I
Remember “W”...
...and his
Slanderous, Feckless Financial Regulators
Last
week's opening of the George W. Bush presidential library—I won't
make any jokes about books with crayons—produced nostalgia galore,
especially among the nation's conservative commentators.
Ignoring
the fact that he seemed cowed by the office's responsibilities and
almost naive about other power/political exigencies, I remember this
President Bush as taking a two year Clinton Budget surplus—produced
when Frank Raines was the head of OMB and some sharp guy named Jack
Lew worked for him—and pissing it away on tax cuts for those who
didn't need them and a phony Iraq war based on highly questionable
“intelligence,” massaged and shaped by Dick Cheney and Don
Rumsfeld.
Messrs
Cheney and “Rummy” had their own agendas which were far more
advantageous to military and oil and gas interests than the nation's
well being.
As bad a president as he was, I
have little doubt that W would have been a decent guy to football tailgate or play poker with, if he plays. In other
words, someone who could laugh and joke and not take anything too
seriously.
And,
therein lies the rub.
Fannie and Freddie
But I
also remember an upbeat enthusiastic George W. Bush who, in 2002,
joined senior Fannie and Freddie executives at the historically black
Bethel AME church in Atlanta—along with dozens of invited national
“housers” and other dignitaries--to endorse the need for more
affordable mortgage finance for all Americans and to urge and support
the two former GSEs to step up and do more to that end.
But
the euphoria of a GOP President actually endorsing, if not cheering,
the works of Fannie Mae and Freddie Mac either didn't penetrate the
White House bureaucratic walls or W just was patronizing Atlanta's
and the nation's low income audience and the assembled, building,
real estate and advocacy interests.
The
WH demand for more from F&F came through, but the necessary
required GOP attitude adjustment among the bureaucracy and
conservative/Republican opponents outside of government, never
matched the President's personal rhetoric and never made the trip
back to DC on Air Force One.
If
anything, as I have written about in the blog and others have
memorialized elsewhere, the attacks on Fannie and Freddie—directed
by somebody important and likely a resident of the Bush White House
staff—built, culminating with a scathing and fatuous 2004
regulatory report from the Office of Financial Housing Enterprise
Oversight (OFHEO), then Fannie's and Freddie's regulator, accusing
senior Fannie execs of violating securities laws and cooking company
books for personal game.
When
the Bush SEC head weighed in and agreed with OFHEO, the political
fight was lost and the mortgage finance system began unraveling,
although it would take the Bush “hear no evil see no evil”
financial regulatory indifference before the Wall Street subprime
orgy brought the nation to its knees.
Here
is some additional perspective, which I tripped on while doing some
research.
My
memories of George W. Bush are not fond memories. His primary
interaction with the GSEs was duplicitous, he talked a positive game
while his posse simultaneously conducted mortgage finance malevolence.
I
wish President Bush well with his flourishing nascent painting
endeavors. But if he ever chooses to paint the housing finance scene
he helped produce, it won't be a very pretty picture.
Other Fannie/Freddie
Matters
Suntrust
The
exceptional Barry Ritholz had an excellent piece last week discussing
his perspective on a major lender ripoff of Fannie Mae.
I
think lender chicanery, where Fannie and Freddie got duped, happened
more than people think or want to believe, but it happened, as
several successful law suits proved.
See
what you believe after reading Mr. Ritholz's work.
Excessive Loan Loss
Reserves?
In one of my recent blogs, I noted the future
possibilities of Fannie Mae (and Freddie Mac) generating even
greater earnings (cash for the Treasury hopper) if they can secure
judicial relief with lawsuits they have pending against major
lenders.
But, along with Fannie’s and Freddie's rosier
financial future—which does not mean concomitant political relief,
except in the minds of a few of us—I suggested both entities were
over reserving for dwindling anticipated losses, losses
which likely will lessen even more over the next few years. By all reports
which F&F and their regulator are revising downward because of
general economic improvements and less red ink from seasoned loans
on F&F's books.
That could add heft billions or so
to their 2013-14-15 bottom lines and therefore more for the
Treasury’s General Fund and the taxpayers.
(I also like to think that it repays their debts to Treasury faster but we know that's impossible because Hank Paulson seemed to forbid that with the convoluted accounting in his 2008 takeover deal.)
(I also like to think that it repays their debts to Treasury faster but we know that's impossible because Hank Paulson seemed to forbid that with the convoluted accounting in his 2008 takeover deal.)
Of course the GSE's regulator—whomever that Director
may be in time—would have to bless this sequence as being “safe
and sound.”
But, before F&F got their turn, it seems that many
of the big banks have started to do the same thing as per a story in
last week's Washington Post, written by Danielle Douglass. (See
below.)
Senators Brown (D-Ohio)
and Vitter (R-La.)
Fannie
antagonist Gretchen Morgenson, propounding from her standard perch on
the front page of the NYT Sunday business section, had a very
positive take on one of the 9000 or so bills which are introduced in
every two year session of Congress, but ultimately die.
Morgenson
identifies this worthy proposal's killer with her first sentences,
the nation's big bank that hate/fear the legislation.
Introduced
by Senate Banking Committee members Sherrod Brown (D-Ohio) and David
Vitter (R-La.), the
bill would simplify and increase large bank capital requirements,
divorce the US from the one size fits international capital accords shaped in Basel, the
little Swiss town where the world's financial government and private
elite officialdom meet and approach common financial problems.
(As I
learned in my three year stint at the Fed, if you really are an
insider, you pronounce the place “Baall,” with no “s.”)
Bye Bye Basel?
It's
taken more than 30 years for this slightly changing assemblage
(people do die over three decades, even bankers and their regulators)
to agree on some guidelines. But by the time the international group
agrees on anything, the banks are long gone on their slippery ways
and those who would catch them in financial skulduggery are arguing
over their caviar and sauna bills.
Whether
in Switzerland or New York, banks don't wait for “tea time” or
“tee time.” They work and innovate 24-7-365 to make those huge
earnings.
Brown
and Vitter thinks that wrong—and they are right.
The
odd couple liberal and conservative further believe that Dodd-Frank
doesn't solve any of the major problems and that, too, should change
for America's financial institutions and quickly.
Morgenson
agrees. If you didn't read her column, check it out.
What Can FHFA Do With a
New Director?
Last
week's blog called for but did not produce many suggestions about how
FHFA, if it gets a new Director and direction, can change Fannie and
Freddie for the better, enhancing the nation's secondary mortgage
market and its primary market lenders. (All responses appeared on the
“comment section” of last week's blog.)
Of
course, watching Brown and Vitter explore new approaches to improve the government's risk relationship with the nation largest financial
institutions and then seeing Jeb Hensarling (R-Texas), the House
Chairman of Financial Services, who refused to allow Consumer
Financial Protection Bureau Director Richard Cordray to testify on
consumer related financial issues--”because in my opinion he
doesn't hold the office legally”--suggests why any efforts to
restructure the nation's. mortgage market will go nowhere,
until the White House and both chambers of Congress are controlled by
the same party.
Oh,
did I note that the nation's banks really dislike the Consumer
Financial Protection Bureau and likely Cordray, too.
Hello
Hillary Clinton in 2016!!!
Maloni, 4-29-2013
5 comments:
What say you, Bill?
I assume you are asking about the WH proposing Rep, Mel Watt to be the next head of FHFA.
It's a long way from nominated to approval and the long knives came out in the Senate weeks ago, when Watt's name just was rumored.
I see some former GOP staffer yapping already about Watt not meeting the statute's demand for technical skills (presumably mortgage finance, securities, and regulatory experience).
But, unfortunately, there is a track record of this President not getting his appointees, so we have to wait and see.
To me, the bigger question is does DeMarco exercise his civil service right to rejoin FHFA in some other capacity, if Watt gets approved?
You would know better than I, but this Watt comes across to me as a puppet of the party, and his sole responsibility will rubber stamping principle reductions.
Street apparently hates this nomination that won't happen.
My next blog--without being too titillating--will discuss my unrequested "advice" to MW.
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