Congrats to Holder for Suing S&P

[CrusaderFrank]

The ratings agencies gave AAA ratings to toxic CDOs in exchange for fees and ongoing business from the firms that built these fraudulent derivatives.

The certainly deserve to be sued, at the very least.

It was your 401k that was robbed. It was your insurance company that was robbed. It was your public employee pension fund that was robbed. It was your city treasurer who was robbed. It was your college endowment fund that was robbed. Higher insurance rates, higher taxes, higher tuition.

Wall Street is a thief with police protection.

Can you tell me more about these toxic CDO's? Were they credit enhanced?

 

[CrusaderFrank]

And yet Fannie and Freddie are still in business and non the worse for wear.

Amazing

FactWatch: Fannie and Freddie were followers, not leaders, in mortgage frenzy | The Center for Public Integrity

“The idea that they were leading this charge is just absurd,” says Guy Cecala, publisher of Inside Mortgage Finance, an authoritative trade publication. “Fannie and Freddie have always had the tightest underwriting on earth. … They were opposite of subprime.”

Did you not know that F&F set the standard for AAA rated paper?

 

[CrusaderFrank]

And yet Fannie and Freddie are still in business and non the worse for wear.

Amazing

FactWatch: Fannie and Freddie were followers, not leaders, in mortgage frenzy | The Center for Public Integrity

“The idea that they were leading this charge is just absurd,” says Guy Cecala, publisher of Inside Mortgage Finance, an authoritative trade publication. “Fannie and Freddie have always had the tightest underwriting on earth. … They were opposite of subprime.”

F&F started accepting "No Income No Asset" paper and put an AAA Rating on it. Guy Cecala is a fucking liar

 

[Katzndogz]

Holder is acting just like any thug. There is no difference between ordering S&P to fix their ratings and fixing a fight.

 

[CrusaderFrank]

The ratings agencies gave AAA ratings to toxic CDOs in exchange for fees and ongoing business from the firms that built these fraudulent derivatives.

The certainly deserve to be sued, at the very least.

It was your 401k that was robbed. It was your insurance company that was robbed. It was your public employee pension fund that was robbed. It was your city treasurer who was robbed. It was your college endowment fund that was robbed. Higher insurance rates, higher taxes, higher tuition.

Wall Street is a thief with police protection.

Yeah, but must hate all things Obama...

And defend all things which happened on Bush's watch.

Bush tried to reform F&F, remember?

"These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis." -- Democrats 2008

 

[g5000]

The ratings agencies gave AAA ratings to toxic CDOs in exchange for fees and ongoing business from the firms that built these fraudulent derivatives.

The certainly deserve to be sued, at the very least.

It was your 401k that was robbed. It was your insurance company that was robbed. It was your public employee pension fund that was robbed. It was your city treasurer who was robbed. It was your college endowment fund that was robbed. Higher insurance rates, higher taxes, higher tuition.

Wall Street is a thief with police protection.

Can you tell me more about these toxic CDO's? Were they credit enhanced?

How much time do you have?

Hubris

If you buy a house, the terms of your mortgage usually require you to buy fire insurance. If the house burns down, you collect the insurance and pay off the mortgage.

While you have the risk of your house burning down, the bank lending you the money is taking a risk that you will fail to pay off that mortgage (default).

Thousands of mortgages may be rolled into a financial instrument called a mortgage-backed security (MBS). These have been around a long time and functioned very well. An investor buys a chunk of mortgages, and that is where the money you borrow comes from. Investors, by way of a financial institution which channels the investors’ money through a mortgage broker.

Investors are your 401k manager, your public employee pension fund manager, your college endowment fund, your city treasurer, your local bank (which shares its profits in the way of interest on your bank account), your health, auto, and life insurance companies, Saudi princes, governments, and so forth.

At the beginning of this century, investors collectively had $70 trillion to invest. That’s a lot of money looking for someone to borrow it.

Homeowners are not the only people who borrow money.

Governments borrow money by issuing bonds. Governments like Greece, Italy, Spain, Portugal, and the United States. These debts are known as “sovereign bonds”.
Corporations borrow money. Corporate bonds.

Anyone who uses a credit card is borrowing money. Anyone who gets a car loan is borrowing money.

When you make a payment on your mortgage or credit card or student loan or car loan, that is a “revenue stream” of principle and interest.

In what I call the Old Testament days, a lender was directly on the hook for your loan. Or an investor owned a piece of your loan.

For instance, an MBS consists of thousands of loans. Investors buy the MBS, and out of all those loans, a certain percentage of people are going to default. The investors all take an equal loss when that happens.

For this reason, investors want the broker who arranges the loan to be one bastard of a due diligence kind of guy. They want actuarials out the wazoo.

This is all about risk.

In the late 90s, the geniuses at JP Morgan figured out a way to change the risk game. They called this new derivative a Collateralized Debt Obligation (CDO). CDOs are all christened with a name, and this one was called BISTRO.

Now, imagine the revenue stream created from thousands of payments from corporate bonds or mortgages or student loans or sovereign bonds or credit cards. That’s quite a river of money flowing by.

What a CDO does for an investor is allow them to buy a cup of whatever size they wish, with the understanding that the smaller your cup, the closer to the front of the line you get to be to scoop from that revenue stream. The bigger your cup, the farther back in the line you are.

You want a big return on your investment, you buy a big cup, but you are taking the risk that the money stream will be all gone by the time you get your turn.

As borrowers begin defaulting, there is less and less water in the stream each month when it comes time to dip your cup.

Now, the first CDO (BISTRO) was made up of the loans given to blue chip corporations. A blue chip corporation rarely defaults on a loan. And so the risk in BISTRO was minimal.

But this New Testament device ran into problems with an Old Testament regulation.
A lending institution must keep an adequate capital ratio to cover any potential defaults on the loans it makes. This is money it therefore cannot put to work making more loans, much to the annoyance of lenders.

So here’s where the genesis of our financial Armageddon was begun: JP Morgan proved to the regulators that their institution had no financial risk whatsoever with a CDO. They would sell all the big cups to investors (junior tranches), and keep only the tiniest of cups for themselves (super senior tranches). Therefore, the entire revenue stream would have to dry up before they would take a loss, and the actuarials showed that the Universe itself would end before that would ever happen. The chances of every blue chip corporation defaulting was infinity to one.

JP Morgan was correct in this claim. Totally correct.

Since JP Morgan proved they had no financial risk with a CDO, the regulators waived their capital reserve requirements.

And this set the precedent. All the illusions about the removal of all risk for all future lenders who jumped on the CDO bandwagon was started with BISTRO. And this innovation ultimately brought down economies all over the world.

You see, the chance of a bunch of blue chip loans all defaulting really is zero. But that is not true when you copy that model over to student loans, home mortgages, credit card balances, sovereign debts, and so forth. Especially when this assumption leads you to loan more money to more people than you ever have before in the belief you no longer have any risk.

$70 trillion and the CDO. That’s all it took to destroy us.

Investors went crazy over the CDO derivative. I can buy any size cup I want, depending on how much risk I want to take? AWESOME!

They could not get enough of these things. The demand was simply unbelievable.
And that was the problem. Extremely high demand for CDO tranches, and too small a supply of CDOs to go around.

What is a CDO revenue stream made of, boys and girls? Right! Loans. Debts.
So if there is a screaming demand for revenue streams, how do you create those revenue streams?
Right! You get as many people as possible to borrow money. Hey Greece! Let us throw some cash at you! Hey, middle class fat guy! Let us throw some big houses and HELOCs at you!

But…there are only so many really good credit risks. There are only so many blue chip borrowers out there, by definition.

The demand for CDO tranches far exceeded the supply. And so Wall Street began to dip into less than stellar credit risks.

$70 trillion of investor money means there is a nearly bottomless pit of fees out there waiting to be harvested.

Ratings agencies wanted in on that action, too. Fees, fees, fees.

The more CDOs you build, the more service fees you harvest from the investors who buy them.

Soon, everyone on Wall Street was in on the action. The competition of both borrowers and investors was fierce. So they threw the underwriting laws of the Universe out the window with the credo, "If we don't do this, someone else will and they will get the fees instead of us."

The race to the bottom was on.

 

[g5000]

Yeah, but must hate all things Obama...

And defend all things which happened on Bush's watch.

Bush tried to reform F&F, remember?

"These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis." -- Democrats 2008

If you think this is mostly about the GSEs, then you are an idiot.

Wall Street led the charge, not the GSEs. By 2005, the GSEs were less than 50% of the secondary market.

 

[Mr. Shaman]

WOO HOO!!!!!

February 4, 2013

READY....AIM.....​

"More than a dozen state prosecutors are expected to join the federal suit, and the New York attorney general is preparing a separate action. The Securities and Exchange Commission has also been investigating possible wrongdoing at S.& P."

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.

 

[CrusaderFrank]

The ratings agencies gave AAA ratings to toxic CDOs in exchange for fees and ongoing business from the firms that built these fraudulent derivatives.

The certainly deserve to be sued, at the very least.

It was your 401k that was robbed. It was your insurance company that was robbed. It was your public employee pension fund that was robbed. It was your city treasurer who was robbed. It was your college endowment fund that was robbed. Higher insurance rates, higher taxes, higher tuition.

Wall Street is a thief with police protection.

Can you tell me more about these toxic CDO's? Were they credit enhanced?

How much time do you have?

Hubris

If you buy a house, the terms of your mortgage usually require you to buy fire insurance. If the house burns down, you collect the insurance and pay off the mortgage.

While you have the risk of your house burning down, the bank lending you the money is taking a risk that you will fail to pay off that mortgage (default).

Thousands of mortgages may be rolled into a financial instrument called a mortgage-backed security (MBS). These have been around a long time and functioned very well. An investor buys a chunk of mortgages, and that is where the money you borrow comes from. Investors, by way of a financial institution which channels the investors’ money through a mortgage broker.

Investors are your 401k manager, your public employee pension fund manager, your college endowment fund, your city treasurer, your local bank (which shares its profits in the way of interest on your bank account), your health, auto, and life insurance companies, Saudi princes, governments, and so forth.

At the beginning of this century, investors collectively had $70 trillion to invest. That’s a lot of money looking for someone to borrow it.

Homeowners are not the only people who borrow money.

Governments borrow money by issuing bonds. Governments like Greece, Italy, Spain, Portugal, and the United States. These debts are known as “sovereign bonds”.
Corporations borrow money. Corporate bonds.

Anyone who uses a credit card is borrowing money. Anyone who gets a car loan is borrowing money.

When you make a payment on your mortgage or credit card or student loan or car loan, that is a “revenue stream” of principle and interest.

In what I call the Old Testament days, a lender was directly on the hook for your loan. Or an investor owned a piece of your loan.

For instance, an MBS consists of thousands of loans. Investors buy the MBS, and out of all those loans, a certain percentage of people are going to default. The investors all take an equal loss when that happens.

For this reason, investors want the broker who arranges the loan to be one bastard of a due diligence kind of guy. They want actuarials out the wazoo.

This is all about risk.

In the late 90s, the geniuses at JP Morgan figured out a way to change the risk game. They called this new derivative a Collateralized Debt Obligation (CDO). CDOs are all christened with a name, and this one was called BISTRO.

Now, imagine the revenue stream created from thousands of payments from corporate bonds or mortgages or student loans or sovereign bonds or credit cards. That’s quite a river of money flowing by.

What a CDO does for an investor is allow them to buy a cup of whatever size they wish, with the understanding that the smaller your cup, the closer to the front of the line you get to be to scoop from that revenue stream. The bigger your cup, the farther back in the line you are.

You want a big return on your investment, you buy a big cup, but you are taking the risk that the money stream will be all gone by the time you get your turn.

As borrowers begin defaulting, there is less and less water in the stream each month when it comes time to dip your cup.

Now, the first CDO (BISTRO) was made up of the loans given to blue chip corporations. A blue chip corporation rarely defaults on a loan. And so the risk in BISTRO was minimal.

But this New Testament device ran into problems with an Old Testament regulation.
A lending institution must keep an adequate capital ratio to cover any potential defaults on the loans it makes. This is money it therefore cannot put to work making more loans, much to the annoyance of lenders.

So here’s where the genesis of our financial Armageddon was begun: JP Morgan proved to the regulators that their institution had no financial risk whatsoever with a CDO. They would sell all the big cups to investors (junior tranches), and keep only the tiniest of cups for themselves (super senior tranches). Therefore, the entire revenue stream would have to dry up before they would take a loss, and the actuarials showed that the Universe itself would end before that would ever happen. The chances of every blue chip corporation defaulting was infinity to one.

JP Morgan was correct in this claim. Totally correct.

Since JP Morgan proved they had no financial risk with a CDO, the regulators waived their capital reserve requirements.

And this set the precedent. All the illusions about the removal of all risk for all future lenders who jumped on the CDO bandwagon was started with BISTRO. And this innovation ultimately brought down economies all over the world.

You see, the chance of a bunch of blue chip loans all defaulting really is zero. But that is not true when you copy that model over to student loans, home mortgages, credit card balances, sovereign debts, and so forth. Especially when this assumption leads you to loan more money to more people than you ever have before in the belief you no longer have any risk.

$70 trillion and the CDO. That’s all it took to destroy us.

Investors went crazy over the CDO derivative. I can buy any size cup I want, depending on how much risk I want to take? AWESOME!

They could not get enough of these things. The demand was simply unbelievable.
And that was the problem. Extremely high demand for CDO tranches, and too small a supply of CDOs to go around.

What is a CDO revenue stream made of, boys and girls? Right! Loans. Debts.
So if there is a screaming demand for revenue streams, how do you create those revenue streams?
Right! You get as many people as possible to borrow money. Hey Greece! Let us throw some cash at you! Hey, middle class fat guy! Let us throw some big houses and HELOCs at you!

But…there are only so many really good credit risks. There are only so many blue chip borrowers out there, by definition.

The demand for CDO tranches far exceeded the supply. And so Wall Street began to dip into less than stellar credit risks.

$70 trillion of investor money means there is a nearly bottomless pit of fees out there waiting to be harvested.

Ratings agencies wanted in on that action, too. Fees, fees, fees.

The more CDOs you build, the more service fees you harvest from the investors who buy them.

Soon, everyone on Wall Street was in on the action. The competition of both borrowers and investors was fierce. So they threw the underwriting laws of the Universe out the window with the credo, "If we don't do this, someone else will and they will get the fees instead of us."

The race to the bottom was on.

I'll ask again, Were the AAA rated CDO's credit enhanced?

"I don't know" would have been a better answer

 

[CrusaderFrank]

Google: "Credit enhancement" and give us another 6 pages of your wisdom

 

[Mr. Shaman]

Yeah, but must hate all things Obama...

And defend all things which happened on Bush's watch.

Bush tried to reform F&F, remember?​

.

.

.

.

.

It's....

....KARMA TIME for
WALL $TREET APOLOGISTS!!!!!!

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.

 

[CrusaderFrank]

And defend all things which happened on Bush's watch.

Bush tried to reform F&F, remember?​

.

.

.

.

.

It's....

....KARMA TIME for
WALL $TREET APOLOGISTS!!!!!!

.

.

.

These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis.​

 

[CrusaderFrank]

Basically, if the underlying collateral were mortgages owned by F&F, S&P can give a CDO an AAA rating

I don't know which particular CDO's the accomplice in Brian Terry's murder is suing S&P over, so I cannot comment intelligently on the specifics

 

[Staidhup]

Again reality is deflected by Bush? IS this not a case of redemption and intimidation? Fact, the US currency is nothing more than a bubble set to go pop. An independent financial analysis reporting agency that assigns risk is stating an opinion based on current financial data received by the entity. The unfunded, current liabilities, and revenues coupled with government projections warranted the down grade. The down grade had nothing to do with politics, other than it is and was correct in the assumption congress would not cut spending and put its financial house in order.

At the time CDO's were rated the securitized components were not effected by the future crash of the economy. This act is nothing more than a veiled attempt to have the justice department fire a warning shot over the bows of credit rating companies, from the bully pulpit, threatening not to mess with the Messiah or else. To judge in hind sight is a dangerous position especially when lacking substance. For a rating agency to be held accountable for future events that have yet to materialize is preposterous, not even the enlightened Federal Reserve or economic community forecasted the pending implosion. What was suspected is that quality of loans being generated as a result of the (CBA) community reinvestment act and subsequent law suites at the bequest of the government to reduce underwriting criteria was of concern, as it regarded risk, but the underlying issue remains present fact vs future uncertainty.

This administration has accomplished what no other has, without the aid of the media the underlying basis behind this proceeding would have been disclosed and act of retaliation never been possible.

 

[g5000]

When a CDO was created, a CDS was written against that CDO.

Well, guess what? The premium payments on a CDS are a revenue stream!!!

And so THOSE were turned into CDOs.

Yeah. No joke.

But that's jumping ahead in our story.


In the beginning of the CDO explosion, most of the CDS written against Wall Street's CDOs were underwritten by the Financial Products division of AIG (AIGFP). Their offices were in Connecticut and was overseen by Joseph Cassano, whose name shall go down in financial infamy.

Remember BISTRO? BISTRO proved that the risk of the senior tranches of a blue chip corporate loan CDO defaulting was zero.

So if you are the one insuring that CDO, then you are basically receiving free money in the form of premium payments because you are NEVER going to have to pay off on that CDO defaulting.

Free money! What?

And this is why credit default swaps took off.

But when the underwriting laws of the Universe for the underlying assets were thrown out the window, no one changed their CDS paradigm. No one realized that more and more toxic loans were being packaged into CDOs, and that meant the risk of default was becoming very real, instead of zero. They would have known if they were paying attention, but they only had their eyes on the fees.

The people insuring the CDOs weren't doing the due diligence.

A very tiny group of hedge fund managers were doing the due diligence, though, and they knew everything was going to blow up, which is why they bought CDS from the insurance suckers.



At the end of 2005, some of the lower minions at AIGFP finally got Joe Cassano to listen to them. They finally got him to realize the CDOs that used to be 99.99 percent pure were now 90 percent toxic.

So Joe informed Wall Street that AIGFP was no longer going to write CDS against their CDOs.

Joe believed he had dodged a bullet by pulling out in 2005.

He was wrong. He was way too late.


Since AIGFP was no longer writing CDS, that should have shut down the whole toxic mortgage bonanza, right?

Nope. This is when Wall Street began drinking its own Kool-Aid.

Remember, people still believed CDOs were indestructible and therefore CDS premiums were free money. When AIGFP stopped selling CDS, from Wall Street's perspective that left a vacuum which they could jump into and take all that free money flowing in.

And that is when CDO-squareds were invented. CDOs made up of revenue streams of CDS premiums.


Now, some of the Wall Street geniuses had done their due diligence and knew everything was going to shit. And that is when Fabrice Torre of Goldman Sachs and hedge fund manager Jon Paulson created Abacus 2007-ac1 which ripped off investors (you) for hundreds of millions of dollars.

That is when Danile Sparks and Tom Montag of Goldman Sachs constructed the fraudulent Timberwold mortgage security and sold it to investors (you), then profited by betting against it. They deliberately stuffed the security with mortgages they knew were toxic so they could bet on its failure.

This is like someone building a house out of flammable materials and selling it to you, and then buying insurance that it would burn down. That's why buying insurance against something you don't own is illegal, except on Wall Street. Not only are you allowed to buy insurance on a toxic security you built and sold to some 401k money manager idiot, anyone else is allowed to do so, too. It would be like a hundred people being able to buy fire insurance against your house! What do you think the chances are of your house burning down in such a case?

Yeah. Exactly.

So the boys at Goldman Sachs and the other major broker dealers got busy ripping you off.

That is when Brian Stoker of Citigroup constructed the fraudulent Class V Funding III CDO-squared which ripped off investors (you) for over $700 million.

That is when Angelo Mozilo, CEO of Countrywide, was telling his investors that Countrywide was "consistently producing quality mortgages" while his internal memos show he was well aware his company was creating the most toxic mortgages on the planet.

And that is when Richard Harrington of Bear Stearns, along with 13 executives and brokers, defrauded investors of $75 million through stock manipulation.

 

[g5000]

I'll ask again, Were the AAA rated CDO's credit enhanced?

"I don't know" would have been a better answer

The answer is NO. A resounding no, which would have been blaringly obvious had you read my post.

 

[g5000]

Google: "Credit enhancement" and give us another 6 pages of your wisdom

You learned a new phrase and think you are now being clever, but you are exposing your complete ignorance of the derivatives bubble. I discussed at length the credit enhancement features of the BISTRO CDO and how that feature of CDOs was completely destroyed in the years which followed BISTRO in answer to your question.

Just because you are too dense, and can only parrot a phrase you picked up somewhere along the way, don't blame me for your inability to comprehend the complexities of the derivatives bubble.

 

[CrusaderFrank]

I'll ask again, Were the AAA rated CDO's credit enhanced?

"I don't know" would have been a better answer

The answer is NO. A resounding no, which would have been blaringly obvious had you read my post.

I didn't see that addressed in your post, because you didn't address it

It was Fannie and Freddie that set the new standard of assigning an AAA rating to "No Income and No Asset" loans

So if someone asked S&P to rate a CDO made of F&F paper, it would get an AAA rating, even if it were made of subprime, no money down, no income, no asset borrowers

 

[Mr. Shaman]

February 5, 2013

How 'Bout An
ENCORE??!!!!

"When the housing market was on the road to nowhere in 2007, one ratings analyst found an unlikely muse: the post-punk band Talking Heads.

The analyst wrote a parody of the rock group's 1983 hit, "Burning Down the House," and emailed it to friends. His version of the song ended up in a 128-page lawsuit that the U.S. Department of Justice filed against rating agency Standard & Poor's late Monday.

According to the lawsuit, the unidentified S&P analyst, known in the complaint as "Analyst D," later sent a video of himself singing and dancing to his song while coworkers watched and laughed.

His version of the song begins:

"Watch out.

Housing market went softer

Cooling down

Strong market is now much weaker

Subprime is boiling over

Bringing down the house."

Shortly after sending around the email, the analyst told his colleagues not to forward the song, but added: "If you are interested, I can sing it in your cube ;-)."

In his initial email, the analyst offered his apologies to David Byrne, the Talking Heads lead songwriter and front man.

For McGraw-Hill Companies Inc, the parent company of the rating agency, the lawsuit is no laughing matter. The news that the government and several state attorney generals were going to sue S&P and McGraw-Hill over its alleged faulty rating of mortgage securities sent the company's stock down about 13.8 percent on Monday."

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.

 

[CrusaderFrank]

Google: "Credit enhancement" and give us another 6 pages of your wisdom

You learned a new phrase and think you are now being clever, but you are exposing your complete ignorance of the derivatives bubble. I discussed at length the credit enhancement features of the BISTRO CDO and how that feature of CDOs was completely destroyed in the years which followed BISTRO in answer to your question.

Just because you are too dense, and can only parrot a phrase you picked up somewhere along the way, don't blame me for your inability to comprehend the complexities of the derivatives bubble.

I've been in real estate capital markets far far far longer that you've been doing your Uber-Conservative act

LOLz Countrywide was Fannie's biggest loan originator