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

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

    Quote Originally Posted by Somerville View Post
    not that I actually think any bankster will go to prison but still - it is a step in the right direction. A direction toward correcting the fallacious notion that Wall Street cares very much about honest behaviour.



    more from Bloomberg - Default in 10 Months After AAA Spurred Justice on Credit Ratings - Bloomberg
    It should also be pointed out.. the case against S&P is a JOKE. Citi and BofA went to S&P and paid them to rate it. Then Citi And BofA underwrote every "listed" CDO the Government claims S&P defrauded them on. If your the under writer, you are the one that knows the most about it. It's your Quants who wrote the damn CDO. Yet S&P is to be blamed.. that's bull****. Because Citi and BofA were doing what is called regulatory arbitrage. Which is taking a bunch of loans, turn them into a CDO, have a rating agency stamp AAA on them, buy them back. Presto! Instead of some subprime loans, Citi and Bof A has a AAA bond on the books. Regulatory capital ratios are improved, as if by magic.

    Problem was Citi and BofA were caught holding the bag of their own crap instead of scamming someone else.

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

    Quote Originally Posted by Somerville View Post
    and what's wrong with getting "instructions from Paul Krugman" (which they haven't but that's another story)? On the economic front he has been proven right more than any Austrian dreamer.
    Krugman is a biased weasel. I don't give a damn about his long list of credentials, he's purely political.
    "He who does not think himself worth saving from poverty and ignorance by his own efforts, will hardly be thought worth the efforts of anybody else." -- Frederick Douglass, Self-Made Men (1872)
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    Re: U.S. sues S&P over subprime ratings

    Quote Originally Posted by Napoleon View Post
    It is worth noting that 80% of sub-prime loans were issued by institutions which did not fall under the jurisdiction of the CRA. In other words, they deliberately sought out high-risk clientele of their own free will. Back then, the risk wasn't that great; a financial institution could easily wind up making a profit from a foreclosure. But then the Real Estate bubble burst, home values depreciated, and they were saddled with foreclosed properties no one wanted to buy.
    No one's saying that the CRA or HUD were responsible for creating the crisis by themselves. However, they were certainly responsible for creating the financial atmosphere which made the subprime crisis possible in the first place. They enforced risky lending among the major players until it became a profitable trend and then encouraged everyone else to get in on the action afterwords in order to try and inflate the housing and credit bubbles.

    If you were to describe the 2008 financial crisis as the collapse of a deck of cards, I would definitely say that the CRA was responsible for the structure's foundation, and probably the next couple of levels after that.
    Last edited by Gathomas88; 02-07-13 at 01:04 AM.

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

    Quote Originally Posted by American View Post
    Krugman is a biased weasel. I don't give a damn about his long list of credentials, he's purely political.


    Slander the professor all you wish - don't make those statements true. Krugman has been more right about the financial crisis than any of your heroes
    “And I have no doubt that every new example will succeed, as every past one has done, in shewing that religion & Govt will both exist in greater purity, the less they are mixed together.”
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    Re: U.S. sues S&P over subprime ratings

    One can see an almost religious fervour and faith on the part of some posters when they post easily refutable nonsense - not that it ever changes their beliefs but maybe some readers will take the time to check stuff out for themselves

    Quote Originally Posted by Fenton View Post
    The S&P isn't the cause or the one who engineered our near economic collapse. They held those MBS to the same AAA standards of the United States Treasury bonds and its not a coincidence since most of those securities were in fact guaranteed by the US Govt.

    Show proof that the S& P knew the GSEs were bundling bad loans with good ones to sell off to fund the secondary market and I'll listen.



    Eric Holder use to work for Janet Reno when banks were being strong armed into lowering underwriting standards for loans.

    Its so petty and childish and blatant what they're doing by threatening the S&P. And right when the US is borrowing Trillions and tax reciepts are shrinking.

    Of course the S&P's going to down grade our Treasuries.

    When those who created it are either in power or share their ideology and are being ignored.

    Barney Frank was allowed to write banking legislation on his way out. If there was one politician more responsible for the sub-prime debacle it was him.


    Suits reveal details on Standard & Poor's views - latimes.com

    As the housing bubble was bursting in 2007, an analyst at credit rating firm Standard & Poor's made light of the situation with a song.

    He went from office to office serenading co-workers with his ode to America's deepening real estate crisis. "Strong market is now much weaker, subprime is boi-ling o-ver, bringing down the house," the analyst sang to the tune of the Talking Head's "Burning Down the House."

    The scene was among the details — some meant to be embarrassing — released in government lawsuits against the world's biggest credit rating firm. The complaints unveiled Tuesday by the Justice Department, and states including California, found S&P analysts seeming to mock their role as gatekeepers of the financial system, in which they are paid to grade the safety of stocks, bonds and other securities.
    <snip>
    Government investigators gathered emails and instant messages that they said showed S&P gave rosy ratings to securities that the firm knew were ready to implode. The lawsuits claim that executives were obsessed with maintaining good relationships with the banks that paid them to analyze securities. And when those securities began to sour, they persuaded analysts to turn a blind eye to it.

    One S&P analyst put it bluntly: "Let's hope we are all wealthy and retired by the time this house of cards falters."
    Others have noted that the vast majority of sub-prime loans were done by non-regulated entities, which for some reason various banks thought were good buys and as a consequence some really poor financial choices did come under the various regulations and laws that cover the banks; which meant the taxpayers became more exposed to the failures.
    “And I have no doubt that every new example will succeed, as every past one has done, in shewing that religion & Govt will both exist in greater purity, the less they are mixed together.”
    ~ James Madison, letter to Edward Livingston, July 10, 1822

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

    Cam I sue Jim Cramer if I lose money on a stock he recommends? Just curious.

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

    Quote Originally Posted by austrianecon View Post
    It should also be pointed out.. the case against S&P is a JOKE. Citi and BofA went to S&P and paid them to rate it. Then Citi And BofA underwrote every "listed" CDO the Government claims S&P defrauded them on. If your the under writer, you are the one that knows the most about it. It's your Quants who wrote the damn CDO. Yet S&P is to be blamed.. that's bull****. Because Citi and BofA were doing what is called regulatory arbitrage. Which is taking a bunch of loans, turn them into a CDO, have a rating agency stamp AAA on them, buy them back. Presto! Instead of some subprime loans, Citi and Bof A has a AAA bond on the books. Regulatory capital ratios are improved, as if by magic.

    Problem was Citi and BofA were caught holding the bag of their own crap instead of scamming someone else.

    Could you provide a link that supports your assertion that "Citi And BofA underwrote every "listed" CDO the Government claims S&P defrauded them on" AFTER the rating agency provided a AAA rating and that this was done for EVERY CDO?
    “And I have no doubt that every new example will succeed, as every past one has done, in shewing that religion & Govt will both exist in greater purity, the less they are mixed together.”
    ~ James Madison, letter to Edward Livingston, July 10, 1822

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

    Quote Originally Posted by Somerville View Post
    Could you provide a link that supports your assertion that "Citi And BofA underwrote every "listed" CDO the Government claims S&P defrauded them on" AFTER the rating agency provided a AAA rating and that this was done for EVERY CDO?
    Quote Originally Posted by Bloomberg
    For nine of the CDOs, the government’s complaint listed Citigroup as the harmed investor -- without mentioning that Citigroup’s investment-banking division had managed the bonds’ offerings. The complaint identified Bank of America as the defrauded CDO investor in two instances, also without mentioning that its securities unit underwrote those bonds.

    It’s a novel concept. If only S&P had given honest opinions to Citigroup and Bank of America -- which were paying S&P millions of dollars for ratings -- then the banks would have realized they were buying ticking time bombs from themselves. And who knows? Maybe they could have found some other hapless chumps to immolate instead, if S&P had told them in time.

    One of the CDOs was a $502 million deal called Plettenberg Bay. The government’s suit said S&P rated $436 million of the debt AAA, its highest mark, and that “Citibank suffered an almost total loss of its investment” after buying $8 million of the CDO’s lower-rated tranches. The suit didn’t mention that Citigroup was the CDO’s underwriter, or that other Plettenberg Bay investors are suing the bank over their losses.

    .....

    So one unit of Citigroup can lose money on fraudulently rated bonds that were concocted by another part of Citigroup, and the government can sue the rating company for penalties -- as if S&P’s opinions actually mattered to Citigroup’s divisions when they were buying and selling the dreck to each other.
    S&P Lawsuit Portrays CDO Sellers as Duped Victims - Bloomberg

    Now I am not saying there aren't "victims". But they are mainly regional banks.

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

    Quote Originally Posted by austrianecon View Post
    S&P Lawsuit Portrays CDO Sellers as Duped Victims - Bloomberg


    Now I am not saying there aren't "victims". But they are mainly regional banks.
    There were also victims of the scheme in other countries: - Norway towns sue Citi over structured note losses | Reuters


    from the comments in the Bloomberg article
    The opinions of Securities & Exchange Commission-approved ratings agencies do matter, since Citi needed AAA-rated paper among its assets to reduce its regulatory capital requirements. Under the Basel II regime, laundering the risk of a portfolio of mortgages in this fashion could reduce the required capital from 4% to well under 1%.

    Perhaps the real hypocrisy here is not the government's assertion that S&P's actions inflicted losses on federally-insured institutions (losses that these institutions were more than willing to pass on to the Federal Reserve and to the TARP fund, hence their lack of concern about the default risks of CDO securities they retained in their own holdings), but rather the government's complicity in promoting bank credit expansions as well as setting up the Basel II regime and granting a specially-privileged status to a few ratings firms, not to mention creating hundreds of billions of dollars out of thin air to paper over the resulting mess.
    see that bit? "Citi needed AAA-rated paper among its assets to reduce its regulatory capital requirements"? Even though Citi and other major banks knew, actually some executives knew, that the CDOs were crap they could use them to reduce their capital obligations - the money they must hold in reserve for unexpected calls.

    Although I agree with much of the article, we still must acknowledge those words at the bottom of the Bloomberg page:
    (Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)



    But back to your assertion that "Citi And BofA underwrote every "listed" CDO the Government claims S&P defrauded them on" AFTER the rating agency provided a AAA rating and that this was done for EVERY CDO" - the article doesn't support it. The article mentions SOME but not ALL nor does it support the bit about it being done for EVERY CDO issued.
    “And I have no doubt that every new example will succeed, as every past one has done, in shewing that religion & Govt will both exist in greater purity, the less they are mixed together.”
    ~ James Madison, letter to Edward Livingston, July 10, 1822

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

    [QUOTE=Somerville;1061436342]There were also victims of the scheme in other countries: - Norway towns sue Citi over structured note losses | Reuters[/qoute]

    Scheme? This is what investing is. I don't feel bad for people who bought CDOs. Because those towns in Norway wanted upside and no risk in the CDO market. Citi underwrote the CDO and those Norway towns didn't do their due diligence. SEB didn't warn of it. DNB ASA and Depfa Bank didn't do it's due diligence either when issuing loans to the towns to buy the CDO. Fault goes all around there.

    It also sound massively fishy that towns took out loans at X% for a CDO that could give them a return of .5% to 3%. Something isn't right and the story doesn't add up.


    Quote Originally Posted by Somerville View Post
    see that bit? "Citi needed AAA-rated paper among its assets to reduce its regulatory capital requirements"? Even though Citi and other major banks knew, actually some executives knew, that the CDOs were crap they could use them to reduce their capital obligations - the money they must hold in reserve for unexpected calls.
    Already commented on this bud. Citi and BofA were doing what is called regulatory arbitrage. Which is taking a bunch of loans, turn them into a CDO, have a rating agency stamp AAA on them, buy them back. Presto! Instead of some subprime loans, Citi and Bof A has a AAA bond on the books. Regulatory capital ratios are improved, as if by magic.

    http://www.debatepolitics.com/breaki...post1061435397

    It's too bad you are a day late and a dollar short. But this is 100% legal. SEC, FED and FDIC approve of these types of transactions.


    Quote Originally Posted by Somerville View Post
    But back to your assertion that "Citi And BofA underwrote every "listed" CDO the Government claims S&P defrauded them on" AFTER the rating agency provided a AAA rating and that this was done for EVERY CDO" - the article doesn't support it. The article mentions SOME but not ALL nor does it support the bit about it being done for EVERY CDO issued.
    I should have added the other 3 of the other Big 5 to the list as well. But 11 of the two dozen alleged incidents is a basically half of them. I'll look at the DoJ release and see if I can trace back the underwriters but I am damn sure it's more then 11 cases of Citi underwriting it's own **** as in 2007 they were dumping $20 billion worth of CDOs on the market at that time.

    It should be also noted and known that Banks actually hired rating agency employees to work for them. The employees knew the formula so the Banks knew how to game the system. You should read a book called "The Big Short" by Michael Lewis.

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