Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

covers over 5,000 stocks every day.

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and commentary can be found HERE.

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HERE.

January 26, 2010 – What I Would Do As Fed Chairman

What I would do as Fed Chief. The jobless rate rose in 43 states in December. What to do with
Fannie and Freddie. Three large regional banks have growing loan problems.
What I would do as Fed Chief - As an outsider with no ties to Congress, political party or to any
member of the FOMC Board of Governors, my first step is to admit the Fed mistakes and raise the
federal funds rate to 3%. I want to support the dollar, flatten the yield curve and pre-emptively cut the
risk of inflation.
I want to give Americans on Main Street higher interest rates on savings and money markets. I have
always opined that in the US a federal funds rate below 3% was never a prudent monetary policy
choice. This might finally provide an incentive for increased consumer spending.
I would immediately begin to slowly unwind quantitative easing measures by allowing GSE mortgages
and debt to mature, and not buy additional such securities. End it now, not the end of March.
I would establish a single Discount Rate at 1% for commercial banks and primary dealers to provide
liquidity when a financial institution faces stress. I would disclose the names of the firms using the
Discount Window and why. This would set up the mechanism to help unwind “too big to fail” financial
institutions.
I would give expanded oversight authority to the Open Market Trading Desk at the NY Fed. The
Federal Reserve traders are the eyes and ears of the primary dealer community and should be able to
judge the performance of their trading partners by their conduct of business with the Fed. I would re-
instate face to face meetings between the Desk and the dealers on a monthly basis to review balance
sheet risks and mark-to-market issues. I want to be ahead of monetary policy changes not react to
conditions in hindsight.
The Jobless Rate Rose in 43 States in December - 43 states reported higher unemployment rates in
December, which to me is a resounding warning that the US economy lacks traction. With 600,000
leaving the work force in December the unemployment rate is worse than reported.
Barney Frank, a Champion of Fannie Mae and Freddie Mac now wants to abolish them. As
readers know I favored the liquidation of Fannie and Freddie months before the US Treasury took them
over in Conservatorship. I suggested beefing up the government-backed Ginnie Mae mortgage
program, while gradually liquidating Fannie and Freddie debt and mortgages. Instead US taxpayers are
on the hook for $111 billion and counting and will be covering all GSE losses through 2012, leaving a
lifeline that could be double the current $400 billion.
By expanding the role of Fannie and Freddie the implicit guarantee has become explicit making all GSE
mortgages and debt the obligations of the US government and hence taxpayers. Wall Street and
investors would have been on the hook under liquidation, not taxpayers on Main Street. It was Wall
Street who sold GSE debt and mortgages to global investors stating that they were government-
backed, when they were not. Exotic mortgage-backed securities and related derivatives spread around
the world were described and indorsed by Fed Chair Alan Greenspan as the way to spread the risk.
Because of Wall Street Greed US citizens will be backing $5.5 trillion in GSE mortgages, and nearly $2
trillion in GSE debt. This must be added to the more than proposed $14 trillion US debt ceiling.
The Large Regional Banks have hidden bad loans
BB&T Corp (BBT) charged off $517 million bad loans up 10.5% from the third quarter and
nonperforming assets increased 7%. BB&T increased reserves for losses by nearly $200 million to
$725 million. BB&T are slightly overexposed to C&D loans with a stuffed pipeline at 87.3%.
Huntington Bancshares (HBAN) described economic outlook as uncertain and fragile. They set aside
$894 million for its loan-loss reserve up 88% from the third quarter. HBAN is overexposed to C&D loans
with a stuffed pipeline at 81.1%.
SunTrust Banks (STI) described their results as continuing to be affected by recessionary pressures
evidenced by soft revenue and weak loan demand from both consumer and commercial borrowers.
The bank is hard hit by home equity and mortgage lending exposures in the struggling housing market
particularly in Florida. Net charge-offs declined 18.7% to $820.5 million and loan loss provisions
declined $217 million to $973.7 million. Noncurrent loans totaled $5.4 billion. STI is not overexposed to
C&D or CRE loans but their portfolio of $8.75 billion in C&D loans are 82.9% funded, which is a sign of
stress.
Send me your comments and questions to Rsuttmeier@Gmail.com. For more information on our
products and services visit www.ValuEngine.com
That’s today’s Four in Four. Have a great day.

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Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as
well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the
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“I Hold No Positions in the Stocks I Cover.”