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Reregulation
REREGULATION....Sebastian Mallaby argues today that, contrary to Barack Obama's claims, deregulation isn't to blame for the credit crisis:
The key financiers in this game were not the mortgage lenders, the ratings agencies or the investment banks that created those now infamous mortgage securities. In different ways, these players were all peddling financial snake oil, but as Columbia University's Charles Calomiris observes, there will always be snake-oil salesmen. Rather, the key financiers were the ones who bought the toxic mortgage products. If they hadn't been willing to buy snake oil, nobody would have been peddling it.
Who were the purchasers? They were by no means unregulated. U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part — though they are now vulnerable to the broader credit crunch because they operate with borrowed money.
At a minimum, I'd make a couple of counterpoints. First, Phil Gramm's 2000 Commodity Futures Modernization Act (supported, unfortunately, by the Clinton administration) was specifically designed to "protect financial institutions from overregulation" — primarily by leaving the market for credit default swaps completely unregulated. There may be several underlying causes for the credit crisis, but this is surely one of the very big ones.
Second, after the LTCM debacle of 1998, Alan Greenspan (and, sigh, Robert Rubin) produced a report suggesting that we should "encourage," "promote," and "consider" guidelines that might prod financial institutions into reducing their drunken sailor approach to leverage. But they declined to produce actual regulations to that effect. In fact, as I noted the other day, in 2004 the SEC issued a rule allowing big investment banks to increase their allowable leverage ratios. That turned out not to be such a good idea.
Third, there was a bipartisan failure to regulate the mortgage market into a semblance of rationality. Just the opposite, in fact, as lawmakers pressed Fannie Mae to insure ever dodgier loans and Alan Greenspan encouraged Americans to take advantage of ever cheaper mortgage rates. A little bit of commonsense rulemaking could have gone a long way in the mortgage market a few years ago.
Mallaby is right that deregulation isn't solely at fault for the credit crisis. But it's hardly an innocent bystander either. A little bit of market skepticism over the past decade would have done everyone a world of good (literally), and once we catch our breath from the current meltdown it's time to think about how to rebalance our attitude toward financial regulation. It's an area where Democrats have been barely any better than Republicans, and one that Barack Obama is right to give serious attention to.
Mallaby's argument, to the extent that he has one, is that hedge funds were regulated even less than investment banks and did fine. He is basing his claim on anecdotal evidence.
Since hedge funds are very secretive, we don't know how well they are doing on average. They report to their investors once a quarter. Their investors can withdraw funds once a quarter.
Mallaby has made his argument invulnerable to mere facts by claiming that current and future problems for hedge funds are spillover "? though they are now vulnerable to the broader credit crunch because they operate with borrowed money." So the only relevant evidence is that hedge funds didn't fail during the period when their investors couldn't withdraw funds.
Also, hedge funds have limited leverage, because their counterparties don't allow them to lever up. Those would be investment banks. IIRC typically each REPO account of a hedge fund can lever up only 50 fold. This implies a much lower overall leverage. I'd guess that Bear Sterns had higher leverage than any hedge fund.
Finally, hedge funds are restricted by one huge regulation -- investors must invest in huge chunks (at least $100 million IIRC) so they have reason to gather information and can coordinate in not having a run on the fund.
Mallaby's argument, to the extent that he has one, is that hedge funds were regulated even less than investment banks and did fine. He is basing his claim on anecdotal evidence.
Since hedge funds are very secretive, we don't know how well they are doing on average. They report to their investors once a quarter. Their investors can withdraw funds once a quarter.
Mallaby has made his argument invulnerable to mere facts by claiming that current and future problems for hedge funds are spillover "? though they are now vulnerable to the broader credit crunch because they operate with borrowed money." So the only relevant evidence is that hedge funds didn't fail during the period when their investors couldn't withdraw funds.
Also, hedge funds have limited leverage, because their counterparties don't allow them to lever up. Those would be investment banks. IIRC typically each REPO account of a hedge fund can lever up only 50 fold. This implies a much lower overall leverage. I'd guess that Bear Sterns had higher leverage than any hedge fund.
Finally, hedge funds are restricted by one huge regulation -- investors must invest in huge chunks (at least $100 million IIRC) so they have reason to gather information and can coordinate in not having a run on the fund.
I blame Orange County for declaring bankruptcy in the 90's. Orange County was a cancer that should have been stopped!
Woot! Great post, Kevin.
Take a look at which countries do not have extradiction treaties with the US. Are any of these attractive to people with lots of questionable cash? Have any of the CEOs of the investment banks or brokerages or large banks moved there of late? I wonder who has bought an island recently? Or a very large yacht? It seems that if Obama is elected indictments should be coming down. The actions by some must have been criminal even in the context of deregulation. I suspect these folks will conveniently vanish and will try to do a Mark Rich when the time is right.
Mallaby's argument, to the extent that he has one, is that hedge funds were regulated even less than investment banks and did fine. He is basing his claim on anecdotal evidence.
Since hedge funds are very secretive, we don't know how well they are doing on average. They report to their investors once a quarter. Their investors can withdraw funds once a quarter.
Mallaby has made his argument invulnerable to mere facts by claiming that current and future problems for hedge funds are spillover " though they are now vulnerable to the broader credit crunch because they operate with borrowed money." So the only relevant evidence is that hedge funds didn't fail during the period when their investors couldn't withdraw funds.
Also, hedge funds have limited leverage, because their counterparties don't allow them to lever up. Those would be investment banks. IIRC typically each REPO account of a hedge fund can lever up only 50 fold. This implies a much lower overall leverage. I'd guess that Bear Sterns had higher leverage than any hedge fund.
Finally, hedge funds are restricted by one huge regulation -- investors must invest in huge chunks (at least $100 million IIRC) so they have reason to gather information and can coordinate in not having a run on the fund.
Without being dramatic about this, I think that soon after the election the passports of Bush, Cheney, Rumsfeld, Greenspan, Paulson, Bill Donaldson and Cox should be confiscated.
Mallaby might be deluded, he might be dishonest, but he's wrong. It's breathtaking, actually, and I don't think many of the big money players who created this fiasco would claim deregulation had nothing to do with it.
Assuming we get through the immediate crisis, I don't think that a new round of regulation, though necessary, will be enough. We have a big problem when many of our financial institutions are now so big they are "too big to fail." The recent mergers and takeovers are accelerating that trend. When companies are "too big to fail," by definition that means the government--i.e., we--are on the hook all along. We need to find a way to re-size institutions so that failure is an option and market forces can work, or else we need to drop the pretense altogether that we have a capitalistic, free market system.
Isn't this a bit like taking the stop signs from a four way intersection and then claiming that their removal was not the cause for the increase in accidents?
Banks did fail when there was regulation, but I'm afraid it would be hard to not correlate this increase failure with the increase in deregulation. Some of this is not even deregulation but merely moving these transactions to unregulated markets.
"Without being dramatic about this, I think that soon after the election the passports of Bush, Cheney, Rumsfeld, Greenspan, Paulson, Bill Donaldson and Cox should be confiscated."
I would prefer that we confiscate passports upon their attempting to reenter this country after, say, a skiing jaunt abroad.
Take their passports and set them adrift at sea. Or perhaps rendition them to, say, Pakistan's tribal area.
h
Not only was there little SEC regulation, there was an amazing effort by the Bush administration to preempt state predatory lending laws.
Eliot Spitzer in the Washington Post says this on Feb 8, 2008:
"Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation."
Spitzer, WP
My theory is (ahem) that there was some sort of coordinated effort between the administration and Wall St. to push this subprime debt onto off-shore banks. Unfortunately for them (and hence us), the subprime mess came to light before US financial institutions could unload all the bad paper.
Is this a totally silly theory?
Kevin, I hope you are right that we would take a deep look at the problems and fix them. I'm not holding my breath though. There were already enough crises the last several years that should have motivated the govt to take a deep hard look. They did not and they simply kept adding more fuel to the fire. They are doing the same thing now. Adding a trillion plus dollars (since Aug '07) of bailout is doing the same old thing the same old way. Nothing is gonna change.
nepeta, that's very interesting because my immediate reaction to Drum's post was that the whole modus of this administration has been to throw wrenches into the gears of all oversight -- EPA, FDA and so on -- favoring business over the consumer.
I can't see why anyone would think they were any different in the financial sector. Moreover, the accumulated deregulation of the last 28 years has complicated the entities involved and their markets requiring, you would think, more careful oversight.
Oh, and your theory wouldn't be silly if you think the actors involved -- especially the administration -- were smart enough and not so greedy that they actually saw this coming.
What amazes me is that almost every institution and their risk management were seduced by apparent higher returns on A-rated paper. That should have been the red flag right there.
It's interesting that Mallaby mentions snake oil salesmen. The Pure Food and Drug Act of 1906 was established, in part, to regulate patent medicine. So, although there will always be snake oil salesmen (some could argue that Mallaby is to economic reporting what snake oil salesmen were to healthcare) that doesn't mean you do nothing about them. Why make it easy for them to ply their trade?
Did Mallaby point out that if the snake oil was not rated AAA, then there wouldn't have been a huge market for it?
Clinton was always more a moderate Republican than a Democrat -- and he was never a liberal... the Monica thing was more GOP than DEM..
Rolling Stone, in their most recent issue, has an article that reveals what a nasty, unintelligent, slimy little bastard John McCain is. What a reprehensible human being. Nothing in Obama's past compares with a sixty year pattern of sliminess in John McCain's past.
And let's not forget that the failure of two hedge funds at Bear in June of 2007 kicked off the crisis as such. Plenty of hedge funds have already failed and many more will.
Toxic waste mortgage-backed instruments were routinely rated AAA. If they had not been so rated regulations would have prevented regulated institutions from trafficking in them. AAA rated toxic waste is the heart of the story. Extending the regulation regime to cover these new instruments, which was fought tooth and nail by the industry, would have prevented the crisis.
I will be interested to see what the FBI comes up with.
Noni
Yeah, and the lack of regulation wasn't a major causal factor in the collapse of the Asian "Tiger" economies of the 1990s, either.
Here's an idea: let's deregulate the drug markets as well. No, seriously - here we have a bunch of classic free-market small-to-mid-size businesses who want nothing more than to meet their customer's demands for certain commodities (marijuana, cocaine, heroin, crystal meth...). Unfortunately, burdensome government regulations cause massive problems for these entrepeneurs - some are even threatened with jail!
What's that you say? The people can't make informed choices over these addictive substances, so the government needs to protect them? Maybe we should extend that same thinking to financial markets?
Reino is right--the AAA ratings provided cover for the sellers of these products, plausible deniability for the skeptical buyers, and the only required criteria for the zombie buyer.
The problem, if I read this right, is that the government didn't regulate enough so it was the government's fault. Therefore more regulation by government will not work?
In a way he's right, the regulators in this case were incompetent--Bush administration cronies. We need a change and not friends of Phil Gramm's.
And deregulation was also not responsible for the S and L debacle and Enron too. It was simply those nasty capitalists taking advantage of the system.
Mallaby's argument makes no sense. Why did those "financiers" buy toxic mortgage investments? Because they thought the investments were guaranteed by the "credit default swaps" (a fancy name for "investment insurance"). And why did financial firms call these investment insurance packages "credit default swaps"? So that they weren't qualified as insurance policies and could avoid the regulations insurance policies must adhere to.
Maybe someone should explain that to Mr. Mallaby,
Reino and Neal are both spot-on. Had these securities not been rated AAA, then Fannie Mae and Freddie Mac wouldn't have been buying them up either. It was the big lie that was needed to allow the whole game to take place.
Mallaby has a certain point (I agree he's wrong, since the toxic stuff slipped into the system via gatekeepers that we're supposed to be ... well gatekeepers, and that it came in toxic due to the lack of basic prudential regulation), which is the issue goes beyond regulation as such.
For example, many of the kookier items in the process occured in the areas that ARE regulated (perhaps not well, but not lacking as such). A major source of failure was (and is) in the risk modelling, risk modelling and related tools that have explicit or implicit regulatory approval. And happen not to work under high stress (this is a bit too broad, when there is deep data for plain vanilla, like say credit card receivables securities, where one has an asset class that passed through severe stress before, there one has reasonable models).
Taking for granted that the unregulated mortgage brokers and similar entities have to regulated, or have strong oversight at the points where their product comes into the system, the real challenge for the US, which is harder, is getting the regulation right where it exists.
Lesser regulation in terms of a simplified, streamlined, but STRENGTHENED oversight of the system with a global view is needed. The US is insane with its proliferation of regulatory offices with competing turfs, visions, etc. No other serious country has such a bizarrely byzantine system, this itself results in gaming the system (as well as wasteful duplication, waste in turf battles, etc).
Streamlined but strengthened regulatory powers with a centralised financial regulator or two (or three if one splits off insurance) would do far more than layering on more rules etc. Of course I know the American Paranoid faction that is insanely fearful of central gov. will oppose, but they oppose everything.
However: Also, hedge funds have limited leverage, because their counterparties don't allow them to lever up.: Ah not in my experience mate, they have insane leverage. Maybe your onshores are another matter, but I doubt it.
I think Mallaby is still basically asking the wrong question here, specifically: who do we /blame/ now that the damage is done. Certainly there's lots of blame to go around and everyone involved in these transactions deserves to suffer.
But that's not a useful question: many of the people responsible are already being punished financially. Unfortunately they're also taking us down with them. So blaming them isn't the problem. What we need to know is what we could have done in the early '00s to stop this from happening.
I think the basic answer is: more regulation, more transparency in the content of those securities, less leverage. If people had a better idea of what they were buying, maybe they wouldn't have been as eager to do so. One more time: blame is useless unless it leads to an actual policy prescription.
"Oh, and your theory wouldn't be silly if you think the actors involved -- especially the administration -- were smart enough and not so greedy that they actually saw this coming."
notthere, Yes, I think you're correct here. Probably the administration and investment banks weren't in cahoots, so to speak, but instead the administration was trying to 'help' the banks make a big profit on mortgage debt by selling it globally. Kevin, or possibly Jerry, linked to an article that explained how the global market was pleading for more mortgage paper in the early-mid 2000's, which was traditionally a safe investment, and therefore US financial institutions were pleading with mortgage companies and banks to produce more mortgage paper, subprime was fine, thank you. Then came the obfuscation of 'bundling' good and bad mortgages together. I find it hard to believe that Wall Street investment banks didn't know exactly what they were getting with the subprime stuff. It wouldn't be so hard for even you or me to look at the terms of a loan and figure out if it was a good investment. No matter if they couldn't look at every single loan. Sampling is a commonly used technique to value a large number of items. So once we acknowledge that the banks did indeed know what they were getting, then their buying up this stuff could be called purposeful. (Even without the subprime mess, the boom in real estate prices would have led an ordinary person to be cautious about buying that debt.) Spitzer's article makes clear that even in 2003 there was a problem on the ground with predatory lending that the government made a special effort to cover up. So, the only reason I can think of that banks would continue to ask for more of these mortgages is to somehow profit on them. And the global market was offering that opportunity. Now we read that Fannie and Freddie had to be threatened with irrelevance by Mozila (sp?) to push them to get involved. So what would have happened if the global market had bought up all of this stuff? Perhaps the dollar would remain the world's reserve currency and oil-trading currency for a while longer? I know, I'm a conspiracy theorist at heart. Sorry for my musings.
There's at least one distinct government action that helped create the market for commoditized mortgage debt: Treasury's decision to stop selling the 30 year long bond.
30 years is also the duration of what used to be the typical mortgage, so CDO's based on mortgages could be sold to customers who were used to investing in debt instruments of that scale.
re: the 2000 Commodity Futures Modernization Act: for the slow among us (in whose ranks I count myself), how would including default swaps in that act have changed anything?
I'm guessing that the answer is something like: it would've required margin requirements or something, which would've reduced volume. But for that argument to work, we'd need to know whether the proposed margin requirements would have been larger than the requirements established in the market.
The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
I don't think anyone with a background in banking law thought that that move was unprecedented, or even especially noteworthy.
The history of banking law is one of greater and greater federal control and preemption of state control.
...the 2000 Commodity Futures Modernization Act: for the slow among us (in whose ranks I count myself), how would including default swaps in that act have changed anything?
For one thing, it may have forced the swaps to be categorized correctly - as insurance - therefore requiring that the insurer be capitalized in the amount of the insurance they wrote. While it may not have prevented the crisis entirely, it would have greatly diminished its scope.
Can there be any doubt that if Fannie and Freddie had not financed a trillion dollars worth of no-money-down and no-proof-of-income mortgages, the country would not now be facing a financial crisis?
What makes matters worse, is that the Congress just passed a law giving the FHA another $300 billion to continue financing the exact same crappy mortgages.
I agree regulation is required. This type of regulation: federally regulated banks must not extend loans to, and GSEs must not finance or insure any mortgages except for mortgages that (1) have a substantial down payment (I would say 10%); (2) require proof of income; and (3) have debt service payments not greater than 34% of the borrower's income (not including any "teaser" or introductory interest rates).
If there were no crappy mortgages, there would be no crappy securitized mortgages, either. You don't need securities or derivatives regulation to accomplish this - just stop the madness in the mortgage market.
What are the odds that Barney Frank and Chris Dodd and Barack Obama would support this? Somewhere between zero and zero. They'd rather blather on about nothing.
How's that bailout working, Kevin?
Greed. Simple human greed is what is to blame for the credit crisis.
The buyer, the realtor, the mortgage broker, the banks, the bundlers, securities raters, securities investors, etc., etc. Everyone, for some odd reason, all thought that property values would continue to go up 10 - 20% a year for infinity.
There is no one place/person to point a finger at with regard to this situation. There is no one economic/class strata that is responsible.
optical weenie: Greed. Simple human greed is what is to blame for the credit crisis.
Since for better or worse that's always been with us, it's not very helpful in explaining why we have a banking crisis at this particular time.
"I don't think anyone with a background in banking law thought that that move was unprecedented, or even especially noteworthy."
jpe - Really? Then who prosecutes the crimes of predatory lending, or in Spitzer's example, discriminatory mortgage lending practices? Spitzer also makes clear in the article that predatory lending was also a prevalent practice in the time he served as AG of NY, as we all know now only too well. Is it in the DOJ's province now? Predatory and discriminatory lending aren't really regulation issues but crimes that up until recently were prosecuted by state AGs according to state laws.
optical weenie,
I don't blame the original mortgage buyer in most cases. I've had enough experience with high-powered 'financial planners' to know what the hard sell is like. I came into a little bit of money in the 90's tech boom ($6000) and decided to invest it. I wanted to choose the stocks myself but the Merrill Lynch broker I dealt with said their analysts had a lot more info than me and could invest it more wisely. Well, I got taken for a ride as ML dumped bad stocks on me. I ended up breaking even, probably one of the few people that didn't profit during that period. Anyway, the point is that a hard sell is hard to resist for someone who is basically clueless in matters of finance.
While Mallaby lets deregulation off the hook way too lightly, he does start out by addressing the root cause that most people, including Kevin, ignore:
The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks.
So the root cause is that we ran an enormous trade (current account) deficit for so long. Indulging in an "I told you so" moment, it seems that the Neanderthal minority like myself were warning about this years ago. Apparently we didn't understand that "the rules have changed", the wonders of a post-industrial economy, or other such New Age economic explanations.
Instead, we Neanderthals stuck with the history lessons (e.g. the Asian crisis of the late 1990's). There's nothing new about excessive current account deficits causing this sort of problem.
Anybody wanna buy a flint ax?
Mallaby is a lying neo-con when it comes to economics - an apologist for Bush deregulation. He is also a lttle chicken-shit who refuses to let reader post opinion. He is so full of GOP crap i'm surprised he doesn't explode.
I think we need to be careful about the impact of original sin. Passing laws that allow actors to abuse the system is one thing; watching them do it and turning a blind eye is something entirely different.
Let me give an illustration. Airline deregulation passed in the 1970s. With all its problems, it's hard to argue that it has made air travel more dangerous, but it has possibly increased the risk of that happening. Now let's say that 30 years go by after the law is passed, and air travel remains safe. Then comes in a new administration that radically cuts back on FAA airplane inspections. New CEOs take over the airlines and squeeze out more profits by cutting back on maintenance. Airplanes start falling out of the sky.
Is this the fault of the airline deregulation of thirty years ago? Maybe -- somewhat. But it's more the fault of today's actors, including businesses exploiting the loose rules, and politicians who took no action when they saw the problem starting to build.
Some deregulation may be objectively bad, and the Gramm/Clinton protection of CDSs may fit in there. But whether it is or not, the actors most responsible are likely to be doing their stuff right here and now, not years and years ago.
My understanding is that the financial crisis isn't a result of subprime mortgages, the securitization of mortgages into mortgage-backed securities (MBS's), or the mass packaging of MBS's into collateralized debt obligations (CDO's - the "toxic securities"), but rather the quasi-insurance contracts called credit default swaps (CDS's) that were created to protect against CDO defaults. Unlike insurance policies that are regulated by states, and which require issuing companies to set aside reserves sufficient to pay-out in case of defaults, the companies that sold CDS's did not have reserves sufficient to pay claims when CDO's defaulted - and the money amount of these obligations is in the multi-trillions of dollars. I believe the $700 billion bailout/rescue fund will be used to purchase CDO's that are in danger of defaulting so that CDS contracts will not be triggered. The CDO's were sold in tranches from low-risk to high-risk (unfortunately many high-risk CDO's were sold because the higher risk packages had higher profit margins built into them), so the government will be buying many high-risk CDO's that have a high default rate. My feeling is that states and the federal government should declare that CDS contracts are, in fact, insurance policies, and that they are therefore subject to regulation the same as other insurance policies. The companies that issued them should be given a definite time period - say 24 months - to unwind and liquidate these contracts, and any future CDS issuers should be required to register with insurance regulators and be subject to their laws.
I know Charlie Calomiris. Charlie Calomiris is a friend of mine (actually, a former professor of mine), but Charlie Calomiris is wrong to suggest that demand side failures tell us that regulation doesn't work. To use his snake oil analogy, the pharmaceutical industry is not regulated by checking the stool of patients to see if they took the right medicine, it's regulated by imposing tight restrictions on which pharmaceuticals can be sold under which conditions.
"Not only was there little SEC regulation, there was an amazing effort by the Bush administration to preempt state predatory lending laws.
Eliot Spitzer in the Washington Post says this on Feb 8, 2008:
"Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks.
...
In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation."
Spitzer, WP
Posted by: nepeta on 10/06/08
Who was/is in charge of that OCC?
What conditions existed (was there a Pres. Directive or somesuch) which allowed them to invoke an 1863 National Bank Act clause?
Who prodded them to do this?
Who in the OCC filed suit against Spitzer?
We need to get to the individuals who put all this in motion.
"Had these securities not been rated AAA, then Fannie Mae and Freddie Mac wouldn't have been buying them up either. It was the big lie that was needed to allow the whole game to take place.
Posted by: OhNoNotAgain on 10/06/08
So, how did they get rated that way? who did it? Who forced the agencies to do it? Who paid them to overlook the crap?
Who's responsible for that aspect of this crime?
"There's at least one distinct government action that helped create the market for commoditized mortgage debt: Treasury's decision to stop selling the 30 year long bond.
30 years is also the duration of what used to be the typical mortgage, so CDO's based on mortgages could be sold to customers who were used to investing in debt instruments of that scale.
Posted by: Michael Bloom on 10/06/08
Sounds like they were pretty much forcing those firms to buy their crap. How else could they have invested and made their usual profits and kept their miserable golden parachutes? Somebody planned this very neatly and forced everybody else's hands -- and I don't think it was Osama bin Laden or Al Qaeda.
jpe - Really? Then who prosecutes the crimes of predatory lending, or in Spitzer's example, discriminatory mortgage lending practices?
Under our system, the feds regulate the nationally chartered banks. The state may not. It's as cut-and-dried as that.
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