Obviously very confused about free checking

by. Steve Topper

Sometimes people say things that make you wonder which planet they’re from.

The other day I was rereading my favorite book about the recent housing bubble crash caused by toxic mortgages and the folks behind them.

It’s Michael Lewis’ 2010 classic, The Big Short: Inside The Doomsday Machine.  If you haven’t read it, you should consider doing so if you are at all curious about the truth behind the crisis that nearly brought down the U.S. economy and many other countries as well.

On pages 19 and 20, Lewis is describing a lunch – most likely held in New York City – organized by a major Wall Street firm.  While Lewis doesn’t provide the exact date, from reading the book it was likely sometime in 2003.  The guest speaker was World Savings’ president and CEO Herb Sandler.

For those of you unfamiliar with World Savings headquartered in Oakland, California, in the late 1970s and 1980s it was known in the banking industry as a “CD shop.”  The bank paid among the highest rates in the industry for CD money.  Why?  So it could fund the bank’s money machine which was loans – particularly mortgage loans.

It was likely after his speech when one of the guests asked Sandler if he believed in the free checking model.  Personally, I find it a very strange question being asked at a luncheon about the mortgage securitization market.

continue reading »