Mortgages could be written by COWS and Wallstreet would rate it

[SeedyROM]

Anyone watch 60 Minutes last night on CBS? The video is on the linked page. I've already anticipated that false research was to blame for mortgage fraud on wallstreet. The bastards hired Mathematicians and Physicists to create formulas to justify the mortgages, the formulas were cryptic and mostly bogus nonsense designed for rich asswipes who hired rocket scientists to phoney up formulas to confuse ratings agencies and the Fed. And the Fed and SEC let it happen.

Criminal Masterminds make up about 35% of wallstreet, they spend thier days inventing ways to make money because they do not know how to make legitimate investments work for them. Manipulation works till it fails, just like the Internet/Tech manipulation in the 1990's. No one policed either event, Presidents have the power to police such crimes to protect the people, they never do it. Maybe the next Potus will give a damn, the last 3 did not!!!

Do you still believe oil prices are legitimately predicted by wallstreet anaylsts? Supply and Demand were thrown out the window long ago. Today's prices are based on our Supply of money and Wallstreets Demand for our cash.



http://www.cbsnews.com/stories/2008/09/28/60minutes/main4483612_page4.shtml
"Let me suggest one of the reasons that people are angry,” Pelley said. He read from e-mails uncovered by federal investigators. The e-mails were written by analysts for the credit rating agencies on Wall Street.

One of the e-mails said, “quote, 'It could be structured by cows and we would still rate it.' And this one, this is my personal favorite, one Wall Street analyst to another wrote, quote,

'Let's hope we are all wealthy and retired by the time this house of cards falters.'

They were writing these e-mails nearly two years ago. Why are we bailing these people out?" Pelley asked. "Scott, first of all, that is outrageous behavior. Absolutely outrageous behavior. But what we're doing, right now, Scott, is working to protect the American people. Because a breakdown of our financial system is going to hurt the American taxpayer," Paulson said.



http://www.cbsnews.com/stories/2008/09/28/60minutes/main4483612_page3.shtml
Altman says one of the biggest problems is uncertainty about how much bad debt Wall Street has hidden away.

"You know I have heard that some of these financial institutions were hiring mathematicians and physicists to write the mathematical formulas that underlied some of these investments, and pretty soon nobody understood what was going on any more," Pelley said.

"Well yes, a level of financial exotica ensued, which boggled the mind and which almost everyone involved didn't understand," Altman replied.

Federal agencies that regulate Wall Street didn't understand, and neither did the companies that rate the quality of investments.

"You're telling me that the credit rating agencies didn't understand these investments?" Pelley asked Altman.

"We had the first instance, at least in my memory, where AAA rated instruments, the highest rating, actually defaulted while rated AAA. Now there's something wrong with that," he replied.



Paulson caugt in a lie. Sub-prime was a problem last year. In my opinion Paulson knew what was going on when he was the CEO at Goldman Sach's as well he knew the day he gave this interview.


http://www.cbsnews.com/stories/2008/09/28/60minutes/main4483612_page3.shtml
While people wonder what's coming next, many are asking why experts like Paulson didn't see this coming.

"A year ago, last April, you said this, and I'll quote, 'I don't see subprime mortgage market troubles imposing a serious problem. I think it's going to be largely contained.' Why did this seem to take you by surprise?" Pelley asked Secretary Paulson.

"Well, again, hindsight's 20/20. When I came to government, I said, 'You know, we are about due for some kind of market turbulence.' I didn't expect quite this. But I said to the team, as we worked, 'You never know, when there's a lot of dry tinder out there, you never know what spark is gonna light the tinder,'" he replied.

"The regulators should have been suspicious that something very strange was going on," remarked Joseph Stiglitz, a Nobel Prize winning economist who warned of danger two years ago.

Asked if this was not unforeseeable, Stiglitz told Pelley, "Oh, not only was it foreseeable, it was foreseen. Now, economists aren't very good at predicting the precise date in which the whole thing is gonna unravel. But that it was unsustainable was perfectly clear."

[Independent Harry]

you mean that the CRA isn't legislation isnt the cause of this mess? It was actually unregulated greedy corps?

[asroc]

cbs news is liberal communist garbage

[SeedyROM]

CBS is neutral in comparison to the wacko's at NBC. It doesn't suprise me you have no input on the subject you are obviously not educated on.

[bairdi]

I had posted the link to this story in another thread, but I believe it got lost in the heat of the battle of insults.

The Monster That Ate Wall Street

How 'credit default swaps'—an insurance against bad loans—turned from a smart bet into a killer.
Matthew Philips
NEWSWEEK
From the magazine issue dated Oct 6, 2008

They're called "Off-Site Weekends"—rituals of the high-finance world in which teams of bankers gather someplace sunny to blow off steam and celebrate their successes as Masters of the Universe. Think yacht parties, bikini models, $1,000 bottles of Cristal. One 1994 trip by a group of JPMorgan bankers to the tony Boca Raton Resort & Club in Florida has become the stuff of Wall Street legend—though not for the raucous partying (although there was plenty of that, too). Holed up for most of the weekend in a conference room at the pink, Spanish-style resort, the JPMorgan bankers were trying to get their heads around a question as old as banking itself: how do you mitigate your risk when you loan money to someone? By the mid-'90s, JPMorgan's books were loaded with tens of billions of dollars in loans to corporations and foreign governments, and by federal law it had to keep huge amounts of capital in reserve in case any of them went bad. But what if JPMorgan could create a device that would protect it if those loans defaulted, and free up that capital?

What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a "credit default swap," and it was a twist on something bankers had been doing for a while to hedge against fluctuations in interest rates and commodity prices. While the concept had been floating around the markets for a couple of years, JPMorgan was the first bank to make a big bet on credit default swaps. It built up a "swaps" desk in the mid-'90s and hired young math and science grads from schools like MIT and Cambridge to create a market for the complex instruments. Within a few years, the credit default swap (CDS) became the hot financial instrument, the safest way to parse out risk while maintaining a steady return. "I've known people who worked on the Manhattan Project," says Mark Brickell, who at the time was a 40-year-old managing director at JPMorgan. "And for those of us on that trip, there was the same kind of feeling of being present at the creation of something incredibly important."

Like Robert Oppenheimer and his team of nuclear physicists in the 1940s, Brickell and his JPMorgan colleagues didn't realize they were creating a monster. Today, the economy is teetering and Wall Street is in ruins, thanks in no small part to the beast they unleashed 14 years ago. The country's biggest insurance company, AIG, had to be bailed out by American taxpayers after it defaulted on $14 billion worth of credit default swaps it had made to investment banks, insurance companies and scores of other entities. So much of what's gone wrong with the financial system in the past year can be traced back to credit default swaps, which ballooned into a $62 trillion market before ratcheting down to $55 trillion last week—nearly four times the value of all stocks traded on the New York Stock Exchange. There's a reason Warren Buffett called these instruments "financial weapons of mass destruction." Since credit default swaps are privately negotiated contracts between two parties and aren't regulated by the government, there's no central reporting mechanism to determine their value. That has clouded up the markets with billions of dollars' worth of opaque "dark matter," as some economists like to say. Like rogue nukes, they've proliferated around the world and now lie hiding, waiting to blow up the balance sheets of countless other financial institutions.

It didn't start out that way. One of the earliest CDS deals came out of JPMorgan in December 1997, when the firm put into place the idea hatched in Boca Raton. It essentially took 300 different loans, totaling $9.7 billion, that had been made to a variety of big companies like Ford, Wal-Mart and IBM, and cut them up into pieces known as "tranches" (that's French for "slices"). The bank then identified the riskiest 10 percent tranche and sold it to investors in what was called the Broad Index Securitized Trust Offering, or Bistro for short. The Bistro was put together by Terri Duhon, at the time a 25-year-old MIT graduate working on JPMorgan's credit swaps desk in New York—a division that would eventually earn the name the Morgan Mafia for the number of former members who went on to senior positions at global banks and hedge funds. "We made it possible for banks to get their credit risk off their books and into nonfinancial institutions like insurance companies and pension funds," says Duhon, who now heads her own derivatives consulting business in London.

Before long, credit default swaps were being used to encourage investors to buy into risky emerging markets such as Latin America and Russia by insuring the debt of developing countries. Later, after corporate blowouts like Enron and WorldCom, it became clear there was a big need for protection against company implosions, and credit default swaps proved just the tool. By then, the CDS market was more than doubling every year, surpassing $100 billion in 2000 and totaling $6.4 trillion by 2004.

And then came the housing boom. As the Federal Reserve cut interest rates and Americans started buying homes in record numbers, mortgage-backed securities became the hot new investment. Mortgages were pooled together, and sliced and diced into bonds that were bought by just about every financial institution imaginable: investment banks, commercial banks, hedge funds, pension funds. For many of those mortgage-backed securities, credit default swaps were taken out to protect against default. "These structures were such a great deal, everyone and their dog decided to jump in, which led to massive growth in the CDS market," says Rohan Douglas, who ran Salomon Brothers and Citigroup's global credit swaps division through the 1990s.

Soon, companies like AIG weren't just insuring houses. They were also insuring the mortgages on those houses by issuing credit default swaps. By the time AIG was bailed out, it held $440 billion of credit default swaps. AIG's fatal flaw appears to have been applying traditional insurance methods to the CDS market. There is no correlation between traditional insurance events; if your neighbor gets into a car wreck, it doesn't necessarily increase your risk of getting into one. But with bonds, it's a different story: when one defaults, it starts a chain reaction that increases the risk of others going bust. Investors get skittish, worrying that the issues plaguing one big player will affect another. So they start to bail, the markets freak out and lenders pull back credit.

The problem was exacerbated by the fact that so many institutions were tethered to one another through these deals. For example, Lehman Brothers had itself made more than $700 billion worth of swaps, and many of them were backed by AIG. And when mortgage-backed securities started going bad, AIG had to make good on billions of dollars of credit default swaps. Soon it became clear it wasn't going to be able to cover its losses. And since AIG's stock was one of the components of the Dow Jones industrial average, the plunge in its share price pulled down the entire average, contributing to the panic.

The reason the federal government stepped in and bailed out AIG was that the insurer was something of a last backstop in the CDS market. While banks and hedge funds were playing both sides of the CDS business—buying and trading them and thus offsetting whatever losses they took—AIG was simply providing the swaps and holding onto them. Had it been allowed to default, everyone who'd bought a CDS contract from the company would have suffered huge losses in the value of the insurance contracts they hadpurchased, causing them their own credit problems.

Given the CDSs' role in this mess, it's likely that the federal government will start regulating them; New York state has already said it will begin doing so in January. "Sadly, they've been vilified," says Duhon, who helped get the whole thing started with that Bistro deal a decade ago. "It's like saying it's the gun's fault when someone gets shot." But just as one might want to regulate street sales of AK-47s, there's an argument to be made that credit default swaps can be dangerous in the wrong hands. "It made it a lot easier for some people to get into trouble," says Darrell Duffie, an economist at Stanford. Although he believes credit default swaps have been "dramatically misused," Duffie says he still believes they're a very effective tool and shouldn't be done away with entirely. Besides, he says, "if you outlaw them, then the financial engineers will just come up with something else that gets around the regulation." As Wall Street and Washington wring their hands over how to prevent future financial crises, we can only hope they re-read Mary Shelley's "Frankenstein."
URL: http://www.newsweek.com/id/161199

[asroc]

CBS is neutral in comparison to the wacko's at NBC. It doesn't suprise me you have no input on the subject you are obviously not educated on.
you expect me to care about some theoretical model?

[SeedyROM]

Bairdi, those credit swaps were never a smart idea, those crooks invent ways to print money. The writer did a good job portraying the lifestyle of these degenerates and explaining credit swaps, but he was wrong to say they were a smart idea. Maybe he was being cynical. There are $58Trillion in CDS's out there. More failures have yet to surface.

[SeedyROM]

you mean that the CRA isn't legislation isnt the cause of this mess? It was actually unregulated greedy corps?

ummm, they are regulated, but rarely enforced by either party.

[Independent Harry]

ummm, they are regulated, but rarely enforced by either party.

i was just referring to the deregulation thread, which some retards are blaming the Community Reivestment Act for this mess. Saying it forced banks to create risky loans...which is not its function, it just makes sure banks loan in an entire geographic area. They can't pick and choose what neighborhoods they loan to.

[SeedyROM]

i was just referring to the deregulation thread, which some retards are blaming the Community Reivestment Act for this mess. Saying it forced banks to create risky loans...which is not its function, it just makes sure banks loan in an entire geographic area. They can't pick and choose what neighborhoods they loan to.

I read that thread too, the problem is bigger than one law or one party, everyone is to blame this time. When the government can't solve the equations wallstreet uses to define mortgages and mortgage futures we should have forced them to explain it. Instead, regulators complained and wallstreet made phone calls to lobbiest's and politicians and force the beuracrats to back off and accept the BS story, that's one of my theories.

The problem with CRA and repealing Glass-Stegall as well as other laws ties to certain families that complained when they could not get loans. There are dozens of laws passed since the CRA that led to the meltdown.

Over-regulation was to blame politicians enforcing Fanny Mae and Freddie Mac to loan to unqualified consumers.

http://voices.washingtonpost.com/postpartisan/2008/09/obamas_faulty_logic.html
Bill Clinton beat Papa Bush in 1992 by blaming him for economic woes, even though the downturn of that year was over by the time of the election. Now Barack Obama is hoping to blame that hyphenated adversary, Bush-McCain, even though the facts don't fit his narrative.

Obama is trying to draw a link between the Wall Street blow-ups and a lack of regulation. But the blow-ups have included Fannie Mae and Freddie Mac, two of the most highly regulated financial institutions in the country. They have included three out of five of the top investment banks, institutions that were also regulated. By contrast, there have been relatively few blow-ups at hedge funds, which are not regulated directly. This pattern of failure is not consistent with Obama's claim that deregulation caused the trouble


Embarrassingly for Obama, the principal piece of financial deregulation over the past decade was the reform of Glass-Steagall, the law that separated investment banks from deposit-taking ones. This reform was sponsored by McCain's friend, former Republican Senator Phil Gramm, but ending the division between the two types of bank was a policy that the Clinton team also supported, which does not fit the Obama narrative. And during the current crisis, the Glass-Steagall reform has proved to be a boon. It has cleared the way for relatively healthy deposit-taking banks, such as JP Morgan and Bank of America, to rescue desperate investment banks, such as Bear Stearns and Merrill Lynch. Without that piece of deregulation, we would all be in more trouble.

The regulation-versus-deregulation rhetoric is appealingly simple, and both parties abuse it. Republicans like to say they will get the economy going by cutting red tape. Democrats like to say that they will make the economy more stable by demanding rational oversight. Neither claim is worth much.

The Republicans fail to acknowledge that the easy economic gains from deregulation were exhausted more than two decades ago, when clearly destructive restrictions on competition in trucking, airlines and so on were scrapped by Carter and Reagan. The Democrats fail to acknowledge that there is a limit to what government oversight can do. Modern financial institutions are so complex that government inspectors are hard pressed to understand their trading strategies. That is why an outfit such as Citigroup, a deposit-taking institution theoretically overseen by multiple government bodies including the Fed, could park billions of dollars of toxic mortgage securities in off-balance-sheet vehicles, with nary a protest from regulators.

Yes, Wall Street's woes reflect greed and reckless borrowing. And yes, some regulatory reform is necessary. But you can't blame the mess on either political party -- at least not if you want to remain honest.

[Independent Harry]

I read that thread too, the problem is bigger than one law or one party, everyone is to blame this time. When the government can't solve the equations wallstreet uses to define mortgages and mortgage futures we should have forced them to explain it. Instead, regulators complained and wallstreet made phone calls to lobbiest's and politicians and force the beuracrats to back off and accept the BS story, that's one of my theories.

The problem with CRA and repealing Glass-Stegall as well as other laws ties to certain families that complained when they could not get loans. There are dozens of laws passed since the CRA that led to the meltdown.

Over-regulation was to blame politicians enforcing Fanny Mae and Freddie Mac to loan to unqualified consumers.

ummm, the article you posted calls repealing the glass stegall act a good thing.

[SeedyROM]

ummm, the article you posted calls repealing the glass stegall act a good thing.

ummmm, no not that article.

The original article I posted inside another thread blames Slick Willie Clinton and Robert Rubin for failing to foresee the corruption they were unleashing.

Repeal of The Glass Steagall Act Has Produced The Highly Leveraged Investment Imbroglio That Is Just Now Starting To Unwind
http://my.opera.com/richardinbellingham/blog/show.dml/1796860





Thanks to the Media Fuckwads who were and still are in bed with wallstreet and big industry, we have seen the majority of pro housing, pro industry supporters on the air and very few pundits spooking of a pending collapse. That is business as usual. The media failed us too.

[SeedyROM]

Clinton weakened CRA long before Bush did. IMO Bush did it after 9/11 to boost homeownership and it backfired on both men due to mortgage morons from the top on down.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act#cite_note-5
Clinton Administration Changes of 1995

In early 1993 PresidentBill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[6] The new rules January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to target to groups to collect a fee from the banks.[4][7]
The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages." Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgates. The Senate Banking Committee estimted that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[4] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.[8][9]
Related rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market.[5] Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.[10]

[edit] Bush Administration Changes of 2005

In 2002 there was an interagency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered.[7] In 2003, the Bush Administration recommended that a new Department of the Treasury agency should supervise the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac. Congressional support was approximately split along Party lines and the proposal eventually failed.[11]
The new CRA regulations proposed in early 2005 were put into effect in July and September of 2005. They included new definitions for "small" and "intermediate small" banks which were subject to less restrictions than formally.[3] The regulations were opposed by a contingent of Democrats[12]