Riding Herd on the Financial Range - # 14
Sponge Bob Barney Square Pants Frank wants Fannie and Freddie to take more risk in condo developments
7.7.2009
Howdy Folks,
I hope everyone had a great 4th of July and celebrated what little is left of our Independence and freedoms. I also hope between all the beers and burgers, we all had time to reflect on our traditions, our Constitution and where our country is going. Civil Debate and Discussion is healthy although more than a little difficult at times with the true believers in the Cult of Obama playing the protagonist. Of course being open minded and un-opinionated I welcome all views and only get upset when there are no facts, or science, or logic attached to the discussion. I also have little use for those that are blind followers looking for the one eyed Jack, or pick up their marbles and want to go home when one might questions in any way the Great One himself. As elected officials, they all can be questioned and should be. So there is still time to make our voices known.
We went to several parties over the long weekend, and frankly people are worried. I am sure worried, and we all seem more than a little angry when actually presented with the facts as to what has and is happening, as well as what some of the legislation being passed means to each of us and not just the other guy. I used to think it was apathy that was keeping people out of the streets, but I have changed my mind on this. I think generally we are so focused on just getting through the month that there is no time to read, debate, or even think about anything else. That is why all of the middle of the night, lengthy and confusing and mislabeled bills appear innocent on the surface and do not get read, but are being simply passed without sufficient public debate that would undoubtedly result in outrage. This is political subterfuge and sleight of hand at its worst, or best depending upon your point of view.
Of course it isn't helping to have our free press, our last line of defense, simply not to its job, and is therefore completely complicit in promoting the One’s "agenda." However, I did get a warm tingle down my leg last week when Helen Thomas of the White House Press Corp and her colleague actually asked a real question. Remember the one about hand picking questions for participants at Town Hall meetings, where Barry saw the questions in advance? I guess these two anyway thought they were being set up as stooges; and guess what, they were.
Meanwhile, I tried to avoid reading anything or watching anything myself over the weekend as I couldn't stand one more minute of the white washing of Michael Jackson's career and personal achievements, or the resignation of Sarah and just how awful that was. Maybe it was, but I got it the first time.
I did see the market today, which still seems to be reeling from last Thursdays NFP announcement. I think maybe the green shoots may have died before their time to sprout. But don't worry folks, I see that we may get another even bigger stimulus package since the first one worked so well. And of course we still have National Health Care, which the administration plans to ram down our throats before August. So you see we still have lots on our plate to gag on and digest.
A really quick note across my screen that needs following is from Sponge Bob Barney Square Pants (you can tell the grandkids are still here); you know the guy that rules the House Finance committee and got caught running a male prostitute ring in his basement? Not to mention one of the main characters in the U.S. housing collapse. Well he just proposed a bill to lower the lending standards for Condo buyers. The Wall Street Journal had this to say:
"Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to "roll the dice" in the name of affordable housing. That didn't turn out so well, but Mr. Frank has since only accumulated more power. And now he is returning to the scene of the calamity with your money. He and New York Representative Anthony Weiner have sent a letter to the heads of Fannie and Freddie exhorting them to lower lending standards for condo buyers.”
Yup, you read that right. After two years of telling us how lax lending standards drove up the market and led to loans that should never have been made, Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development.
Fannie and Freddie have restricted loans to condo buyers in these situations because they represent a red flag that the developments -- many of which were planned and built at the height of the housing bubble -- may face financial trouble down the road. But never mind all that. In all their wisdom and years of experience underwriting mortgages, Messrs. Frank and Weiner think that the new rules "may be too onerous."
And in a display of the wit for which Mr. Frank is famous, the letter writers slyly point out that higher lending standards won't reduce taxpayer exposure to bad loans because the Federal Housing Administration has even lower standards for condos. "While the underlying goal may be to reduce taxpayer exposure relating to the current conservatorship of the GSEs [government sponsored entities], such a goal would not have such an effect if it merely results in a shifting of loans from the GSEs to the FHA." Tougher lending standards will merely shift market share from one government program to another, so what's the point in being cautious?
Fannie and Freddie have already lost tens of billions of dollars betting on the mortgage market with that bill being handed to taxpayers. They face still more losses going forward, because in the wake of their nationalization last year their new "mission" has become to do whatever it takes to prop up the housing market. The last thing they need is lawmakers like Mr. Frank, who did so much to lay the groundwork for their collapse, telling them to play faster and looser with their lending standards.
Fannie and Freddie have always been political creatures under the best circumstances. But we don't remember anyone electing Mr. Frank underwriter-in-chief of the United States."
Okay enough fun for this evening.
Your humble editor, Russ
About Russ Magarity
Jackson, Wyoming Distressed Patriot Russell Magarity and Chris Janelli, Chief Distressed Patriot, have been business associates and close friends since working together at Chase Manhattan Asia in Hong Kong. Russ grew up in Cuba and Panama and graduated from High School in Peru. He received a BA in International Relations from the University of Oklahoma (Norman), an M.B.A. from the Universidad Autonoma de Guadalajara (Mexico), and a Masters in International Management (with Distinction) from the American Graduate School of International Management (Thunderbird).
Russ spent his career with Chase running countries and managing corporate finance businesses in Brazil, Mexico, Hong Kong and throughout SE Asia. Prior to joining Chase, he served in the US Navy for 9 years first as a Midshipman and Naval Aviator. As a carrier pilot, he served 3 tours in Vietnam and flew over 250 missions.
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