Things From My “Didn’t Get to File”

 

Michelle Bachmann

 

 

(Here comes the really mean/unlikeable Bill Maloni.)

 

Thank you Michelle for euthanizing yourself politically.  

(Surprised your husband, Marcus, didn’t use that development to finagle some federal payments from that government you malign so often, as he has managed to do in his other “business activities.” Of course the calendar year still has about six months to go. One would think if Dr. Marcus Bachman was successful curing the condition “Gay” and collecting from Medicare to do so, he could fix a spouse suffering from “air head.”) 

My rarely displayed misogynist side is going to wonder out loud if Rep. Bachmann’s  GOP appeal didn’t flow from the fact that she—much like Sarah Palin—is a very attractive woman, but, ultimately, ditzy. So little of what Bachmann alleged and then proclaimed had merit but she got mucho media coverage—especially when she jumped into the GOP presidential primaries with the other Dopey, Sleepy, Doc and the other dwarfs--and the media spelled her name correctly. 

She worked the system well. I can’t wait for the inevitable Bachmann book. (I was going to ask, “How many crayons will the publisher provide with each book,” but decided I shouldn’t.) 

I am overjoyed Michelle Bachmann is leaving Congress, but I suspect her constituents would have made that same decision for her in November 2014.  

Michelle, don’t let that swinging door hit your tri-cornered hat as you exit.

 

New But Old

 

I get very tired of seeing non-critical news stories about developments in the GSE world. The Bob Corker (R-Tenn)-Mark Warner (D-Va) bill to replace Fannie Mae and Freddie Mac, a 112 page draft of which has been circulating in DC this week, is one of them.

 

So, I carved up my last blog, put some other ideas in the product and sent it out to media types who cover these issues, to see if possibly these reporters might ask the sponsors or their staff some tough questions or even quote in their stories my substantive and political skepticism.

Here is what I sent out:

 

Maloni Commentary for Media Consumption and Use 

"I am not sure just what problems this monster legislation seeks to cure, since it seems to enmesh the federal government even deeper in the nation's mortgage finance system by offering federal re-insurance to banks and other lenders which issue their own "private label" mortgage backed securities (MBS)?"

 

"The last time banks engaged in that activity, they issued almost a trillion dollars in worthless MBS, backed by their own corporate guarantees, and helped bring on the 2008 worldwide financial meltdown."

 

"There is nothing unique or new in this omnibus and quite taxpayer expensive bill--since all of its moving parts and financial obligations apparently wind up in the federal budget, except to give the large commercial banks one more valuable federal subsidy in the form of federal insurance of their mortgage bond losses?"

 

"Just what 'new private capital' will enter the mortgage finance system--as the sponsors proclaim-- if banks employ just more of their  current federally insured deposits, along with existing  working capital to generate MBS which then receive new Corker-Warner federal loss insurance? Big banks are sitting on record earnings ($40 Billion in first quarter of 2013); do they need more taxpayer help to lend for housing?)" 

The Corker -Warner bill seems to rely on a lot of Uncle Sam's money to pretend its fruits will be more "private capital." 

"In recent years, Fannie Mae and Freddie Mac have been restructured with greater capital, had their onerous low income housing goals all but taken away, been prohibited from buying high risk, low quality mortgage loans (subprime), and have generated record earnings, allowing them, soon, to return to the federal government all of the $186 Billion Treasury infused in them beginning 5 years ago."

"Thoughtful improvements in these two experienced national mortgage intermediaries seems a more logical, less expensive, and faster approach to smoothing mortgage market imperfections than a five year phase-in of something totally new for all of the traditional national and international mortgage market participants." 

"Who would support it besides the big banks and why?" 

"Given the price tag of this nationalization of the nation's residential mortgage market, I am not sure there are 60 Senate votes to approve it. And the House Republicans are not keen at all, on growing the federal government's housing role."

 

Bill Maloni, former Fannie Mae chief lobbyist, retired since 2004, is not retained by and does not represent any financial services interest; he currently writes a blog.  http://malonigse.blogspot.com/ 

 

How Washington Works 

I've had the real pleasure of meeting and working with some financial people attracted to Washington issues by the Fannie and Freddie machinations. These are smart financial types who are trying to understand how the nation's capital works as they develop strategies for their companies' investment interests. 

The other day, one of them remarked to me, "I just don't understand how an entity (the US Treasury), which owns 80% of something (in this case Fannie Mae and Freddie Mac) can claim 100% of all of the profits, while the common stock and preferred stock of the companies still actively trade?" 

Two simple answers, I can count on my one hand the number of Congressmen and Senators who understood/understand that F&F were created as private companies. It was unique and unprecedented. I used to remind them, when lobbying, "Federal agencies are not traded on the New York stock exchange," as F&F were. 

Second, the deal Hank Paulson forced on the keelhauled companies in 2008 is filled with anomalies, interest/dividend repayment rates at twice the rate of commercial banks, debt repayments not actually reducing the amount owed, and the two entities—once take over--denied any advocacy role with the Congress, meaning no corporate First Amendment rights. 

In addition to other recipients of federal support having less onerous repayment terms, none of these post federal relief bad things happened to other corporations which Uncle Sam helped, such as AIG, GM, etc.

Sorry for what might be mortgage system paranoia, but it’s difficult to ignore some misguided punitive motives in the actions taken against F&F. 

As I note elsewhere. Unwisely, F&F did invest in flawed Alt A no-documentation loans and PLS Wall Street subprime securities, both of which were soon worthless. Yet virtually every major mortgage investors in the world did the exact same thing, sopping up almost a trillion dollars in Wall Street subprime securities, which is why the 2007-2008 meltdown extended beyond US borders.  

The federal government, starting with the Bush Administration, spend invested  several hundred billion dollars in financial assistance in large and small banks and no legislative mayhem fell any of them. 

Market Gyrations over Bernanke's testimony 

 

Almost two weeks, Ben Bernanke testified on the Hill and indicated his backing for continued Fed QE (quantitative easing), the central bank’s monthly multi-billion purchase of mortgage revenue bonds. The stock market spiked 150 points as Bernanke testified. 

Shortly after on the same day, with the stock market still open,  some investors began reading notes from the previous month's Federal Open Market Committee (FOMC) notes--the Fed’s monetary policy arm, with a rotating regional members--which suggested some of its non-Washington members disagreed with Bernanke on the mortgage bond purchases because of  future inflationary concerns.

 

When that view quickly circulated, the market dropped dramatically, gave up the Bernanke-driven gains and ended up down for the day. 

This "what will the Fed do?" seems to have plagued investors for days now as the market goes up and down, mostly, with fear about the Fed stopping the QE stimulus. 

My advice, having worked at the Fed an elsewhere where there were active boards, is—when in doubt—watch the Chairman’s lips and listen to his words. 

If Ben Bernanke wants the central bank to buy mortgage bonds to stimulate our still less than buoyant economy, the Fed will do so, ignoring fears of the FOMC regional "Nervous Nellie’s from Montana" 

 

Maloni, 6-5-2013