Tuesday, February 5, 2013

Blue Ribbon, Grade AAA, Certified rancid crap, but it's good for you

The DOJ is finally going after Standard & Poors for falsely rating mortgage backed securities as AAA, the same as Treasury bonds, even though they knew them to be worthless. The government is asking for over $5 billion in penalties, but only after S&P refused to settle the civil charges out of court. Their lawyer is squawking very loudly that everybody said these things were gold. Treasury Sec Paulson, the the Federal Reserve (that would be Alan Greenspan) and just everybody said these things were absolutely fine.

Aside from the fact that Paulson and Greenspan should be cooling their heels in prison, this defense is a sham on its face. The government's case doesn't revolve around the concept of mortgage backed securities being good or bad, it's that S&P made a ton of money putting the AAA stamp on individual issues of these rancid creations. They claimed to be auditing the mortgages to see if they would preform as represented. They weren't doing any such thing, it's like your heart surgeon having his diploma made at the copy shop. Or as the AG put it, 'your butcher making sausage with meat he would have otherwise thrown out, and telling you it's just fine".

They simply assumed these 'Liar loans' (nothing down, no documents)  would preform like FHA qualified loans, when they knew the bulk of the 'tranches', that is a slice of ground up mortgages in these securities packages were doomed from the start. The huge spikes in interest, balloon payments and such nonsense down the road made the loans look profitable on paper. Even if the real estate bubble hadn't burst and people who had bought these mortgages been able to refinance them later, it would have taken the profit out of these securities. Huge commissions were taken off the top and a loan that was paid off early would be a money loser, making the securities a bad investment anyway. Something S&P certainly knew, if they bothered to look at all.

What S&P, the other rating agencies, and the mortgage companies they were being employed by, committed was more than simple fraud, it was a multi-trillion dollar criminal conspiracy. Everybody from top to bottom knew this was going on and they should all be in prison, but that isn't going to happen. The Obama Administration is afraid to move on these pirates for fear of collapsing the economy. This is not an unfounded fear, it's not a question as to whether there will be another banking collapse, but just how far into the future it will be.

The good news is that Obama has been making incremental change, the bad news is the banks are on another expansion spree buying up hundreds of smaller banks. The already too big to fail banks that were bailed out by Bush became even bigger at the time. The first few months of the Obama Administration, when anything could possibly have been done, were wasted as Republicans in the Senate refused to confirm any sub-cabinet appointments (the people who actually run the government). You might recall that they only confirmed people to run the CDC in July after it looked like we might all die from the Swine Flu. So day to day operations were carried out by Bush appointees that were shifted to civil service jobs in the last few months of the Bush disaster. The actual managers were let go, so when Obama people can in they were still stuck with Bush cronies. They hung around until they went to work for the same corporations they failed to prosecute.

Some of these positions still haven't been filled. There is nobody running the ATF for example, you know the people in charge of catching terrorists with bombs. There is a huge shortage of Federal Judges which makes it harder for the government to bring cases against Wall Street, even if they had the budget to do it. The Republicans have made sure that they don't.

There is a collapse coming, the Republicans and the billionaires that own them will do everything they can to make it happen. If you're too big to fail, well, you make tons of money in good times, and even more when times are bad.  www.prairie2.com


Dave said...

Yep. . .nobody saw the problem with mortgage-backed securities.

After all no one would lie to get a mortgage just because they didn't have to prove they could pay it back. Those higher monthly and/or balloon payments weren't going to be an issue either. Right?

Anybody, including a properly coached group of sixth-graders, could have figured out the housing bubble was filled with natural gas just waiting for a single thumb-roll on a lighter. The experts didn't say anything though. How Curious!

It's enough to make you think that government and big business were/are in cahoots to steal wealth from the middle glass to give it to the oligarchs. That could never happen could it?

Ronmac said...

Before he next crash comes is it too much to hope for a massive ebola plague outbreak and wipe out humanity? At least we'll all be spared the indignity of watching these banksters laughing all the way to the bank with another $100 trillion of stolen loot?

Or how about an asteroid strike? That would hit the spot. What are the Mayans up to lately? Maybe they have another doomsday date on their calender. Or maybe have the UN pass a resolution making us all part of Mali. That would cheer me up.