Monday, July 27, 2015

GSEs get whacked in early legislative machinations



A Determined Chairman/Legislator;
Dick Shelby Doesn’t Play to Lose


Several blogs ago, after he just pushed a banking reform/GSE bill out of his committee on a straight party line vote-- when many people were quick to say his legislation couldn’t survive in the Senate--I warned readers not too underestimate the political and legislative acumen and savvy of SBC Chairman Dick Shelby (R-Ala.),

Guess, again, this past week Shelby merely added all of that SBC language to an appropriations bill funding the various federal regulators.

For the banks, his bill raises the bank asset size which triggers greater regulatory control on Systemically Important Financial Institutions (SIFI), from the current $51 Billion to $499 Billion. In the mix, he also threw some monkey wrenches into GSE operations for his buddy Sen. Bob Corker (R-Tenn.). 

Shelby is labeled “wily” for a reason. 

The same Senate has also decided to tap F&F as piggybanks to pay for their highway construction bill, but who knows where that will land in all of the wheeling and dealing with the House and Obama Administration. 

The GOP Congress loves to hate the GSEs but needs F&F to pay for their other policy foibles; ditto the White House. 

Short term, with the Shelby approach, banks and bad guys win again. Does any D Senator have the guts to stand up to “End Run” Shelby? 

And who, besides John Taylor, will help? (Taylor’s letter.)


Did Senate Just Keep F&F Alive For 4 More Years?


In another swat at the GSEs, the Senate last Wednesday night voted to use 10 basis points of Fannie and Freddie g-fee income to fund part of the Highway Bill.

So, the chamber with many GSE haters voted to keep the “golden geese” alive for four more years, because they keep on giving. Yet, the chamber’s actions had little to do with what is the best mortgage finance system for the nation, professionals in the industry, or the American consumer. They just needed a “pay for.” 

Bottom line, if unchanged, that means the GSEs are there to kick around for at least 48 more months. It also gives F&F supporters the same time to rally around their operational strength and possibly build a majority for recapitalizing the mortgage giants, thus removing the self-imposed GSE “Sword of Damocles” over the systems which the pols in both parties claim they want. 

But, after all the back and forth, who knows which of these anti-GSE provisions survive or wind up on the congressional cutting room floor, along with how much of F&F? 

The Washington Post editorialized against the Senate highway bill and its revenue sources—arguing for a gas tax and against cutting Fed bank fees--but could not bring itself to include the GSE fees in their complaint. So, predictable. 


It’s clear to me that the GSEs best hopes are in the myriad “HERA/Third Amendment” court cases, which seem to produce positive vibes each week, but no definitive win, yet, for plaintiffs against the government. Come on, federal judges, do your stuff. 


Kneecapping Candidate Hillary With F&F 

David Fiderer has been predicting for months that the GOP presidential attack campaign against Hillary Clinton—assuming she gets the D nomination—will include various allegations that Bill Clinton and other Democrats supported Fannie Mae and since the hard Right suggests the GSEs caused the 2008 financial meltdown, therefore Hillary is responsible.* 

Not surprisingly, this agenda leaps out of an editorial published July 20, in the Washington Times blaming F&F and—surprise!—ignoring the $2.7 Trillion in poorly underwritten and woefully rated “private label securities,” which Wall Street issued under their own corporate names and which failed at three times the level of GSE mortgage backed securities. 

The GOP also has and will blame the toothless Community Reinvestment Act (CRA) for forcing the “sniff, sniff,” poor TBTF and other banks to lend to those with low incomes or the otherwise unworthy. 

Bullshit, since none of that bank subprime garbage was extended to meet any regulatory goals. It was financial institution greed--shared by all of the designer participants-- plain and simple. 

Here what the Federal Reserve Board said about the CRA connection to the 2008 economic Armageddon.

With their own mortgage backed bonds, the banks, seeking huge revenue returns, thought they could do what F&F were doing but lacked—or chose not to develop--the GSE’s discipline, quality underwriting, due diligence, and guaranty strength and the bank mortgage bond failures prove that.

Where do the R’s think most of that “bank TARP” money went??

But, as the Washington Times displayed, those facts won’t stop GSE critics from distorting, falsifying, and twisting the truth about any Democrat, presidential candidate or not, who they attack. 

The sorry bank private label security (PLS) history cannot be buried from public view.

That story needs repeated and amplified often enough–making it more visible so voters better know the role the big financial institutions played leading up to the 2008 disaster.

As Fiderer often laments, once people consider the Right’s “Big Lie”--which blames the GSEs--they never drop it, no matter how overwhelming the contrary reality.  

(*But---------One long time GSE observer argues that the GOP’s plans to assail presidential candidate HRC, using F&F as a bludgeon, is the main reason President Obama will order a recapitalization of the two before this year ends, so she doesn’t have to fight this fight next year.

It’s an argument I understand, but—if he did--it would be an uncharacteristic dose of BHO realpolitik. And, Obama just may not play his part and do what makes great practical and political sense for Hillary, his party, and the nation’s home buying consumers.)


Jeb Hensarling on 5th Anniversary of Dodd-Frank


House Banking Committee Chairman Jeb Hensarling (R-Tex.) offered these banalities on the fifth anniversary of the Dodd-Frank legislation, which banks strongly opposed, watered down in Congress, and then sought to neuter during the regulatory process.

Really, Jeb?? Dodd-Frank caused banks to suddenly charge for checking accounts? Why?

Banks have all enjoyed very healthy earnings since D-F became law, still have engaged in unsavory and illegal acts, and certainly—if they wanted—can afford to offer customers free checking (as well as umbrellas, coffee pots, or other tchotchkes).

Chairman Hensarling, do you think the financial institutions may be using D-F regulation as an excuse to jack up prices on their products and services and cut back on any customer bennies?? It’s hardly beneath them, as they’ve proved, little is.

In his remarks, Hensarling rails at big banks but most of the legislation he champions hugely favors them and he still takes their campaign contributions. That makes his comments Texas-sized “bull pucky!” (Hensarling emotes....!) 

“Since Dodd-Frank, the big banks have gotten bigger and the small banks are now fewer.  Today there are fewer community banks and credit unions serving the needs of small businesses and families.  Local financial institutions tell us they can’t keep up with the sheer weight, volume and complexity of Dodd-Frank’s regulations.  In fact, because of Dodd-Frank, we’re losing on average one community financial institution per day.  It’s no wonder that small business deaths outnumber small business births for the first time in 35 years.
It is also now more expensive for American companies to raise working capital that’s needed to grow and create jobs.

Services that we all once took for granted – like free checking – are being curtailed or eliminated because of Dodd-Frank.  Before, 75 percent of banks offered free checking.  Just two years after Dodd-Frank became law that number was cut almost in half.”

Dodd-Frank became law five years ago and then it took a while for his regulations to be issued, most of which the banks fought. But, through this year, I count 157 bank failures since 2011, as the chart below clearly shows.

Um, er, sir, Mr. Hensarling, that’s hardly one per 1835 days. I suspect to puff up your number and inflate your rhetoric you are trying to count the 192 banks which failed in 2010; but virtually all of those were history or soon to be, when the Congress passed the Dodd-Frank legislation. No fair distorting, JH.


Jeb also ranted about the GSEs but his only legislation on the topic was to totally do away with F&F and let the TBTF banks control the primary and secondary mortgage markets. 

I guess he has forgotten or sublimated the sorry PLS history of 7 years ago.
I’m sure it’s never occurred to him that maybe Fannie and Freddie are needed to balance the banks’ strength and inclination to cut corners with regard to mortgage lending, which—absent the GSEs—would be very consumer unfriendly. But, I forgot, Jeb opposed the Consumer Finance Protection Board.


And Now There Are Sixteen, With Kasich 

I wonder which bottom six won’t make the GOP debates, assuming nobody else decides to throw his hat into the ring. 

My memories of John Kasich, then Chairman of the House Budget Committee when Fannie lobbied him, all are negative. Wasn’t interested in what and where we did anything and was a regular irritant. 

I remember just going around him, working with House GOP leadership. 

I asked in last week’s blog, who might be the 10 GOP candidates in the first debate in August (two months from now)? Here the Washington Post takes a stab at who those might be.

What Others Are Saying

Harlan Green in Huff Post rooting for F&F plaintiffs.


Friend Bethany McLean gets it right in her 7-20 NYT op ed.

(I also like the number of commenters who seem to have grasped that many in Congress and government have been distorting the post 2008 GSE reality. Her new book--out in September--is well done.)

Glen Bradford nails another one in his Seeking Alpha article. 


Who is backing ($$$) which presidential candidates? 


Tweet from Politico’s Jon Prior, following remarks from SBC ranking member Sen. Sherrod Brown (D-Ohio). (Guess he wasn’t watching Shelby in Appropriations.)

Sen. Brown says 'bridge too far' on Fannie, Freddie reform, still pushing talks for community bank reg relief  


Major trade groups opposes using F&F G-fee revenue for other federal program costs, because it gores their ox, but you’ll see no letter about Shelby’s anti-GSE legislation used as an amendment in the Appropriations committee.


Trump Has GOP’s “Number”, Says E.J. Dionne 


Third Party Trump, Third Party Trump, Third ….

Show those country club Republicans, Donald!


Oh--wee, Let’s watch them R’s Fight


Alexandria Petri identifies kindergarten bully behavior. 

This NYRT column is a desirable “yardstick” against which we should measure all candidates for federal office, especially presidential competitors, whether Democrat or Republican. Do they have vision? 



Maloni, 7-27-2015

Monday, July 20, 2015

Summer's Light GSE Fare and Other Things





They’ve been  back in for a week or so--after July 4th break-- and soon they will be out, again for their summer recess, lasting from August through the beginning of September. Nice job!!

Scrutinizing the Iran pact will dominate Congress’s time in the House and Senate and soon we will hear both parties fill the airways with shouts and claims of “sellout” and “weakling”—and that’s before the growing, presidential candidates disgorge all of their bile and limited insight.

Just where is Sarah Palin when we need her?

Of course, there will be no time for additional serious congressional inquiries into the GSEs or related matters, although when David Fiderer’s book comes out, finally, they might have plenty of questions about Hank Paulson’s and Tim Geithner’s activities..


Iran Deal: Have Empty or Half Full?


Time magazine, the Washington Post, and New York Times endorsements, not withstanding, I can’t shake the feeling that President Obama, John Kerry, and the US came up short in the Iran deal. That’s mainly because I don’t trust the Iranians and believe that its leaders will say and do anything to get the sanctions removed. Displaying a shrewd market bizarre bartering mentality, they seem to have succeeded. It may take Iran a few years to produce it, but they will get their bomb (if they don’t already have 9/10 of it stored underground somewhere).


I don’t believe that any deal--which doesn’t allow unannounced UN visits to any and all Iranian sites dealing with the possible creation of nuclear weapon components or processes--hardly was the “best possible deal” we could get. 

So what if that requirement screams, “Iran, we don’t trust you.” We don’t.

The US never seems to learn that  these nations don’t share our values, democratic institutions, or principles.  So, whether it’s Russian adventurism in the Ukraine, Syrian “red lines,” negotiating with Iran on nuclear matters, or calling out Chinese hackers, who have stolen sensitive federal security and personal information, we seldom turn the screws enough and end up getting just that—screwed. 

Of course for this Administration, politically, it will be on someone else’s watch; just as a resolution of the GSE mess will be. But from now until the Iran deal blows up or gets congressional approval, President Obama can spout all of the legacy stuff he wants with only the “usual suspects” objecting. 

And the President thanking the Russians? It reminds of when I win at the casino. I am ebullient and after tipping the dealer generously, I’ll share a little of my winnings with generally the four or five other players at the table.

It’s a gesture and means little, since most are strangers and they didn’t lose, I just beat the house and won.

Obama’s happy, so he’s throwing around praise, willy nilly, whether it is deserved or not. The Russians are not our friends.

I would hope the Congress stalls the deal, raises one or more desirable changes which the Iranians have to swallow. We’ll see how badly that country wants the economic relief being proffered. 

If Iran is not into nuclear weapon making,  those treaty changes shouldn’t slow things down too much.


Trump Keeps Getting Better and Better

The “Donald” is exceeding even my destructive hopes as he runs like a wild bull through the GOP’s china shop, breaking political dishes slashing reputations, shining bright lights on his political skills, and roiling events. (I won’t mention spats causing his corporate conglomerate business and revenue.) 

The party elders—whomever they are (Reince Priebus. et al?)—are not going to lose their Republican Party pre-convention to Donald Trump, even though they may skunk him and lose the 2016 election. 

But Trump fast is becoming the best free political show in town. The “long knives” will come out for him soon, joining the internecine “shivs” already there.


Josh Rosner on the 7-18-Larry Kudlow radio show. (Link to show’s audio is below.) 

Sigh, Rosner’s remarks didn’t “wow” me, quite the opposite. I thought he missed several opportunities to nail the bad guys. He could have, but he didn’t or chose to not do so. 

Where he was most helpful was telling Kudlow that this Administration and GOP interests in Washington have been racing to embrace a new mortgage finance system which would be controlled by the very large financial institutions, whose aberrant actions hardly deserve being rewarded in that manner. Plus, they were those responsible for 2008 losses far more than F&F. 

That reality, I believe, is the single greatest vulnerability for possible F&F replacements. The TBTF guys will own it and , because—without a major F&F like structural substitute inside the process—the 15 and 30 year fixed rate loans are history or will be priced beyond the ability of most people to afford.


Rooting for Judge Margaret Sweeney and whomever is hearing the Lambeth appeal!


Here is a comment, found on the Tim Howard 717’s blog, in which poster “JMurrayx” lauds Judge Margaret Sweeney’s recent actions and said why. (OK, I applaud the move, but I’m still waiting for her first substantive plaintiffs’ call.)


1.   jmurrayx said:

The mere fact that Judge Sweeney has granted the legal teams in the other lawsuits access to Fairholme’s protected information and depositions, albeit under seal, means that she sees enough damning merit in the information to justify spreading the wildfire to the other lawsuits, a clear indication that the game is finally over for the Gov’t.

No self-respecting judge would let this happen if she didn’t see the writing on the wall (I am really holding back when I say this).

It kind of like knowingly letting the Trojan Horse enter the city of Troy!


What Others Are Saying


Trey Garrison questions sweep.



Borowitz in the New Yorker—Palin 


Thanks to old pals Wayne and Mary Sommerfeld for 55 years of friendship, education, and more, including this contemporary Abbott and Costello adaptation, explaining today’s “unemployment.”


COSTELLO :  I want to talk about the unemployment rate in America  .

ABBOTT: Good Subject.  Terrible Times.  It’s 5.6%.

COSTELLO:  That many people are out of work?

ABBOTT: No, that’s 23%. 

COSTELLO: You just said 5.6%.

ABBOTT:  5.6% Unemployed.

COSTELLO:  Right 5.6% out of work.

ABBOTT: No, that’s 23%.

COSTELLO: Okay, so it’s  23% unemployed.

ABBOTT: No, that’s 5.6%.

COSTELLOWAIT A MINUTE. Is it 5.6% or 23%?

ABBOTT: 5.6% are unemployed.  23% are out of work.

COSTELLO: If you are out of work you are unemployed.

ABBOTTNo, Congress said you can’t count the “Out of Work” as the unemployed.  You have to look for work to be unemployed.


ABBOTT: No, you miss his point.

COSTELLO:  What point?

ABBOTTSomeone who doesn’t look for work can’t be counted with those who look for work. It wouldn’t be fair.

COSTELLO: To whom?

ABBOTT: The unemployed. 

COSTELLO: But ALL of them are out of work. 

ABBOTT: No, the unemployed are actively looking for work. Those who are out of work gave up looking and if you give up, you are no longer in the ranks of the unemployed.

COSTELLO: So if you’re off the unemployment roles that would count as less unemployment?

ABBOTT: Unemployment would go down. Absolutely!

COSTELLO: The unemployment just goes down because you don’t look for work?

ABBOTT: Absolutely it goes  down. That’s how it gets to 5.6%. Otherwise it would be 23%.


COSTELLO : Wait, I got a question for you. That means there are two ways to bring down the unemployment number? 

ABBOTT: Two ways is correct.

COSTELLO: Unemployment can go down if someone gets a job?

ABBOTT: Correct.

COSTELLO: And unemployment can also go down if you stop looking for a job?

ABBOTT: Bingo. 

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to have people stop looking for work.

ABBOTT: Now you’re thinking like an Economist.

COSTELLO:  I don’t even know what the hell I just said! 

ABBOTT: Now you’re thinking like a Politician. 



Former Fed “Macher” Explains Greek Bailout 

My old Fed colleague, Ed Ettin, explained to me how the new Greek bailout will work. Think, carefully, when reading this folks.


It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted.  Times are tough, everybody is in debt, and everybody lives on credit. 
On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. 
The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. 
The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. 
The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel. 
The guy at the Farmers' Co-op takes the €100 note and runs to pay his drink bill at the taverna. 
The pub owner slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has been providing him with "services" on credit. 
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note. 
The hotel proprietor then places the €100 note back on the counter so the rich traveler will not suspect anything. 
At that moment the traveler comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town. 
No one produced anything…… one earned anything.
However, the whole village is now out of debt and looking to the future with a lot more optimism.
And that, my friends, is how the bailout package works.





Maloni, 7-27-2015







Monday, July 13, 2015

David, David, David.......


“The Hammer” Strikes Again and Soon Again!!!


Big news: His E-Book Coming 

I am very pleased and thankful that David Fiderer, who I dubbed the “Hebrew Hammer”-- for his super researched and tough GSE prose--is letting me publish the précis of his long awaited e-book, which everyone following this financial and political drama will want to read and re-read. (His e-book, shortly will follow, possibly in just days.)


David and I have become friends and political intrigue buddies and, likely, I have sent him more emails in the past two years than I have my entire family in all of their lives. I appreciate that he’s shared with me his many F&F revelations.


Federer’s GSE work—rightly so-- nails a lot of responsibility and blame on former Bush Treasury Secretary Hank Paulson for his tortured HERA charades, but then shows how Paulson’s successor, Obama Treasury Secretary Tim Geithner, rode with the same dubious script to the highly undesirable and legally questionable “Third amendment sweep.”


Fiderer’s e-book supports his allegations with publicly available documents.

Without further ado.


From the desk of David Fiderer.

The conspiracy to destroy Fannie Mae is not a

conspiracy theory, which would be based on a series of suspicious-looking dots that appear to connect.  The damning evidence is much more precise and concrete, and quite apparent when you follow the flow of funds, the debits and credits, and the repayment of principal and interest. 


It is impossible to compare the public statements with Federal statutes and regulations and numbers and avoid the inference that a lot of high ranking officials at Treasury, the SEC and FHFA (and its progenitor, OFHEO) lied to Congress and to the public.  (The most

damning public documents in relate to the disinformation campaign brought

against Fannie Mae beginning in 2002. So, while the legitimacy of Freddie Mac was also targeted by government officials, the focus here is on the

well-documented conspiracy against Fannie.)


The mendacious Third Amendment

scheme did not emerge out of a vacuum. Indeed, the saga may be divided into three interrelated conspiracies, akin to three acts in a Shakespearean drama. They are:


Act I: The conspiracy to fabricate the Fannie Mae "accounting scandal,"

Act II:  The conspiracy to fabricate a fraudulent justification for placing the GSEs in conservatorship, and

Act III: The conspiracy to prevent the

GSEs from ever emerging out of conservatorship.


The fraudulent meme--that the

GSEs were on the verge of collapse in September 2008, so that conservatorship was imperative--was devised by the same people who devised the fraudulent meme known as the Fannie Mae accounting scandal, using the same modus operandi, which perverted the meaning of "safety and soundness."


The fraudulent meme—that the government had a mandate to severely downsize the GSE business footprint as an interim step to final abolition--is embedded in Treasury's official policy, which forbids any discussion of the possibility that the GSEs might recapitalize.


This policy, which remains in force, was first set by Timothy Geithner in a report sent to Congress on February 11, 20011.


The report, "Reforming America's Housing Finance Market," offered three different legislative proposals:


1. Abolish time GSEs, so that the vast majority of

mortgages would be financed through private sources; or


2. Abolish the GSEs, so that the vast majority of mortgages would be financed through private sources, except during a severe downturn, when the government would intervene to stabilize the market; or


3. Abolish the GSEs and replace them with a

government-run mortgage insurance company, which relied on private insurers

taking the first loss.


Only Congress had the power to revoke the GSE

charters, which were set by Federal statute. And since GSE abolition is the starting point for any type housing finance reform, legislative action was imperative.


Shawn Tully described Geithner's policy in Fortune:



"Geithner's position enjoyed remarkably wide support from lawmakers, regulators, and economists across the political spectrum. The prevailing --virtually universal -- view was, and still is, that the twin colossi of housing finance that stuck taxpayers with a $189 billion bailout bill after their collapse in 2008, that inflated the real estate bubble with artificially cheap credit and hence helped sink the U.S. economy, should never, ever be allowed to regain their former dominance."


Tully reminds us of H.L. Mencken's immortal

words, "The intelligent, like the unintelligent, are responsive to propaganda."


Nothing about that paragraph survives scrutiny

• Not the $187 billion bailout bill,

• Nor their 2008 collapse,

• Not their contribution to the real estate


• Not their artificially cheap credit,

• Not their role in sinking the Economy.


None of it can withstand a modicum of fact checking.


Tully accurately described the scope and magnitude of The Big Lie Industrial Complex, which is largely financed by Koch Brothers think tanks such as the American Enterprise Institute and the Mercatus Center, and which extends or beyond the Treasury Department to America's elite business schools, the Republican Party, and a multitude of media outlets intent of distracting the public from the magnitude of Wall Street fraud.


What Others are Saying


While several items have  appeared while I was out of the office, the one I think most intriguing was this from Trey Garrison’s Housing Wire, in which former Delaware Attorney General, Myron Steele, argues in an amicus filing that Delaware State law—under which F&F operated—invalidates the “Third Amendment sweep.”

Maloni, 7-13-2015