You've still got it mori.
Teddy 'Trust Buster' Roosevelt - We Need You
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"Capitalism did not cause this mess, government policy did. It is that simple."
'Transparency' is the foundation for rational markets, where investment vehicle risk is estimated in a credible manner, and organizations holdings of investment by risk is known, but transparency has been fought all along, including proper ratings of derivatives, subprime holdings, and proper oversight of the ratings agencies.
http://www.bloomberg.com/apps/news?pid=20601109&sid=ax3vfya_Vtdo&refer=home
`Race to Bottom' at Moody's, S&P Secured Subprime's Boom, Bust
In August 2004, Moody's Corp. unveiled a new credit-rating model that Wall Street banks used to sow the seeds of their own demise. The formula allowed securities firms to sell more top-rated, subprime mortgage-backed bonds than ever before.
A week later, Standard & Poor's moved to revise its own methods. An S&P executive urged colleagues to adjust rating requirements for securities backed by commercial properties because of the ``threat of losing deals.''
The world's two largest bond-analysis providers repeatedly eased their standards as they pursued profits from structured investment pools sold by their clients, according to company documents, e-mails and interviews with more than 50 Wall Street professionals. It amounted to a ``market-share war where criteria were relaxed,'' says former S&P Managing Director Richard Gugliada.
``I knew it was wrong at the time,'' says Gugliada, 46, who retired from the McGraw-Hill Cos. subsidiary in 2006 and was interviewed in May near his home in Staten Island, New York. ``It was either that or skip the business. That wasn't my mandate. My mandate was to find a way. Find the way.''
Wall Street underwrote $3.2 trillion of loans to homebuyers with bad credit and undocumented incomes from 2002 to 2007. Investment banks packaged much of that debt into investment pools that won AAA ratings, the gold standard, from New York-based Moody's and S&P. Flawed grades on securities that later turned to junk now lie at the root of the worst financial crisis since the Great Depression, says economist Joseph Stiglitz.
`Would Have Stopped Flow'
``Without these AAA ratings, that would have stopped the flow of money,'' says Stiglitz, 65, a professor at Columbia University in New York who won the Nobel Prize in 2001 for his analysis of markets with asymmetric information. S&P and Moody's ``were trying to please clients,'' he said. ``You not only grade a company but tell it how to get the grade it wants.''
Presidential candidates John McCain and Barack Obama lay responsibility for the carnage with Wall Street itself. The Securities and Exchange Commission in July identified S&P and Moody's as accessories, finding they violated internal procedures and improperly managed the conflicts of interest inherent in providing credit ratings to the banks that paid them.
S&P and Moody's earned as much as three times more for grading the most complex of these products, such as the unregulated investment pools known as collateralized debt obligations, as they did from corporate bonds. As homeowners defaulted, the raters have downgraded more than three-quarters of the AAA-rated CDO bonds issued in the last two years.
'Transparency' is the foundation for rational markets, where investment vehicle risk is estimated in a credible manner, and organizations holdings of investment by risk is known, but transparency has been fought all along, including proper ratings of derivatives, subprime holdings, and proper oversight of the ratings agencies.
http://www.bloomberg.com/apps/news?pid=20601109&sid=ax3vfya_Vtdo&refer=home
`Race to Bottom' at Moody's, S&P Secured Subprime's Boom, Bust
In August 2004, Moody's Corp. unveiled a new credit-rating model that Wall Street banks used to sow the seeds of their own demise. The formula allowed securities firms to sell more top-rated, subprime mortgage-backed bonds than ever before.
A week later, Standard & Poor's moved to revise its own methods. An S&P executive urged colleagues to adjust rating requirements for securities backed by commercial properties because of the ``threat of losing deals.''
The world's two largest bond-analysis providers repeatedly eased their standards as they pursued profits from structured investment pools sold by their clients, according to company documents, e-mails and interviews with more than 50 Wall Street professionals. It amounted to a ``market-share war where criteria were relaxed,'' says former S&P Managing Director Richard Gugliada.
``I knew it was wrong at the time,'' says Gugliada, 46, who retired from the McGraw-Hill Cos. subsidiary in 2006 and was interviewed in May near his home in Staten Island, New York. ``It was either that or skip the business. That wasn't my mandate. My mandate was to find a way. Find the way.''
Wall Street underwrote $3.2 trillion of loans to homebuyers with bad credit and undocumented incomes from 2002 to 2007. Investment banks packaged much of that debt into investment pools that won AAA ratings, the gold standard, from New York-based Moody's and S&P. Flawed grades on securities that later turned to junk now lie at the root of the worst financial crisis since the Great Depression, says economist Joseph Stiglitz.
`Would Have Stopped Flow'
``Without these AAA ratings, that would have stopped the flow of money,'' says Stiglitz, 65, a professor at Columbia University in New York who won the Nobel Prize in 2001 for his analysis of markets with asymmetric information. S&P and Moody's ``were trying to please clients,'' he said. ``You not only grade a company but tell it how to get the grade it wants.''
Presidential candidates John McCain and Barack Obama lay responsibility for the carnage with Wall Street itself. The Securities and Exchange Commission in July identified S&P and Moody's as accessories, finding they violated internal procedures and improperly managed the conflicts of interest inherent in providing credit ratings to the banks that paid them.
S&P and Moody's earned as much as three times more for grading the most complex of these products, such as the unregulated investment pools known as collateralized debt obligations, as they did from corporate bonds. As homeowners defaulted, the raters have downgraded more than three-quarters of the AAA-rated CDO bonds issued in the last two years.
If FM & FM would have never created the bad paper, it would never have mattered. The exec's at FM & FM conducted their own faulty accounting and games for their own financial gain. They pulled out several hundred million to put in their own pocket at the global economies expense. This is from a Government sponsored entity and your own link shows this.
If investors didn't do their own homework and verify the validity of Moody's or S&P opinion, too bad for them. It is ONLY an opinion. No one forced people buy these things, but banks WERE forced to make bad loans.
As far as politicians on the take, you have fallen into the trap. You want the government to step in and do something about the corruption but you provide very poignant information that the government is itself corrupt. So please keep posting this information as it makes my case more and more.
If investors didn't do their own homework and verify the validity of Moody's or S&P opinion, too bad for them. It is ONLY an opinion. No one forced people buy these things, but banks WERE forced to make bad loans.
As far as politicians on the take, you have fallen into the trap. You want the government to step in and do something about the corruption but you provide very poignant information that the government is itself corrupt. So please keep posting this information as it makes my case more and more.
"If FM & FM would have never created the bad paper, it would never have mattered."
There have always been junk investments, there are now, and there always will be as there is a place for junk in the market. The problem is rating a junk investment as AAA and spreading it all over the world. That's how what should have just been a US housing bubble deflating results as being the root of what is called the global financial meltdown. Institutions the world over relied upon the ratings as a way of managing risk, they tried to cover the risk with the credit default swaps, a risk that should have also been properly rated, it ended up making some firms like Bear Stearns and AIG 'too big to fail'.
The subprime issues were just another investment vehicle and should have not caused any problems to the financial institutions if they had been properly rated, as they handle a wide range of products at different risk levels.
There have always been junk investments, there are now, and there always will be as there is a place for junk in the market. The problem is rating a junk investment as AAA and spreading it all over the world. That's how what should have just been a US housing bubble deflating results as being the root of what is called the global financial meltdown. Institutions the world over relied upon the ratings as a way of managing risk, they tried to cover the risk with the credit default swaps, a risk that should have also been properly rated, it ended up making some firms like Bear Stearns and AIG 'too big to fail'.
The subprime issues were just another investment vehicle and should have not caused any problems to the financial institutions if they had been properly rated, as they handle a wide range of products at different risk levels.
"As far as politicians on the take, you have fallen into the trap. You want the government to step in and do something about the corruption but you provide very poignant information that the government is itself corrupt. So please keep posting this information as it makes my case more and more."
Yes, the government has been corrupted, intellectually, morally, and politically, that's why we're in the worst financial situation since the Depression. That's why the government is being changed.
Yes, the government has been corrupted, intellectually, morally, and politically, that's why we're in the worst financial situation since the Depression. That's why the government is being changed.
See above that the head of Fanny was touting their holdings as ultra safe. That worked well didn't it?
If 2 government backed companies that control ~70% of the market are pushing out junk bonds and representing them as good paper, do you think that might have a slight affect on the rating system and eventual collapse?
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That's why the government is being changed.
If 2 government backed companies that control ~70% of the market are pushing out junk bonds and representing them as good paper, do you think that might have a slight affect on the rating system and eventual collapse?
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That's why the government is being changed.
Funniest thing is that the people who are getting the blame are not at fault. What happened is an emergent property of a complex system over which nobody has ultimate control.
Have you ever been in a room full of people and all of a sudden everyone notices that it's totally silent, and you all just sit there listening, for a few seconds?
That's what happened to the economy.
The solution is to just go on with business as usual. No change in policy is needed.
Have you ever been in a room full of people and all of a sudden everyone notices that it's totally silent, and you all just sit there listening, for a few seconds?
That's what happened to the economy.
The solution is to just go on with business as usual. No change in policy is needed.
"If 2 government backed companies that control ~70% of the market are pushing out junk bonds and representing them as good paper, do you think that might have a slight affect on the rating system and eventual collapse?"
S&P and Moody's were rating the junk as AAA. They're supposed to be under the scrutiny of the SEC as everyone relies upon them and some firms for ratings.
S&P and Moody's were rating the junk as AAA. They're supposed to be under the scrutiny of the SEC as everyone relies upon them and some firms for ratings.
Originally Posted By: 1sttruck
There have always been junk investments, there are now, and there always will be as there is a place for junk in the market. The problem is rating a junk investment as AAA and spreading it all over the world.
Yup. And it's the advent of derivative securities to hide bad "real" securities that has really sealed our fate. Who was it again who gave us the modern credit default swap?
You can blame Fannie and Freddie all you want, but if big investment banks didn't buy and resell their CDOs under the guise of credit default swaps, then a complete meltdown of the financial system likely wouldn't have occurred. Credit Default swaps in the mortgage sector have accounted for TRILLIONS of investment dollars for average investors just disappearing like they were burned.
We had a complete regulatory break down. I cringe if "the market" were left to do as it sees fit regarding the securities and banking industries. Bernie Madoff and Robert Allen Stanford would be the norm on Wallstreet and the masses would get taken for a ride even more then they have today.
There have always been junk investments, there are now, and there always will be as there is a place for junk in the market. The problem is rating a junk investment as AAA and spreading it all over the world.
Yup. And it's the advent of derivative securities to hide bad "real" securities that has really sealed our fate. Who was it again who gave us the modern credit default swap?
You can blame Fannie and Freddie all you want, but if big investment banks didn't buy and resell their CDOs under the guise of credit default swaps, then a complete meltdown of the financial system likely wouldn't have occurred. Credit Default swaps in the mortgage sector have accounted for TRILLIONS of investment dollars for average investors just disappearing like they were burned.
We had a complete regulatory break down. I cringe if "the market" were left to do as it sees fit regarding the securities and banking industries. Bernie Madoff and Robert Allen Stanford would be the norm on Wallstreet and the masses would get taken for a ride even more then they have today.
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How many people would buy a piece of land without setting foot on it first?
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How many people would buy a piece of land without setting foot on it first?
Exactly. If the "experts" at the banks or anyone else are sticking there wallets in areas that they don't understand or verify, then they are due the result.
FM & FM, government sponsored entities, were INTENTIONALLY putting out bad paper AND misrepresenting the quality of it AND there was an implicit guarantee of being paid back for bad loans AND the government was heavily leaning on PRIVATE banks to make bad loans AND the FED kept interest rates too low.
Yes, it is the government's fault....and they now want to do THE EXACT same thing , via a fully nationalized FM & FM, as a "fix" for the problem.
Was the change in the credit rating procedures done in secret without investor knowledge?
How many people would buy a piece of land without setting foot on it first?
Exactly. If the "experts" at the banks or anyone else are sticking there wallets in areas that they don't understand or verify, then they are due the result.
FM & FM, government sponsored entities, were INTENTIONALLY putting out bad paper AND misrepresenting the quality of it AND there was an implicit guarantee of being paid back for bad loans AND the government was heavily leaning on PRIVATE banks to make bad loans AND the FED kept interest rates too low.
Yes, it is the government's fault....and they now want to do THE EXACT same thing , via a fully nationalized FM & FM, as a "fix" for the problem.
Was the change in the credit rating procedures done in secret without investor knowledge?
Originally Posted By: Tempest
FM & FM, government sponsored entities, were INTENTIONALLY putting out bad paper AND misrepresenting the quality of it AND there was an implicit guarantee of being paid back for bad loans AND the government was heavily leaning on PRIVATE banks to make bad loans AND the FED kept interest rates too low.
And with the advent of credit default swaps, they were able to pass away and hide much of the risk. But they couldn't unload all of it. Thanks Phil Graham.
FM & FM, government sponsored entities, were INTENTIONALLY putting out bad paper AND misrepresenting the quality of it AND there was an implicit guarantee of being paid back for bad loans AND the government was heavily leaning on PRIVATE banks to make bad loans AND the FED kept interest rates too low.
And with the advent of credit default swaps, they were able to pass away and hide much of the risk. But they couldn't unload all of it. Thanks Phil Graham.
"FM & FM, government sponsored entities, were INTENTIONALLY putting out bad paper AND misrepresenting the quality of it.."
They were making a larger number of risky loans, but that isn't the problem as that by itself doesn't explain how mortgages on US housing cause an investment bank in the US to fail or a bank in England to fail. You're missing a few steps in the process, as mentioned previously. See the other 'subprime MBS' topic on the issue.
Banks like Wells Fargo came out relatively clean as they chose not to provide much in the way of subprime loans or load up on investments backed by such loans. The government wasn't sending bank CEOs to Gitmo, they didn't have to as people had to get out of the way of others who were crowding at the trough.
They were making a larger number of risky loans, but that isn't the problem as that by itself doesn't explain how mortgages on US housing cause an investment bank in the US to fail or a bank in England to fail. You're missing a few steps in the process, as mentioned previously. See the other 'subprime MBS' topic on the issue.
Banks like Wells Fargo came out relatively clean as they chose not to provide much in the way of subprime loans or load up on investments backed by such loans. The government wasn't sending bank CEOs to Gitmo, they didn't have to as people had to get out of the way of others who were crowding at the trough.
If FM & FM didn't put out the bad paper, what would have happened?
Their bonds are related to home prices. If Mr. Greenspan hadn't kept rates so low and if everyone and their mother didn't just have to have a big new house and a couple fixer uppers to flip, then perhaps none of this would have happened.
The real "what if" would be: what if investment banks and financial institutions didn't have the ability to create derivative securities to "back" (or more to the point, pass on the risk) those mortgage bonds. Perhaps they would have been evaluated more with a fine tooth comb since there wasn't a worthless guarantee on them.
Some credit default swaps that investment banks were issuing with their MBOs were literally a stack of papers thousands of pages thick with all kinds of bogus scientific equations proving what they did. So when investors say in China or Saudi Arabia bought a bunch of repackaged FM bonds with credit default swaps, they received the bond certificates along with a stack of worthless paperwork that was the swap.
The government was surely at fault for allowing derivative securitization of mortgages. They were worthless insurance vehicles and a lot of fat cat bankers made a killing selling them. Now you and I are paying the "insurance claims" because CDSs are not regulated what-so-ever like real insurance.
Gee, who'd have thought that selling insurance on investments when you don't have to have any capital reserves to back the insurance, wouldn't work.
Thanks again, Phil Graham.
The real "what if" would be: what if investment banks and financial institutions didn't have the ability to create derivative securities to "back" (or more to the point, pass on the risk) those mortgage bonds. Perhaps they would have been evaluated more with a fine tooth comb since there wasn't a worthless guarantee on them.
Some credit default swaps that investment banks were issuing with their MBOs were literally a stack of papers thousands of pages thick with all kinds of bogus scientific equations proving what they did. So when investors say in China or Saudi Arabia bought a bunch of repackaged FM bonds with credit default swaps, they received the bond certificates along with a stack of worthless paperwork that was the swap.
The government was surely at fault for allowing derivative securitization of mortgages. They were worthless insurance vehicles and a lot of fat cat bankers made a killing selling them. Now you and I are paying the "insurance claims" because CDSs are not regulated what-so-ever like real insurance.
Gee, who'd have thought that selling insurance on investments when you don't have to have any capital reserves to back the insurance, wouldn't work.
Thanks again, Phil Graham.
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Anyone that defrauded someone else should be put in jail and or sued. I have NO DOUBT that this occurred. How many of these people have been prosecuted by the government? Not many. Instead, they give (or force) public money to them.
FM & FM were regulated. That regulator threw up a big red flag in 2004. There were Congressional hearings on the matter. Nothing was done and the regulator was told to ignore their results.
The FED regulates monetary policy and the banks.
So we have proof that "regulation" doesn't solve problems.
People CHOSE to get involved in these things. What they were doing was legal. If they lost money, too bad for them.
FM & FM were regulated. That regulator threw up a big red flag in 2004. There were Congressional hearings on the matter. Nothing was done and the regulator was told to ignore their results.
The FED regulates monetary policy and the banks.
So we have proof that "regulation" doesn't solve problems.
People CHOSE to get involved in these things. What they were doing was legal. If they lost money, too bad for them.
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People CHOSE to get involved in these things. What they were doing was legal. If they lost money, too bad for them.
Correct me if I'm wrong, Tempest ..but aren't you a major supporter of the notion that "if you have it ..you most assuredly deserve it"?? I'm sure that you've defended the notion that those of wealth, however I thought was derived by manipulative taxation schemes, "needed help" ..and that a penny owned was a penny earned (just not taxed if you could get away with it) ..and that I asserted that the inversion of wealth redistribution was "cost redistribution" ..which you scoffed it.
Well, how does it feel to be on the other end of those who have managed to own the money, by whatever legal means, and stick you with the bill?
Remember, taxes, regardless of how they're created, are only for little people - paraphrased from Leona Helmsley.
Learn your place. It will make it feel better.
People CHOSE to get involved in these things. What they were doing was legal. If they lost money, too bad for them.
Correct me if I'm wrong, Tempest ..but aren't you a major supporter of the notion that "if you have it ..you most assuredly deserve it"?? I'm sure that you've defended the notion that those of wealth, however I thought was derived by manipulative taxation schemes, "needed help" ..and that a penny owned was a penny earned (just not taxed if you could get away with it) ..and that I asserted that the inversion of wealth redistribution was "cost redistribution" ..which you scoffed it.
Well, how does it feel to be on the other end of those who have managed to own the money, by whatever legal means, and stick you with the bill?
Remember, taxes, regardless of how they're created, are only for little people - paraphrased from Leona Helmsley.
Learn your place. It will make it feel better.
Originally Posted By: Tempest
Anyone that defrauded someone else should be put in jail and or sued. I have NO DOUBT that this occurred. How many of these people have been prosecuted by the government? Not many. Instead, they give (or force) public money to them.
FM & FM were regulated. That regulator threw up a big red flag in 2004. There were Congressional hearings on the matter. Nothing was done and the regulator was told to ignore their results.
The FED regulates monetary policy and the banks.
So we have proof that "regulation" doesn't solve problems.
People CHOSE to get involved in these things. What they were doing was legal. If they lost money, too bad for them.
So you think it was OK for investment banks to sell worthless insurance that, at the time, no one except the banks that sold them knew that they were worthless?
Too bad for ALL of us because we're all loosing money as a result of capitalism gone wild.
We had regulation of investment banks and derivative securities?
Anyone that defrauded someone else should be put in jail and or sued. I have NO DOUBT that this occurred. How many of these people have been prosecuted by the government? Not many. Instead, they give (or force) public money to them.
FM & FM were regulated. That regulator threw up a big red flag in 2004. There were Congressional hearings on the matter. Nothing was done and the regulator was told to ignore their results.
The FED regulates monetary policy and the banks.
So we have proof that "regulation" doesn't solve problems.
People CHOSE to get involved in these things. What they were doing was legal. If they lost money, too bad for them.
So you think it was OK for investment banks to sell worthless insurance that, at the time, no one except the banks that sold them knew that they were worthless?
Too bad for ALL of us because we're all loosing money as a result of capitalism gone wild.
We had regulation of investment banks and derivative securities?
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Correct me if I'm wrong, Tempest ..but aren't you a major supporter of the notion that "if you have it ..you most assuredly deserve it"??
Not if it was begotten by illegal means.
And for at least the 10th time:
Who pays taxes.
Blow your entire world view out of the water. Sorry.
Correct me if I'm wrong, Tempest ..but aren't you a major supporter of the notion that "if you have it ..you most assuredly deserve it"??
Not if it was begotten by illegal means.
And for at least the 10th time:
Who pays taxes.
Blow your entire world view out of the water. Sorry.
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So you think it was OK for investment banks to sell worthless insurance that, at the time, no one except the banks that sold them knew that they were worthless?
If you would actually read my post, you'll see that I want anyone that defrauded someone else punished.
So you think it was OK for investment banks to sell worthless insurance that, at the time, no one except the banks that sold them knew that they were worthless?
If you would actually read my post, you'll see that I want anyone that defrauded someone else punished.
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