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?
Bloomberg said: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.
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.
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.
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/breaking-news-mainstream-media/151002-u-s-sues-s-and-p-over-subprime-ratings-3.html#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.
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.
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.
Its akin to a food critic showing up at your resteraunt, but the day before you send a few thugs to explain to him that a bad critique could be harmful to his health.Obama never fails to demonstrate just how much of a
power hungry psychopath he has turned into. Trying to sue the S&P 500 for lowering the US's credit rating? It's like trying to sue a movie critic for giving your movie a bad review.
Get the facts before launching with your ignorance.
It is true, CRA forced many bankers to lend money to people that normally would have been turned away.
I work in the financial industry so you picked the wrong member to tango with on this issue. 80% of subprime mortgage loans were issued by private firms over which the CRA had zero jurisdiction. They were not legally required to issue those loans but they did it anyway because they were profitable so long as home prices continued to appreciate. Back then, these institutions would profit whether the loan went into default or not because the value of the home appreciated above the cost of the original loan. So, make sure you know what you're talking about before running your mouth and accusing others of being ignorant.
The CRA prohibited discrimination based on race and neighborhood (redlining). It did not require giving loans to people who were not qualified. It was passed in 1977. It was not until the housing bubble burst in the last decade that there was a problem with widespread defaults. The problem was largely caused by lack of regulation/enforcement of derivatives and the ridiculous notion that housing prices would never drop.
By the way, racial discrimination in housing was/is very real. Ask an African American who tried to buy property before the CRA.
Wells Fargo Will Settle Mortgage Bias Charges
By CHARLIE SAVAGE
Published: July 12, 2012
WASHINGTON — Wells Fargo, the nation’s largest home mortgage lender, has agreed to pay at least $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom, the Justice Department announced on Thursday. If approved by a federal judge, it would be the second-largest residential fair-lending settlement in the department’s history.
An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.
http://www.nytimes.com/2012/07/13/b...tle-mortgage-discrimination-charges.html?_r=0
Wow, just wow. Eric Holder helped enforce the anti " redlining" policies that helped create the massive democrat mandated sub-prime bubble.
You know when asking people for a down payment and refusing people that had poor credit history was deemed "racist".
Lol...the banks. Please. This administration is full of people that are directly responsible for the meltdown including the Democrat Congress.
Its a offesive diversion. Holder did the same thing when he went after Wells Fargo because they maintained their standards and didnn't give into the Democrat thugs who threatened banks.
Unreal how poorly educated some people are on this subject.
If you continue to believe the CRA was the primary contributor or even a significant contributor to the meltdown, count yourself amongst the group of poorly educated on the subject..... unless of course, you are finally ready to explain how this really works. Duly noted that you offer cites herein other than your personal expertise.
Of course, feel free to borrow some info from some of the prevailing wisdom on the subject....
http://www.business.cch.com/bankingf...ime_WP_rev.pdf
Three Causes of the Subprime Mortgage Crisis - ForensisGroup.com
Lest We Forget: Why We Had A Financial Crisis - Forbes
The CRA prohibited discrimination based on race and neighborhood (redlining). It did not require giving loans to people who were not qualified. It was passed in 1977. It was not until the housing bubble burst in the last decade that there was a problem with widespread defaults. The problem was largely caused by lack of regulation/enforcement of derivatives and the ridiculous notion that housing prices would never drop.
By the way, racial discrimination in housing was/is very real. Ask an African American who tried to buy property before the CRA.
Wells Fargo Will Settle Mortgage Bias Charges
By CHARLIE SAVAGE
Published: July 12, 2012
WASHINGTON — Wells Fargo, the nation’s largest home mortgage lender, has agreed to pay at least $175 million to settle accusations that its independent brokers discriminated against black and Hispanic borrowers during the housing boom, the Justice Department announced on Thursday. If approved by a federal judge, it would be the second-largest residential fair-lending settlement in the department’s history.
An investigation by the department’s civil rights division found that mortgage brokers working with Wells Fargo had charged higher fees and rates to more than 30,000 minority borrowers across the country than they had to white borrowers who posed the same credit risk, according to a complaint filed on Thursday along with the proposed settlement.
http://www.nytimes.com/2012/07/13/b...tle-mortgage-discrimination-charges.html?_r=0
If you continue to believe the CRA was the primary contributor or even a significant contributor to the meltdown, count yourself amongst the group of poorly educated on the subject..... unless of course, you are finally ready to explain how this really works. Duly noted that you offer cites herein other than your personal expertise.
Of course, feel free to borrow some info from some of the prevailing wisdom on the subject....
http://www.business.cch.com/bankingf...ime_WP_rev.pdf
Three Causes of the Subprime Mortgage Crisis - ForensisGroup.com
Lest We Forget: Why We Had A Financial Crisis - Forbes
Comedy of errors--one link thats a 404 and 2 that arent links. Try again.
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
Ratings agencies rated them highly because they expected GSEs to be backed by the full faith and credit of the US and in the end, they were.
If you continue to believe the CRA was the primary contributor or even a
significant contributor to the meltdown, count yourself amongst the group of poorly educated on the subject..... unless of course, you are finally ready to explain how this really works. Duly noted that you offer cites herein other than your personal expertise.
Of course, feel free to borrow some info from some of the prevailing wisdom on the subject....
http://www.business.cch.com/bankingf...ime_WP_rev.pdf
Three Causes of the Subprime Mortgage Crisis - ForensisGroup.com
Lest We Forget: Why We Had A Financial Crisis - Forbes
Nice links. They contain the same. amount of information on sub-prime that you have offered up....zilch.
CRA in conjunction with HUD regulations that mandated quotas on the GSEs are actually the primary cause of the sub-prime debacle.
The GSEs which owned 60% of the total sub-prime debt by 2008 and over 70% of sub-prime debt wound up on Govt financial institutions by 2008.
Those quotas which exceeded 50% of the GSEs total mortgae originations under Clinton.
Clinton also green lighted securitization of that junk paper.
Nice try anyway.
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
Show me one scholarly work, work of an economist or reputable banker/
financier that backs up that nonsense. I want the direct work not some news article extracted from Red State, WND or other political porn site.
http://www.fdic.gov/bank/analytical/cfr/2008/mar/CFR_SS_2008_DemyanykHemert.pdf
I can sit here and post hundreds of articles (they aren't hard to find) that tell us this was a complex problem, but none will offer much, if any blame to the CRA. I don't think you can find one credible article that supports your point the CRA was the primary cause (because that is hard to find)....
Here’s the gist. Near the end of its 119-page complaint, the Justice Department listed about two-dozen collateralized- debt obligations issued in 2007 as examples where S&P allegedly defrauded banks and credit unions. It was important that the Justice Department be able to identify such lenders as investors, because it’s suing S&P under a 1989 statute that covers frauds against federally insured financial institutions.
Under the government’s theory, Citigroup and Bank of America paid S&P for ratings that convinced the banks their own CDO offal was rock-solid. And because S&P deceived them into thinking the best of their own rubbish, these banks and other lenders suffered more than $5 billion of investment losses, according to the suit.
I SAID....listen closely, it was CRA regulations in conjuction with HUD regulations that forced quotas on the GSEs right up until the near economic collapse.
Quotas that forced them to increase their sub-prime debt from less than 10% to close to 50% by the time it was all said and done.
You want me to post a legitimate a source of legitmacy but then you take up for Paul Krugman.
A leftist who gave up on his economic aspiration to be Obama's bitch.
Krugman a lunatic and all you have to do is Google my claims and refute them .