CDZ RCC: Discovering the Obvious in Panama

[320 Years of History]

LOL... thanks.. No no, the problem is with the following line after the red.

"I think the complexity of laws makes it harder for unsophisticated (untrained) readers and interpreters of the laws and regulations to discern whether an act they commit will or will not be adjudged fraudulent if that act comes under close scrutiny."​

Now the way I read that is, to other investors.... the people who are trying to determine whether or not to invest in any particular investment.... "the complexity of laws makes it harder for unsophisticated (untrained) readers and interpreters of the laws and regulations to discern".

Do you see where my question comes in?

No. No, because I used the transitive form of the verb "discern," not the intransitive form and not the intransitive form that appears in your paraphrasing my "after the red" sentence. (black bold)

(See my remarks below to get a fuller understanding.)

We don't need new rules. In fact, the more complicated the regulations are, the easier it is to hide the fraud. At least that's what I believe. Do you think differently?

I do not think the complexity of laws and regulations increases the ease of committing fraud. I think the complexity of laws makes it harder for unsophisticated (untrained) readers and interpreters of the laws and regulations to discern whether an act they commit will or will not be adjudged fraudulent if that act comes under close scrutiny.

Ok, you are going to need to explain that last statement a bit more.... because from my perspective, you just contradicted yourself.

Perhaps if I rewrote the first sentence (red) it'd help:

I do not think the complexity of laws and regulations facilitates or abets cozeners in planning, performing, or successfully achieving their fraudulent objectives.​

LOL... thanks.. No no, the problem is with the following line after the red.

"I think the complexity of laws makes it harder for unsophisticated (untrained) readers and interpreters of the laws and regulations to discern whether an act they commit will or will not be adjudged fraudulent if that act comes under close scrutiny."​

Now the way I read that is, to other investors.... the people who are trying to determine whether or not to invest in any particular investment.... "the complexity of laws makes it harder for unsophisticated (untrained) readers and interpreters of the laws and regulations to discern".

Do you see where my question comes in?

You openly admit that the complexity of the regulations make it more difficult for those who are not trained to determine whether or not any actions, are fraudulent.

I agree.

Now out of the vast majority of the 8 billion people on the planet, are they trained? Of course not. So the complexity of the law, would make it more difficult for them to determine if what so-and-so is doing is fraudulent. Which means, in my view, that they would be more likely to be duped into investing into a fraudulent scheme. Do you see?

That is my point. We have the most regulated financial sector in the world today. There isn't anywhere else, any other country, that is more regulated than the US is. The rest of the world, never had a Glass-Steagal regulation. Their capital reserve requires are much lower than ours. Their lending standards far less complex than ours. There never was a separation of commercial and retail and investment banking in the rest of the world.

Yet the last several banking problems, have started here... not in Europe.

Why?

Who finds the fraud and problems in the system? Is it the government? Or the people? Who caught Enron? Do you know? It wasn't the government. It wasn't the SEC, or FBI, or some other agency.

It was the investors. It was the market analysts. They were the ones that started questioning Enron's claims, and sounding the alarms about their mythical profits.

The SEC didn't show up on Enron, until the Enron stocks had crashed. Why did the stocks crash? Because investors figured out Enron was a joke, and started pulling their money.

Who caught Bernie Madoff? Government? Nope. It was the investors that caught Madoff. Market analysts reported that Madoff was a fraud in 1999.

Now he reported to the SEC, and yet from 1999 to 2009, he continued and grew his business.

So how was Enron able to keep running for a decade, and Madoff able to keep operating for a decade, and able to scam people out of billions?

My answer.... would be the answer you gave.
"I think the complexity of laws makes it harder for unsophisticated (untrained) readers and interpreters of the laws and regulations to discern whether an act they commit will or will not be adjudged fraudulent if that act comes under close scrutiny."

Which contrary to your prior claim, makes it easier for people to scam the system. Regulations and complexity make it more difficult for the average person, to determine if someone is engaged in fraud. Thus they are more likely to engage in fraud without being caught.

Again, I keep going back to that story about Enron, where investors questioned the executives about their earnings, and Enron Execs said "the SEC report was accepted, so we're clean!". The regulations were directly used by Enron to hide their fraud.

I assume you still disagree?

Blue:
That said, yes, I understand what you're saying, and how you're thinking. It's no different now than it was when you first raised the line upon which you above expounded. It just isn't the same as what I'm thinking/saying. You've asserted that:

1. Laws and regulations, perhaps even non-binding guidelines, are so complex that folks (untrained) who don't intend to defraud may do so by mistake merely because they don't accurately/fully comprehend the laws/guidelines.
2. Laws and regulations, perhaps even non-binding guidelines, are so complex that folks (trained and/or untrained) who do intend to defraud can do so successfully because the highly complex laws/guidelines make it hard for others to find the fraud.

It appears too that your remarks rest in part upon a tacit premise that the SEC actively looks for evidence of malfeasance in the financial statements issued by the likes of every large and small publicly traded companies. Well, the fact is that the SEC does not do that at all; moreover it doesn't purport to do that.

The Securities and Exchange Commission (SEC) is one of the regulatory watchdogs of the U.S. government, created in the 1930s to protect investors, maintain fair and efficient markets, and facilitate capital formation. This is accomplished by collecting and disseminating documents that disclose financial and other company information so the public can make sound investment decisions. It does conduct investigations and it is the entity that acts to prosecute violations when they come to its attention, mainly through investor/interested parties informing the SEC of potential or actual wrongdoing, but as for the SEC itself proactively and rigorously examining every filed 10-K, 10-Q, etc. that it receives, it doesn't do that at all.

• SEC.gov | What We Do
  
• The Role of the SEC | Investor.gov
  
• Introduction to the SEC and Company Filings Overview
  
• How the SEC Protects Investors, Maintains Market Integrity

Green:
Actually, by at least one researcher's examination results, the U.S. falls about in the upper middle as goes the regulatory environment. The U.S. regulatory environment isn't as unconstrained as Luxembourg, but it's not got the burdens found in Germany either.


Pink:
??? I think you haven't examined the history of the Enron calamity.

Enron's fraudulent acts were exposed by an Enron Vice President, Sherron Watkins. Ms. Watkins was and is hardly an untrained observer. One could call her an investor, but in doing so, one must recognize that she's hardly an "arm's length" investor as you or I might have been.

• Enron whistleblower tells of 'crooked company'
  
• The Rise and Fall of Enron
  
• Sherron Watkins Had Whistle, But Blew It - Forbes
  
• Interview with Sherron Watkins (Published in Fraud Magazine, which is a publication of the Association of Certified Fraud Examiners)

Brown:
I'm going to refrain from here expressly discussing the aims and objectives of financial statement audits conducted by independent accountants. I understand that those objectives are central to what an audit can and cannot accomplish. I know too that non-CPAs routinely, and understandably, misconstrue what financial statement audit can and cannot do.

If you want to get an accurate and complete understanding of what a financial statement audit entails and can achieve, I suggest you begin here -- "Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards" -- and do a search on the word fraud.

You'll also need to understand the nature of fraud, or as you describe it, "scamming." One critical aspect of fraud is that it is intentional. As such, and in entities of the scale we're talking about, it's rarely the result of unilateral aims and acts, which means it results from collusion. Collusion is near impossible to detect unless one is told where to look for evidence of it. That is precisely what Ms. Watkins did; she told regulators what to look for and where to find it.

"Average person":
Quite simply, the average person isn't ever going to uncover fraud committed by managers of corporations. The reasons why include but are not limited to the following:

• No access to the underlying financial records that give rise to the assertions found in publicly disclosed financial statements and the notes to them.
• Lack of understanding of financial accounting principles, theory and practice.

If an average person bothers to read, study, learn and understand the principles embodied in SEC promulgates and the principles, theories and practices stated in AICPA guidelines that comprise the body of generally accepted accounting standards (GAAS), they can understand them and follow them. There are a lot of them, but aside from the technical accounting practices, they aren't hard to understand at all. As a CPA, I can confidently tell you that it will take about two years (less if one considers actual time instead of calendar time) to learn all the "ins and outs" of GAAS** to the extent necessary to read financial statements and the notes to them. In contrast, it should take about six months to learn enough information to be a competent and comprehensive reader and analyst of financial statements and the notes to them.

(It's important to understand, however, that one must also have a solid understanding of the business cycle; merely having accounting or financial analyst training isn't enough to fully interpret financial assertions corporations make. That's precisely why there exist schools of business. One need not enroll in a business school to obtain the information needed, but getting the training and mastering the content is certainly easier if one pursues that route instead of the "self taught" route.)

** Note:
In one's junior and senior years as an accounting major, one will take the requisite accounting classes, as well as other totally unrelated classes, needed to provide one with all the information needed to pass (or even score highly) the CPA exam in one sitting. That's where the rough value of two years that I cited comes from.

As for the SEC regulations like Sarbox and Dodd-Frank:

• Sarbanes-Oxley -- In short, Sarbox enshrines in law the AICPA's GAAS -- both its letter and spirit. The average person has zero need to fully understand this regulation/law. An unsophisticated observer/investor at the most needs to know that there is a piece of legislation that aims to increase the business risk to which corporation management, auditors and analysts are exposed should they be perfunctory in performing their duties.
• Dodd-Frank (D-F) -- That piece of legislation is unquestionably labyrinthine to say the least. That said, it largely applies to financial services industry corporations and that industry is well equipped and supported by scores of consultants and internal analysts who can and do understand it's stipulations. For example: Understanding the New Financial Reform Legislation: The Dodd-Frank Wall Street Reform and Consumer Protection Act. Documents such as the linked summary and explanation of D-F aren't intended to cover every detail. They are intended to provide a high level understanding to readers who in turn will pursue more detailed analysis as befits their needs, interests and obligations. There again, however, that high level understanding is sufficient for any average person who wants to get the gist of the D-F.

Again, what is most important to understand is that fraud is intentional. A person may honestly and mistakenly misunderstand elements of either law; however, that alone isn't sufficient to make that person guilty of fraud. Fraud is about intent, motive, and one's acting on and with malfeasant motives. As go corporations, the fact is that "average people" don't run corporations, or at least the presumption is that as a corporation executive, if one isn't savvy in accounting and other business standards, one will hire or engage someone who is to guide one.

If one doesn't want to do that, fine. Don't become a publicly traded company, seek an independent audit report, or conduct business in the covered fields, and none of Sarbox or D-F will apply to one. For example, a restaurant owner/operator need never necessarily be concerned with either piece of legislation. On the other hand, of one wants to start a new fund or brokerage house, or investment bank, say, one will have to at least deal with D-F, even if one never needs independently audited financial statements.
​

Fluorescent Green:
Yes, I do still disagree. I do because, as I've explained in the comments above, based on your remarks above (TY for offering them):

• You have based your basic assertion on falsities, oversimplifications, and oversights.
• You do not distinguish between fraud and errors in your assertion.
• You have in your assertion a tacit assumption that the folks tasked with understanding legislation like D-F and Sarbox are "average people" when the fact is they are not, or at least they have an obligation to seek informed and expert input if they themselves cannot/don't understand the legislation.
• You have tacitly assumed that the SEC's scope of activities is broader than it is.
• You have, in paraphrasing my central thesis, ignored the qualifying phrase in that thesis statement.

​

 

[Wilbur Right]

setting off a wave of write-downs required by the mark-to-market regulations, don't recall the year that law was implemented, but it was fairly late, 2006 maybe. This

Mark-to-market or fair value accounting refers to accounting for the "fair value" of an asset or liability based on the current market price, or for similar assets and liabilities, or based on another objectively assessed "fair" value.[1] Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the "gold standard" in some circles.[2]




You really like to think you are smart about finance. To bad you are not. Do you even know what the term (Mark to market) means?

 

[Picaro]

setting off a wave of write-downs required by the mark-to-market regulations, don't recall the year that law was implemented, but it was fairly late, 2006 maybe.

Mark-to-market or fair value accounting refers to accounting for the "fair value" of an asset or liability based on the current market price, or for similar assets and liabilities, or based on another objectively assessed "fair" value.[1] Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the "gold standard" in some circles.[2]

You really like to think you are smart about finance. To bad you are not. Do you even know what the term (Mark to market) means?

I don't worry at all about 'being smart', I just make it easy on myself and look up the facts and concern myself with being right. I leave the 'being smart' thing to the tards who run around making insult posts and then idiots out of themselves for not knowing what they're talking about. All that pseudo-intellectual semantics crap is too much like work, and there aren't any successful trolls here who are good enough at it to matter; most are stupid and don't even realize it..

And obviously I do know about the mark to market legislation, as that is the rule legislated that forced the write-downs that set off the liquidity freeze. I know when it was put into GAAP very well; it wasn't put into banking regulations until later. Whether you like that or not is just you sniveling. The write downs made by UBS in Switzerland and BNP in France on the American mortgage bundles they owned forced the American banks to mark their collateral values down as required by law in the first quarter of 2007, and then the markets froze up and the margin calls started in waves on all those CDO's, and nobody could sell off assets, as there was no market for them; everybody began trying to unload mortgages, and nobody wanted to buy them.

The problem was nobody knew how to value these bundles and CDO's, as they were all mixed up and it was impossible to separate the bad loans from the good ones; that wasn't because of the Fed, that was because bankers like Goldman Sach found a way to avoid capital requirements and get around restrictions, and leverage away to their greedy lil hearts' content. Leverages of 50 to 1 were common on this paper, and their idea of appearing 'conservative and responsible fiduciaries' was to lower that to around 30 to 1 by the end of the next quarter. More on this later.

Even Wiki disputes your view of the facts.

As the practice of marking to market became more used by corporations and banks, some of them seem to have discovered that this was a tempting way to commit accounting fraud, especially when the market price could not be determined objectively (because there was no real day-to-day market available or the asset value was derived from other traded commodities, such as crude oil futures), so assets were being "marked to model" in a hypothetical or synthetic manner using estimated valuations derived from financial modeling, and sometimes marked in a manipulative manner to achieve spurious valuations. The most infamous use of mark-to-market in this way was the Enron scandal.

After the Enron scandal, changes were made to the mark to market method by the Sarbanes–Oxley Act during 2002. The Act affected mark to market by forcing companies to implement stricter accounting standards. The stricter standards included more explicit financial reporting, stronger internal controls to prevent and identify fraud, and auditor independence. In addition, the Public Company Accounting Oversight Board (PCAOB) was created by the Securities and Exchange Commission (SEC) for the purpose of overseeing audits. The Sarbanes-Oxley Act also implemented harsher penalties for fraud, such as enhanced prison sentences and fines for committing fraud. Although the law was created to restore investor confidence, the cost of implementing the regulations caused many companies to avoid registering on stock exchanges in the United States.[5]

Internal Revenue Code Section 475 contains the mark to market accounting method rule for taxation. Section 475 provides that qualified securities dealers who elect mark to market treatment shall recognize gain or loss as if the property were sold for its fair market value on the last business day of the year, and any gain or loss shall be taken into account for that year. The section also provides that dealers in commodities can elect mark to market treatment for any commodity (or their derivatives) which is actively traded (i.e., for which there is an established financial market that provides a reasonable basis to determine fair market value by disseminating price quotes from broker/dealers or actual prices from recent transactions).

I was off by a few years; it was 2002, not 2006.

 

[Wilbur Right]

CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977. "The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs.

CRA requirements applied to BANKS.
BANKS were not the prime offender of making sub prime loans. Matter of fact, most decently run mid size banks did not make sub prime loans available through any means and didn't have to be bailed out by the Fed's. They weren't as greedy. Plus they were genuine bankers. Not mortgage bankers. Do you know the difference?

First of all, Adjustable Rate Mortgages suck. A Prime ARM, is just as bad as a fixed rate Sub-prime loan.

No they arent. A decent index and margin with reasonable caps works just fine for an A paper borrower.

I used 5/1 arms for the purchase of investment properties. This was some years back. What have interest rates been doing for years now? Falling and staying down is the correct answer.
I have investment property loans at 2.5% oh how awful.

People who used ARMS in the past several years have had their rates decline. How awful eh?

You need to do some more research dude.

 

[Wilbur Right]

Picard. My bad. I only try and insult Andy.

However, UBS and other banks were writing down their collateral following audits that uncovered the fact they had bought MBSs that were full of shit loans that had supposedly been vetted as quality investment grade mortgages.

Bad mortgages were the catalyst for banks stopping their lending. Not mark to market regulations. That is an accounting function.

 

[Picaro]

CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977. "The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs.

CRA requirements applied to BANKS.
BANKS were not the prime offender of making sub prime loans. Matter of fact, most decently run mid size banks did not make sub prime loans available through any means and didn't have to be bailed out by the Fed's. They weren't as greedy. Plus they were genuine bankers. Not mortgage bankers. Do you know the difference?

Do you know Sorbane-OXley extended the GAAP rules to other investment houses and financial instruments such as CDO's and mortgages besides banks, in 2002, ?

Apparently not ..

 

[Picaro]

Picard. My bad. I only try and insult Andy.

However, UBS and other banks were writing down their collateral following audits that uncovered the fact they had bought MBSs that were full of shit loans that had supposedly been vetted as quality investment grade mortgages.

Bad mortgages were the catalyst for banks stopping their lending. Not mark to market regulations. That is an accounting function.

I was wondering where the hostility was coming from, as I agree with most of what you said. I apologize for mine.

 

[Wilbur Right]

Even Wiki disputes your view of the facts.

I was off by a few years; it was 2002, not 2006.

Again. It was portfolios of bad mortgages that caused the fraud committed. Whether it was Mark to market fraud or any other type of banking fraud. The piss poor mortgages being sold as A paper loans was the cause.

Everything else was a reaction.

 

[Wilbur Right]

Do you know Sorbane-OXley extended the GAAP rules to other investment houses and financial instruments such as CDO's and mortgages besides banks, in 2002, ?

Apparently not ..

The Sarbanes-Oxley Act was enacted in response to a series of high-profile financial scandals that occurred in the early 2000s at companies including Enron, WorldCom and Tyco that rattled investor confidence. The act, drafted by U.S. Congressmen Paul Sarbanes and Michael Oxley, was aimed at improving corporate governance and accountability. Now, all public companies must comply with SOX.


This was a good thing to try and oversee what banks and other financial institutions were doing.




Why don't you explain how you figure the Community Reinvestment Act combined with Sarbanes Oxley to bring about the housing collapse.

The CRA was originally intended to keep banks from accepting deposits from low to moderate income areas and not offering any lending services in the same area. It was a reaction to the red lining banks used to do to keep.from making loans in less desirable areas.

At least that was the story when I sat through all those CRA training sessions during my 20 years writing mortgage loans.
We also covered the ECOA notice as well. Lol.

 

[Picaro]

Even Wiki disputes your view of the facts.

I was off by a few years; it was 2002, not 2006.

Again. It was portfolios of bad mortgages that caused the fraud committed. Whether it was Mark to market fraud or any other type of banking fraud. The piss poor mortgages being sold as A paper loans was the cause.

Everything else was a reaction.

Yes, but Goldman and the rest weren't forced by the Fed or anybody else to mix up the bad loans into bundles with sound mortgages and sell them off as if all of them were sound, and make a paper trail that was essentially impossible to sort out at each sale from one to another until it created a situation where an audit would take months to sort them out. That was purely an invention of the financiers in coming up with derivatives and the CDO markets, not the Fed or Fanny and Freddy.

 

[Picaro]

Do you know Sorbane-OXley extended the GAAP rules to other investment houses and financial instruments such as CDO's and mortgages besides banks, in 2002, ?

Apparently not ..

The Sarbanes-Oxley Act was enacted in response to a series of high-profile financial scandals that occurred in the early 2000s at companies including Enron, WorldCom and Tyco that rattled investor confidence. The act, drafted by U.S. Congressmen Paul Sarbanes and Michael Oxley, was aimed at improving corporate governance and accountability. Now, all public companies must comply with SOX.


This was a good thing to try and oversee what banks and other financial institutions were doing.

Yes, but legislation with no oversight is worthless; that lack belongs to the both the Fed and Congress, no doubt. We saw a prelude of the 2007 crash with the Long Term Capital Management bankruptcy. It was comparatively small, and the big players in the industry sorted that crisis out among themselves, because they rightly feared its effects on the value of their own assets. Obviously nothing was learned from it, too much money to be made in the short term to abandon the unsound practices, as they then proceeded to do almost exactly the same thing on much larger scale for the next 7-10 years. Some are still doing it now.

Why don't you explain how you figure the Community Reinvestment Act combined with Sarbanes Oxley to bring about the housing collapse.

Overbuilding and running out of qualified borrowers at the retail level, just like every other housing bubble, caused the drop in equity and housing values. As I said, the massive outrageous levels of leverage on the part of the investment houses greatly magnified the losses that resulted after.

The CRA did not force banks to make bad loans, their own greed did; sub-primes only made up $1.3 trillion of a $16 trillion dollar mortgage market; they didn't all go into default, and their effects of their write downs can't be blamed for the rest of the market's mindless irresponsibility. As I said, nobody forced banks and these hedge funds to bundle the bad with the good so as to get a bigger price for the bad ones. If sound financial practices and fiduciary responsibility had been followed, the crash would have been much much smaller. It is trendy and right wing PC to attempt to blame Fanny and Freddy, certainly, but it isn't true or accurate. There are plenty of companies that didn't fail; they were the ones who limited their leverages and capital reserves to something sane.

Pure greed and incompetence was the cause, and nothing else. The big boys simply choked on their own feast.

 

[Andylusion]

setting off a wave of write-downs required by the mark-to-market regulations, don't recall the year that law was implemented, but it was fairly late, 2006 maybe. This

Mark-to-market or fair value accounting refers to accounting for the "fair value" of an asset or liability based on the current market price, or for similar assets and liabilities, or based on another objectively assessed "fair" value.[1] Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the "gold standard" in some circles.[2]

You really like to think you are smart about finance. To bad you are not. Do you even know what the term (Mark to market) means?

So I looked up where Mark to Market was considered the "gold standard", and it turns out the "circles" where it is considered such, are academia. Well that's great. Since Jeff Skillings came from Academia, was top 5% of his Harvard class, as a baker scholar.

It's funny to me how often some groups on this forum constantly point to whatever the Ivory Tower pin heads say as authoritative, and yet it's always these same Ivory Tower "I'm F***ing Smart" people who are in the middle of every major disaster. All these scholars and 'smrt' people, talk about everything like they know what is going on, but once they leave the Ivory tower, they couldn't survive one night in the real world.

M2M works great if you have common assets that have a common market. And in those areas of the economy, that's fine, and yes it has been around since the 1990s.

But the problem is, what if you don't have a common asset? Such as, a power plant project in India. You don't see massive markets for India power plants do you? So how do you know how much the future value of this asset is going to be? Well you don't. Just just make it up.

Similarly, what if you sign a project with BlockBuster Video, for online videos. You don't see huge market out there for online videos projects. So how much do you is the future value of that project? You don't. You just make it up. This is what Enron did.

With book value, you can say this project has this asset, which cost X amount, minus these liabilities. That's the value. That's the way it was done for a hundred years.

In both cases above, the Enron power plant in India, and the BlockBuster project, both failed miserably. Both projects never recorded any direct revenue. But that didn't matter... because mark to market, only required that they estimate future value. Which they did.

 

[Andylusion]

CRA loans are loans targeted to low and moderate income borrowers and neighborhoods under the Community Reinvestment Act of 1977. "The securitization of these affordable mortgages allows us to redeploy capital back into our communities and to expand our ability to provide credit to low and moderate income individuals," said Jane Henderson, managing director of First Union's Community Reinvestment and Fair Lending Programs.

CRA requirements applied to BANKS.
BANKS were not the prime offender of making sub prime loans. Matter of fact, most decently run mid size banks did not make sub prime loans available through any means and didn't have to be bailed out by the Fed's. They weren't as greedy. Plus they were genuine bankers. Not mortgage bankers. Do you know the difference?

First of all, Adjustable Rate Mortgages suck. A Prime ARM, is just as bad as a fixed rate Sub-prime loan.

No they arent. A decent index and margin with reasonable caps works just fine for an A paper borrower.

I used 5/1 arms for the purchase of investment properties. This was some years back. What have interest rates been doing for years now? Falling and staying down is the correct answer.
I have investment property loans at 2.5% oh how awful.

People who used ARMS in the past several years have had their rates decline. How awful eh?

You need to do some more research dude.

Nothing you said changes the facts I presented. The CRA was directly linked to the sub-prime crash BY FREDDIE MAC ITSELF.

Until you can counter those facts, I don't really care about the rest of your blaw blaw blaw. I posted a direct press release from 1997, that ties the sub-prime loans, to Freddie Mac.

Second, I posted direct evidence that delinquency rates for Prime-Rate ARM loans, were just as bad as Sub-prime Fixed.

Now I don't really give a crap what your opinion is on it. I showed direct proof of my claim.

Your post is nothing more than "Well I don't think so, and I'm ignoring your evidence", which is basically a 5-year-old going 'lalalallala' with his fingers in his ears. Sorry... not very convincing dude.

Back up your claims with proof. Prove that default rates from 2006 to 2010 were not any higher with ARM Prime rate loans. Prove that the statements made by Freddie Mac, that the CRA loans were guaranteed, was wrong, and Freddie Mac lied.

If you can't... then I rest my case, and I don't care what your "opinion" is, compared to the facts.

 

[Andylusion]

Even Wiki disputes your view of the facts.

I was off by a few years; it was 2002, not 2006.

Again. It was portfolios of bad mortgages that caused the fraud committed. Whether it was Mark to market fraud or any other type of banking fraud. The piss poor mortgages being sold as A paper loans was the cause.

Everything else was a reaction.

Yes, but Goldman and the rest weren't forced by the Fed or anybody else to mix up the bad loans into bundles with sound mortgages and sell them off as if all of them were sound, and make a paper trail that was essentially impossible to sort out at each sale from one to another until it created a situation where an audit would take months to sort them out. That was purely an invention of the financiers in coming up with derivatives and the CDO markets, not the Fed or Fanny and Freddy.

First off, the entire concept of selling parts of assets on the market, creating derivatives, was created by government. The very first Collateralized Debt Obligation, was created by Freddie Mac in 1983.

Right? The first CDO was a Property.... that's the collateral.... Mortgage... that's the Debt.... Obligation, that's the pay off.

A Mortgage Backed Security, is a CDO, although not all CDOs are MBSs. Am I wrong?

The entire concept of derivatives was created by government. What aggravates me, is that people seem to run around thinking that the private market just magically came up with this stuff by itself... and I disagree. The whole idea was created by government, intentionally, to make more money available for the housing market.

Now yes, it's true that the private market grabbed the governments design and ran with it.

But here's the kicker... THAT was government design as well. The government WANTED private markets to start funding mortgage backed securities on their own.

That's what Securitization is all about. Freddie Mac, and Fannie Mae, both securitize Mortgage Backed Securities. A company, created a MBS, comes to Fannie Mae, and they stamp their approval on the product. They don't create the Mortgage Backed Securities, nor buy the Mortgage Backed Securities either. They simply securitize the MBS, so that the private buyers will purchase that MBS on the private market.

So government creates a product, then promotes the product to the private market.... and the private market runs with it, and then you complain about what the private market is doing? Government set this up, not the private market. Regulations set this up, not the companies.

And lastly, I have huge problem with this idea that "government didn't force banks to do X Y and Z"..... yeah, basically they did.



In 1998, the Clinton Administration prided themselves on forcing banks, through legal action, to make sub-prime loans. If you find the longer clip, Andrew Cuomo actually says openly that these loans will have a larger default rate.

CRA loan portfolios were notorious for having losses, long before the sub-prime crash.

Then to top that off, Freddie Mac starts guaranteeing sub-prime loans, making them able to sell in Mortgage Backed Securities.

Now..... you are a bank. You see around the nation, that the Government is suing banks to force them to make sub-prime loans. Then you see that your sub-prime loans are a drain on your money. They lose money. Then you see that Freddie Mac just guaranteed sub-prime loans, so they are able to be sold on the private market.

You want these loans off your books. They are money losers. What do you do? You bundle them in MBS, and sell them.

Now on a purely brain dead technical level... did someone from the government show up at your bank with armed guards and threaten you to make MBSs with Sub-prime loans in them? No.

But everything that was done, gives you that exact incentive. So yes, government did make the private market sell sub-prime loans, and bundle them in MBSs. Yes. I'm sorry, but those are the facts. Government screwed us.

 

[Wilbur Right]

Second, I posted direct evidence that delinquency rates for Prime-Rate ARM loans,

You believe there were ARM residential housing loans using the prime rate as the index?

If so...........You dumb.

 

[Wilbur Right]

In the early 2000s, CDOs were generally diversified,[5] but by 2006–2007—when the CDO market grew to hundreds of billions of dollars—this changed. CDO collateral became dominated not by loans, but by lower level (BBB or A) tranches recycled from other asset-backed securities, whose assets were usually non-prime mortgages,[6] and are known as a synthetic CDO. These CDOs have been called "the engine that powered the mortgage supply chain" for nonprime mortgages,[7] and are credited with giving lenders greater incentive to make non-prime loans[8] leading up to the 2007-9subprime mortgage crisis.




Well looky there. Synthetic CDOs loaded with sub prime junk loans. Say it ain't so.

 

[Wilbur Right]

Now..... you are a bank. You see around the nation, that the Government is suing banks to force them to make sub-prime loans. Then you see that your sub-prime loans are a drain on your

Dude. Real "banks" did not make sub prime loans. Mortgage banks did. But not all did. Do you know the difference?

Here I thought I better help you out.

Generally, a mortgage bank originates a loan and places it on a pre-established warehouse line of credit until the loan can be sold to an investor, such as Fannie Mae, or Freddie Mac.[1] The process of selling a loan from the mortgage bank to another investor is referred to as selling the loan on the secondary market.

Mortgage banks frequently use the secondary market to sell loans because the funds received pay down their warehouse lines of credit which enables the mortgage bank to continue to lend. A mortgage bank is not regulated as a federal or state bank and does not take deposits from consumers or businesses. A mortgage bank raises some equity which it uses to guarantee the warehouse line and the bulk of the funds are provided by the warehouse lender.

A mortgage bank can vary in size. Some mortgage banking companies are nationwide. Some may originate a large loan volume, exceeding that of a nationwide commercial bank. Many mortgage banks employ specialty servicers for tasks such as repurchase and fraud discovery work.



Mortgage brokers were the real players in the sub prime mess.
Want me to educate you on mortgage brokers next?

 

[Wilbur Right]

A mortgage bank is not regulated as a federal or state bank and does not take deposits from consumers or businesses. A

See that part Andy? The lack of depositors meant that CRA requirements were not imposed on mortgage bankers.

It was accepting deposits without offering loans that caused the CRA to be implemented for BANKS.

Had nothing to do with sub prime loans.

 

[Picaro]

Some people are just going to blame 'the guvmint' for everything no matter what, regardless, and will ignore or spin anything that dares blame the private sector for their own greed and bad decisions, including fraud. Nothing is ever the fault of business owners, and salesmen are always 100% honest and knowledgeable of what they're selling, you know.

 

[Wilbur Right]

Some people are just going to blame 'the guvmint' for everything no matter what, regardless, and will ignore or spin anything that dares blame the private sector for their own greed and bad decisions, including fraud. Nothing is ever the fault of business owners, and salesmen are always 100% honest and knowledgeable of what they're selling, you know.

There has always been "sub prime" loans. But originally they weren't "bad" loans. They were loans that people who fell outside of Fannie/Freddie guidelines could use for a home purchase.
But they were still a decent quality borrower. That changed dramatically later on.

I wrote A paper loans along with FHA and VA loans. I worked
primarily for banks or mortgage bankers. I was recruited by mortgage brokers for years.

As the mortgage problem developed you would see things like you couldn't believe. I would meet with a realtors client and determine they couldn't buy with cash. Then follow up with the realtor to find out their client had been APPROVED by a sub prime lender. Amazing.

People do not realize how big a part realtors played in the housing collapse. It was realtors who directed their turned down clients to shop the sub prime market. It was realtors who told their shit clients not to worry, they would get a loan. It was the realtors who helped perform the bait and switch at the closing table.

And the realtors walked away blameless. And blamed the mortgage loan officers.

No way to make shitty loans if you have no borrowers. Realtors supplied a lot of shitty borrowers.