“The Justice Department claims that the faulty projections were not simply naïveté, but rather a deliberate effort to produce inflated, fraudulent ratings. “The complaint asserts that S.& P. staff chose not to update computer programs because the changes would have led to harsher ratings, and a potential loss of business,” (e.s.)
“I was there. It is not possible that companies like S&P, Fitch and other rating agencies didn’t know how to do securities analysis — they invented it. The S&P Book was widely used as a shorthand method of evaluating a stock or bond for decades before I arrived on Wall Street. They were known and trusted for their data and their crunching of data. It isn’t possible that they wouldn’t know that the ratings were artificially inflated. They were only concerned with collecting fees and covering their behinds with “plausible deniability.”What they gave up was the their reputation for truth and clarity. Now they can’t be trusted.
And the same goes triple for the investment banks who brought those bogus mortgage bonds to market. Wall Street is a small place. Everyone but the customers and borrowers knew what was going on and everyone knew a huge bust was coming. If they knew and the regulators knew, why did they allow it play out when the warning signs were already clear in the early 2000’s.” Neil F Garfield, http://www.livinglies.me
For assistance with presenting a case for wrongful foreclosure or to challenge whoever is taking your money every month, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).
Editor’s Analysis: When you see movies like Too Big to Fail and read any of the hundreds of books published on the great recession, you must be left with a sense of outrage and/or disappointment that our government and our major banks tacitly approved of the illegal activities undertaken by all the participants in what turned out to be a PONZI scheme covered over by a fraudulent scheme they called “Securitization.”
Despite some people raising the concern that the homeowners were hit hardest by the criminal enterprise, any concern for them vanished in the face of an invalid assumption by Hank Paulson and Ben Bernanke that the economy would fail and society would fall apart if they didn’t bail out the banks. If anything, the behavior of the banks was the equivalent of NOT bailing them out because they never honored their part of the bargain — increasing the flow of capital into the economy through loans and investments. While that understanding should have been reduced to writing, it was obvious that the banks would lend out money with extra capital infused into their balance sheet. Except they didn’t.
And the world didn’t end, but there was chaos all over the world because the banks were and continue sitting on a bounty that has not been subject to any audit or accounting.
As I expected, the rating agencies are now being sued not for negligence but for intentionally skewing the ratings knowing that stable managed funds were restricted from investing in anything but the safest securities (meaning the highest rating from a qualified rating agency). It is the same story as the appraisers of real property who were pressured into inflating and then re-inflating the prices of property whose value was left far behind. Both the rating agencies and the appraisers who participated in this illicit scheme caved in to threats from Wall Street that they would never see any business again if they didn’t “play ball.”
The very structure and the actual movement of money and documents would tip off an amateur securities analyst. Starting with the premise of securitization and an understanding of how it works (easily obtained from numerous sources) any analysis would have revealed that something was wrong. Securities analysis is not just sitting at a desk crunching numbers. It is investigation.
Any investigation at random picking apart the loan deals, the diversion of title from the REMIC trusts, the diversion of money from the investors to a mega-account in which the investors’ money was indiscriminately commingled, thus avoiding the REMICs entirely, would lead to the inevitable conclusion that even the highest rated tranches and the highest rated bonds, were a complete sham. Indeed internal memos at S&P shows that it was well understood by all — they even made up a song about it.
The analysis by the people at S&P omitted key steps so they wouldn’t be accused of knowing what was going on. It is the same as the underwriting of the loans themselves where the underwriting process was reduced to a computer platform in which the aggregator approved the loan — not he originator — and the investment banker wired the funds for the loan on behalf of the Investors, but the documents showed that it was the originator, who was not allowed to touch any of the money funded for loans, whose name was placed on the note and mortgage. Why?
Any good analyst would have and several did ask why this was done. They got back a double-speak answer that would have resulted in an unrated or low-rated mortgage bond, with a footnote that the REMICs may never have been funded and that therefore without other sources of capital they could not possibly have purchased the loans. Which means of course that the REMICs named in foreclosures over the past 5-6 years.
Some of the best analysts on Wall Street saw at a glance that this was a PONZI scheme and a fraudulent play on the word “Securitization.” Simply tracing the parties to their real function would and still will reveal that all of them were acting in nominee capacities and not as true agents of the investors or participants in the securitization scheme.
And the nominees include but are not limited to the REMIC itself, the Trustee for the REMIC, the subservicer, the Master Servicer, the Depositor, the aggregator, the originator, and the law firms, foreclosure mills and companies like LPS and DOCX who sprung up with published price sheets on fabrication of documents and forgeries of of those documents to convince a court that the foreclosure was real and valid. The whole thing was a sham.
If I saw it at a glance after being out of Wall STreet for many years, you can bet that the new financial and securities analysts at the rating agencies also saw it. Instead they buried their true analysis behind a mountain of fabricated data that in itself was a nominee for the real data and then crunched the numbers in the way that the Wall Street firms dictated.
The fact that there were algorithms that took the world’s fastest computers a full weekend to process without the ability to audit the results should have and did in fact alert many people that the bogus mortgage bonds were unratable because there was no way to confirm their assumptions or their outcome.
The government is very close, now that it is moving in on the ratings companies. They are close to revealing that this was not excessive risk taking it was excessive taking — theft — and that the rating companies should lose their status as rating companies, the officers and analysts who signed off should be prosecuted, and the receiver appointed over the assets should claw back the excessive fees paid to the ratings companies from officers of the ratings companies and, following the yellow brick road, the CEO’s of the investment banks.
We have found out, thanks to the greed and deception practiced by the banks on officers at the highest level of your government what will happen if the credit markets free up without the TARP money being used to free up those markets. It isn’t pretty but it isn’t apocalypse either. The proof is in. The mega banks should be taken down piece by piece and their function should be spread out over a wide swath of more than 7,000 community banks, credit unions and savings and loan associations — all of whom have access to the utilities at SWIFT, VISA, MasterCard, check 21, and other forms of interbank electronic funds transfer.
If the administration really wants a correction and really wants to increase confidence in the marketplaces around the world and the financial system supporting those markets, then it MUST take the harshest action possible against the people and companies who engineered this world-wide crisis. Eventually the truth will all be out for everyone to see. Which side of history do we mean to be aligned — the bank oligopoly or a capitalist, free, democratic society.
BY WILLIAM ALDEN, DealBook NY TIMES
DOCUMENTS IN S.&P. CASE SHOW ALARM Documents included in the Justice Department’s lawsuit against Standard & Poor’s provide a glimpse at the company’s inner working in the run-up to the financial crisis. “Tensions appeared to be escalating inside the firm’s headquarters in Lower Manhattan as it publicly professed that its ratings were valid, even as the home loans bundled into mortgage-backed securities, or M.B.S., were failing at accelerating rates,” Mary Williams Walsh and Ron Nixon write in DealBook. “Together, the documents show a portrait of some executives pushing to water down the firm’s rating models in the hope of preserving market share and profits, while others expressed deep concerns about the poor performance of the securities and what they saw as a lowering of standards.”
Some of the documents also showed some of the snark among the rank-and-file over the impending crisis. One analyst in March 2007 borrowed from the Talking Heads, creating new lyrics to “Burning Down the House,” according to the complaint: “Subprime is boi-ling o-ver. Bringing down the house.” In a confidential memo reproduced in the complaint, one executive said: “This market is a wildly spinning top which is going to end badly.”
At the heart of the civil case are the computer models S.&P. used to rate complex mortgage securities. The Justice Department claims that the faulty projections were not simply naïveté, but rather a deliberate effort to produce inflated, fraudulent ratings. “The complaint asserts that S.& P. staff chose not to update computer programs because the changes would have led to harsher ratings, and a potential loss of business,” Peter Eavis writes. But S.&P., which says the lawsuit is without merit, disagrees with the government’s characterization of the models. Catherine J. Mathis, an S.& P. spokeswoman, said the Justice Department had not “shown actual adjustment to the models or other changes that were not analytically justified.”
Indeed, the government faces an uphill battle in making its case that S.&P. intentionally inflated ratings. “The government will have to prove that ratings were in fact faulty, and published intentionally so as to deceive investors in the securities. In response, S.& P. could simply argue that the company was just as blinded by the financial crisis as anyone else, and that questionable e-mails are simply the work of lower-level employees who were not involved in the decision-making,” Peter J. Henning and Steven M. Davidoff write. “Even if the Justice Department can prove the agency acted to deceive investors, it still has to deal with something lawyers call reliance. In other words, did investors rely on these ratings to make their decisions?”
R.B.S APPROACHES SETTLEMENT OVER RATE-RIGGING The Royal Bank of Scotland said on Wednesday that it was in advanced discussions with authorities on both side of the Atlantic over settling accusations that it manipulated Libor. “Although the settlements remain to be agreed, R.B.S. expects they will include the payment of significant penalties as well as certain other sanctions,” the bank said.
A settlement, which could be announced as soon as Wednesday, is expected to include a penalty of about 400 million pounds, or $626 million, according to several news reports. “As part of the anticipated deal, R.B.S.’s Japanese unit is expected to plead guilty to a crime in the U.S., although the Justice Department isn’t expected to charge any individuals, according to one of the people briefed on the talks,” The Wall Street Journal writes. John Hourican, the head of R.B.S.’s investment bank, is also expected to resign, the reports said.
S&P Analyst Joked of ‘Bringing Down the House’ Ahead of Collapse
Case Details Internal Tension at S.&P. Amid Subprime Problems
Justice Sues S&P, But What Purpose are Ratings Agencies Serving Anyway?
S&P charged with fraud in mortgage ratings
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: | AGGREGATOR, Ben Bernanke, financial analysis, Fitch, Hank Paulson, MasterCard, nominees, Ponzi, rating agencies, REMIC, S&P, securities analysis, securitization, SWIFT, trustee, Visa