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And exactly what would they be looking at when the MBS-issuers, most notably the GSEs, lied about the level of risk in their MBS? Remember the "automated underwriting systems" the GSEs foisted on loan originators? That means no manual underwriting. No verification. No paper trail.
That is an issue the rating agency should've uncovered. But they didn't they rated the stuff as good as USD. But USD is now rated less than those were, or was at some point in the past.
They were rated high because prices were always going to go up. If they started falling they were worse than junk. Because they would all be bad. Or a large number of them and the failure mode was contagious. One failure would trigger another.
If the prices start falling then they will keep falling. More defaults, banks failures, etc. That failure mode is still out there.
Assuming I found the right link of the many I might have to search for/through, which of these findings would you care to focus upon?
• significant aspects of the ratings process were not always disclosed;
• policies and procedures for rating RMBS and CDOs can be better documented;
• the rating agencies are implementing new practices with respect to the
information provided to them;
• the rating agencies did not always document significant steps in the ratings
process -- including the rationale for deviations from their models and for rating
committee actions and decisions -- and they did not always document significant
participants in the ratings process;
• the surveillance processes used by the rating agencies appear to have been less
robust than the processes used for initial ratings;
• issues were identified in the management of conflicts of interest and
improvements can be made; and
• the rating agencies’ internal audit processes varied significantly.
I've bolded THE most important factor.
Had the information the MBS-issuers provided to the ratings agencies been accurate, and that was verifiable by the agencies, this whole mess wouldn't have happened.
Like I said... Had the REAL level of risk been disclosed by the GSEs, the mortgage market would have corrected itself long before so much damage was done. If the REAL risk level was known, GSE MBS and subsequently created CDOs would be MUCH less attractive to investors, which would have dried up the funding available to the GSE's to buy an even larger amount of high-risk loans.
The GSEs' automated underwriting systems need to go away. Manual underwriting only. Create a verifiable paper trail.
Likewise, the GSEs have to STOP buying loans made to low-income and/or credit-compromised borrowers. They're too high-risk.
No, the risk level wasn't disclosed. Why do you think F&F needed a bailout, and the Federal Reserve had to create $2 trillion in QE to but GSE MBS?
Had the REAL level of risk been disclosed by the GSEs, the mortgage market would have corrected itself long before so much damage was done. If the REAL risk level was known, GSE MBS and subsequently created CDOs would be MUCH less attractive to investors, which would have dried up the funding available to the GSE's to buy an even larger amount of high-risk loans.
The rating agencies admitted they misled investors about the performance of the CDOs.
So why didnt the huge financial crash happen at the end of the Dot Com Bubble if this all started because of Clinton?
Who WAS responsible? The Clinton Admin HUD. Cisneros, specifically, as he was HUD Secretary. F&F were following HUD's orders. Loan originators were selling F&F the "Affordable Lending Program" loans they had contracted with F&F to sell them as a consequence of F&F following HUD's orders. F&F lied about the risk level of the loans in their MBS. The private sector likewise assured the agencies that the loans in the financial products they submitted for rating met the lending standards set by the GSEs, which we now know were lowered substantially to meet HUD's orders.
The buck does indeed stop somewhere: The Clinton Admin HUD.
Odd how you only address the parts you want to address and ignore the rest.
So is your argument the banking industry is incompetent? They are unable to tell a good solid contract from a bad or shaky one?
With what info? What the GSEs told the ratings agencies? How did that work out?
Quote:
They either committed fraud or are incompetent. Which is it?
There wasn't enough info to go on. That's why the GSEs automated underwriting systems need to go away. Only manual underwriting by all loan originators. Create a verifiable paper trail.
With what info? What the GSEs told the ratings agencies? How did that work out?
There wasn't enough info to go on. That's why the GSEs automated underwriting systems need to go away. Only manual underwriting by all loan originators. Create a verifiable paper trail.
So incompetence then? That's what you are adding to your Nuremburg Defense?
Honestly... The most powerful financial institutions in the world didn't know how to rate these packages without the government... Christ.... Lol....
They sure as hell knew how to cash in all those fees.
The rating agencies admitted they misled investors about the performance of the CDOs.
Yes, investors were misled. But based on what? Not by the ratings agencies. The ratings agencies PUBLICLY DISCLOSED to investors that they:
1) Do not engage in any due diligence or otherwise seek to verify the accuracy or quality of the loan data underlying the MBS pools they rate.
2) Are under no obligation to perform, and do not perform, due diligence.
3) Note that the assignment of a rating is not a guarantee of the accuracy, completeness, or timeliness of the information relied on in connection with the rating.
All verified and admitted by the SEC.
Quote:
So why didnt the huge financial crash happen at the end of the Dot Com Bubble if this all started because of Clinton?
The Dot Com Bubble wasn't mortgages made to low-income and/or credit-compromised borrowers.
It happened in larger numbers under the Bush administration.
Not when you subtract the Clinton Admin HUD's directive that of the loans the GSEs buy, 50%+ had to have been made to low-income and/or credit-compromised borrowers.
The Bush Admin would have had to have increased that to more than 100%. They did not.
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