Yes, but if the WS bankers were buying mortgage securities made up of mortgages comprised of lies, errors, and purposeful omissions, who is committing a crime? The bankers or the people lying, purposely omitting, or making errors?
You’re right, of course … those vicious poor people were in on it too! Tell you what, I’d be satisfied if the bankers and execs were subject to nothing more than the mere wrist slap that the homeowners got .. you know … rendered homeless and their credit destroyed. Yes, that would do just fine.
I understand you may have some lawyer background but this, how is risk of any kind (credit, market, liquidity, operational etc.) determined for any financial arrangement, he is, in fact, correct.
For example, under Basel II Risk Weighted Asset calculation, there’s a parameter called Probability of Default that is based on a predictive model over a horizon of one year if counterparty would default.
However, for MBS, the credit risk model is based individual mortgage holder credit score (and other parameters such as Prepayment factor) that is still subjected to predictive model (predictive as in future behaviour based on historical data).
And now we can’t even get a single statute or case cite out of you?
Wow.
But they would not have been “rendered homeless” nor their “credit destroyed” had they not committed fraud or overbought on housing, right? 
No. It’s some seriously tedious shit. Why do think I gave it up in the first place?
If I accept this then I agree that it was all due to “incompetence”.
Because these things don’t just happen out of thin air or due to the gravity, and other forces beyond our control. If you ever worked in a large bank you would know the layers of executives that a decision of this magnitude has to go through.
In case you haven’t caught it already but I believe SEC is corrupted and the investigation stalled because it could lead at lots of places. You happen to believe their “word’ that they could not really prove it beyond reasonable doubt. Yeah, now, that’s exact science!
I found his posts much more credible than yours.
I have no lawyer background, and you’re not reading what he claimed. I’ve openly said maybe deltasigma was being imprecise in how he worded things. You’re absolutely correct about how risk is evaluated according to those models.
But what he actually claimed, by the plain wording of his own text is that the number of loans that will default in a mortgage backed security made up of x number of loans is determined by the model. At the time of the instrument’s creation, he is saying the bank knows how many of the underlying loans will default.
That’s simply not true, period. He’s further apparently saying (and I’ll cop to losing him in a swirl of wild and never cited claims) banks knew that they were representing loans as having a certain default risk when they actually had a different risk of default only known to the banks themselves. That’s entirely possible, and in fact I’d be surprised if that hasn’t happened given the civil court history, but no one has been able to firmly establish criminality in how this was done. You can do bad things and mislead people without crossing the line into criminality.
But the point I was making is anyone who thinks the risk evaluation models determine whether or not individual loans and what number of individual loans packaged inside an MBS default or not simply does not understand the economy as a whole, the MBS market, the residential real estate market, or the residential mortgage market. Would you at least agree that standard risk models do not determine whether or not an individual loan will or will not actually default?
See, that’s why I was so taken aback by his nonsense. Not because I don’t know about risk models, but because he made this ridiculous claim:
I read “credit quality” to be an acceptable synonym for “credit as measured by credit-worthiness models generally applied to residential mortgage loans.”
It may seem like a minor point to some, even a quibbling point, but to me it is very important. I’ve misspoke, I’ve used words casually, and I’ve said one thing when I meant another. I’m fine if that is what he did here, but if not it’s a minor but ultimately extremely important point. Because it underpins his overall claims because if a bank actually knows how many loans will default that’s different than if they just “predict” how many loans will default. Further, any investor has to know about risk. In the equities market, bond market, options market, whatever fucking market you’re in you have to know about risk. There are tons of risk models out there, some are international standards used in industry. Some are proprietary and are doled out in the form of advice by high paid consultants, some are shared as reports to people who pay for them etc.
But it’s very important to understand these models do not determine the number of defaults. Individual circumstances determine the number of defaults, a good credit model for individual finances can accurately predict in aggregate the number of defaults. But it can also be wrong (and is, or many adverse events would never happen); so any investor who just accepts what deltasigma said, that the credit rating of an individual borrower determines whether or not they will default, is not equipped to invest wisely in any market due to a misunderstanding of fundamental principles.
Well, lying on a mortgage application is always a crime for the applicant. Knowingly accepting a lie on a mortgage application–I do not know what that is. Is it a crime or not? (Speaking from genuine ignorance.)
If knowingly accepting those lies and then packaging them as though all the mortgages were on the up and up and never disclosing that there is a possibility some of them were lied about is a crime you’d have to actually demonstrate the knowingly part. Which is what I’d ask someone demonstrate. (It might be good to establish it as a crime too–I genuinely don’t know if it is, securities and financial laws are very complex and I am only partially familiar with some of them.)
But just demonstrating that individuals lie on mortgage applications doesn’t constitute proof of anything beyond that. This may seem snarky or pedantic, but I can guarantee you a defense attorney would raise the same point–you can’t convict a bank President of something because of one of his customer lied if you can’t even demonstrate he knew they lied.
You misinterpret me. I only know what I read in the papers, but it seems to me that the claim that there could be no fraud because investors had total visibility into these instruments was pure nonsense. Which was the claim you were responding to, not the one you made, of course.
If everyone were honest, then I’d think some knowledge of what makes a AAA investment, to avoid having to redo them, might be reasonable. Not everyone was, of course. Especially when a bonus is at stake.
But there was an immense amount of leverage on them, right? IIRC, the banks were having a hard time pricing their portfolio, which led to the credit freeze, which led to a shrinking economy, which led to a greater decline in housing prices, which led to more defaults even of “good” loans and the bigger problem.
As far as fraud goes, it seems that a lot of prosecutors have chosen not to bring criminal cases, not that they could not be brought. We are just getting to the rejection of civil settlements where the bank never admits wrongdoing, after all.
So you think never producing evidence of any crime makes his claims of criminal action credible?
You think that when pressed to cite evidence that the First Amendment is “bullshit” in regard to protecting ratings agencies from criminal prosecution citing a civil court case that hasn’t even been decided is reasonable and appropriate evidence?
Sans evidence the assumption is the First Amendment protects speech of any kind. Some speech we know is not protected because the Supreme Court and case law show that it isn’t. But we only know that because of that. We do not have any evidence at all that ratings agencies are not protected from criminal prosecution by the first amendment until someone brings some case law showing a ratings agency being prosecuted in criminal court, using that defense, and having it dismissed.
I think this is of course typical behavior for certain people. Unthinking liberals will jump on any bandwagon that condemns the mighty and the rich. But when you’re making specific criminal claims the onus is on the person making those claims to provide evidence of specific criminal acts. Everything I said in this thread could be a sack of lies, and I still come off better than deltasigma Why? Because he’s making a positive affirmation that a crime was committed, and is presenting no evidence to support that a crime was committed. Whatever I’m doing, at the worst I’m just wrong about everything–but since I’ve made no positive claims and deltasigma has, and he has provided no evidence for his claims, I still come out ahead here.
I think a lot of people always get lost in these threads because of the fact they know that big investment firms, banks, etc often have a structure in which lower level employees are pressured to do unethical things to maximize profit to the detriment perhaps of external persons and entities.
How they know it, I don’t know, I guess because the news told them. But I will say this: following this stuff enough, I’m perfectly fine conceding that in general big banks and financial players did a lot of bad things. Bad things like misleading their customers, screwing their customers over, screwing society over, and profiting from all of those things. At times (often times) they didn’t play fairly, and did things most of us would agree were stupid.
But that’s very, very different from saying “specific executives should be in prison because they committed a crime.” I can say, “I think someone should be in prison because they belong in prison” and be 100% right whether they committed a crime or not. That’s an opinion. In my opinion, some people should be in prison because I think they are a bad influence on society, steal from people, mislead people, defraud people of money etc.
But if I then go on to say, “because I think they violated extant criminal law” I now have an obligation to demonstrate that they in fact did. Not necessarily beyond a reasonable doubt, but at least to demonstrate there is enough evidence of a crime that we can reasonably claim there was a crime.
That’s where this falls apart. One group of people is so sure that a lot of bad actors exist that they are equally sure criminal statutes were broken and equally sure those people were not prosecuted for corrupt/political reasons.
I can follow part of that train, I’m very sure there were bad actors. But I’m not nearly so sure that all kinds of people are out and about for whom we have evidence of a crime and no prosecutorial action.
We live in the real world, people get away with crimes sometimes. Either they get lucky (no one notices the crime, no one links them to the crime) or they simply committed a crime (in fact and intent) for which not enough evidence was created in the commission of the crime to convict them.
As I’ve also repeatedly said, we do know for a fact some crimes were committed because some people went to prison for them. But if you’re going to assert that people broke the law, you need to tell me specifically what people, what law, and then provide the evidence.
If you just think they’re crooks who belong in jail, I’ll get behind that on a limited basis. But that’s not a legal argument.
Yes. Leverage was the big issue. I will admit to not being intimately familiar with the details, but as I recall, the same principal would be used fund a variety of obligations such as CDSs. Now bear in mind I may have this wrong, but I think it worked something like this.
I have $100M that I use to fund 20 credit default swaps (CDSs) on Swiss govt bonds against default) for $100M each or $2000M. In return, I get a premium of say 5% or 5M x 20 = $100 per year. So you can see that this was an extremely lucrative business.
What’s worse, since I now have 20 CDSs with an annual cash flow. I can repackage those and sell those on as a different kind of derivative - probably some type of CDO (collateralized debt obligation). IOW, I sell the future stream of payment for the net present value and now take that and go out and make more trades. So you can see how the system feeds on itself.
The problem with all of this was, no one actually knew who had what exposure to what types of risk since a lot of these instruments weren’t standardized and even if they were, they weren’t necessarily recorded on the books of the institutions doing the trades - something that still baffles me. That’s why even today if you look at the valuation of say Bank of America, they trade below their book value. IOW, divide the net assets of the company by the number of shares outstanding and compare that to the share price - the share price will be lower. That’s saying that people think the bank’s balance sheet is bullshit.
No. 3 is probably because in order to have that level of evidence, you either have to be said prosecutor or closely connected with the case. As the general public, we generally get to form opinions based on a lower level of evidence than prosecutors. But then, we do not face the political pressures that prosecutors. Don’t tell me that Eric Holder has been sitting on his hands because he honestly feels that’s the best response the Justice Dept. can make to what’s going on, strictly on legal grounds.
But your contract with the builder ( if you did it right ) is tied to a huge package of plans and specifications which call out EVERY detail of the construction— the brand and model numbers of the lighting and plumbing fixtures being used. the brand and model numbers of the doors and windows, the method by which the roof is attached to the house, the way that the walls are supported, the way the cabinets are mounted…everything. In effect this specification package deliniates EXACTLY what your are purchasing from your builder.
You may even have had multiple builders price out your project based on these documents.
A general disclaimer about “your house may fall down tomorrow” isn’t going to release the builder from these SPECIFIC guarantees of quality materials and methods. If, after your house crumbles, you discover that your builder used cheap knock-off lighting and plumbing fixtures and counterfeit windows and doors and that he didn’t attach your roof or construct your walls in the way your architect drew them his little disclaimer isn’t going to help him much.
If the deviations are egregious enough you probably would have a good criminal case…and even if you don’t this disclaimer isn’t going to be the reason.
Now., it’s my understanding that their were details of the RMBS offerings that were available to the ratings agencies and investors. Those details include things like the average credit rating of the lienholders and the loan to value ratio of the mortgages. If these details were in substantial variance with the reality of the home loans being packaged I don’t think that little disclaimer would be much of a defense.
I posted this link earlier in the thread but this is what Eric Holder said on the subject last week.
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy,” Mr. Holder told the Senate Judiciary Committee. “I think that is a function of the fact that some of these institutions have become too large.”
Actually, I agree with you to some extent regarding culpability but I don’t think it would be productive to go after individual homeowners. I think any homeowner that lied on his loan application deserves just what they got…they may deserve to lose their home and they may deserve some guilt over causing their local banker some difficulties.
But I find it a little disingenuious to blame these homeowners for crashing the economy when they didn’t realize that there were bankers and investors placing huge bets at the equivalent of a casino on whether or not they could pay their mortgage. Punishment should be proportional to the offense.
Mortgage brokers though…I think some effort should have been made to prosecute all of them that actually did commit fraud … and was pretty commonplace as I learned from my own experience.
In 2005 I decided to buy my apartment from my landlord. I had never been involved in a real estate transaction and since it was a private sale I didn’t use an agent.
A friend of mine recommended a mortgage broker to me who promised me some really great rates and cool products that would be way cheaper than a conventional mortgage. I filled out some forms and waited. and waited. and called and screamed and waited some more. (turns out this was a tactic ). Finally, with my closing date drawing near, I received a package from the lender.
The loan was crap and did not bear any resemblance to the loan I had been promised…I mean… it had a double digit APR and a ballon payment that was equal to the total amount borrowed. My cost for loan of under $200,000 was over a million dollars over the life of the loan.
But that wasn’t even the most disturbing thing. MY financial information as shown on the lender’s paperwork did not match the information I had given the broker…in my case( unlike most cases) they fudged my income downward and made up some liabilities…simply because if I got charged a higher rate they made a higher commission.
But the scariest thing of all was that I had signed documents that disclosed certain aspects of the loan as well has disclosing how the broker was paid. But the loan had “features” that weren’t disclosed and the lenders statement of how the broker was paid did not match up to the disclosure I signed.
So I called the broker and told her what she could do with her loan and then I made an appoitment to sit down with a loan officer at my local bank. I took all the loan papers to this appointment, which included copies of the forms I had filled out and returned to the broker.
The first thing the loan officer said when he looked at this loan was "Are you SURE there’s not a problem with your credit? Loans like this are designed for people with credit problems. I said “My credit score is 795, that’s why I’m here”.
After we got through with the business of my new conventional 30 year mortgage loan, I mentioned the paperwork discrepancies. So he spread out all the papers on a table and he showed me EXACTLY how the broker had altered each of my forms after they were signed. The results matched the papers I had received from the bank.
It was just a matter of adding a digit here and there. And the disclosure forms were checkbox documents that were especially easy to alter – the broker simply checked off a box or two on the document listing the dangerous aspects of my loan and AFTER I had signed them checked off more boxes. Apparently my broker wasn’t even unusually sleazy these tactics were really commonplace.
This whole debacle cost me about $1500, I had to pay an extra month’s rent because of the delayed closing and I had to pay for a new appraisal. I thought about suing them but decided it was healthier to put it behind me and move on.
But this gave me certain sympathies to some of the homeowners that got caught up in the mortgage mess, as I genuinely believe a lot of them WERE victims. It also made we want to hunt down sleazy mortgage brokers like they were rabid dogs terrorizing a city.
That’s essentially what happened with RBS. So now we have not only too big to fail, but too big to jail.
There is another problem with the US Banking and Financial Services industry-the fact that people in the government leave and go to work for the organizations they were supposed to regulate. This extends to the Secretary of the Treasury-Tim Geithner (who has admitted to income tax evasion) will likely wind up in a firm the Goldman Sachs-what kind of regulation can you expect from someone like this?
The banking industry invests heavily in lobbying congress-so they have quite a grip over many powerful reps and senators.