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U.S. sues S&P over subprime ratings

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

Wrong, by the end of 2008 the GSEs originations of sub-prime paper was 45% and it was under Clinton that securitization of CRA loans was authorized.

Securitization so the GSEs could bundle bad loans with good ones and sell them to investment banks to finance the secondary market.

By 2004 92% of the GSEs total loans were ARMs.

The CRA forced banks to offer access to their loans to the surrounding community or face huge fines.

Again, why do you think Holder went after Wells Fargo just recently ?

And why all of the sudden have banks been allowed to stop giving access to easy credit? To STOP allowing their surrounding community members to scream discrimination ?

You actually think banks wanted to fail ?

They didn't and some refused to lower their standards and are now being fined by Obamas justice Dept.

I guess redlining is OK now and the CRA enforcement tool is now history.

Imagine, this started from bogus screams of racism from the likes of Jesee Jackson and orginizations like ACORN, who recieved billions out of this scam.

Get the facts before launching with your ignorance.

The Democrats know their average consituent is as dumb as a box of rocks and thanks to public education they're adding to their voter pool every day by cranking out an endless supply of idiots.

People that haven't the slightest of what their party did to this nation.
 
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.
 
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.
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.
 
Get the facts before launching with your ignorance.

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.
 
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It is true, CRA forced many bankers to lend money to people that normally would have been turned away.

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
 
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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.


You work for the financial industry and your'e completely unaware of Govt's imposing of "affordable housing requirements " on the GSE's in 1992 ?

It was 30% by the way or at least that's where it started when HUD was given the authority to administer these quotas which climbed up to 50% in the Clinton era. That's 50% of the GSEs total origination's had to be to people at or below the median income level in their communities.

Your'e in the "financial industry " but are unaware that the securitizing of those sub prime loans was allowed by the Clinton administration and your'e "ignorant" of the fact that by 2008 there were 27 million sub-prime or low quality loans in the US financial system and of these over 70% ( 19 million or so ) were on the books of Government agencies like the GSE's and 60% of those ( about 12 million) were held by Fannie and Freddie.

So much for your 80% number you pulled out of thin air. But your'e in the "financial industry".....

Your'e in the "financial industry" but don't know about the CRA regulations in 1995 forced banks to "demonstrate" that they were making access to loans to people in the banks "community" and the enforcers of these regulations, the regulators themselves were co-opted into accepting lower and lower lending standards.

Your'e in the "financial industry" but are ignorant of the fact that between 1995 and 2005 private traditional SUB-PRIME lenders like Country Wide were responsible for about 5% of total sub-prime loans and by the 2000's Fannie and Freddie were offering low quality loans at no money down.

Barney Franks own words in 2010 on the Larry Kudrow show.... "I hope by next year we'll have abolished Fannie and Freddie ... it was a great mistake to push lower-income people into housing they couldn't afford and couldn't really handle once they had it."

I know exactly who I'm "tangoing" with. Financial industry or not your'e poorly educated to the fundamental cause of the 2008 sub-prime collapse and are most likely just another Lib trying to mitigate the extensive damage of your parties policies.

Libs lie, the obfuscate, they do stupid things like "blame Bush". I'm not one or one of their low information voters and it's going to take more than your numbers you've pulled out of thin air to convince me you know what your'e talking about.
 
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

The New York times ??? So I guess your'e going to believe everything you hear and post subjective liberal sources to back your claims. If you want the truth, you won't get it at the New York Times.

"Discrimination" was checking to see if you had a down payment, good credit, good work history as everyone of those long held standards that the banks had been using for over a hundred years were tossed to the wayside during the sub-prime debacle.

The people that cried discrimination called those standards "redlining". So liberal politicians forced banks and the GSE's to lower their standards, credit was free and easy and what happens when you lend money to someone with bad credit, a poor work history or low income happened,

Massive default on millions of loans that nearly collapsed our economy.

The Justice Department ? Eric Holder ? He's an idiot who worked for the Clinton administration under Janet Reno and was one of the people enforced the policies that forced the GSEs to lower their standards and subsequently nearly collapsed our economy.

You see Wells Fargo refused to lower their mortgage lending Standards during the sub-prime debacle and now they are going to have to answer for maintaining standards that have kept our banking and financial system alive and kicking for a hundred years.

It's just a Chicago style shake down. Same thing Eric Holder is doing to the S & P who should down grade our bonds just for Holders thuggish antics.
 
The story about the Wells Fargo settlement has appeared in many other media outlets.

If you want to argue that there has never been racial discrimination in housing and loans you are not going to have much credibility with anyone but racists.

The feds documented that "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." If the claim was wrong, the documents would have easily revealed that fact, instead Wells Fargo chose to settle.
 
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
 
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.
 
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

WHy do you waste my time with a NYT article which is clearly biased information. CRA loads were nothing but showboating by dc politicians. We are all paying for it now.
 
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.

You are right.... sorry, hate to lose the form argument, especially when I own the substance. All links plus one:

Three Causes of the Subprime Mortgage Crisis - ForensisGroup.com
Lest We Forget: Why We Had A Financial Crisis - Forbes
http://www.business.cch.com/bankingfinance/focus/news/Subprime_WP_rev.pdf
Community Reinvestment Act had nothing to do with subprime crisis - BusinessWeek

,,,and yes, the thread to which I reference...

http://www.debatepolitics.com/government-spending-and-debt/146594-did-you-buy-w-218-a-17.html
 
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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.

Ratings agencies rated them highly because they simply did not understand the products they were insuring. Blaming the motivations for risk management failure on F&F is a cop out.
 
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.
 
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.

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)....
 
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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

He's been corrupted.
 
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)....

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 .
 
S&P Lawsuit Portrays CDO Sellers as Duped Victims - Bloomberg

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.

That's the government's case. Banks who were dumb enough to create faulty securities only did so because S&P told them their pile of crap was golden. Good luck with that.
 
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 .


Still no cite.... I'll settle for an independent cite that has CRA as even a significant factor.... not that it changes the truth, but at least I would like to see a credible argument. You are free to continue with your unsubstantiated posts, but you are out of bounds in admonishing others on this issue when you can't even substantiate your own point lest you have merely proven your original assertion that its amazing how many people on this board have no understanding of this issue.
 
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