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Sense on Cents Responds to Obama Administration Request for Input

Posted by Larry Doyle on April 14, 2010 2:34 PM |

President Obama wants input on the reform of the housing finance system. Given my career, I consider myself eminently qualified to give it to him. Despite this request, though, I still think he should focus on job creation (which he highlighted during his State of the Union address).

I welcome giving President Obama, Treasury Secretary Geithner, and the rest of the the White House economic team a very healthy dose of Sense on Cents. (My response is a little lengthy, but it is not everyday the President gives us this opportunity. Out of respect, I owe him my best effort.) I will let you know if they respond with anything more than a form letter, or if they do not respond at all. From the U.S. Treasury today:

Obama Administration Seeks Public Input on
Reform of the Housing Finance System

WASHINGTON – The Obama Administration today released questions for public comment on the future of the housing finance system, including Fannie Mae and Freddie Mac, and the overall role of the federal government in housing policy.  The questions have been designed to generate input from a wide variety of constituents, including market participants, industry groups, academic experts, and consumer and community organizations.  The questions will also be published in a Federal Register notice requesting public comments, and information on the process for submitting comments will be included in that notice.

“A well-functioning housing finance system is critical to the long term stability of the housing market,” said Treasury Secretary Tim Geithner. “Hearing from a wide variety of perspectives as we embark on this process is an important part of establishing a more stable and sound housing finance system for the American people.”

“This open process will help shape the future of our housing finance system,”said U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan “The Obama administration is committed to engaging the public as we consider proposals for reforming the housing finance system in the context of our broader housing policy goals, and the best steps to get from where we are today to a stronger housing finance system.”

The Obama Administration will seek input in two ways. First, the public will have the opportunity to submit written responses to the questions published in the Federal Register online at (LD’s edit: This link is an absolute joke. It is anything but user friendly!! I’d bet money there are less than a handful of comments submitted nationwide via this maze!! How do you spell disingenuous?)

Second, the Administration intends to hold a series of public forums across the country on housing finance reform.  Together these opportunities for input will give the public the chance to deepen the federal government’s understanding of the issues and to shape the policy response going forward.

Are they serious here? The administration honestly thinks public forums will deepen the government’s understanding of these issues. Gentlemen, the campaign ended in November 2008. Has the 2012 campaign already officially begun? Perhaps it has.

This effort is both in keeping with this Administration’s commitment to openness and transparency and the President’s Open Government Initiative.  This initiative represents a major change in the way federal agencies interact with the public by making agency operations and data more transparent and creating new ways for citizens to have an active voice in their government.

Well it’s about time!!

Mr. President, I am deadly serious and totally credible, if you want to present your administration as promoting transparency, then start by mandating the SEC to order the Wall Street self-regulatory organization known as FINRA to fully open its books and records for the last 5 years. Why? So the American public can determine if FINRA engaged in insider trading and front running in the liquidation of its $647 million auction-rate securities position in 2007. That’s the transparency that I and thousands of ARS investors who can not access their $150 billion (that’s right, BILLION) want to see. Mr. President, if you want a wealth of info on this topic, go here.

While we’re talking about transparency, mandate your SEC Chair to answer the charge that she lied in the proxy statement used for the very formation of FINRA in 2007.  Thousands of Americans, especially those housed within smaller broker-dealers, are very interested in hearing from Ms. Schapiro on that topic. If you are looking for info on this charge, Mr. President, go here.

Let’s get back to your request for input. Sorry to digress, but that transparency topic is a big one for us.

Questions for Public Solicitation of Input:

1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?

Sense on Cents: In all seriousness, a lot of what has transpired over the last twenty to thirty years, and especially over the last decade, should be thrown into reverse. In so doing, lose the idea that government is supposed to target a level of homeownership throughout the nation. A properly functioning and properly regulated housing finance system will do this just fine. The government’s primary role should be as the regulator, not as the financier. Why? The government has never shown an ability to properly price risk let alone understand it. Hire people into regulatory roles who: (a) know what they are doing, (b) are not hamstrung by red tape, and (c) can blow the whistle loud and long when they detect fraud. 

2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?

Sense on Cents: A healthy and viable housing market needs to price risk appropriately and allocate capital accordingly. Our housing market is certainly not doing that now. Stop allowing Fannie Mae and Freddie Mac to be a backdoor bailout for Wall Street banks laying off bad mortgages and the individuals who borrowed the money. Blank checks to off balance sheet entities such as Fannie and Freddie is no way to run a country. Allow GNMA to continue to guarantee FHA and VA insured paper (although you have to stop with the backdoor bailouts provided by the FHA, as well. Allowing FHA borrowers to get mortgages with next to no money down is not a good business practice. So let’s stop that, too!) while Freddie and Fannie should merely bundle, securitize, and then deliver MBS (mortgage-backed securities) into the secondary market.  Freddie and Fannie should get out of running what amount to private internal hedge funds via their portfolios. Let the private market set the mortgage rates, not Uncle Sam via Freddie and Fannie. If mortgage rates go up, so be it. We’ll survive, but risk will be priced appropriately. In regard to market discipline, put in a strong independent regulator who is not beholden to anybody!!  

3. Should the government approach differ across different segments of the market, and if so, how?

Sense on Cents: Understand that when the government enters a market as an investor or financier, they screw it up. Get out!! Allow the private market to appropriately price the risk. Are we clear on this? Where need be, the government can be an owner of housing for low-income families in areas lacking housing. That’s it.

4. How should the current organization of the housing finance system be improved?

Sense on Cents: Please see above where I mention to reverse almost everything done over the last twenty years. While you are at it, read 13 Bankers (by Simon Johnson and James Kwak) and break up the large banks which are now nothing more than an oligopoly supporting the Washington oligarchy. Bold move, perhaps, but you called yourself the agent of change. Let’s see it.

5. How should the housing finance system support sound market practices?

Sense on Cents: Transparency and integrity across all products and business practices. Stop listening to the crowd on Wall Street. While you are at it, tell your friends and your enemies to stop taking money from their Wall Street cronies, as well. This crony capitalism is not killing us, it has killed us!!

6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?

Sense on Cents: Make sure the consumers read Sense on Cents. After they promise to do that, make sure that mortgage and consumer products lay out cash flow obligations under a variety of scenarios. Make sure all reps and warranties on mortgage and consumer lending products are fully publicized. Hold mortgage brokers and originators, along with other providers of credit, to a fiduciary standard. Hold the executives of these companies accountable by throwing the book at them for unfair and usurious lending practices. You may actually have to start with that right now. Transparency is the great disinfectant.

7. Do housing finance systems in other countries offer insights that can help inform US reform choices?

Sense on Cents: Mend your relationship with Canadian Prime Minister Stephen Harper and have him give you and your administration a lesson in fiscal discipline.

You know, though, you really need to lose this whole idea of ‘spreading the wealth around.’ That’s not America.

This country needs to embrace the virtues of hard work, discipline, thrift, personal responsibility, and family.

In any event, I thank you for the opportunity to share my insights. I look forward to hearing back from you.

Think we might be able to have a beer in the White House backyard? I’ll bring for both of us!! You know, I really need to talk to you about Mary Schapiro. Please review those links.


P.S. Mortgage modifications are really just postponing the inevitable housing meltdown while laying the costs off onto our kids. It is truly not fair.

Mr. President, please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook. Have your administration sign up, too. They could really use this site to learn a few things!!

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