FRIDAY APRIL 23, 2010

You can't be serious!

President Obama gave a speech on Financial Reform yesterday at the Cooper Union in New York City.  Having had perfect foresight heading into the financial crisis, the President is now turning to reforming the entire financial industry.  And make no mistake, reforms are needed.  However, the President seems to have left out of his reform bill the big gorillas sitting in the room:  Fannie Mae and Freddie Mac.

You remember them.  The Government Sponsored Entities (GSEs) that were the great enablers of the subprime crisis.  The two companies that are now in "conservatorship" of Uncle Sam.  The two companies that have already cost taxpayers over $180 billion in losses in the last two years.  Gee, isn't that more than all of the losses the President claims were lost in TARP but really weren't because the banks paid it back with interest?  The two companies that had their loss allowance ceiling of $400 billion eliminated by Congress (they must know something!) on Christmas Eve.  The two companies that some economists forecast will lose over $500 billion.  The same two companies that have outstanding bonds and mortgage guarantees of approximately $5 trillion.  The same two companies that fought off "reform" in 2005 that would have prevented much of the crisis by spending more money on lobbying than any other financial company.  Interestingly, then Senator Obama was the third largest recipient of contributions from these two companies.  I guess that back in 2005, those dollars weren't  "the furious efforts of industry lobbyists" trying to protect "their special interests."  Only today's lobbyists do that!  Meanwhile, Fannnie and Freedie continue to bleed taxpayer money, quarter after quarter, in the name of saving the housing market.

Amazingly, a 1700 page Financial Reform bill makes no mention of these two wards of the state.  Of course, this allows Washington to brazenly place the blame for the crisis entirely on Wall Street while ignoring their generous contribution to the mess.  There are many good and necessary ideas in the reform bill.  Yet, I seems to me that the main thrust of the bill is to replace the old "regulators" (and there were plenty of them) with new "super regulators" that will never again allow "too big to fail" to occur.  Never mind that no where in the bill is there a definition of "too big to fail."  Of course, in 2005, Fannie and Freddie were slated for "reform" because many feared they were "too big to fail."  Any reform that ignores Fannie and Freddie can not be considered real reform.  As John McEnroe once said, "you can't be serious!" 

POSTED AT 1899-12-30 07:35:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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