Monday, September 28, 2009


In last week’s blog, I called on federal regulators and others to get tough with the miscreant lenders and financial services companies, which have not been serving the markets or even performing their reciprocal responsibilities in exchange for the billions in federal TARP money they received from Treasury and the Fed.

Well, hurrah for federal district judge Jed Rakoff, of New York, who balked at the paltry $33 million fine given by the SEC to the Bank of America, for letting BoA’s newly acquired investment bank, Merrill Lynch, pay billions in employee bonuses. Rakoff said that $33 million wasn’t nearly enough and while that lowly amount may have satisfied the securities regulator and the bank, it did nothing for the public or BoA’s shareholders. (Note to SEC: BoA received some $45 Billion in TARP funds. They probably could have handled a larger fine.)
Get ‘em Judge Rakoff and take a lesson Mary Schapiro!

Maybe that’s the answer to all of the proposed financial regulatory change. Let’s just get the regulators out of it and let federal judges—with their life time tenures—handle these matters and maybe some robed stalwarts will emerge to stand up to the ”bad guys” on behalf of the consuming public.

That would be an interesting test to see if the public preferred new financial regulatory regimes or judges around the country handing out these “who broke what laws” decisions?

With all due respect to Dewey “Pigmeat” Markham and Rowan and Martin’s “Laugh In,” “Here come the Judge,” may be America’s new cry for corporate justice!!I

In the meantime, Rep. Barney Frank (D-Mass.) and the House Financial Services Committee soon will shape a major financial regulatory reform package.

Frank initiated the activity last week--trying to win some GOP votes and hold some Committee Democrats, too--by announcing several major changes to the Administration’s proposal to create a consumer finance protection agency.

One question I would ask the Committee Democrats, “Why water down your bill? How can you go wrong –in the public’s eye--if you produce a bill which the large commercial banks oppose?”

It doesn’t matter how much you appease the big banks with the legislation, the banks still will try and kill it.

It is not in the bankers DNA to support anything called “the consumer financial protection agency,” without changes that gut the intent. So why are you trying so hard to romance them? You won the 2008 elections with big numbers. Use them.

Nobody’s going to leave this town unsullied or pristine. Do you want to be remembered as a lamb or a wolf, someone who toadied for the financial interests or someone who stood up and snarled at the big banks?

Ask your constituents that question?

While you’re designing this agency, change the “advisory board” feature, since it contains every agency whiose ox gets jurisdictionally gored.

Your provision is a recipe for marginal and diluted action or just continuous internecine warfare as the Advisory Board would seek to protect lost agency turf, as the CFPA tries to build consensus.

Every regulator in town already defers to the Fed, what’s this new one going to do when their Fed advisory board member cries “No” about some agency proposal?

If you are going to give a consumer agency serious power, then give them to it. Or you risk doing just what the banks say you are, “building another layer of regulatory bureaucracy that will slow down business and not provide much protection to anyone,” save those who get tenure in the new shop.

By the way, the people hammering Mr. Frank to change this bill generally are those who don’t think the banks did anything wrong during the recent 401(K)-crushing financial tsunami.

What is wrong with demanding that all lenders covered by this new regulator offer an understandable set of “plain vanilla products” to those not as knowledgeable and sophisticated as the Congress and its staffs? Why can’t the public be offered a loan we comprehend and which won’t jump up and bite us in the wallet, a year after we get it?

Why is Capitol Hill afraid of offending the banks?

If the Hill stands up to the depositories and the Obama Administration financial regulators do too, what are the banks going to do, become credit unions, start selling fried chicken, or used cars?? Call their bluff, here and elsewhere.

The Congress, the Treasury, and the Fed need to wear their “big boy pads” whenever they engage the banks or big financial service companies in the Capitol’s version of “regulatory and political football.”

That will get more positive results than if the Congress starts channeling Neville Chamberlain.

Maloni 9-28-2009

Wednesday, September 16, 2009

Rein In Risk? Clone AC the AG!

On the one year anniversary of the Lehman collapse, President Obama called on Wall Street to help him rein in risk and pass major financial regulatory reform legislation.
You almost could hear someone say, “Hey Mr. President, can I sell you a bridge and some land in Florida?”
The President’s not that naïve. He knows that he has to go through the motions and make a call for help to many of those who caused the very financial problems from which his Administration, the nation, and the world still are trying to extricate themselves.
Ask Wall Street not to take risks? That’s like asking the American public to stop driving, eating fatty, salty foods and drinking beer and soda.
Wall Street lives on risk and makes beaucoup bucks channeling and charging to manage that risk, sometimes failing dramatically. But that won’t stop them.

“The greater the risk the greater the reward” probably wasn't coined in Sunday school.

It’s understandable in the aftermath of what has happened financially to want to “reduce risk,” but some caution here.
Our country wasn’t founded nor developed by those afraid of risks. The risk takers managed and overcame the risks.
We need edgy entrepreneurs on Wall Street, Main Street, and any other street because innovation and creativity drive our nation’s businesses and the “business of the United States” should be business.

The federal government’s role to that dynamic is to regulate those risks, which it failed to do under President Bush and has yet to do under President Obama.

Recently the New York Times wrote about several major Wall Street firms exploring for creative ways to “monetize” the returns from death benefit insurance policies by buying them early from policy holders-- before the latter-- then securitizing them and selling them to investors.

Atta way Wall Street, no risk there!! What happens when our healthcare system works and all of those 70 year olds begin to living until they are 90 and those bonds don’t pay because Gram and Grampa haven’t croaked!!

Well, those issuing companies lose money, i.e. the market works!!

But I see nothing wrong with those companies—many of which wouldn’t self identify for the Times--investigating this new form of “securitizing receivables.”
The federal government’s response, whether a business wants to securitize mortgages, furniture or computer receivables, automobile and student loans, or life insurance payoffs should be stronger and better regulators, not banning the initiatives because of perceived risk.

Measure the risk, insure against it—both financially and socially—and then let the market work. Penalize those miscreants who break the law or violate the regulation.
I could argue that the President’s entire new regulatory regime is unnecessary, save a few small pieces, if he could find enough quality people to run the financial regulatory agencies now in place.
Calling on Wall Street to help “reg reform” is necessary PR, as will be the “Street’s” assurance to Obama that it will look objectively at all of the risk reduction proposals. (Gag, yak!!)

The President needs to get his own appointees to agree on his reg reform proposals, before he gets Wall Street to pick and choose new regulatory poisons.

The Fed, shilling for the big banks and “too big to fail” crowd, wants one thing. Shelia Bair, shilling for the small banks, wants something else. The Comptroller of the Currency, a Bush carryover appointment (John Dugan, a neighbor and a friend) argues a third thing. The SEC wants Wall Street securities action largely for itself. And Treasury doesn’t want to lose turf or standing to any of them.

The industry groups line up behind whichever government official gives their crowd the best seat at the table and then they go to their "friendlies” on the two financial services committees and buy most of those splintered votes, which is why omnibus regulation is always so tough to achieve.

Tougher and meaner regulators—with slightly enhanced powers—would be a better deal for the American public than a protracted show in the House Financial Services and Senate Banking Committees on these “fixing” issues, which have been around for years.

I may lose a lot of my friends with this next statement, but the type of federal regulator I have in mind……are individuals like Andrew Cuomo, New York’s Attorney General.

Now, I have made fun of Andrew for some time because of his incredibly large ego and his naked political ambition (not naked like his predecessor, though, thank God).
Cuomo’s press operation is next to none and if there was a market for it in the New York media, I am sure that his staff would put out a regular “The AG’s Bodily Function Reports.”

But whether he is running for Governor or President (King?), down the road, Cuomo has scared the hell out of the financial services industry and forced them to toe several lines he’s drawn. The public likes that about him.

There are various Obama regulators who could have taken the same tack and could have produced some of the same pro-public results, but they didn’t.

Cuomo’s record may be self serving, but it is a good "stand up to the financial powers" record. His actions have not been unlike my advice to the Obama Fed and Treasury appointees. Take a few prominent industry heads and bang them together or chop them off. They will notice it and so will their peers.

New regulatory schemes can be intellectually enticing, but until that happens, I am rooting for a few “Andrew Cuomo financial regulatory clones” to make federal financial regulation fearsome and respected not diluted and benign.

Maloni 9-16-2009

Thursday, September 10, 2009


A few days ago, the Mortgage Bankers Association (MBA) unveiled its plan for the future of Fannie Mae and Freddie Mac. The trade association would turn Fannie and Freddie into smaller privately owned organizations which would issue not private but federally backed mortgage guarantees on conventional mortgage pools.


Private entities don’t issue federal guarantees, which is why they are called “private.”
But a “federal guaranty” on a pool of “conventional” (not explicitly backed by the government such as FHA or VA loans) would sure be attractive for the issuer, meaning the mortgage bankers, virtually of all which today are owned by large commercial banks.

Simply stated, the mortgage companies and their “always with their hands out” large bank owners just want another sweetheart financial arrangement, using Fannie and Freddie and taking Uncle Sam’s money.

I’ve noted that the MBA should long ago have been taken in by the American Bankers Association (ABA), since “independent” mortgage banks ceased to exist when the large banks bought up all of the large mortgage companies.

MBA is a faux branch of the ABA and I hope most congressional policy makers realize that fact. Those Members and Senators—and their staffs--should make it a practice to ask “who owns you” to every visiting mortgage company exec, to see the reality of who is seeking what.

For years the MBA worked in league with Fannie and Freddie, but most of that stopped when the two major mortgage investors began introducing automated underwriting and massive systemic efficiencies, which were wonderful for consumers, but deadly for lenders who often found ways to charge unknowing mortgage borrowers for market inefficiencies.

When Fannie and Freddie started agreeing to buy lender loans within days and hours of being presented with the loan package, lenders—because of a competitive primary home mortgage market—couldn’t load junk fees onto borrowers, or the mortgagors would take their business elsewhere.

When that reality hit the mortgage market, the MBA suddenly found reasons to oppose Fannie Mae and Freddie Mac for all sorts of reasons.

The reality was that lots of mortgage bankers hungered for the old days when they could run up the cost of mortgage originations and make a ton of money on junk fees and other costs. But, the “new Fannie/Freddie mortgage technology world" turned ended that world.

To me, what is maddening about this latest suggestion is that the mortgage banker/commercial banker owners are looking for more tax payer financial support, to the billions they collectively have been given already.

Yet, they have largely failed at the one major mission which the Obama Administration gave them: restructuring or otherwise refinancing a few million underwater, upside down, and or otherwise salvageable mortgage loans.

I know why the mortgage companies and the banks don’t want to expedite this work. It’s not easy and it’s not profitable. Forget that many of these institutions—and their parents—already have been paid in TARP funds to do this one job, but it seems to escape their collective skills.

Which raises for me the same question I’ve asked before in this blog?

Why is the Obama Administration so accommodating of the large banks and their mortgage banking subsidiaries

I’ll repeat my “old West” solution to this vexing problem, since banks only respect regulatory power (which they constantly try and dilute).

Tim Geithner and Ben Bernanke need to begin chopping heads among TARP Fund recipient bank CEO’s and other senior financial institutions officials, who fail to move quickly enough on healing their share of this national mortgage problem.Set an enforceable goal of loans per month that the larger institutions need to restructure and then fire those TARP recipient CEO’s who repeatedly miss their respective goals.

The banks and their minions always will be first in line when Uncle Sam is giving out cash, but they hunker down somewhere—issuing press releases—when real work benefiting others is needed.

As I noted, the banks already have been paid by the federal government and likely will get more, so what’s wrong with our government demanding some accountability and insuring consequences when that minimal success isn’t forthcoming?


Jim Lockhart, the former Fannie and Freddie regulaor was quoted last week as saying the Congress failed to pass legislation needed to fix the two companies.

Typical GOP ass-covering.

Let me remind Mr. Lockhart that the most significant Fannie and Freddie problems—which occurred when Mr. Lockhart was the primary GSE regulator in 2006--were the massive purchases by both institutions of billions in poorly underwritten Alt A and private label subprime mortgages, which later heaved red ink.

Gee Jim, all of that mess happened during the Bush Administration, on your watch and, apparently, with your blessing. You objected to none of those acquisitions.When you were Fannie’s and Freddie’s regulator, you did enough damage to them. Don’t muddy the waters, further, with self serving falsehoods aimed at indicting congressional Democrats for your shortcomings and those of other Bush financial regulators.

Maloni 9-10-2009