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: http://www.nytimes.com/2013/01/19/business/economy/fed-transcripts-open-a-window-on-2007-crisis.html?nl=todaysheadlines&emc=edit_th_20130119

Records Show Fed Wavering in 2007 By Jon Hilsenrath and Christina Peterson – pub. Wall Street Journal - 1/18/ 2013, at: http://online.wsj.com/article_email/SB10001424127887323968304578249664285846402-lMyQjAxMTAzMDEwOTExNDkyWj.html?mod=wsj_valettop_email
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: http://en.wikipedia.org/wiki/Black_swan_theory 

(2) For more on Japan’s Lost Decade see Wikipedia entry, at: http://en.wikipedia.org/wiki/Lost_Decade_(Japan)

(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: http://www.scribd.com/doc/106248756/The-Role-of-the-Government-Sponsored-Enterprises-and-Federal-Housing-Policy-in-the-Financial-Crisis

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: http://www.scribd.com/doc/13752510/Cox-Requests-Legislative-Action

(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: http://www.scribd.com/doc/502783/CoxDodd

Other Relevant Resources:
(1) A brief history of soft dollar brokerage titled, “Thirty Three Years Later” Published September 2, 2008, at: http://www.scribd.com/doc/5468892/Thirty-Three-Years-Later

(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: http://www-personal.umich.edu/~kathrynd/JEP.MutualFunds.pdf 

(3) Advisors Misreport Use of Soft Dollars By Sara Hansard published Investment News July 24, 2006, at:  http://www.scribd.com/doc/18375964/Soft-Dollars-Defined 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: http://www.sec.gov/news/press/2008/2008-32.htm and Fidelity Investments Settles SEC Gift Lawsuit by Riley McDermid & Jonathan Burton - published MarketWatch, March 5, 2008 at: http://articles.marketwatch.com/2008-03-05/finance/30762361_1_fidelity-employees-fidelity-spokeswoman-anne-crowley-fidelity-magellan-fund

(5) What motivated many of the abuses outlined in the SEC’s Spotlight On: The Global Analyst Research Settlement, at  http://www.sec.gov/spotlight/globalsettlement.htm

"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!" 

Michael Bloomberg, "Congress Caused the Mortgage Crisis, Not the Big Banks"

November 1, 2011 Michael Bloomberg - The Good Democrat

Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters."I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that.
"But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."Bloomberg went on to say it's "cathartic" and "entertaining" to blame people, but the important thing now is to fix the problem.  
A Few Questions: Was it only 'Congress' that created and allowed pressures motivating banks to abandon due diligence banking? Or, did pressure from, and policies supported by, the executive branch play an even greater role, than Congress’s role, in the creation of the housing and mortgage bubble - which led to the financial crisis? Who in Congress supported the policies that created the problem? Which players in the executive branch and its bureaucracy enforced and expanded the Community Reinvestment Act and the Affordable Housing Act?

Citigroup Downsizing

Juxtapose this:

Several months ago I copied and posted a video-clip to YouTube.  The original video from which I copied my video-clip was published on C-SPAN. My copied video-clip is a brief slice of the opening comments from the March 4, 2010 meeting of the Congressional Troubled Asset Relief Oversight Panel. The panel's Chairperson, Elizabeth Warren [d. MA] opens the meeting with a monologue reciting Citigroup’s history as an entity which has apparently settled into the too-big-to-fail syndrome, and which has a substantial history at the federal rescue trough.

With my tongue-in-cheek, I titled my YouTube posted video-clip: Too Big To Fail: Citigroup under the TARP

In Ms. Warren’s statements (March 4, 2010) she describes how Citigroup grew to be such a ‘systemically important’ financial institution, and she mentions that as Citigroup grew in importance, and in order to accommodate the kinds of growth Citigroup wanted, the federal government eviscerated The Glass-Steagall Act.

Considering that Elizabeth Warren is an extremely liberal Democrat, and considering that former President Bill Clinton and Clinton's Treasury Secretary, Robert Rubin were significant campaigners for Citigroup’s federal favors, it’s kind of interesting that Ms. Warren would bring attention to how the democrat brand of 'crony capitalism' has benefitted Citigroup and contributed to its too-big-to-fail stature.
Media worth consulting for additional ‘context':
1) PBS Frontline The Warning, at: http://www.pbs.org/wgbh/pages/frontline/warning/

2) PBS The Wall Street Fix: Mr. Weill Goes to Washington, at: http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/

3) Bill Clinton: Building the Foundation for The House Of Cards

4) The Big Sup-Prime Gamble Godfrey Bloom

The Seeds of The Financial Crisis

If you are interested in knowing more about what policies might have contributed to the great financial crises, which began in mid-2006, you will be interested in watching the accompanying two videos.

This video is an excerpt from a longer YouTube video in which Godfrey Bloom discusses some of the problems which led to the financial crisis. This excerpt deals primarily with the Community Reinvestment Act and its role in weakening bank lending standards and credit 'due diligence'. If you are interested in watching the complete discussion key words search for "Godfrey Bloom The Big Sub-Prime Gamble" on YouTube.

Also, in the context of the Community Reinvestment Act's role in the financial crisis, you might want to watch, "Bill Clinton: Laying the Foundation for The House of Cards" - which is a video-clip from PBS NewsHour interview conducted shortly after Clinton was elected to his second presidential term (So, at the time of this interview Clinton had four more years to push The Community Reinvestment Act).

Other Resources:
(1) A Bibliography The Role of the Government Sponsored Enterprises and Federal Housing Policy in The Financial Crisis, at:
(2) Peter Wallison, Why I dissented from the Majority Report of The Financial Crisis Inquiry Commission, at:

They Tried It, and It Didn't Work?

On November 5th 2012 (the day before the election) President Obama spoke to a group in Columbus, Ohio.

After hearing an excerpt from the speech I began to wonder if he actually believes what he said, or if he's just rearranging history to suit his goals. I hope you will watch the video at the following hyperlink to its end. I think I ask some relevant questions in the last minute, or so.

Economics professors will tell you that one of the best ways to create jobs, and to stimulate an economy, is support home building. (Think of all the trades, products and services that are required to build and furnish a home.)

But, I've never heard of any economics professor who advocated a long-term policy of providing loans to people who couldn't afford to repay the loans (However, I think some of what are called "Keynesian Economists" seem to favor such policies over as a short term prescription for economic stimulus.)

I’ve come to believe that many of the policies embraced by President Bill Clinton produced great economic results during (and, for awhile after) his administration. But, as those policies and political pressures went to excess, they eventually led to the housing bubble and the financial crisis.

It seems, the financial bubble that burst during the last year of George W. Bush's administration was a long time in the making.

Just a thought . . . .

Bulk Sales of Foreclosed Single Family Homes

November 5, 2012  

Congressman Brad Sherman

5000 Van Nuys Blvd. - Suite 420

Sherman Oaks, CA 91403

Dear Congressman Sherman:

I live in the 27th Congressional District. I know you sit on the House Financial Services Committee and its Subcommittee on Capital Markets and Government Sponsored Enterprises, and I know that you also sit on the Subcommittee on Insurance, Housing and Community Opportunity.

Therefore, it seems appropriate that I bring a concern of mine to your attention.

My concern: While reading an article published in the Wall Street Journal on October 2, 2012 titled, New York Firm to Buy Fannie Foreclosures By Alan Zibel, I noticed the author mentioned the terms were the same for both of Fannie Mae’s first two ‘bulk sales’ (of foreclosed single family homes).  An outline of the terms of the deals was provided in the article (the last four paragraphs of the article).

It seems the terms of these first two bulk sales may lead to an uncertain, and very long payback period to for the GSE’s - and an even riskier and even longer payback period for any investor(s) that might be the source of funds for the managers of these deals. As long as the deal terms are fully-disclosed to the fund's (voluntary) investors their investments are their business.  

However, because of the history of Federal Housing Policy, and because of the history of the GSE’s, I believe deals such as these should be designed in a way which can actually be expected to produce rapid and less risky payment of the purchase price, than it appears the terms of the first two deals will produce.

I hope the committees you sit on will very closely review and monitor these two existing deals, and that you will have independent evaluators advise on, and audit, the structure and payment of future bulk sales of foreclosed single family homes. 

The bulk sale of foreclosed single family homes is a serious concern for homeowners, neighborhoods, and for local legislators. I believe the future financial success of these bulk sales is a critical element of the bulk sales strategy.

In the context of the GSA’s, it appears the terms of these first two deals were designed to move foreclosed homes off the GSE’s balance sheet, and to claim the 'sales agreement' as an asset.

Thank you very much for this opportunity to express my concern.


Bill George

Cc. Congressman Gary Miller

2349 Rayburn House Office Building

Washington, DC  20515


Background Information:  

(1) Private Equity’s Foreclosure Binge (& Purge) By Michael L Boyer pub. at Seeking Alpha, October 23, 2012 - at: http://seekingalpha.com/article/941291-private-equity-s-foreclosure-binge-purge#comments_header 

(2) The Institutional Home Buying Bubble By Bill George - Posterous - at: