Bill Clinton Explains the Origins of Sub-Prime Lending

In a PBS NewsHour interview aired January 21, 1998, the day after President Clinton was inaugurated into his second term of office, President Clinton explains the origins of sub-prime lending.

Bill Clinton: Building the Foundation for The House of Cards

The Big Sub-Prime Gamble Godfrey Bloom

Flaws Cited in Foreclosure Review

Flaws Cited in Foreclosure Review By Alan Zibel - Wall Street Journal - April 3, 2013, at:

It would be interesting to know how many of the 'wrongfully' foreclosed borrower 'victims' were in judicial foreclosure states and how many such 'victims' were in states in which the mortgage / trust deed had a power-of-sale clause. And, in each case, it would be interesting to know what number of borrowers were actually in serious default when the foreclosure notice was served, and how many borrowers not in default were served with a notice of foreclosure.   

It seems one of the issues which has seriously complicated the foreclosure process arose out of the mis-management of note holder, mortgagee and land title records in the Mortgage Electronic Registration System (MERS). The Mortgage Electronic Registration System was conceived by Fannie Mae, and the development of the Mortgage Electronic Registration System was overseen and financed by Fannie Mae and Freddie Mac.

MERS is apparently seriously flawed. The system has few controls, a peculiar (or non-existent) managerial hierarchy, and MERS doesn't seem to be properly audited (or auditable).  

"Reston Based Company in the Middle of Foreclosure Chaos" by Brady Dennis & Ariana Cha - Washington Post 10/8/2010, at:

"Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory" By Christopher L. Peterson - SSRN, at:


Housing Bubble 2.0

Posted March 31, 2013

Are you interested in the single family home market?

If so, you might want to watch this interesting February 7, 2013 CNBC “Closing Bell” video in which David Stockman and CNBC’s Diana Olick(1) discuss the factors they say are driving a new bubble in single family home demand and creating a new home pricing bubble.

They also discuss the factors that might cause that bubble to, in Stockman’s words, “splat” and deflate at some point in the near future (1 to 2 years).

Other Resources:
(1) See, “Housing Market Already Shows Signs of a New Bubble” By Diana Olick - CNBC Realty Check - Tuesday February 5, 2013, at:

(2) If the implications of an institutional home buying bubble interest you, you might also want to look at an article that was published on Posterous on September 4, 2012 titled, “The Institutional Home Buying Bubble” at:

U.S. Citizens Held Hostage by Media Cretans

Bill Maher finally sniffed the smelling salts:   

In the broadcast Rachel says, "As Bill says, money is cheap".

What do Rachel Madow and Bill Maher know about the cost of money and the yield curve? What do Rachel Madow and Bill Maher know about the future cost-of-funds and how the U.S. Federal Reserve will accomplish rolling its’ massive debt in future interest rate environments?

Cheap and easy money (which inflated home prices in-rounds, and was serially loaned against ever escalating inflated real estate collateral) is the narcotic that caused the bubble we are currently attempting to work through.

For a more educated and experienced view of the cost (and risks) of the U.S. Federal Reserve’s cheap money policies: 

The Bernanke Market

Today, a friend sent me a link to an interesting article (see link below).
In his email my friend suggested that after reading the linked article, I read the first “Reader Comment”. The one from VonMises Jr.

The VonMises Jr. comment mentions Mr. Richard Fisher. Richard Fisher is the President of the Dallas Federal Reserve Bank, and he also sits on the Open Market Committe of The U.S. Federal Reserve Bank.

I’ve been following Mr. Fisher’s speeches for about four years now. Recently he has become very critical of the U.S. Federal Reserve’s Monetary Policy. He has likened the U.S. Federal Reserve’s monetary policy to "Monetary Ritalin" and he has mentioned the difficulties of a monetary policy that lacks a clear exit strategy by referring to the Fed’s Quantitative Easing III (QE III) as the The Fed’s “Hotel California Monetary Policy”. This reference evokes the last lines of The Eagles song, “Hotel California”, which were:

Obama Faces Pressure From Left on Housing Regulator

Obama Faces Pressure From Left on Housing Regulator  

 Wall Street Journal - Developments February 7, 2013

By Alan Zibel

Rep. Elijah Cummings (D., Md.) is among lawmakers calling on

President Obama to nominate a permanent director for the FHFA.

When will the White House finally have something to say about President Barack Obama’s pick to run the FHFA?

That question is on the mind of 45 House Democrats. The lawmakers, led by Reps. Elijah Cummings (D., Md.) and John Tierney (D., Mass.), sent a letter on Thursday to President Barack Obama urging him to nominate a director of the Federal Housing Finance Agency–-the federal regulator for Fannie Mae and Freddie Mac.

“We believe your re-election is a prime opportunity to put forth a new candidate who is ready and willing to implement all of Congress’ directives to meet the critical challenges still facing our nation’s housing-finance markets,” the lawmakers wrote.

The agency’s acting director, Edward DeMarco, has been criticized by Democrats on Capitol Hill, administration officials and liberal groups, all of whom have been calling on Mr. Obama to replace Mr. DeMarco.

Representatives for the White House and Mr. DeMarco were not immediately available for comment.

Why all the fuss about a seemingly obscure regulator? The most prominent area of conflict has been the FHFA’s refusal to accept the Obama administration’s offer to subsidize the cost of debt forgiveness for troubled homeowners.

Obama administration officials argued that Fannie and Freddie could actually save money by doing so but Mr. DeMarco said no, arguing that any potential savings would not be large enough to overcome other costs.

As Developments reported in December, the White House has been exploring potential leaders for the agency.

But the matter does not appear to be especially urgent for the administration as it focuses on confirming leaders for cabinet-level agencies such as the Treasury Department.

Another issue is that it may be difficult to find a FHFA nominee who could clear the Senate, where Republicans are likely to be skeptical of any choice: The administration’s first choice to run the FHFA, former North Carolina banking regulator Joseph Smith, withdrew his name more than two years ago in the face of intense Republican opposition.

Many on the left would like Mr. Obama to use a recess appointment to install Mr. DeMarco’s replacement. But that outcome is now highly unlikely, now after a federal court ruled that Mr. Obama’s use of that method to install three members of a federal labor panel was unconstitutional.

An historical observation relating to this pressure from the left on federal housing policy:


In November of 2011, at a business roundtable in Mid-town Manhattan a member of the press asked NYC Mayor Michael Bloomberg for his thoughts on the Occupy Wall Street Movement (OWS).

He said, “They are blaming the wrong people. Plain and simple, Congress caused the mortgage crisis, not Wall Street”.

Watch as Mayor Bloomberg makes his, Blame Congress Declaration

Black Swans

On Thursday (1/17/2013) The U.S. Federal Reserve Bank released the transcripts of its 2007 meetings. [Late 2007 was when the the great housing and mortgage bubble began to suddenly deflate.]

If you depend upon the most knowledgeable economic and financial experts to anticipate the economy’s behavior, and / or to give you advice on how you should behave, so as to grow and protect your assets, the two articles below may cause you to doubt the ability of such experts, and to confirm the existence of Black Swans.(1)
Days Before the Housing Bust, Fed Doubted Need to Act By Binyamin Applebaum – pub. New York Times - 1/18/2013, at:

Records Show Fed Wavering in 2007 By Jon Hilsenrath and Christina Peterson – pub. Wall Street Journal - 1/18/ 2013, at:
Timothy Geithner's flat-footed reaction is even more amazing when you realize that Geithner worked in the Japanese Embassy, as a Treasury Department attaché, at the beginning of Japan's "Lost Decade".

Japan's "Lost Decade' was a financial crisis which began with the collapse of the Japanese commercial real estate bubble. The collapse of the Japanese commercial real estate bubble created problems for the Japanese economy which are very similar to the problems U.S. and global economies have been experiencing since 2008.(2)

From a January 18, 2013 New York Times article, "Days Before The Bust, Fed Doubted Need to Act" By Benyamin Applebaum (at the time of the Federal Reserve's transcript's creation William Poole, was the Chief Executive Officer of the Federal Reserve Bank of St. Louis).
“The outcome would have been different only if the Fed and others had reacted back in 2004, 2005, 2006” to curtail subprime mortgage lending, Mr. Poole, now a senior fellow at the libertarian Cato Institute, said on Friday in an interview on CNBC.(3)
(1) For more on Black Swans see Wikipedia entry, at: 

(2) For more on Japan’s Lost Decade see Wikipedia entry, at:

(3) For the full CNBC interview with Mr. Poole go to YouTube and watch, An Interview with former President of the St. Lewis Federal Reserve, William Poole:

"The Role of the Government Sponsored Enterprises and Federal Housing Policy in the Financial Crisis”, at:

On YouTube key-words-search, and watch, a January 1998 PBS NewsHour interview with then President Bill Clinton, titled "Bill Clinton: Laying the Foundation for The House of Cards"

Soft Dollar Brokerage - Issues of Disclosure and Transparency in Bundled Institutional Soft Dollar Brokerage Arrangements

Yesterday someone asked me a question about the American Century Funds. I thought a bit, then connected American Century to American Century’s Sr. Vice President, Harold Bradley, who you may remember stated in his Congressional Testimony in 2003(1) that soft dollar brokerage was an approximately 1.2 billion dollar per year drain on investors’ assets.(2)

In 2003, after reading Mr. Bradley’s testimony, and realizing that he derived his estimate from a Greenwich Consulting Survey, I reviewed the Greenwich Survey, found the flaw in Greenwich’s questionnaire and I algebraically computed a more accurate annual drain on investors assets from (all) soft dollar brokerage arrangements. I recall Integrity Research Associates published an article I wrote about the survey question, and the computational error.(3)

At that time, I sent letters describing the survey error and the computational error to the then Chairman of the SEC, Christopher Cox, to staff members of the SEC’s Office of Compliance, Inspections and Examinations (OCIE), to Greenwich Associates, to Senator Christopher Dodd, and to Harold Bradley at American Century Funds. I never received replies from any of these recipients.

When I was asked about American Century Funds yesterday, I connected the funds’ name American Century to American Century’s Senior Vice President, Harold Bradley. And, I was interested in doing a key words search on - Harold Bradley soft dollars – just to find out if he got my message.

I was pleased to see that Mr. Bradley is now quoted as estimating soft dollar brokerage costs at “about 12 billion dollars a year . . .” however, he doesn’t explain where the other 10+ billion per year in his estimate comes from.(4) I suspect the new 10+ billion of soft dollar brokerage Mr. Bradley now includes in his estimate is the non-transparent soft dollars which institutional investment advisors generate in bundled undisclosed soft dollar arrangements with full-service brokerage firms' institutional trading desks.

It would be interesting to know if 10+ billion still is actually a good current estimate of total institutional soft dollar brokerage. It seems to me that competition, new transaction efficiencies, and trading cost compression would force a smaller portion of total institutional brokerage commissions to be used in 'paid-up' soft dollar brokerage arrangements. (It seems in the current environment of very high quality transaction cost analysis, it would raise questions if investment advisors paid significantly higher brokerage commissions than what is required to compensate the executing broker for the broker’s fully-negotiated costs of transaction execution.

[In mid-2007, after SEC Chairman Christopher Cox sent letters, to Senator Christopher Dodd and Congressman Barney Frank, requesting that “Congress consider repealing or substantially revising Section 28(e) of the Securities Exchange Act of 1934”(5) In his letters Chairman Cox mentioned the potential investment effects of an excess of 1 billion dollars of third party brokerage soft dollars.

At that time, I again sent a letter to SEC Chairman, Christopher Cox, to Senator Christopher Dodd, and to SEC Staff at the OCIE. In these letters I attempted to explain that the 1 billion dollars of  fully-disclosed institutional third-party soft dollar brokerage seem to invite far fewer abuses, and fewer conflicts-of-interest, than my estimated 6.5 billion dollars of  soft dollars institutional investment advisors generate in bundled undisclosed soft dollar arrangements with the institutional trading desks at full-service brokerage firms.] (6)

(1) From the supporting documents included in Mr. Bradley’s Congressional Testimony, it seemed obvious that Mr. Bradley’s estimate was based on a flawed survey produced by Greenwich Consulting.

(2) Harold Bradley’s Congressional Testimony on soft dollar brokerage March 12, 2003:

(3) Integrity Research article on the Greenwich Survey’s soft dollar brokerage question:

(4) Key-words-search on: Harold Bradley Soft Dollar Brokerage

(5) See, SEC Chairman Christopher Cox’ May 17, 2007 letter to Senator Christopher Dodd in which Chairman Cox requests that Congress “repeal or substantially revise Section 28(e) of the Securities Exchange Act of 1934”, at:

(6) June 1, 2007 letter to SEC Chairman, Christopher Cox and U.S. Senator, Christopher Dodd which discusses the true magnitude, and potential for abuse, of non-transparent undisclosed bundled soft dollar brokerage arrangements, at:

Other Relevant Resources:
(1) A brief history of soft dollar brokerage titled, “Thirty Three Years Later” Published September 2, 2008, at:

(2) Manager – Investor Conflicts In Mutual Funds By Paul G. Mahoney pub. Journal of Economic Perspectives Vol. 18 #2 Spring 2004 page 172 (which is page 12 of the linked .pdf) at: 

(3) Advisors Misreport Use of Soft Dollars By Sara Hansard published Investment News July 24, 2006, at: and

(4)  An example: SEC Press Release: SEC Charges Fidelity, Executives Employees For Accepting Lavish Gifts Paid For By Brokers pub. SEC Website, March 5, 2008, at: and Fidelity Investments Settles SEC Gift Lawsuit by Riley McDermid & Jonathan Burton - published MarketWatch, March 5, 2008 at:

(5) What motivated many of the abuses outlined in the SEC’s Spotlight On: The Global Analyst Research Settlement, at

"The Fed's Hotel California Monetary Policy"

In recent speeches Dallas Federal Reserve Bank President, Richard Fisher has been likening how the U.S. Federal Reserve Bank’s bond purchase programs (the Q.E.’s) seem to be “boxing” the Fed into a long duration portfolio of expensive wasting assets. Mr. Fisher calls the strategy, “The Fed’s Hotel California Monetary Policy”.

After doing a little research, and a few key-words-searches, on Fisher's theme I found an interesting website which adds a little explanation - and some musical entertainment - ‘fleshing-out’ Mr. Fisher's notion.  The web-site is called, Mish’s Global Economic Trend Analysis. I thought you might like to see Mish’s explanation of Fisher's “The Fed’s Hotel California Monetary Policy”.

Every hyperlink (except the ads) on the linked article is worth visiting, in my opinion.

"Relax" said the night man, “we are programmed to receive. . . you can check-out any time you like, but you can never leave!"