Posted on January 19, 2017 by Neil Garfield
These settlements are a slap in the face to homeowners who were forced into battle with an over-reaching enemy supported by the government. We have acknowledgements of wrongdoing here by Moody’s with respect to injury suffered by investors. But if the homeowners were not signing the false documents (the “loan contract”) there would have been no “loans” and there would be no “derivatives”, i.e., “securities” deriving their value from inactive or nonexistent trusts who issued certificates masked as “mortgage bonds.”
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Both Moody’s Investors Service, a unit of Moody’s Corp., and S&P played key roles in Wall Street’s making of toxic, subprime mortgage bonds. While subprime home loans typically go to borrowers with the weakest credit, bonds backed by those mortgages received top-flight, AAA credit ratings. The bonds began coming apart in 2007 as the housing market collapsed, contributing to more than $1.9 trillion in losses at financial firms worldwide during a crisis that almost collapsed the global banking system.
“This crisis could not have happened without the rating agencies,” the Financial Crisis Inquiry Commission concluded in 2011.
There were many indispensable parties that were needed to complete the cycle of fraud. Of course the whole thing would not have been possible were it not possible to separate investors from their money under false pretenses. And of course the scheme would not have existed without a successful hard sell approach to low-income unsophisticated people many of whom were not looking to buy a house or borrow money. But without the rating agencies the scheme would have been a non-starter. They were the ones that rated junk as AAA.
What transaction parties or middle tier parties to the fraudulent offer and sale of RMBS and fraudulent sale of instruments masquerading as loan documents and the fraudulent “servicing” of “loans” have not had large settlements with the DOJ?
“Today’s settlement contains [..] a significant penalty and factual admissions of its conduct…”
“Investors relied on Moody’s credit ratings to be objective and independent, and they naturally expected Moody’s to follow its own published methods.”
Obviously the securities were not what they were advertised to be, and the “advertisements” were prospectus, prospectus supplements and other documents filed under oath with the Securities and Exchange Commission (or private offerings not filed with the SEC or GSE offerings from the Federal government directly or their sponsored entities).
The purported trusts, governing documents, ratings agencies, securities and mortgage loans were all just a scheme and artifice to defraud investors and homeowners in order to separate investors from their money and homeowners from their property, all to the benefit of the transaction parties.
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