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Who Did It? The Subprime Crime

Steve

Well-known member
aplusmnt wrote:
I guess I am having a hard time seeing exactly what a President did wrong here. What exactly would you have did as president that would have kept any of these swapping of paper transactions to happen.

,... you encourage people to borrow against their houses, you end up with the cluster---- of the current subprime mess.

It IS the Presidents fault. He hired cronies instead of competent people. He initiated a policy of fiscal irresponsibility. He is deliberately pushing the USA into bankruptcy.

Unfortunately to unravel what actually happened you have to go back aways,... It is a problem that has spanned at least three administrations,.. it could easily have been said,...
Had Clinton not appointed cronies instead of competent people.
William Clinton initiated a policy of fiscal irresponsibility deliberately pushing the USA toward bankruptcy.




The Washington Post (12/11/92) reported on Clinton's economic team in an article headlined "Clinton Appointees Form a Collage of Varying Economic Views." The piece claimed that Clinton's administration would be a "tent big enough to accomodate a wide variety of viewpoints.",...

How wide are the viewpoints represented? The article cites Lloyd Bentsen, an "old-time wheeler-dealer" who supports "tax incentives" for business; Rep. Leon Panetta and the Brookings Institution's Alice Rivlin, who are described as "deficit hawks"; and investment bankers Robert Rubin and Roger Altman, who are said to provide "real world imput."

"If you're in favor of any of these things, you're represented," says Reagan administration official William Seidman--referring to tax cuts for big business, cutting government programs or having economic policy set by investment bankers.

Robert Edward Rubin is the Chairman of Citigroup.He served as the 70th United States Secretary of the Treasury during both the first and second Clinton Administrations.,... He sparked controversy in 2001 when he contacted an acquaintance at the Treasury Department and asked if the department could convince bond-rating agencies not to downgrade the corporate debt of Enron, a debtor of Citigroup.
http://en.wikipedia.org/wiki/Robert_Rubin
Roger Altman is an investment banker and former United States Deputy Treasury Secretary under Bill Clinton. ,.. a general partner of Lehman Brothers,.. Mr. Altman joined the Blackstone Group as vice-chairman, head of merger and acquisition advisory and a member of the investment committee.,.. as the Deputy Secretary of the US Treasury, before resigning in 1994 because of a record-keeping scandal
,... Evercore Partners NYSE: EVR is a boutique investment bank and private equity investment firm located in New York. It was founded by Blackstone Group Austin Beutner and Roger Altman in 1996,...

http://en.wikipedia.org/wiki/Roger_Altman
http://www.fair.org/index.php?page=1210


Who Did It? The Subprime Crime

There is a considerable search on by Congress, the press, the politicians, etc., to tag someone or something as the villain who caused the current financial system problems, aka the subprime home mortgages mess. (They’re called subprime because the debtor has less than a prime credit rating.)

Among the suspects are financial institutions, mortgage brokers, securitizers’ rating agencies, and various types of defrauding individuals.

It is with some concern that I (L. William Seidman) am duty bound to report that the Resolution Trust Company (the RTC) and its first chairman (that’s me) must shoulder a good bit of the blame for the costly losses that have rather suddenly appeared.
http://www.bankdirector.com/issues/articles.pl?article_id=11916

Seidman began working in United States government as an economic advisor to President Gerald Ford from 1974 to 1976, and later in a related capacity to President Ronald Reagan from 1982-1984. In 1985, he became the chairman of the Federal Deposit Insurance Corporation and served until 1991, working extensively during the American savings and loan crisis to restore solvency to the failing savings and loan sector of American banking. He was the first chairman of the related agency, the Resolution Trust Corporation, which was created specifically to address issues arising from the savings and loan crisis, from 1989 until his retirement from active government in 1991.
 

Tex

Well-known member
It is not hard to see that both Clinton and Bush have done the same thing.

They were both in office long enough to stop this from happening but both decided to go with the corporate money.


See the whole article:

http://www.msnbc.msn.com/id/5131524/
 

Steve

Well-known member
Steve wrote:
I am not saying GW Bush didn't take his eye off the ball, but Billy Clinton didn't even know there was a ball..

GoodPasture
BS.......Under the Clinton administration there was NONE of the subprime problems. He hired people that knew what they were doing and followed the banking rules. The ENTIRE subprime fiasco is a result of the Bush administration incompetence.

Ignoring facts again?
Just so you can spout another innuendo based insult?

Just because the problems didn't surface (or you were blind to them) doesn't mean they didn't exist for the entire Clinton administration...
 

Goodpasture

Well-known member
Steve said:
Unfortunately to unravel what actually happened you have to go back aways,... It is a problem that has spanned at least three administrations,..
No, you don't. It is a problem that has spanned the current Bush administration only. The savings and loan debacle occurred in the mid 80's under the Reagan administration. The Resolution Trust Corporation was formed to liquidate assets of failed Savings and Loans, and rewrite the Banking Rules under FIRREA. One of the rule changes was that real estate owned would no longer be carried as an asset on the banks books, which is why most banks will now substantially discount their REO portfolios to minimize that liability (remember, if it isn't an asset, equity, income or expense, it is a liability). The S&L crisis was pretty well finished by 1988 when G H W Bush took office, and real estate began a recovery. Under Clinton's administration, the economy was strong, wages rose. and banks and lenders were making solid loans based on good collateral for people who had a realistic expectation of repayment. After 9-11, new lending products were introduced and were accepted by the shrubs appointees. Things like the Pay Option ARM, Flex Loans, and the qualifying of borrowers based on the initial interest rate as opposed to the final interest rate, 20/80 loans, etc. This brought a lot of people into the home purchase and refinance cycle. Once the good borrowers had done their borrowing, the only ones left were those who had no credit, no job, and no bank accounts. Mortgage Brokers began creating VOE's, VOD's, pressuring appraisers for values, and other false documents that overstated incomes, assets, savings, and values.....to the point that tne New York AG has filed suit against WAMU and eAppraisit for REQUIRING falsification of loan documents. (eAppraiseit is a company owned by the First American whose CEO was appointed ambassador to the Netherlands by the shrub, and who is pretty much ignored and disliked by his European counterparts) This mess is the shrub's, and only the shrub's......trying to pass it off as part of an on going scam from other administrations is just wrong. Bush created this mess. He created the environment where this mess could develop. To say different is to be in total denial of reality.
 

Goodpasture

Well-known member
Steve said:
Just because the problems didn't surface (or you were blind to them) doesn't mean they didn't exist for the entire Clinton administration...
I work with lenders. I work with Fannie Mae. I work with Ginnie Mae. I work with Freddie Mac. I do review work for Citi, WAMU, Indymac, FHA/HUD, and the State of Oklahoma. I am an accepted expert witness for district court in residential appraising. I provide review work for PMI companies. I am a member of the Worldwide ERC, I am on the FHA roster, I have worked with the FBI on mortgage fraud cases, I teach residential appraising in Oklahoma. My classes are accepted in Texas, Oklahoma, New Mexico, Kansas and Missouri. The majority of my work is in dealing with retro reviews. A good portion of my income is generated through court related testimony.

I know exactly what I am saying. I know exactly where the blame lies. You may think I am blind to the truth, however I can assure you that you have absolutely no idea what you are talking about.
 

Steve

Well-known member
GoodPasture
Good Pasture
The Resolution Trust Corporation was formed to liquidate assets of failed Savings and Loans, and rewrite the Banking Rules under FIRREA.

Well with you fine resume' you should be able to explain how they were able to liquidate those assets...

Let me help since most of us don't want to sit through your resume' again...

Of course, the losses are caused by these poor credit debtors being unable to meet their mortgage payment. Usually this is the result of teaser rates expiring, although it is equally likely to result from the fact that these customers’ financial condition never justified their having such a mortgage in the first place. A large percentage of subprime mortgages really should be classified as substandard lending practices, i.e., putting people into mortgages where default is almost a certainty.

Why would lenders want to fund mortgages where the likelihood of default is high? The answer is quite simple: Those selling the deal don’t expect to be involved when the default takes place because they will have sold the mortgage on a no-recourse basis.

But who would want to put their money in buying a mortgage with a high likelihood of default? Here is where the old RTC comes in, so bear with me.

The RTC, of course, had huge numbers of nonperforming or substandard mortgages from insolvent banks and S&Ls. I figured out that selling these, even at a million a day, would require hundreds of years. My staff, with the Wall Street bankers, proposed a system of tiered securitization as the way to dispose of large numbers of mortgages in one sale. This involved putting many mortgages in a trust, which would then sell securities to investors in the debt market. But, why would investors buy such a “pig in a poke?” Because the holders of the securities were able to persuade rating agencies to rate them.

When this idea was first suggested at the RTC, the staff said if we had a million dollars of mortgage value (worth a million) in a bulk sale, we could get one and quarter million if we securitized. I remember saying that it was incontrovertibly proven that one could not turn “lead to gold” with financial schemes. My staff explained that the increased value came from the packaging of the product through the tiered securitization. The top tranches of securities get the first coverage of all the mortgages (AAA), then BBB gets the next coverage, etc. So a new, large, tiered securitized mortgage market was accepted as a sound financial mechanism.

Under this scenario, the lender (the buyer of the security of the securitization) has nothing to do with making the loan, he must rely on the credit rating in deciding whether to invest. Moreover, the actual party (mortgage broker or financial institution) selling the mortgage to the homeowner, does not have an economic interest in its repayment. The result is that loans are made that are pretty sure to go bad, and the holders of the securities (the lender) take the hit.
Obviously the credit ratings were wrong (too high) and as a result, huge losses are now appearing.

So, as I said, you could blame the old chairman and his RTC for helping to start reliance on the system of tiered securitization as a way to ultimately finance mortgages.

Congress is now considering many actions to deal with the subprime problem. The last thing they should do is bail out the mortgage holder because that really allows those who made bad loans to pass their losses on to the government. One thing we didn’t do at the RTC-FDIC was let those who made the bad loans profit by their actions.

The bottom line is, when the fundamental incentives in the debt financial systems are geared to sales, rather than repayment, the result is what we have today: a real mess.
http://www.bankdirector.com/issues/articles.pl?article_id=11916

The current fiasco wasn't caused by home-owners it was the "investment" nature the housing market took ,,and the frame-work and financial mechanism were set up in the early 90's.. as pointed out in the my first post.. a system that Clinton advisers not only promoted, but profited from...

it was starting to brew in the late 90's.. investors saw the profit potential and set it into motion... I had sold off the last of the bank repo'ed properties I had bought in the early 90's by 98 and was buying land tracts between 98 and sold them all by late 03,..and was completly out of the market by 04,... was I that smart that I was a full three years ahead of the market?

Nope I saw what was going on and invested wisely...

if it was just about housing I would trust your appraisal advice,.. but it wasn't it, was an investment market.. and a fairly easy one to see through...
 

Tex

Well-known member
Steve said:
GoodPasture
Good Pasture
The Resolution Trust Corporation was formed to liquidate assets of failed Savings and Loans, and rewrite the Banking Rules under FIRREA.

Well with you fine resume' you should be able to explain how they were able to liquidate those assets...

Let me help since most of us don't want to sit through your resume' again...

Of course, the losses are caused by these poor credit debtors being unable to meet their mortgage payment. Usually this is the result of teaser rates expiring, although it is equally likely to result from the fact that these customers’ financial condition never justified their having such a mortgage in the first place. A large percentage of subprime mortgages really should be classified as substandard lending practices, i.e., putting people into mortgages where default is almost a certainty.

Why would lenders want to fund mortgages where the likelihood of default is high? The answer is quite simple: Those selling the deal don’t expect to be involved when the default takes place because they will have sold the mortgage on a no-recourse basis.

But who would want to put their money in buying a mortgage with a high likelihood of default? Here is where the old RTC comes in, so bear with me.

The RTC, of course, had huge numbers of nonperforming or substandard mortgages from insolvent banks and S&Ls. I figured out that selling these, even at a million a day, would require hundreds of years. My staff, with the Wall Street bankers, proposed a system of tiered securitization as the way to dispose of large numbers of mortgages in one sale. This involved putting many mortgages in a trust, which would then sell securities to investors in the debt market. But, why would investors buy such a “pig in a poke?” Because the holders of the securities were able to persuade rating agencies to rate them.

When this idea was first suggested at the RTC, the staff said if we had a million dollars of mortgage value (worth a million) in a bulk sale, we could get one and quarter million if we securitized. I remember saying that it was incontrovertibly proven that one could not turn “lead to gold” with financial schemes. My staff explained that the increased value came from the packaging of the product through the tiered securitization. The top tranches of securities get the first coverage of all the mortgages (AAA), then BBB gets the next coverage, etc. So a new, large, tiered securitized mortgage market was accepted as a sound financial mechanism.

Under this scenario, the lender (the buyer of the security of the securitization) has nothing to do with making the loan, he must rely on the credit rating in deciding whether to invest. Moreover, the actual party (mortgage broker or financial institution) selling the mortgage to the homeowner, does not have an economic interest in its repayment. The result is that loans are made that are pretty sure to go bad, and the holders of the securities (the lender) take the hit.
Obviously the credit ratings were wrong (too high) and as a result, huge losses are now appearing.

So, as I said, you could blame the old chairman and his RTC for helping to start reliance on the system of tiered securitization as a way to ultimately finance mortgages.

Congress is now considering many actions to deal with the subprime problem. The last thing they should do is bail out the mortgage holder because that really allows those who made bad loans to pass their losses on to the government. One thing we didn’t do at the RTC-FDIC was let those who made the bad loans profit by their actions.

The bottom line is, when the fundamental incentives in the debt financial systems are geared to sales, rather than repayment, the result is what we have today: a real mess.
http://www.bankdirector.com/issues/articles.pl?article_id=11916

The current fiasco wasn't caused by home-owners it was the "investment" nature the housing market took ,,and the frame-work and financial mechanism were set up in the early 90's.. as pointed out in the my first post.. a system that Clinton advisers not only promoted, but profited from...

it was starting to brew in the late 90's.. investors saw the profit potential and set it into motion... I had sold off the last of the bank repo'ed properties I had bought in the early 90's by 98 and was buying land tracts between 98 and sold them all by late 03,..and was completly out of the market by 04,... was I that smart that I was a full three years ahead of the market?

Nope I saw what was going on and invested wisely...

if it was just about housing I would trust your appraisal advice,.. but it wasn't it, was an investment market.. and a fairly easy one to see through...

Steve, you don't know what you are talking about.

I was a mortgage broker and real estate broker. Loans are based on 3 main criteria:

1. The property and its value (there are three main ways to value in real estate appraisals--do you know them?)

2. The credit of the borrower

3. The income or debt ratio of the borrower


Mortgage backed securities rest on the quality of these three criteria. In the last 5 years (and it happened to some extent but not as much in former years) the last 2 have been really relaxed and hence the "sub prime" market. We have always had a sub prime market, it has just grown with the relaxation of the last two. Companies were also allowed to make their own portfolios which included more and more of the subprime mortgages in the portfolio, often times hidden.

Add to this the disconnect between the actual quality of the portfolio due to the subprimes (NIQs, lax credit, etc) and the security's credit rating and you have been asking for a train wreck. It is starting.

If we have a downturn in the economy also, it might get a whole lot worse.

If you look at the financials, you will see the spread between the t-rates and the mortgage backed securities. This spread makes all the interest rates higher than they have been before even though the treasury rates are going down. Then you have the international lenders who are taking a double hit with the sliding dollar. ABN ambro is one of the larger ones but the subprime investments that are going sour are already causing some banks in Europe to fail. Look at the big infusion from the mideast that Citibank had to prop it up-- probably because of former Sec. of Treasury Rubin's stature.

There has been a big laxity in the lending business to keep the loan origination money flowing and it has huge impacts on financial markets worldwide.
 

Steve

Well-known member
GoodPasture
I do review work for Citi, WAMU,...


that might explain some of their problems...
However, the subprime mortgage division dragged down results once again, with a loss of $160 million for the quarter, because of a $110 million reduction in gains on sale and a $50 million decrease in the estimated value of WaMu's subprime residual loans. WaMu's home loan segment as a whole lost $122 million for the quarter,

New York, NY – Citigroup Inc. (NYSE: C) announced today significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in its Securities and Banking (S&B) business. Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).

Thank GOD, I sold my stock in them awhile back... :roll: :?


actually from an investment point I think Washington mutual will recover but not to the levels they were at.. I see them dropping to the low teens,.. more because of the sector they are in then performance or value.. but More then likely by mid February they will start recovering if nothing changes...
 

Steve

Well-known member
Steve, you don't know what you are talking about.

maybe thats why I'm retired at 45... :lol:

and I think to much was placed on comparable sales as it only took a few "excited" buyers to drive up the local markets.. and not enough on historical data..
 

Steve

Well-known member
Tex
Look at the big infusion from the mideast that Citibank had to prop it up-- probably because of former Sec. of Treasury Rubin's stature.

Maybe you could explain it to the rest of us...


"If you're in favor of any of these things, you're represented," says Reagan administration official William Seidman--referring to tax cuts for big business, cutting government programs or having economic policy set by investment bankers.
Robert Edward Rubin is the Chairman of Citigroup. He served as the 70th United States Secretary of the Treasury during both the first and second Clinton Administrations.,... He sparked controversy in 2001 when he contacted an acquaintance at the Treasury Department and asked if the department could convince bond-rating agencies not to downgrade the corporate debt of Enron, a debtor of Citigroup.
 

Tex

Well-known member
Steve said:
Steve, you don't know what you are talking about.

maybe thats why I'm retired at 45... :lol:

I am happy for you steve, but what does that have to do with the price of tea in china?


and I think to much was placed on comparable sales as it only took a few "excited" buyers to drive up the local markets.. and not enough on historical data..

This doesn't excuse poor appraisals. Do you know the three methods for appraisals or do we have to assume that just because you are retired you have everything figured out and take your word for it?
 

Sandhusker

Well-known member
Goodpasture said:
Steve said:
Just because the problems didn't surface (or you were blind to them) doesn't mean they didn't exist for the entire Clinton administration...
I work with lenders. I work with Fannie Mae. I work with Ginnie Mae. I work with Freddie Mac. I do review work for Citi, WAMU, Indymac, FHA/HUD, and the State of Oklahoma. I am an accepted expert witness for district court in residential appraising. I provide review work for PMI companies. I am a member of the Worldwide ERC, I am on the FHA roster, I have worked with the FBI on mortgage fraud cases, I teach residential appraising in Oklahoma. My classes are accepted in Texas, Oklahoma, New Mexico, Kansas and Missouri. The majority of my work is in dealing with retro reviews. A good portion of my income is generated through court related testimony.

I know exactly what I am saying. I know exactly where the blame lies. You may think I am blind to the truth, however I can assure you that you have absolutely no idea what you are talking about.

The problem lies in fast buck artists making crappy notes for the fee income and then the "professional investors" not doing their due diligence and buying crappy paper. You also have to assign some blame to the homeowners who were putting themselves in harms way by not running a simple budget to see if they could afford payments.
 

Goodpasture

Well-known member
Sandhusker said:
The problem lies in fast buck artists making crappy notes for the fee income and then the "professional investors" not doing their due diligence and buying crappy paper. You also have to assign some blame to the homeowners who were putting themselves in harms way by not running a simple budget to see if they could afford payments.
Of course you do. But the entire scenario was permitted by Wall Street, following the lead of the fed, following the lead of the "spend more" consumerism of the administration.
 

Tex

Well-known member
Goodpasture said:
Sandhusker said:
The problem lies in fast buck artists making crappy notes for the fee income and then the "professional investors" not doing their due diligence and buying crappy paper. You also have to assign some blame to the homeowners who were putting themselves in harms way by not running a simple budget to see if they could afford payments.
Of course you do. But the entire scenario was permitted by Wall Street, following the lead of the fed, following the lead of the "spend more" consumerism of the administration.

All that liquidity goes to bubbles. It was the high tech, then the housing.

At least the weak dollar is sending some scurrying back to commodities.

I just hope the fed doesn't bail Wall Street/paper sellers too much. It doesn't help if you can't feel the pain of your mistakes.

I don't like the weak dollar making it easier for all the money that went overseas to the mideast or to china coming back and buying the USA. It is a financial coupe.
 

Steve

Well-known member
Tex
Do you know the three methods for appraisals

Yes.. and as I said...

and I think to much was placed on comparable sales as it only took a few "excited" buyers to drive up the local markets.. and not enough on historical data..


I have had to pay for a few worthless appraisals to satisify a few worthless mortgage bankers who wouldn't take my knowledge for what properties were worth.. funny how two of them are now out of business and I am reaping the benifit of my wise investments...
 

Tex

Well-known member
Steve said:
Tex
Do you know the three methods for appraisals

Yes.. and as I said...

and I think to much was placed on comparable sales as it only took a few "excited" buyers to drive up the local markets.. and not enough on historical data..


I have had to pay for a few worthless appraisals to satisify a few worthless mortgage bankers who wouldn't take my knowledge for what properties were worth.. funny how two of them are now out of business and I am reaping the benifit of my wise investments...

Comparables are only ONE, Steve, so I guess I have to give you a grade of 33%. Not passing, for sure, but for you, it is fine.
 

nonothing

Well-known member
Steve said:
Tex
Do you know the three methods for appraisals

Yes.. and as I said...

and I think to much was placed on comparable sales as it only took a few "excited" buyers to drive up the local markets.. and not enough on historical data..


I have had to pay for a few worthless appraisals to satisify a few worthless mortgage bankers who wouldn't take my knowledge for what properties were worth.. funny how two of them are now out of business and I am reaping the benifit of my wise investments...


Steve do you ever stop bragging??? and you called a guy out claiming he gave us his resume' but its ok for you to brag up your wise investments,and early retirement,while coming across as better then everyone else .....It never stops,you always pick little parts of others words,then try and belittle them...Now that some fight back,you have resorted to bragging about your good fortune......enjoy your retirement Steve(As i am sure you worked hard for it).It is just to bad that some guys can not check their ego's at the door....

Go ahead Steve I expect to be told how wrong I am....I would be dissapointed if you did not try to belittle my words now too....I expect for you to defend yourself and I am fine with that...I just wont comment back,I will give you the last words,cause i do not think the others want to read your portfolio.
 

Tex

Well-known member
We would never have had the sub prime mess if we taxed labor as low as we tax capital. We would also have a stronger economy.
 

aplusmnt

Well-known member
nonothing said:
Go ahead Steve I expect to be told how wrong I am....I would be dissapointed if you did not try to belittle my words .

Is Steve the only one that can play or can we all tell you how wrong you are and belittle your words? :lol:
 

Steve

Well-known member
NoNothing
It is just to bad that some guys can not check their ego's at the door....

I was only attempting to show two people that dispite thier long resume's that I did underestand what they are talking about because I not only worked in thier field, (real estate) but did it well...I also did it from another perspective,,as an investor,,, How would I get that across to them... how about an example... one that showed how twisted the market was, and becuse of it I made money... gee I would be bragging again..
so no matter what I used to show I would end up looking like I was bragging...so I used a short curt explaination... but know this I understand the market and the investment fundementals of it and the policy change in 89 that created it...


is it somewhat arrogant to show an accomplishment...of course so there fore, I'm arrogant.. most successful people are... but at least I can admit it.. and humble myself enough to try to help some who have trouble understanding complicated issues...

Would you rather I said nothing, and not at least tried to explain how this mess was "created"... or would you prefer to just hear Bash Bush...
 
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