Question: Did the banks LIE to the rating agencies about the MBS's or did the rating agencies lie to

[uponit7771]

...the public because there's no way these securities should've been AAA rated knowing that sub-prime and prime were NOT differentiated amongst shares.

Bottom line, who wants to work with the same crooks who lied us into this crap!?

Thx in advance for your input.

[eleny]

1. I thought that the sub-primes were hidden in the bundles that were sold

And that they were sliced and diced up in such a way that it's difficult to figure out just what was in the bundles.

I'm not so educated in all this and am trying to learn. But it seems to me that the way the bundles were constructed is where the blame sits.

[uponit7771]

2. Yes, you're right and since the rating agencies didn't know how to valuate them then they shouldn't

...have UNLESS the rating agencies were lied to by the banks and TOLD that they did the valuations and "slicing" and that "slicing" came out to be false.

The reason I'm askin is cause "...I didn't know..." isn't a reason to just put out any value or rating on those securities.

[eleny]

4. Well, let's put it this way....

What good is a rating agency if they don't understand the process by which products they rate are constructed? And that's a conclusion that would be drawn if we accepted the SEC was on our side. :eyes:

After reading Gasparino's book Blood On The Street and Daniel Reingold's Confessions of A Wall Street Analyst, I had my eyes opened further. The Wall St. analysts duped the public since they were in bed with the banking side of their corporations.

The Bush administration agencies were full of wolves guarding the hen house. So you know the score. We shouldn't be assigning blame to one side or the other. They all deserve a frog march.

(Oh Jeez! Rep. Bachus is on C-Span3 speaking to the CEOs - a repeat of this morning's House hearing. He wants to join hands, sing kumbaya and not look back but only forward as partners with banking for the good of the American people. How in the world do these people keep their breakfast down?)

:hi:

[Skidmore]

3. Should be considered fraud, shouldn't it?

A scam. Not unlike Madoff, but institutionalized.

[eleny]

6. Absolutely - see my just posted reply #4

I was composing that reply as you were posting.

They're all bold faced thieves with arms linked in a "gentleman's agreement" for W's entire term. And surely before that as well over the history of our country.

What galls the hell out of me after reading about the dot com bubble bursting is how they concocted this latest scheme with the bad housing loans. They never quit fleecing. And now we see that they fleeced the bailout when the world's economy is collapsing. I guess they don't deserve a frog march but a straight jacket.

[uponit7771]

7. YES. The rating agencies SHOULD have know the way these securities were structured otherwise dont..

...rate them.

UNLESS the banks TOLD the agencies they were structured one way and it came out to be false, then the hammer should come down on the banks.

Only (I say only with humility) 3-4% of US housing is going into foreclosure right now so it's not like they're not going to get their money from the other 96% it's just NO bank or ANY financial institution wants to be left holding the bag on the 3% of securities that are foreclosing and since they chopped the mortgages up to high heaven no one knows what the securities are worth.

[Fresh_Start]

5. doesn't have to be either of those

was most likely general cluelessness.

[uponit7771]

8. Then in that case the rating agencies shouldn't have rated the securities then, if they don't

...know or are clueless about them then it's false information that they're are putting out.

Now if the BANKS didn't know about how to valuate the securities (and they still dont) then they shouldn't have disclosed this to the rating agencies.

Telling the insurance company "...I didn't know my car didn't have brakes..." isn't a good excuse

[Fresh_Start]

27. they had historically rated MBS

with some success. And they believed that their tools would extend to the newer vehicles.
They didn't.

I believe that historically they had used mechanisms like risk score distributions and income distributions of the mortgage holders to assess the risk. Typically models have viewed that each of the mortgage holders are independent of each other in terms of risk. However as we have rediscovered mortgage holders are not independent of each other in terms of risk. There is correlated risk due to linkages in the real estate market itself. For example, if there are multiple foreclosures in your neighborhood, your home value deteriorates.

I do agree with you that they had a duty if they realized that they didn't understand the asset to not rate it. But I don't know that they understood that they didn't understand.

[eleny]

9. Here's the video of Perlstein on Hardball

Just posted in the Videos forum here at DU this morning.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x270775

[uponit7771]

10. I'm think some of these bastards should be sent to jail, either the rating agencies lied or the....

...banks lied.

The reason MOST Of those banks don't HAVE to provide leadership is because MOST of them weren't involved in either writing sub-prime or buying sub-prime securities. Wells Fargo and Chase didn't do any of that but they were strong armed (not forced) into taking tarp money and they never added the tarp to thier net asset value.

Bottom line, who wants to work with the same crooks who lied us into this crap!?

[Spazito]

11. I think they are both to blame, the banks AND the rating agencies were...

working hand in hand. Banks put a value on the tainted securities and, with a wink and a nod, the rating agencies went along with them and rated accordingly.

[uponit7771]

12. Yeap, which means the onus is on the banks because now the rating agencies can say....

...."we didn't know they were bundling mortgages that way" putting all the blame on the banks for not valuating their assets correctly.

It just seems like we're working with the A-Holes that lied us into this mess and they're stayin crooked as possible.

The mortgage rates haven't come down enough for me to even think about refinancing

[Spazito]

13. I don't think the onus lies solely with the banks at all...

it is clear, imo, the rating agencies knew the value of the banks' assets were skewed well before the 'shit hit the fan' publicly yet they continued to assess the worthless securites as Triple A. They are answerable for that aspect while the banks are answerable for their scams.

Each needs to be held accountable for their actions, separate from each other. Neither is less accountable, imo.

[uponit7771]

14. Cool, IMHO they've done more damage or just as much as the 911 terrorist .

[Spazito]

16. Agree, bin Laden struck the commercial center of the US for a reason...

to bring down the US economy. It turns out the banks/investment companies/rating agencies, etc, were already doing it from within and have succeeded where bin Laden failed.

[amborin]

15. do you read newspapers? this has been discussed endlessly...the rating agencies were in league with

the bankers, rather than rating them

[uponit7771]

17. I know that but it was THEIR responsibility to have honest ratings, if it's the case they KNOWINGLY

...overrated the MBS's then they should have their asses in jail.

Bottom line, it sounds like we're working with the same bastards who robbed the house in the first place

[amborin]

20. the articles all pointed out how the agencies were acting as 'consultants'

and not as true raters with objectivity....

they didn't do their job

what else is new????

[sandnsea]

18. No no, it was "marketing" and "advertising"

You just misunderstand them. :sarcasm:

I guarantee you they followed the letter of the law, after they sliced and diced the law to allow them to do what they did.

Of course they knew what they were doing. They see "downturns" as part of the "business cycle". You can clearly see they never get hurt. They've still got $500,000 a year salaries, on top of whatever they've stuck in foreign investments that are still doing fine.

[crimsonblue]

19. Before housing collapsed, the securities were considered safe.

For whatever naive reason, those involved thought the housing boom would continue indefinitely.

[amborin]

21. they weren't considerd safe...hence the credit default swaps

the big investors very carefully protected themeslves, by hedging both ways and taking out insurance policies on their hedges

[uponit7771]

22. Yeap, and Lehmans etc were "ALLOWED" to do 30 to 1 leverages on these swaps too!

[crimsonblue]

24. I know this seems idiotic in hindsight, however

a 30-1 leverage rate is not that high, historically. Now, were Lehman and others too far leveraged? Undoubtedly yes. To put quotations around 'allowed' makes it seem like banks were participating in illegal activities, which they weren't. They were allowed, by law and regulation enacted to leverage themselves to a 30-1 ratio. This is part of the problem with Investment banks. Commercial banks, such as your local corner bank, are not allowed by law to leverage themselves this much, nor would they. The common rule of thumb (and law in many states) is a 10-1 ratio. This means that a bank can only loan out 10 times as much as they have in capital (which includes MBS, deposits, stock ownership, bank holding company value, etc).

[crimsonblue]

23. Ok, I will retract a little bit

Those that fully understood the mortgage backed security black market understood it was not sustainable. However, the number of people that actually understood it is very small. In an offer of disclosure, my uncles own and operate a bank in Colorado. I've talked to them and my grandfather about the mortgage backed security fiasco and they have told me that their bank was required by law to hold X% of AAA rated securities. The mortgage backed securities were packaged in such a way that allowed them to receive AAA ratings by credit agencies. However, the people that rated these securities usually did not fully understand what they were looking at, and assumed that the real value of property would add stability to these securities. In essence, that's what the MBS are. Everybody's mortgage is tossed into a big blender, mixed up, repackaged and tossed out as a new, safe entity. I won't hesitate to say that those that did fully understand the MBS mess were: a) idiots, b) greedy, c) naive.

I guess what I want to press upon you is that most banks believed the ratings of securities they held. They had no reason to question otherwise. Now, the megabanks, like BoA and Chase understood what was going on, but they either didn't believe the housing boom would end, or they thought they would have more time to divest before the fun times ended.

[karynnj]

25. Here is a great NYT column explaining it

(I was searching on the NYT to find a different article, but like this better - http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html?_r=1&scp=3&sq=credit%20rating%20bonds%20&st=cse Here's another - http://www.nytimes.com/2008/01/19/business/19ambac.html?scp=11&sq=credit%20rating%20bonds&st=cse

[ljm2002]

26. The banks lied to the ratings agencies...

...and, much like some well-known auditing firms a few years ago, the ratings agencies gave a wink and a nod and proceeded to give the AAA ratings which were then used to sell financial "instruments" to everyone including foreign investors -- who have now wised up to the fact that they were victimized by FRAUD. And that is why the entire system is collapsing. Because in the old days, whatever else you might think about good ol' Uncle Sam, the one thing you could say was that our financial systems had discipline and were, relatively speaking, honest and transparent. In other words, ratings for the most part reflected reality. Now, not so much.

[Doremus]

28. The only people not in on the lie was US.

The banks colluded with the rating agency. One big, happy, inbred family.

They are not to be trusted, any of them. Precisely why we need to duct tape their asses in a chair and make them ask permission for every move they make.