the federal government behind the two explicitly or implicitly.

I guess that means House Financial Services Committee Jeb Hensarling (R-Tex) and I agree on his goal for Fannie and Freddie, just recreate them as privately and turn them loose.

Before I turn David Fiderer loose on you, I need to offer one small addendum to something I wrote last week, when I went off on Ed Pinto and the American Enterprise Institute (AEI), long time opponents of Fannie Mae and Freddie Mac, and the suggestion that Pinto’s current anti-Federal Housing Administration (FHA) rants were rank opportunism and a fresh avenue for his opinions.

In an email exchange after last week’s blog, Pinto pointed out to me that he has held this perspective for many years and had first developed his thinking almost 20 years ago, when he encountered the late Gale Cincotta, a legendary Chicago low income housing advocate, who often testified before Congress against FHA policies and once led several busloads of low income and elderly protestors into Fannie Mae’s DC headquarters in the early 1990s. (I think EP may have worked for Fannie then.)

As I told Ed, I accept the revelation of his early education but still didn’t agree with the core AEI position and his manipulation of Fannie’s 1990’s lending data for use (or misuse) in the AEI’s anti-GSE campaigns.

David Fiderer also writes about AEI and Pinto in his Daily Kos piece, but that’s unrelated to my clarification and acknowledgment of Pinto’s nearly two decade opposition to FHA policies.

Enjoy David Fiderer.

I have a feeling that more of Fiderer’s stuff could show up in future blogs, especially if the Right chooses to cross swords with him.

Maloni, 1-14-2013

Sunday, January 6, 2013

The Cliff, Political Newbies, Barney and FHA!

Cliff Results, More to Come Later

Color me very disappointed, temporarily dismayed, unhappy with the President, and—showing my best “USA quality”—always optimistic that our “cowardly lion” Congress (those who aren’t just plain dumb) will get it together and show the guts (too many Senate ands House women to mention testosterone or “cajones”) to solve problems.

The President labored long and presided over a nothing burger budget deal with no spending cuts of any note but some budget additions, displaying the worst of Washington habits.
If the man with the bully pulpit and a recent national victory—who never has to run again for office—can’t bring himself to admit that we spend too much, some federal spending is wasteful/unneeded, the tax code is gagging, and he needs to help fix that, who will?

The automatic 5% across the board cut approach suited me fine—from a political science/politics angle—because once you start going line by line over the budget to end spending and produce savings, the cries and moans of every interest group in the nation will drowned the Congress and will freeze them in vacillation because most of those pols will seek reelection.

But when the special interests and general public begin wailing and seek protection for their pet federal programs, the indecisive Congress “won’t know whether to s***, p***, or go blind,” as we used to say.
I Say Go Medieval, Go Meat Axe!

So yes, House R's, go heavy meat axe because scalpels won’t do the job or won’t do enough. Where you can cut more than 5%, do so. Our nation will survive, despite the sheep bleats.

Temporarily, I am putting on a GOP jersey here—while I disagree strongly with their wing nuts—I want to see more money cut from the budget than Congress adds through tax revenues. Greater revenues are fine, but greater shaved entitlements are better.
We have gotten slovenly as a nation relying too much on Uncle Sugar, but the only way that gets reversed is if we all (meaning those us--that’s me, too--relying on federal expenditures) feel some pain, when reductions to virtually all federal spending and tax advantages get mandated. My only caveat is that those among us with the least get protected (that’s where I rip off my GOP t-shirt).

I want Speaker John Boehner (R-Ohio) to bail us out by coming up with spending cuts, tied to raising the national debt ceiling, and giving the weak kneed congressional and national leadership cover and an excuse to begin the job that virtually all Americans—no matter our political persuasion—believe needs doing.

President Obama could have no greater legacy than using his next two or three years to reverse the growth of federal spending as a percentage of GDP and bring some fiscal balance back to Washington and the nation.
That’s what will near enshrine President Obama in our history books and in our and our children’s memories.
Seventy five thousand pages of federal tax laws and regulations represent thousands and thousands of special interest goodies which likely don’t pass the “need versus wanted” test, “Does the nation need it or some special interest want it?”

So, bring on the next “sequester” running clock.

My hopes are high (listening to my heart not head) that both parties will take some wisdom from words of both the President and  Boehner that it’s time for Congress to work for the American people, not just show them Congress’s collective ass, again.

New Congressional Diversity

I welcome with delight the new women and minorities to Congress and believe  they can make some difference in the traditional white male bastion. While these demographic changes make both the House and Senate more like America, neither chamber comes close to sharing national demographics with America and their members have tons more income than the people they represent.

But the make up of the 113th Congress narrows the differences between the people and their representatives and that’s good.

Come on in rookies and bring your energy and cynicism about the “Boy’s Club.”

Senator Barney?

Word out of Massachusetts is that former House Financial services Committee Chairman Barney Frank, recently married and recently retired, now would like Governor Deval Patrick to name him “Senator” until the state can choose a successor to current Senator John Kerry, who will be nominated by President Obama to the post of Secretary of State, and seems almost certain to win Senate approval.
Barney thinks being “United States Senator Frank” might be a nice cap to his career which doesn’t sound like he’s going to sleep through his few months in that august body, if Gov. Patrick goes along.

Everyone knows Barney is one of the smartest Members ever to serve in Congress and for a while he earned the reputation as one with the thinnest skin and nastiest temper. No doubt Barney could add value no matter on which congressional committee he served but serving on Senate Financial Services for three or four months—the time estimate, now, to get a Kerry replacement elected—would give Barney a chance to embellish his House legacy and also deal with what is expected to be some attacks on the Dodd-Frank legislation.
Normally this never would happen because Massachusetts’s junior Senator Elizabeth Warren also serves on Financial Services and that’s not how states like to spread their influence. Yet for a limited time, the Senate leadership could accommodate that.
Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass) and Barney Frank (D-Mass) and

Rep Chuck Schumer (D-NY), for a time would all be serving on the same congressional committee. (To be fair, Schumer and Barney both served on together on the then “House Banking Committee,” when they first were elected to Congress.)
My, oh my, oh my, financial bigwigs beware.

Fannie/Freddie and Related Issues

The American Enterprise Institute and Ed Pinto are at it again. This time he's attacking the Federal Housing Administration’s (FHA) core guaranty program.
One would think  after Ed’s last performance against Fannie Mae, which earned him lambasting rebuttals from the staff of the Federal Reserve, the Federal Financial Crisis Commission, Nobel winner Paul Krugman and others—not to mention this blog—Ed (and AEI) would learn some lessons.
This assault’s target might have changed, now that he’s aiming at the FHA instead of Fannie Mae and Freddie Mac, but his goal is to reduce the federal role in the mortgage finance system, which frankly is the only thing which insures (no pun intended) that consumers can find affordable fixed rate financing.

Whomever is bankrolling Ed’s AEI efforts (Shh, if I follow the money, my guess is the private mortgage industry) should remember Ed’s “analysis” of Fannie Mae financing in the 1990’s, which he claimed mostly was of the shaky subprime variety just wasn’t, no matter how he tortured his definitions.
Yes, his work was flogged by many in the GOP, AEI, the Wall Street Journal and others. But no matter how Pinto defined Fannie’s 1990’s lending--to fit his opportunistic definition of poor quality originations--the loans he claimed were lousy seldom failed because they were well underwritten. The people/families who got them could afford them and made their payments.
That should be the end of the GSE chapter, Ed.
So, whoever has it in for the FHA and now is using Ed and his happy AEI warriors to beat it up should remember how his initial wobbly campaign collapsed thuddingly and not with grace for the authors.
Tip to “silent” AEI funder, avoid the splashing mud when Ed’s latest tiny temple comes crashing down.
But, if the House Financial Services Committee runs true to form, rehashes history, and schedules some “stomp Fannie and Freddie hearings,” Ed Pinto would be an excellent witness, since he walks the Conservative walk. But that also means formidable witnesses will be clambering to challenge everything he says.

Oh, if those hearings occur, majority staff please remember those “Summary Judgment” rulings.

Maloni, 1-7-2013
(Excuse any typos. I also managed to screw up the spacing as I published this blog. So, why should anything else change in the new year?)

Wednesday, January 2, 2013

Cliff Fallout

I'll blog again after the dust settles on the "Cliff deal."