Comments on: The historical echoes of the mortgage bond scandal A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: coyotle Wed, 20 Oct 2010 18:34:27 +0000 The banking bailout was a blunder. The taxpayer gave banks billions of dollars yet they did little to stave off foreclosures. In the mean while they grab properties and sit on the cash they received from the treasury and the Fed. If they are threatened by insolvency again their influence in the Senate will be used to obtain more bailouts and lax regulation.

This fact alone really chaps my ass when I hear pundits claim the that those who lost their homes to foreclosure were somehow financially reckless. More people lost their homes to foreclosure after the financial industry was bailed out. Besides, how is losing one’s job to an economic downturn “financially reckless” on the part of the mortgagee?

Chase, Citibank, BOA, etc… are holdings of the private banks the form the Federal Reserve Board. The Treasury has been staffed by successive presidents with former employees of Wall Street, namely Goldman Sachs. The U.S. banking industry clearly is an Oligarchy which is strangling the economies ability to manufacture anything but paper profits. We have all seen how fast they can erode.

Two decades ago Britain made it illegal for corporations and organizations to contribute financially to any politician’s election fund. Only voters can contribute with strict limits and caps. How is it that the British people can get their government to respond to the will of the people and we cannot?

By: decora Tue, 19 Oct 2010 05:18:15 +0000 because investors, of course, are not supposed to trust ratings agencies?

then doesn’t that throw into question every marketing material that pushes something based on it’s AAA rating? if you know that credit ratings are meaningless and you use them to advertise your product isnt that fraud?

By: decora Tue, 19 Oct 2010 05:14:27 +0000 kiddynamte: michael lewis’ ‘the big short’ is full of people from ratings agencies and others saying that they dont have access to loan-level detail. if the ratings agency manager types at his underlings in all caps that loan-level detail is not to be used, then how can you call it public, or imply that its easily obtainable?

By: csissoko Mon, 18 Oct 2010 18:03:28 +0000 Thanks, KD for the response. I’m still thinking over the issue of what is public information. BTW here’s another link on the data available to MBS investors: curitization-dont-make-transparency-the- new-opaque/

By: McGriffen Mon, 18 Oct 2010 15:10:29 +0000 Analysts / managers could certainly sniff for the barbelling; more often than not, it showed in the FICO score distribution. To add onto Kid D’s comment, these tables weren’t just run-ons of previously propagated material. More often than not, the “investment classes offered” were broken out into groupings:

2. TABLE FOR LOANS (labeled Group 1)
3. TABLE FOR LOANS (labeled Group 2)

Group 1 loans were slated to a AAA-rated class slated for…wait for it…no guessing: Fannie Mae or Freddie (!!) Mostly it’s the UPB / loan balance that caused any loans falling into this category. Off the top, other categorical factors at play here but the conforming loan balance was a key metric.

Group 2 loans were slated for the other non-GSE investment groups (US, foreign). Much of the discussion here can be circled around much of the loans falling into Group 2.

On the default rate assumption: using a 25-35 Default Rate in months 40-72 for scenario analysis might, might have previously been applicable. Some of that stress would’ve derived from the roll rate tendencies on underlying ARM loans approaching reset (2 yr hybrid, 3yr hybrid).

However, on this discussion a 25 default (a 3month run rate is a better indicator) rate at months 18+ just wreaks absolute havoc on the loans & underlying structural features. Throw in a run rate on voluntary CPR of 5-10, when 15-20 had previously held & there you go.

By: Greycap Mon, 18 Oct 2010 13:12:45 +0000 Diablevert, people in the trade call it “barbelling” – it sounds more dignified than “nine bums.” But yes, according to those in the business, pools were quite often constructed, deliberately and cynically, to possess aggregate statistics quite unrepresentative of the actual loans.

By: mattski Mon, 18 Oct 2010 12:42:17 +0000 KD, the following is not an attack, just some advice.

You are probably not well-positioned to rate your own ethics “impeccable.” Best leave superlatives to others.

By: KidDynamite Mon, 18 Oct 2010 12:20:06 +0000 csissoko – sorry – i missed your other comment last night: you wrote: “But based on your first link, you seem to be claiming that raw data that is available only at a price is also considered “public information.” Do I have that right?”

yes – that’s correct. although the link doesn’t say that the raw data was available only for a price – it says that the raw data itself might have been difficult to analyze, which is why a business developed for companies that had expertise in analyzing it – for a price of course.

By: KidDynamite Mon, 18 Oct 2010 12:09:38 +0000 TFF – if you have a billion dollar portfolio, 25% NOTIONAL default would reek havoc – that’s the weighted default number. 25% nominal default might be meaningless – if that 25% in quantity added up to a small % of the portfolio.

All i meant is that unlike the Bill Gates + 9 bums paradox, you can’t have a FICO score of 1 million, or a loan to value of 50 Billion to really screw up the data.

By: Danny_Black Mon, 18 Oct 2010 08:01:40 +0000 SteveHamlin, Mr Salmon is lucky in having some of the top commentators and experts in the field reading him allowing the rest of us to benefit by second hand.

Given he promptly and prominently corrects any mistakes he makes, I think a bit of “throwing it out there” helps.