3 ms·

Both the retail & investment side of banks held garbage which is why it harmed them. There was no "AAA" tranche, all the tranches were garbage. Magnetar Capita

by Klinky 15y ago

Both the retail & investment side of banks held garbage which is why it harmed them. There was no "AAA" tranche, all the tranches were garbage. Magnetar Capital used the fallacy of the "A Tranche" to their advantage by selling off most of the CDO to suckers, then buying insurance against the whole thing. Housing would have only continued to go up so long as people bought houses & people could only buy houses because they were being given loans they could not repay. This is the first time I've heard that "foreclosure" is rewarding someone. I would agree that if the borrower knowingly falsified their income without influence or misguidance by the bank then they should be held responsible, but often that was not the case. The banks created a culture that lowered it's standards to the lowest levels, then either helped guide people into lying about their financial information, didn't ask about it or never verified it. They also helped promote things like ARMs which were big at the time because the low initial rate made it much easier to fit people into these loans. The banks didn't really check how feasible it would be for the person to pay back the loan once their rate adjusted though.

yummyfajitas 15y ago
There was no "AAA" tranche, all the tranches were garbage. I suggest you go educate yourself. The banks constructed securities which were rated by various agencies as AAA. Regardless of whether the AAA rating was deserved, the which the banks sold had a lower risk than the non-AAA rated tranches which the banks kept on their books. Why would they do this if they knew the securities were unlikely to pay off? This is the first time I've heard that "foreclosure" is rewarding someone. According to the article, regulators are pressing banks to pay $20B, "with much of the money earmarked to reduce mortgages of homeowners facing foreclosure." That's a reward for people unable to meet their obligations, many of whom are likely to have lied on their application. ...the bank falsified the application themselves. [citation needed]
- true_religion 15y ago
  By your standards food stamps are a reward for not being able to feed yourself.
Klinky 15y ago
@yummyfajitas Tranches are parts of a CDO. The problem with subprime CDOs is that none of the tranches were of any quality. They all sucked. There was no "A tranche", it was all a bunch of garbage tranches. As for the "AAA" rating, that's a rating assigned to the whole CDO by a rating agency such as Moody's or Standard & Poor's. Toxic assets weren't always considered toxic. Some thought the bubble would last forever, some knew it would end but didn't know when & didn't want to miss out. Firms would get commissions for making or selling securities. Buyers of these securities made calculations that woefully underestimated mortage default rates & to make matters worse, borrowed money to buy these crap investments. Firms weren't required to keep the bad tranche of the CDOs either, they could rebundle all portions of CDOs into other CDOs(http://www.propublica.org/article/banks-self-dealing-super-charged-financial-crisis/single http://www.propublica.org/article/banks-self-dealing-super-c...). It's kind of like a factory where you're producing a large volume of inventory which you think is good(or know is crap but hope no one finds out), until word finally comes out that all your merchandise has a fatal defect. You're still stuck with your crappy merchandise & have to payback your debts. It's more complicated than that though when you get down to leveraging & the default swap daisy chains, essentially they all built a house of cards. You really have to wonder how they thought it would all pan out in the end. As for who is to blame, the banks & Wall Street hold the vast majority of the blame. These are the people paid millions to do their job & they failed miserably. There are many reasons home owners can't pay. I am sure there are some who gave fraudulent information, but I am also sure you'll find many who weren't over their heads when they got into the loan but have been affected by the downturn in the economy. Additionally you will find stories of people who know they can no longer pay & are trying to do the right thing by working with the bank to adjust their payment plan or arrange a short sale, but often banks have been very hard to work with or it's even difficult to find out who owns your mortgage due to the mess (mortgage inside an MBS inside of a CDO is parts of which are inside another CDO, that is owned by a firm that was bought out by a firm within another firm). As for banks falsifying documents, here you go: http://www.huffingtonpost.com/2011/07/20/wells-fargo-subprime-fraud_n_905198.html http://www.huffingtonpost.com/2011/07/20/wells-fargo-subprim... http://www.dailyfinance.com/2010/10/02/robo-signing-scandal-spreads-documents-show-citi-and-wells-also/ http://www.dailyfinance.com/2010/10/02/robo-signing-scandal-...
- 15y ago

by Klinky 15y ago

yummyfajitas 15y ago

There was no "AAA" tranche, all the tranches were garbage. I suggest you go educate yourself. The banks constructed securities which were rated by various agencies as AAA. Regardless of whether the AAA rating was deserved, the which the banks sold had a lower risk than the non-AAA rated tranches which the banks kept on their books. Why would they do this if they knew the securities were unlikely to pay off? This is the first time I've heard that "foreclosure" is rewarding someone. According to the article, regulators are pressing banks to pay $20B, "with much of the money earmarked to reduce mortgages of homeowners facing foreclosure." That's a reward for people unable to meet their obligations, many of whom are likely to have lied on their application. ...the bank falsified the application themselves. [citation needed]

true_religion 15y ago
By your standards food stamps are a reward for not being able to feed yourself.

Klinky 15y ago

@yummyfajitas Tranches are parts of a CDO. The problem with subprime CDOs is that none of the tranches were of any quality. They all sucked. There was no "A tranche", it was all a bunch of garbage tranches. As for the "AAA" rating, that's a rating assigned to the whole CDO by a rating agency such as Moody's or Standard & Poor's. Toxic assets weren't always considered toxic. Some thought the bubble would last forever, some knew it would end but didn't know when & didn't want to miss out. Firms would get commissions for making or selling securities. Buyers of these securities made calculations that woefully underestimated mortage default rates & to make matters worse, borrowed money to buy these crap investments. Firms weren't required to keep the bad tranche of the CDOs either, they could rebundle all portions of CDOs into other CDOs(http://www.propublica.org/article/banks-self-dealing-super-charged-financial-crisis/single http://www.propublica.org/article/banks-self-dealing-super-c...). It's kind of like a factory where you're producing a large volume of inventory which you think is good(or know is crap but hope no one finds out), until word finally comes out that all your merchandise has a fatal defect. You're still stuck with your crappy merchandise & have to payback your debts. It's more complicated than that though when you get down to leveraging & the default swap daisy chains, essentially they all built a house of cards. You really have to wonder how they thought it would all pan out in the end. As for who is to blame, the banks & Wall Street hold the vast majority of the blame. These are the people paid millions to do their job & they failed miserably. There are many reasons home owners can't pay. I am sure there are some who gave fraudulent information, but I am also sure you'll find many who weren't over their heads when they got into the loan but have been affected by the downturn in the economy. Additionally you will find stories of people who know they can no longer pay & are trying to do the right thing by working with the bank to adjust their payment plan or arrange a short sale, but often banks have been very hard to work with or it's even difficult to find out who owns your mortgage due to the mess (mortgage inside an MBS inside of a CDO is parts of which are inside another CDO, that is owned by a firm that was bought out by a firm within another firm). As for banks falsifying documents, here you go: http://www.huffingtonpost.com/2011/07/20/wells-fargo-subprime-fraud_n_905198.html http://www.huffingtonpost.com/2011/07/20/wells-fargo-subprim... http://www.dailyfinance.com/2010/10/02/robo-signing-scandal-spreads-documents-show-citi-and-wells-also/ http://www.dailyfinance.com/2010/10/02/robo-signing-scandal-...

15y ago