Email Trails Show Bankers Behaving Badly 251
An anonymous reader writes "The New York Times is running a pair of stories about U.S. financial institutions being investigated by the Federal government and courts for alleged systemic and illegal activities that helped bring about the housing crisis and collapse of the world economy in 2008. Emails produced during courtroom discovery reveal that insiders at JP Morgan Chase knew that the bundles of securities they were marketing to investors were rotten with bad loans. And emails show the credit rating agency Standard & Poor's (a division of McGraw-Hill) was determined to stop losing deals to its competitors by being too tough on the banks whose products they were evaluating."
Re:News for Nerds??!! (Score:5, Informative)
Re:News for Nerds??!! (Score:5, Informative)
Those "bag-of-shit" securities were, in very large part, guaranteed by the US Gov't. That Wall Street Banks offered crap investment opportunities that no one understood is nearly as bad as the so-called investors who bought them with an equal lack of understanding, and don't get me started on people who "bought" homes they could never, ever make the payments on that formed the basis for the "bag-of-shit" investments no one understood.
That they were "highly-rated" by the security analyst firms means very little - I'll leave you with this sage advice from that classic film "Tommy Boy" [youtube.com]
Re:Get a rope! (Score:5, Informative)
To be frank, deregulation has started in the 80s, with Reagan, Thatcher in the UK, and then continued with Bush senior and Clinton. A key event being the abrogation of the Glass Stingall Act, which separated retail and investment banking. This Act had been put in place after the crisis of 1929, to... avoid a new crisis. Obviously lessons are quickly forgotten when a lot of money are involved. Watch the documentary "Inside Job" for more about this.
Re: What a surprise! (Score:5, Informative)
Hell, the definition of "sub-prime" is "Freddie and Fannie won't touch this".
Freddie and Fannie didn't insure a single one of these mortgages. Their problem is that they got suckered into backing their prime mortgage insurance business with investments that had been rated AAA by S&P.
Study Finds CRA 'Clearly' Lead To Risky Lending (Score:2, Informative)
A recent study by the preestigous National Bureau of Economic Research found the Community Reinvestment Act was the initial cause for banks to lose their bearings. They were intimidated intimidated into making bad loans on one hand and relaxed into doing so by gov promises to back up losses. The private/public partnership removed barriers to sound financial practice.
"NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.
To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.
The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.
CRA regulations are at the core of Fannie's and Freddie's so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.
It passed a law requiring the government-backed agencies to "assist insured depository institutions to meet their obligations under the (CRA)." The goal was to help banks meet lending quotas by buying their CRA loans.
But they had to loosen underwriting standards to do it. And that's what they did...
"We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy more CRA-eligible loans to help meet those new targets. "We will buy them from your portfolios or package them into securities."
Its pretty funny to see Federal Housing Finance Agency suing banks like Chase (who was actually one of the banks least caught up in the sub-prime fiasco)
New Study Finds CRA 'Clearly' Did Lead To Risky Lending"
http://news.investors.com/ibd-editorials-perspective/122012-637924-faults-community-reinvestment-act-cra-mortgage-defaults.htm#ixzz2KKE5CMwm [investors.com]