CNBC Editor blames Obama's Stimulus for recent stock woes

Are you a schoolgirl?

 

At least you acknowledge your stupidity for making bad loans to unqualified individuals. I'm guessing this has something to do with why you're no longer in the business?

 

These low income people should be barred from the American dream if they are only going to turn it into a nightmare.

Maybe they should all be segregated from regular folks like us in carefully zoned rent-controlled neighborhoods located in the major urban areas.

 

Because no one's arguing whether bad loans were made. What they are arguing is that those bad loans didn't cause the collapse of the financial system. Your understanding of that part appears to be limited to right-wing blogs, based on the sources you have used. Those sources are incorrect.

 

no one is saying that, but that isn't the reason wall street was/is on the verge of collaspe. the derivatives and artifical equity is the reason. if it were only subprime loans, the problem wouldn't be nearly as large

 

Trying to pawn this all the rampant fraud off on poor brown people is dispicable. Period. It's blaming the woman who was just raped on the grounds like she was acting like she wanted it.

For those of you are too lazy to read, the bullet points at the bottom give a good summary.

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The Two Documents Everyone Should Read to Better Understand the Crisis​

As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds.1 When the person that controls a seemingly legitimate business or government agency uses it as a "weapon" to defraud we categorize it as a "control fraud" ("The Organization as 'Weapon' in White Collar Crime." Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds' "weapon of choice" is accounting. Control frauds cause greater financial losses than all other forms of property crime -- combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a "criminogenic environment" (Big Money Crime. Calavita, Pontell & Tillman 1997.)

The FBI correctly identified the epidemic of mortgage control fraud at such an early point that the financial crisis could have been averted had the Bush administration acted with even minimal competence. To understand the crisis we have to focus on how the mortgage fraud epidemic produced widespread accounting fraud.

Don't ask; don't tell: book profits, "earn" bonuses and closet your losses​

The first document everyone should read is by S&P, the largest of the rating agencies. The context of the document is that a professional credit rater has told his superiors that he needs to examine the mortgage loan files to evaluate the risk of a complex financial derivative whose risk and market value depend on the credit quality of the nonprime mortgages "underlying" the derivative. A senior manager sends a blistering reply with this forceful punctuation:
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<i>Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don't have it and can't provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.</i>

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Fraud is the principal credit risk of nonprime mortgage lending. It is impossible to detect fraud without reviewing a sample of the loan files. Paper loan files are bulky, so they are photographed and the images are stored on computer tapes. Unfortunately, "most investors" (the large commercial and investment banks that purchased nonprime loans and pooled them to create financial derivatives) did not review the loan files before purchasing nonprime loans and did not even require the lender to provide loan tapes.

The rating agencies never reviewed samples of loan files before giving AAA ratings to nonprime mortgage financial derivatives. The "AAA" rating is supposed to indicate that there is virtually no credit risk -- the risk is equivalent to U.S. government bonds, which finance refers to as "risk-free." We know that the rating agencies attained their lucrative profits because they gave AAA ratings to nonprime financial derivatives exposed to staggering default risk. A graph of their profits in this era rises like a stairway to heaven [PDF]. We also know that turning a blind eye to the mortgage fraud epidemic was the only way the rating agencies could hope to attain those profits. If they had reviewed even small samples of nonprime loans they would have had only two choices: (1) rating them as toxic waste, which would have made it impossible to sell the nonprime financial derivatives or (2) documenting that they were committing, and aiding and abetting, accounting control fraud.

Worse, the S&P document demonstrates that the investment and commercial banks that purchased nonprime loans, pooled them to create financial derivatives, and sold them to others engaged in the same willful blindness. They did not review samples of loan files because doing so would have exposed the toxic nature of the assets they were buying and selling. The entire business was premised on a massive lie -- that fraudulent, toxic nonprime mortgage loans were virtually risk-free. The lie was so blatant that the banks even pooled loans that were known in the trade as "liar's loans" and obtained AAA ratings despite FBI warnings that mortgage fraud was "epidemic." The supposedly most financially sophisticated entities in the world -- in the core of their expertise, evaluating credit risk -- did not undertake the most basic and essential step to evaluate the most dangerous credit risk. They did not review the loan files. In the short and intermediate-term this optimized their accounting fraud but it was also certain to destroy the corporation if it purchased or retained significant nonprime paper.

<blockquote>Stress this: stress tests are useless against the nonprime problems</blockquote>
What commentators have missed is that the big banks often do not have the vital nonprime loan files now. That means that neither they nor the Treasury know their asset quality. It also means that Geithner's "stress tests" can't "test" assets when they don't have the essential information to "stress." No files means the vital data are unavailable, which means no meaningful stress tests are possible of the nonprime assets that are causing the greatest losses.

The results were disconcerting​

A rating agency (Fitch) first reviewed a small sample of nonprime loan files after the secondary market in nonprime loan paper collapsed and nonprime lending virtually ceased. The second document everyone should read is Fitch's report on what they found.

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<i>Fitch's analysts conducted an independent analysis of these files with the benefit of the full origination and servicing files. The result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file.


[F]raud was not only present, but, in most cases, could have been identified with adequate underwriting, quality control and fraud prevention tools prior to the loan funding. Fitch believes that this targeted sampling of files was sufficient to determine that inadequate underwriting controls and, therefore, fraud is a factor in the defaults and losses on recent vintage pools. </i>

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Fitch also explained [PDF] why these forms of mortgage fraud cause severe losses.

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<i>For example, for an origination program that relies on owner occupancy to offset other risk factors, a borrower fraudulently stating its intent to occupy will dramatically alter the probability of the loan defaulting. When this scenario happens with a borrower who purchased the property as a short-term investment, based on the anticipation that the value would increase, the layering of risk is greatly multiplied. If the same borrower also misrepresented his income, and cannot afford to pay the loan unless he successfully sells the property, the loan will almost certainly default and result in a loss, as there is no type of loss mitigation, including modification, which can rectify these issues.</i>

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The widespread claim that nonprime loan originators that sold their loans caused the crisis because they "had no skin in the game" ignores the fundamental causes. The ultra sophisticated buyers knew the originators had no skin in the game. Neoclassical economics and finance predicts that because they know that the nonprime originators have perverse incentives to sell them toxic loans they will take particular care in their due diligence to detect and block any such sales. They assuredly would never buy assets that the trade openly labeled as fraudulent, after receiving FBI warnings of a fraud epidemic, without the taking exceptional due diligence precautions. The rating agencies' concerns for their reputations would make them even more cautious. Real markets, however, became perverse -- "due diligence" and "private market discipline" became oxymoronic. These two documents are enough to begin to understand:

• the FBI accurately described mortgage fraud as "epidemic"
  
  
  [*]nonprime lenders are overwhelmingly responsible for the epidemic
  
  
  [*]the fraud was so endemic that it would have been easy to spot if anyone looked
  
  
  [*]the lenders, the banks that created nonprime derivatives, the rating agencies, and the buyers all operated on a "don't ask; don't tell" policy
  
  
  [*]willful blindness was essential to originate, sell, pool and resell the loans
  
  
  [*]willful blindness was the pretext for not posting loss reserves
  
  
  [*]both forms of blindness made high (fictional) profits certain when the bubble was expanding rapidly and massive (real) losses certain when it collapsed
  
  
  [*]the worse the nonprime loan quality the higher the fees and interest rates, and the faster the growth in nonprime lending and pooling the greater the immediate fictional profits and (eventual) real losses
  
  
  [*]the greater the destruction of wealth, the greater the (fictional) profits, bonuses, and stock appreciation
  
  
• many of the big banks are deeply insolvent due to severe credit losses
  
  
• those big banks and Treasury don't know how insolvent they are because they didn't even have the loan files
  
  
• a "stress test" can't remedy the banks' problem -- they do not have the loan files

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source

 

If you knew how to read, I actually said it didn't cause the collapse of the financial system. And if you knew anything about finance, you'd know that the collapse of the financial system is very different from the subprime crisis. But you've already demonstrated you have no clue about any of this based on linking to amateur-hour blogs as your source for financial information.

 

How did the government mandate that? Did they pass a law sayign you must make loans to people who have poor credit? What would happen have happened if you had turned down a loan for someone with a terrible credit rating? Would you have been fined or sent to jail?

I agree that the government had a strong interest in getting mortgages out and I fully agree the deregulation was a mistake but in the end your industry signed off on those loans, didn't complain about the situation of making more loans and for a while profitted greatly from it.

Your understanding of what constitute's interference is both illogical and irresponsible since you are seeking to pass the blame rather than considering that you own industry was the one who more than willing made those loans.

I agree that the Clinton Admin., the GW Bush Admin, both Republican and Democratic congresses over the last 15 years were irresponsible but they were irresponsible for ommission and not commission. There is a difference.

 

A useful article (with graphs and charts, so it's hard to copy here) that people should read:

http://www.fivethirtyeight.com/2009/03/what-stock-market-really-thinks-about.html

 

This is funny. "We would have never committed widespread fraud if the government hadn't encouraged us to loan money to poor people."

Please tell me you're joking, stanleykurtz.

"The heart [of man] is deceitful above all things, and desperately wicked; who can know it?" - Jeremiah 17:9.

 

Ahh, the good old fashioned "ignore the statement and issue an ad hominem attack" tactic. Good job.

 

It takes a special talent to make racially offensive statements while ostensibly calling out someone for using race in a ‘despicable’ way. Bravo.