About time - Ratings Agency Getting some heat

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Submitted by sdduuuude on February 5, 2013 - 6:54pm

A major cause of the whole housing mess finally getting some attention.

http://news.yahoo.com/u-launches-civil-a...

Submitted by EconProf on February 5, 2013 - 8:30pm.

This suit has the potential to destroy S & P, because the government wants to have them admit guilt, not just cough up a big fine. They would then be exposed to civil suits from people who relied upon their advice.
Too bad. Capitalism should get back to punishing bad behavior, and the ratings agencies simply did not do their job. Piggs and others of our ilk were screaming for them to see the obvious bubble that was forming at the time. They reacted way too little and way too late, and thus contributed to the excess.
I wonder why it took so many years for this administration to act.

Submitted by no_such_reality on February 6, 2013 - 9:34am.

S&P doesn't rate bubbles.

And more importantly, the real problem that started it was basically an insurance company threatening default.

That default was in turn driven by a whole bunch of common schmoes lying and committing fraud on the loans, IMHO.

Submitted by flu on February 6, 2013 - 10:40am.

Meh... A bunch of hand motions, maybe a small fine here and there and then that's about it.

Just like..

Folks like Super J will continue to be able to practice, etc....

People that took out liar loans will recover and be fine...

It's time to move on...There will be no major "punishment" for anyone for the great recession...

At least not in your lifetime...

Submitted by UCGal on February 6, 2013 - 11:10am.

no_such_reality wrote:
S&P doesn't rate bubbles.

And more importantly, the real problem that started it was basically an insurance company threatening default.

That default was in turn driven by a whole bunch of common schmoes lying and committing fraud on the loans, IMHO.

That same company (AIG) appears to be back in the thick of things for CDS and Collateralized Subprime garbage.

http://www.foxbusiness.com/news/2013/02/...

Submitted by no_such_reality on February 6, 2013 - 11:56am.

UCGal wrote:
no_such_reality wrote:
S&P doesn't rate bubbles.

And more importantly, the real problem that started it was basically an insurance company threatening default.

That default was in turn driven by a whole bunch of common schmoes lying and committing fraud on the loans, IMHO.

That same company (AIG) appears to be back in the thick of things for CDS and Collateralized Subprime garbage.

http://www.foxbusiness.com/news/2013/02/05/aig-fortress-unit-test-abs-with-personal-loan-securitization/

No UCGal, that's an ABS, a securitized bundle of subprime personal loans. Very different than a CDS, credit default swap.

It's a different bundle of junk (probably car loans) but the exact same concept of securitization of mortgage loans that has been occuring for 30+ years.

The CDS were a problem, when the ABSes were bundled into CDOs putting 100lbs rotten apples in a barrel and selling rights to each 1lb, with top tranches being promise the 'best' pound. The CDS is the insurance against you getting rotten apples. Much like a a barrel of apples, rot spreads.

And the best part, you could bundle your CDS obligations into a CDO and sell CDS on your CDO of CDSes. Which is what AIG was buying, err, selling? Oh well, they where insuring the CDOs of CDSes.

Now why do that? Simple, make mo' money! Podunk Casualty could sell $100 Billion of 'insurance'. Then bundle it, tranche it and buy 'insurance' to cover the tranches cheaper than it cost to 'sell' the original insurance. Sounds nutz in retrospect, but in reality, requires a bit of a psuedo-black swan to go bad.

Why would AIG do that? Mo' Money!

How good the apple were alluded to be or how declared the apples were of not being examined at all. And the farmers producing the apples are claiming "US Extra Fancy Grade" when the reality is they aren't even the lowest Utility grade.

And ironically, I suspect the CDOs or the original mortgages didn't actually perform that bad. The CDOs of CDSes did once the market realized someone missed the rotten apples in the barrel.

Submitted by The-Shoveler on February 6, 2013 - 12:27pm.

First you have to recognize that the housing bubble was created as designed, then you will realize there is no interest in digging too deep.

You really think they did not know what was happening?
I should start a poll on the above.

This is why you have inflation calculation based mostly imported cheap stuff, not on assets.

Submitted by earlyretirement on February 6, 2013 - 1:08pm.

Personally I think it would be nice if they got hit hard but in all reality, many people were "in on the game". It didn't take a rocket scientist to see that much of that JUNK wasn't AAA rated like they said it was. No one wanted to see the truth at all.

It was kind of like everyone knew the Emperor had no clothes on but everyone wanted to play along like he did. (As long as "he had clothes on" they could get fat off the King)...

I saw a lot of crazy things during the bubble. Lots of people wanted to try to blame someone else.

Quite comical actually. You had people that had $hitty jobs not making much money and they were some how "fooled" into lying about their income and buying a house they couldn't afford. They blame it on someone else all the while knowing they couldn't afford a house that was $500,000+. Yeah..it was someone else's fault....uh huh.

There is a lot of blame to go around including these fraudulent sham ratings agencies.

I suspect they will get a slap on the risk and move on....same as a lot of the other players.

Those of you who haven't seen the movie "Inside Job" should definitely watch it. It's an EXCELLENT documentary that touches upon some of this rating agency junk. I believe it's also on Netflix DVD delivery. (It won an Academy Award for Best Documentary Feature).

The typical John and Jane Doe will probably get sick watching it however...

http://www.sonyclassics.com/insidejob/

Submitted by no_such_reality on February 6, 2013 - 2:13pm.

A little light reading from the Philly Fed Reserve:

WORKING PAPER NO. 11-30/R
COLLATERAL DAMAGE:
SIZING AND ASSESSING THE SUBPRIME CDO CRISIS
That's the May 2012 report.

The August 2011 working paper had the following ditty in it's abstract (Link):

"show how some 5,500 BBB-rated subprime bonds were placed or referenced into these CDOs some 37,000 times, transforming $64 billion of BBB subprime bonds into $140 billion of CDO assets."

Both highlight that the 1999-2007 CDO market was only a $641 billion.

With a 75% loss rate (wow, way wrong I was), wouldn't it have been a lot cheaper to just backstop the loss.

Submitted by livinincali on February 6, 2013 - 2:23pm.

flu wrote:
Meh... A bunch of hand motions, maybe a small fine here and there and then that's about it.

Just like..

Folks like Super J will continue to be able to practice, etc....

People that took out liar loans will recover and be fine...

It's time to move on...There will be no major "punishment" for anyone for the great recession...

At least not in your lifetime...

The statue of limitations has already been run. I figure the big losers will be the pension funds. Maybe you can try the taxpayer bailout of the pensioners, but I personally think by the time you need to do the bailout the taxpayer well will be dry and the pensioners get screwed. It's not that they'll deserve it, it just that they'll be the easiest group to screw in an array of bad choices.

Submitted by UCGal on February 6, 2013 - 3:04pm.

no_such_reality wrote:
UCGal wrote:
no_such_reality wrote:
S&P doesn't rate bubbles.

And more importantly, the real problem that started it was basically an insurance company threatening default.

That default was in turn driven by a whole bunch of common schmoes lying and committing fraud on the loans, IMHO.

That same company (AIG) appears to be back in the thick of things for CDS and Collateralized Subprime garbage.

http://www.foxbusiness.com/news/2013/02/05/aig-fortress-unit-test-abs-with-personal-loan-securitization/

No UCGal, that's an ABS, a securitized bundle of subprime personal loans. Very different than a CDS, credit default swap.

It's a different bundle of junk (probably car loans) but the exact same concept of securitization of mortgage loans that has been occuring for 30+ years.

The CDS were a problem, when the ABSes were bundled into CDOs putting 100lbs rotten apples in a barrel and selling rights to each 1lb, with top tranches being promise the 'best' pound. The CDS is the insurance against you getting rotten apples. Much like a a barrel of apples, rot spreads.

And the best part, you could bundle your CDS obligations into a CDO and sell CDS on your CDO of CDSes. Which is what AIG was buying, err, selling? Oh well, they where insuring the CDOs of CDSes.

Now why do that? Simple, make mo' money! Podunk Casualty could sell $100 Billion of 'insurance'. Then bundle it, tranche it and buy 'insurance' to cover the tranches cheaper than it cost to 'sell' the original insurance. Sounds nutz in retrospect, but in reality, requires a bit of a psuedo-black swan to go bad.

Why would AIG do that? Mo' Money!

How good the apple were alluded to be or how declared the apples were of not being examined at all. And the farmers producing the apples are claiming "US Extra Fancy Grade" when the reality is they aren't even the lowest Utility grade.

And ironically, I suspect the CDOs or the original mortgages didn't actually perform that bad. The CDOs of CDSes did once the market realized someone missed the rotten apples in the barrel.


Thanks for the clarification, NSR. I appreciate it.

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