Sunday, January 28, 2018

Are some anti-GSEs folks whistling past the graveyard??

A few GSE voices

My longtime friendly adversary Peter Wallison—with whom I greatly disagree but don’t dislike—took to the pages of the Wall Street Journal a few days ago to express his fear of a “rogue” US Treasury somehow backing plans to keep Fannie and Freddie alive as shareholder own entities (either corporations or utilities), despite the fact that he, his AEI colleagues, banking industry and media allies, and congressional Republicans, have been opposing that possibility for the past generation.

Let’s root for his fears.

Most people will remember that PW’s core predicate was/is Fannie Mae bought and guaranteed only low quality subprime loans in the 1990’s ultimately causing the nation’s 2008 financial Armageddon.

Wallison relied on the “research” of Ed Pinto, who briefly worked at Fannie and then later joined Wallison at the American Enterprise Institute (AEI).

Ed’s early mistake, from which his work never recovered, was applying silly, some would say contaminated analyses to assail his former GSE employer, using his own exclusive definition of “subprime mortgages” that nobody else in the mortgage finance world agreed was accurate, except Ed and his sponsor Peter.

Peter, who knew better--insisted on blaming the GSEs for the 2008 financial meltdown, refusing to acknowledge the pre-2008 hugely contributing damage caused by the major commercial banks and investment banks, when, foolishly, they tried cloning the GSE’s business model, but forgot to adopt the GSE quality controls and superior underwriting standards.

In 2007-2008, the big banks created $2.7 Trillion in poorly constructed mortgage backed securities with low quality mortgage loans--used falsely inflated ratings—and sold most of those crappy bonds throughout the world, making the US domestic real estate softening an international problem.

Those private label securities (PLS)—bank-created outside the GSE systems--bled red ink in record frequency and velocity.

The ugly fact for Peter and Ed was that Fannie’s books of business throughout the 1990’s and into the next century were the best of any national lender/guarantor, with infinitesimal default rates.

Peter was a member of the President Obama’s Financial Crisis Inquiry Commission (and a dissenter to its final report) and Don Quixote-like tried to have the Commission staff embrace the Pinto work, which the Commission staff rejected as having no merit.

That did not stop PW or the Washington anti-GSE cabal from repeating that meme for years, through today.

Since his work still is being saluted by some, it still needs rebutted.

After reading his WSJ article, I told Peter that —while I loved to think he was accurate—I didn’t believe he had a lot to fear, certainly near term.

I don’t think there is yet a final Administration or Phillips or Mnuchin plan for the disposition of the GSEs and Treasury won’t embrace one until they have nothing on their agenda more important politically. Then Treasury will do what most works for President Trump regarding GSEs.

And to put an exclamation point on my opinion of Wallison’s and Pinto’s  work, the Federal Deposit insurance Corporation (FDIC) this week published it history of the 2008 financial debacle and sustained much of what Fannie and Freddie advocates and Peter’s critics have been saying, pointing causal fingers at the big banks and investment banks PLS machinations, not the GSEs.

And some other GSE voices

In addition to Peter Wallison, some other voices sound worried the GSE train might pass by their stops, leaving them stuck in their seats like poor “Charlie on the MTA” (Kingston Trio, 1959, kids look it up…..and shouldn’t someone better get them Milken boys a sandwich!)

The Mortgage Bankers Association, with its President David Stevens having announced his retirement for this September (or thereabouts) insisted Congress needs to act on GSE reform first thing when it returns for duty.

I guess David thinks F&F have a higher national importance before Congress considers a US budget, immigration/DACA issues, the Wall, infrastructure, or any other governmental priority, which, frankly, outshines “GSE reform,” since right this minute--which is the time frame on which Congress focuses--there is no real Fannie and Freddie operational problem.

Qualifying mortgage seekers, with decent credit and the down payment, can go to most any lender and get a Fannie or Freddie mortgage, i.e. a loan the GSEs will securitize.

David also increased his proboscis length when he declared in a later interview, the GSE legislation he hopes comes from Congress this year “will do no harm to Fannie and Freddie” (gag, yak, barf!). Really David, really??

Joining Mr. Stevens, who just may be angling for Congress to answer his pleas before he has to step down and abandon his quixotic “kill the GSEs” odyssey, is the Milken Institute.

That’s the same Milken Institute, which recently employed and paid the salary of Michael Bright now firmly ensconced at Ginnie Mae.

Michael (and former FHFA chief Ed DeMarco) desperately want Ginnie Mae--the Government National Mortgage Association--to once again be the successor to Fannie Mae, as it became when Fannie was kicked out of the government into the private sector in 1970.

However, Bright wants Ginnie to inherit all of the GSE non-government insured or conventional mortgage financing as per legislation he’s drafted for Senate Republicans.

Damn them details.

Mike and DeMarco ignore-- or hope congressional R’s doesn’t know--that Ginnie is a tiny full-fledged federal agency with no substantive/qualitative back office or senior analytic staff capable of underwriting, creating, and managing hundreds of billions of dollars in conventional mortgage backed securities and are five or more years away from being able to achieve that, if indeed Congress wants that mess. (Details, details, huh Mike and Ed?)

A check of the records will show, I think, today Ginnie still contracts with Freddie Mac to do some/much of its work. (Worth noting, that when it was created in 1970, from Fannie Mae’s federal government mission of securitizing FHA and VA mortgages only, Fannie continued to do all of Ginnie’s back office work until the late 1980’s.)

Nonetheless, the Milken Institute tabbed “four experts,” Michael A. Stegman, Phillip Swagel, Theodore W. Tozer, and Milken’s Erich Kaplan to encourage Congress to get on the case and hurry and euthanize Fannie and Freddie. The quartet’s work on a legislative future only looked at two statutory options (hey guys, how about examining just a slight variation of the GSE status quo or are they too viable?) the MBA proffered plan--which GSE rumor has it was written by Wells Fargo Bank)--and, surprise, surprise, the Mike Bright Milken approach.

Could any of this expressed concern (Wallison, Stevens, Milken) screen a turning of the GOP’s political fortunes and possible D majorities in the Senate or House after this year’s mid-term elections?

GSE value reading. While the Washington policy world no-nothings--Tim Howard, MrF, G. Buckman, and other smart people to the contrary—get rapturous over GSE risk-sharing securities (which don’t transfer any risk just juicy dividends), here’s another view.

Wallison redux

*(On Friday,1-26) when this blog was being drafted, Inside Mortgage Finance reported that friend Peter Wallison could be Trump-named to  succeed Mel Watt when the latter concludes his tenure at the Federal Housing Finance Agency (FHFA). If that happens, I’ll polish my resume, certain that Peter would want my sage like advice to assist him. Grumble, grumble, he’ll probably hire Eddie first.)

Reading the above caused GSE investigator/author David Fiderer to inquire, “Does this now mean Bernie Madoff can get named to head the Securities and Exchange Commission?”

Stay tuned fans!

President Donald J. Trump

I don’t know if I was too hard on the President in my last blog, “Stormy, etc.” but as I told somebody in an email, “Shame on any of us who fail to speak up when we see behavior or events which violate our sense of community, civility, propriety, morality, or principle.

So many of DJT’s first year presidential actions crossed those lines for me that I can’t always keep quiet. Don’t invite me to your cocktail party unless you want to hear the same riffs.

But in fairness--for blog consumers--I will try just to focus on what’s observable to them and hope that readers who don’t agree with me, initially, might see my side, after reading my proofs or explanations.

Robert Mueller’s Investigation

(Before I add my two cents worth about the Special Counsel’s work--for those who think I am just an angry Democrat attacking Republicans wherever I find them--I’d like to offer what for me and the nation would be a wicked good GOP presidential ticket in 2020…..Robert Mueller and Ohio Governor John Kasich, two truth-tellers and honest guys; wouldn’t they be refreshing??)


Against a backdrop of bipartisan congressional and media outrage at the possibility that a foreign nation and historic pest had tampered with 2016 presidential election, the Trump Administration reluctantly responded and took action.

It’s crucial for people to remember that the Robert Mueller inquiry—which came about after Trump’s AG Jeff Sessions recused himself from investigating possible Russian interference, since Sessions was part of the Trump campaign —began when DoJ Deputy Attorney General Rod Rosenstein last May chose Bob Mueller, former head of the FBI, as a Special Prosecutor to investigate Russian collusion and related matters.

All those decisions were made by Republican officials from the President down through Justice, with Mueller himself having a sterling military, civic, and political GOP record.

After ten months and—mostly in the House--GOP Lilliputians wailing about unfair investigations, foot dragging, partisan complaints, conducting guerrilla warfare, the Mueller effort, now, seems reduced to three lines of inquiry.

--Was there Russian interference in the Trump election?

--Was there possible significant international money laundering through a variety of Trump or other business operations, about which DJT knew?

--And was there White House/Trump obstruction of justice actions, involving various firings and presidential misstatements, i.e. lies from Trump and his associates which could rise to impeachable offenses depending on the objectives of the fabricators/dissemblers?

It’s public record that Donald Trump and his family have lusted to do business in Russia and with Russians, beyond selling Russian individuals expensive properties in Trump Florida real estate holdings and other US locations.

The big Trump income return, beyond Russians buying his tchotchkes, is the family’s hope to begin major business development (ski resorts, health clubs, office buildings) in the former Soviet Union, which has a history of the government/political elite skimming a share of any investment and revenue from businesses, no matter the owner.

When people consider “money laundering,” think of what one of the Trump sons—was it “Uday” or “Cousay” (I know, Don. Jr. and Eric, who just remind me of the out of control Hussein brothers) –recently said when appearing on, surprise, Fox News: “My dad only cares about one color, green.”

That was the kid’s defense against calls that his father was a racist, but it also might explain the role of Trump Inc.—where both older sons now earn their “rice bowls” (it’s their sister and brother-in-law who are the federal employees)--which might have accepted hundreds of millions of dollars from Russian and other murky overseas sources looking to both “invest” but also launder Illegal and other dirty money.

I’ll let you decide if the all of the WH/Trump Admin personnel actions and tweets—fights with the FBI and US intelligence sources--represent any form of “obstruction” or interference with Mueller’s objectives??

“Collusion”—where most people see the hand of Russia’s Vladimir Putin and his intelligence/security forces trying to manipulate Trump and his team, utilize US social media to influence the election, hack into personal and institutional accounts, and then distribute the contents—is one item President Trump likes to offer up (paraphrasing), “There was no collusion. If there is no collusion, there is no reason for the Mueller investigation.”

That’s wrong Mr. President as suggested by the three investigatory matters identified.

If any one of the tripod issues gets supported by the Special Prosecutor’s work—that would cost the President both support from the American people and maybe, if the grievances are dire enough, your job.

Let Robert Mueller complete his work and don’t interfere. If you are innocent, you have nothing to fear and everything to gain.

I’ll close this week saying it appears to me the American people are wising up to the Trump con and the fact he’s a legendary “financial, deal making, genius” only in his own mind.

The American people deserve much better and Donald Trump needs to be more faithful to his day job if he hopes to survive his term in the White House.

We’ll see if President Trump's Tuesday’s State of the Union address offers those hopes or will be more of the same, “Look at me, I’m great.”

Maloni, 1-28-2018


Unknown said...

Thanks, Bill!
Just when I think all is lost, truth is dead, as well as Fannie a Freddie, you pen a piece that lifts my spirits with its message of hope and truth. You are a national treasure in my book, keep it up!

Anonymous said...

Although not a political analyst, I believe GSE haters will not be able to move a MOUNTAIN. The MOUNTAIN is tens of millions home loan borrowers satisfied with low interest rate.

Obama had the best chance of killing GSEs, but it did not happen. Now it is much more difficult. Walliston must know it and he is DESPERATE.

Bill Maloni said...

Ron--Thanks for the kind words. I plan to keep GSE writing.

Someone ("Joseph s") on the Google GSE blog offered a wonderful solution to those who don't like my political commentary...just read the GSE section and skip over the rest (although they will miss some wicked good humor and historical references)!!


Anon--Maybe the bad guys are beginning to see that (let's hope for Peter's fears); we'll know better once the new C-W 2.0 is out, we see the detail and the poltical and public reaction..

Bill Maloni said...

Here's a draft of the C-W 2.0 legislation.

I still am consuming it (and comments from those who have gone through it) and have no opinion other than it appears to sucks.

I don't think it dramatically moves the gauge toward passage for all of the reasons I've written about in the past few weeks.

Anyone who bumps into David Stevens, ask him if this bill really "doesn't harm Fannie and Freddie," as he assured his friend at IMF??

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