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Thread: U.S. sues S&P over subprime ratings

  1. #121
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    Re: U.S. sues S&P over subprime ratings

    In 1996, Clinton passed a new set of rules that said:
    - if you have a bank in the inner city, the ratio of loans you grant should match the demographics of the area you serve, so if 80% of the residents are black, then 80% of the loans should go to black families. They said do banking the old way, get to know your customers and give loans to the ones with steady jobs and character you trust.
    - if you don't meet the requirement, you can sell the bank, or you will not be allowed to open another bank in that state.

    Technically, you did not HAVE to grant a loan to anyone, especially if you were ok with the consequences. For a local bank, say a family bank, there were NO consequences, assuming you didn't want to expand.
    The law had no teeth....I believe thats what all the libs have been saying. Those teeth looks like they could take off a limb.

  2. #122
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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by OpportunityCost View Post
    So WaMu.....
    Huge bailouts of AIG and BofA.
    Its worth noting that among industry leaders WaMu and BofA had very high CRA compliance ratings. So I guess thats just cioncidence and not causality.
    AIG was bailed out because they couldn't run a business, and sold credit default swaps (CDS) without understanding the risk and without charging enough for the insurance to cover the claims that came in from Goldman Sacks among others. Nothing to do with CRA.

    B of A was not a major subprime lender. It got in trouble after it made a bad decision to buy Countrywide which was a major independent mortgage lender in subprime which by the way was NOT under CRA regulation because they were not a bank. B of A took TARP money but Treasury forced many banks to take TARP that did not need it so there would not be the appearance of "good banks" and "bad banks" (like US Bankcorp took TARP but did not need it). B of A was so strong that Treasury turned to BofA to take over Merrill Lynch (which it did) before ML went bankrupt like Lehman did. BofA paid too much for ML, which with the bad deal for Countrywide got Ken Lewis fired, but BofA repaid all TARP money in 2009. BofA was not hurt by CRA, it shot itself in the foot with some bad decisions to buy crumbling companies, Countrywide and ML.

    Here are the top subprime lenders for 2006, and only WAMU was under CRA guidelines, the rest were independent mortgage lenders and not banks:
    Large mortgage finance companies and banks made big bucks on sub-prime loans. Last year, 10 lenders -- Countywide, New Century, Option One, Fremont, Washington Mutual, First Franklin, RFC, Lehman Brothers, WMC Mortgage, and Ameriquest -- accounted for 59 percent of all sub-prime loans, totaling $284 billion.
    The Conservative Origins of the Sub-Prime Mortgage Crisis

    The problem was not CRA, the problem was unregulated mortgage companies listed above.

    Greenspan had interest rates too low in 2004, the rating agencies lied and put AAA ratings on junk bonds, President Bush pushed home ownership for minorities which I posted his speech in 2002, the republican-run SEC allowed the investment banks to triple their leverage in 2005 which caused the collapse of Lehman Bros, Bear Stearns, and Merrill Lynch and would have cratered Goldman except for the bailout of AIG (which bailed out Goldman), and Bill Frist in 2005 would not even allow a vote in the senate on a repub sponsored bill to regulate Fannie / Freddie, which was the nations last hope to stop the financial crisis.

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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by Fenton View Post
    No cite ? I post 99% of the time from a droid phone. Its difficult to post links so take the information I laid out in specifics( which is more than you have to offer ) and Google your damn self.

    Yea your'e right, allot of people have no idea what actually transpired and your one of them.
    YOU made the claim. YOU back it up. No excuses.
    The ghost of Jack Kevorkian for President's Physician: 2016

  4. #124
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    Re: U.S. sues S&P over subprime ratings

    One of the biggest problems out there, and nobody talks about it much, was the deregulation at the SEC that relaxed the capital requirements at the 5 biggest investment firms, and effectively outsourced the compliance to the 5 banks themselves.

    Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

    On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

    They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

    The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

    A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.

    One commissioner, Harvey J. Goldschmid, questioned the staff about the consequences of the proposed exemption. It would only be available for the largest firms, he was reassuringly told — those with assets greater than $5 billion.

    “We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.”

    Mr. Goldschmid, an authority on securities law from Columbia, was a behind-the-scenes adviser in 2002 to Senator Paul S. Sarbanes when he rewrote the nation’s corporate laws after a wave of accounting scandals. “Do we feel secure if there are these drops in capital we really will have investor protection?” Mr. Goldschmid asked. A senior staff member said the commission would hire the best minds, including people with strong quantitative skills to parse the banks’ balance sheets.

    Annette L. Nazareth, the head of market regulation, reassured the commission that under the new rules, the companies for the first time could be restricted by the commission from excessively risky activity. She was later appointed a commissioner and served until January 2008.

    “I’m very happy to support it,” said Commissioner Roel C. Campos, a former federal prosecutor and owner of a small radio broadcasting company from Houston, who then deadpanned: “And I keep my fingers crossed for the future.”

    The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.

    After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.

    With that, the five big independent investment firms were unleashed.

    In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.

    Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly.

    The 2004 decision for the first time gave the S.E.C. a window on the banks’ increasingly risky investments in mortgage-related securities.

    But the agency never took true advantage of that part of the bargain. The supervisory program under Mr. Cox, who arrived at the agency a year later, was a low priority.
    http://www.nytimes.com/2008/10/03/bu...3sec.html?_r=1

    This is why we had to bail out the banks. The SEC let them take on too much debt (a control mechanism added after the great depression, and the old limit was 15:1, and it was relaxed to 45:1), and then did not follow through under Bush's appointee, Chris Cox (repub).

    The CRA allowed banks to lend to people that were marginal, but they did require checking of income. The egregious offenses in lending were by Countrywide, New Century, Freemont, Option One etc., and that was all private sector non-bank non-CRA.

    The republicans had their hands on the wheel 2001-2006 and they relaxed regulations that had worked for 50 years such as the Net Capital Rule set at 15:1, and its on the republicans who raised it to 45:1 and in less than 5 years all the investment banks were bankrupt, sold off, bailed out (Goldman) or converted from investment bank to commercial bank. Great rule there republicans...
    Last edited by finebead; 02-10-13 at 08:58 AM.

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    Re: U.S. sues S&P over subprime ratings

    The conspiratorial claims are somewhat understandable given the downgrade in recent memory, but judgement should be withheld until the actual contents of the case are disclosed in full. Some speculate that the subject of the lawsuit is S&P's rating of a single CDO worth some 1.6 billion alone, while others speculate it will be based on their ratings practices as a whole covering a 3 year period directly preceding the financial crisis, and other credit rating agencies could likely face legislation in the future for similar breakdowns in speculative accuracy. In either case, the merits of the legal case should stand apart from political interests.

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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by OpportunityCost View Post
    The law had no teeth....I believe thats what all the libs have been saying. Those teeth looks like they could take off a limb.
    Do you happen to have the primary source for that quote on hand? The only relatively similar regulations I'm aware of involve non discriminatory mandates in terms of finances, regardless of race, not demographic quotas of any sort.
    Last edited by a351; 02-10-13 at 09:28 AM.

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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by a351 View Post
    Do you happen to have the primary source for that quote on hand? The only relatively similar regulations I'm aware of involve non discriminatory mandates in terms of finances, regardless of race, not demographic quotas of any sort.
    ...not my quote. Ask Finebead. I provided a sourced set of regulations at another point in the thread.

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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by OpportunityCost View Post
    ...not my quote. Ask Finebead. I provided a sourced set of regulations at another point in the thread.
    I believe CRA had adequate teeth. But CRA was NOT the problem with the financial crisis and I have posted proof of this in post 117, so I'll quote it again:

    Some legal and financial experts note that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[67][34] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[68] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[69] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.
    CRA was NOT THE PROBLEM, it was the unregulated independent mortgage lenders like Countrywide, New Century, Freemont, Option One, etc.

    Then you had pres. Bush in 2002 set his objective to extend home ownership to 5.5 million minority families, I posted the speech already, and the repub Chris Cox led SEC allowing the biggest banks to triple their leverage in 2004, and repub Bill Frist blocking legislation to reform Fannie and Freddie in 2005. This debacle was mostly on the repubs who had their hands on the wheel the whole time the problem got out of hand and exploded.

  9. #129
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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by finebead View Post
    AIG was bailed out because they couldn't run a business, and sold credit default

    swaps (CDS) without understanding the risk and without charging enough for the insurance to cover the claims that came in from Goldman Sacks among others. Nothing to do with CRA.

    B of A was not a major subprime lender. It got in trouble after it made a bad decision to buy Countrywide which was a major independent mortgage lender in subprime which by the way was NOT under CRA regulation because they were not a bank. B of A took TARP money but Treasury forced many banks to take TARP that did not need it so there would not be the appearance of "good banks" and "bad banks" (like US Bankcorp took TARP but did not need it). B of A was so strong that Treasury turned to BofA to take over Merrill Lynch (which it did) before ML went bankrupt like Lehman did. BofA paid too much for ML, which with the bad deal for Countrywide got Ken Lewis fired, but BofA repaid all TARP money in 2009. BofA was not hurt by CRA, it shot itself in the foot with some bad decisions to buy crumbling companies, Countrywide and ML.

    Here are the top subprime lenders for 2006, and only WAMU was under CRA guidelines, the rest were independent mortgage lenders and not banks:

    The Conservative Origins of the Sub-Prime Mortgage Crisis

    The problem was not CRA, the problem was unregulated mortgage companies listed above.

    Greenspan had interest rates too low in 2004, the rating agencies lied and put AAA ratings on junk bonds, President Bush pushed home ownership for minorities which I posted his speech in 2002, the republican-run SEC allowed the investment banks to triple their leverage in 2005 which caused the collapse of Lehman Bros, Bear Stearns, and Merrill Lynch and would have cratered Goldman except for the bailout of AIG (which bailed out Goldman), and Bill Frist in 2005 would not even allow a vote in the senate on a repub sponsored bill to regulate Fannie / Freddie, which was the nations last hope to stop the financial crisis.
    AIG sold CDSs that were a regulatory requirement for collateralizing those mortgage backed securities as they were purchased, and then bunldled up ( good with bad ) by the GSEs to be pushed out into the market as derivitives.

    Interesting your "evil bank" scenario ignores who allowed these sub-prime loans to be securitized in the first place.

    Without the securitization of those MBSs mixed up and sold by the GSEs to make their value practically impossible to access there would have been no secondary market in the first place.

    No sub-prime collapse. How on earth do you think the GSEs financed this disaster ?

    When it was all said and done the GSEs and other Govt Financial Entities wound up with the lions share of that debt on their books. Over 80%.

    But you want to focus on the issue at the mid way point or towards the end , blame the banks when my focus has always been whos responsible for implementing and then perpetuating the policies and programs that allowed this to happen.

    No private lending institution had the regulatory power or endless cash reserves to start and then finance this disaster. Regulations that lowered the underwriting standards and then put the GSEs on a quota system were NOT issued by banks, they were issued by Democrats in the early 90s.

    CRA regulations were the driving force to the change banking systems long held and strict standards for lending. The banks were given ultimatums which essentially would have forced them into bankruptcy had the GSEs not been forced to acquire the majority of the sub-prime debt.

    To blame the banks is making the claim that private institutions had the power to alter Govt regulations and force policy that was essentially detrimental and counter to their bussiness practices that had prevented this for the last hundred years.

    Fannies been around since the thirties with originations of less than 10% of Alt-a loans on their books just prior to the 90s.

    What policies forced their participation to the 60+% of sub-prime debt by 2008 ?

    You want to blame Greenspan ? Plueeeze. Most of the GSEs sub-prime trash were ARMs and from 1995 to 2008 Countriy Wides involvment added up to a staggering 5% of total sub-prime involvment.

    No, a disaster this huge had to have real backing. Institutionalized buying up under HUD regulatory enforcment of sub-prime debt so it could be hidden in derivitives and sold to investors.

    But you blame the banks. Unreal. Not ONE GSE representitve or politician was held responsible.

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    Re: U.S. sues S&P over subprime ratings

    [QUOTE]
    Quote Originally Posted by Somerville View Post
    No matter the truth,
    No matter the truth??? Is the truth not important to you?

    there are far too many Americans who allow their unreasoning hatred of the President to twist and alter reality
    No one has to 'alter reality'. The reality is there for all to see.
    This is all silliness. Whenever you see a website offering unattributed quotes, or statements unrelated to the facts at hand, then you should just quickly move on.
    Right. And were you able to discover how much money Obama and the other lawyers received for their efforts and how much their clients received? You can see by that the the Snopes link you sent how it meanders from the facts.

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