FBI Probes 14 Firms in Subprime Debacle
Wed, 30 Jan 2008 12:15:00 EST
The FBI says it is investigating 14 corporations as part of a crackdown on improper subprime lending. Without naming names, the agency says the inquiry involves companies across the financial industry.

http://www.wbur.org/news/npr/morningedition/
(NPR)

Tim @ 2:

I'm still trying to find out where the scam is. I was offered one of these loans. I did my homework and it was clear that it wasn't for me or most people for that matter.

On the other hand, how could the fed not know there would be people stupid enough to take one these loans?

i know people who were suckered into these loans, basically because it was cheaper to then pay for a mortgage then rent, and very few thought the housing market would tank (they bought into the repug bullshit)

the subprime market would never have existed were it not for the lack of oversight in washington

lets face it, the repugs came into power to allow their buddys to rape and pillage

wonder why so many are not running in 08? their work is done

I thought they made this, pay day loans and loan sharks illegal decades ago.
What happened?

clumberfeet @ 5:

I thought they made this, pay day loans and loan sharks illegal decades ago.
What happened?

Jesus sent us sociopaths to rule over us?

jeez that malkin thing is so devoid of compassion for ANYthing i just dont know how its lungs keep working.

Don't forget, it is suspected that there was fraud in the transaction of the mortgages and securities, but they are also investigating accounting procedures. There is tremendous incentive and pressure to keep as many of the losses off the books as possible.

It was estimated that as many as 1 in 3 countrywide mortgages are going into default.

So are we still the "ownership society"?

Does anyone actually believe that anything will come of this FBI investigation? Really now...this is America.

capnmike @ 8:

There are thousands of people just TOO DAMN LAZY to read a contract before they sign it, or too cheap to pay a lawyer a hundred bucks to read it for them,....or both. This isn't "predatory lending", it'a STUPID BORROWING. Of course, it is always easier to blame the banks than the idiots who did the borrowing. Americans, more than anyone in the world, love to whine and moan and portray themselves as victims. "oh waaah...poor little old me. Somebody held a gun to my head and made me do it (whatever it is)....Please protect me from my own stupidity!"

No sympathy here.

Good point. Everyone is focusing on the lenders but no one really talks about how people never thought about living beyond their means.

My wife and I experienced the same thing when we bought our condo a few years back. Every broker we went to tried like hell to push us into an ARM/interest only loan. We both have MAs, and we couldn't make heads or tails of the terms or their explanations of them. The high pressure sales tactics and legal gobbledeygook only served to make our spider senses tingle. Not only were we suspicious, but we also figured that the real estate bubble was going to eventually burst, so we decided to go with a traditional, 30 year mortgage locked in at 5.5%. We are so glad we did.

So what's our reward for doing our homework and living within a budget? We get to keep making payments to the man!

nezua limón xolagrafik-jonez @ 9:

jeez that malkin thing is so devoid of compassion for ANYthing i just dont know how its lungs keep working.

I particularly enjoyed her term, "predatory borrowers". Brings to mind another problem we have with bunnies attacking wolves.

goatsage @ 18:

Oooh, I can buy this 4000 square foot home with money left over for a plasma TV and a garage for both me and my wife's Expeditions with no money down?
Where do I sign up?

One place I use is called "Payday Lenders" and they only charge 36% interest. It's handy cause I often max out the plastic and have nowhere else to turn to for credit.

We are in for a long, rough ride because the massive credit expansion of the last however many years must necessarily contract; the Keynesian chickens will come home to roost...or, the story of how America Eats its Young.

Blue Lensman @ 13:

So are we still the "ownership society"?

Yeah, we just didn't read the fine print about who was going to get owned.

"FBI said yesterday it opened an investigation" but when did they actually open the investigation I wonder?
If comedian John Bird could articulate the scam as a comedy sketch back in mid-October 2007 how long have we in the US been kept in the dark?

Here's the address of the perfectly explicit and amusing 'bit ':

http://tinyurl.com/28fth4

Not everyone who took out these loans was stupid or lazy. A family I know had large medical bills with more to come. They felt they had no choice.

But but but but....Michelle Malkin says that the lenders aren't to blame for anyhting. It is the fault of those stinky borrowers!

Meant to write in the last comment - bI could prove that I gave him the right information - because he wrote a loan with my correct info.

Many more Americans are gaining a sense and extent of the corruption that has permeated the economy of America. The open ties Cheney has with Halliburton, Bush’s personal friendship and business partner ship with The Bin Laden family that is Al Qaeda the very enemy America is fighting against is extraordinary. Here, while Mainstream Media shows America with breath taking lack of challenge it’s complicity with the administration and support of reckless domestic and foreign policies has few calling for the resignations of Bush and Cheney.

For years the Mainstream Media played dumb, failing to report to America the secret prisons, and secret mercenaries, secret torture plus the wild corruption that makes it just about impossible to create a democratic society in Iraq. Now over twenty million undocumented aliens, many get home loans. Worse, and after learning that Andre Mitchell, the wife of Allen Greenspan has been an on going political analyst on MSNBC for Chris Matthews collectively with the team on CNBC money channel would likely be privy to inside Fed knowledge. Please America it is kept under the radar but Andrea Mitchell is or maybe under investigation for leaking classified information.

Here, we have a very neat connection to insider information for the mortgage industry. The flag of suspicion is over whelming in that as many as fourteen major companies in the industry are likely under investigation. With Andrea Mitchell’s close ties to former Federal Reserve board Chairman it absolutely insane to be in a position that likely can compromise in any way though codes or signals that breaches the confidence of the market. And we all wondered why Bill’O contracted the services of hand signal experts for spite, or does Bill'O know something? This has to be the coolest insider knowledge anyone could have including the consul the Arabs give in the war operations with Bush, that sword dance is a give away.

clumberfeet @ 5:

I thought they made this, pay day loans and loan sharks illegal decades ago.
What happened?

The mafia was largely dismantled so the repugs decided they could fill the gap in how to screw over people.

Just in case no one's pointed this out, the FBI isn't investigating this with the thoughts of those who have had- or will have- their homes foreclosed.

They're investigating whether fraud has been commited against those who invested in the banks and other lending institutions that played fast and loose with the sub-prime laws. If a bank was willfully and knowingly including inflated income statements from applicants when they should have been more....scrupulous....then that bank was conspiring to defraud those investors. And those investors, in large part, are people who have savings accounts. And those savings accounts are backed up by the FDIC- which is you and me!

if this was Canada, it would be on the news every day and evey hour.

But in the US, the news media barely talk about this problem in detail and cohessiveness.

This issue should be the US's #1 issue to solve, but on the news it apears it is not... take back your media !

Fil @ 41:

if this was Canada, it would be on the news every day and evey hour.

But in the US, the news media barely talk about this problem in detail and cohessiveness.

This issue should be the US's #1 issue to solve, but on the news it apears it is not... take back your media !

Oh, Fil, you and your screwed up Canadian prioritites. It's so much more important to know what's happening in the wacky lives of Britney Spears & family, Paris Hilton, etc., etc.... ; )

A FIRST TIME HOME OWNER I WAS PUSHED TO GO WITH AN ARM mortgage. and i declined thinking why would i want a loan payment that goes up later? the push was that i could better afford the low interest rate and as it went up i could remortgage..i guess you could say...but the closing costs are huge...so again i thought i want a fixed rate!!
and i am not the brightest in the world.
AND DIDNT EVERYONE KNOW THAT THE BUBBLE WOULD BURST??WHAT GOES UP COMES DOWN.
ITS LIKE MY FRIENDS IN THE DOTCOM YEARS..I ASKED HOW IS YOUR WEBSITE MAKING MONEY???
ITS NOT ITS HYPED ON PAPER.
I WILL ADMIT THOUGH MY HOUSE IS STILL A FINE INVESTMENT. I LIVE IN ASTRONG MARKET.
I DID MY HOMEWORK

"Fourteen companies, including some of the world’s largest banks, are being investigated over possible accounting fraud, improperly securing loans and insider trading during the sub-prime mortgage scandal."

I really hope that the people whose hands are dirty, and you know there are quite a few of them get the same treatment any thief or accomplished street criminal would receive. It seems that to many times in this country the narrative plays out accordingly in for white collar criminals (who, in many instances are absolute monsters in comparison to the petty criminals overcrowding our jails) and they walk away unscathed. I mean Kenneth Lay finally drawing an indictment was a big deal. Why? was there a shot he wouldn't. The man robbed billions and ruined countless people's lives. If I were to do anything close to his crime I would be booked, and behind bars in a matter of hours.

I am simply advocating equal treatment when dealing with the prosecution of criminals. I know it sounds cliche but in this day and age it is something that almost has to be brought up due to the fact it is hardly ever practiced.

www.HyerStandard.com

The real scam was in the bundling of these loans into "mortgage backed securities" which were then assigned the highest investment grade "AAA" by the rating agencies, and then sold, enabling more loans. It was the bogus rating that allowed these securities to be sold for more than they were worth, providing the impetus for making more sub-prime loans. Now, certainly, many of these loans were unsuitable for the borrowers, but if these unsuitable loans (unsuitable makes them risky) were assigned the appropriate rating, they could not have been bundled and sold at a profit. The number one item that should be investigated was whether these mortgage backed securities were assigned the highest investment grade by the rating agencies with knowledge that they were not entitled to such a rating, in order to defraud the purchasers of these mortgage backed securities. Things such as collusion between the rating agencies and the bundler of these securities should be checked out.

Make no mistake everyone,

The US government is not about free markets. They are when it suits them, but against it when it doesn't

This FBI "investigation" is a typical reaction to idiot policy makers who have no idea how booms and busts work.

If it wasn't the housing industry that was fist affected, it would have been some other section of the economy.

What the intellectuals are trying so hard to convince everyone of is that busts are always the fault of the market. If it isn't the tech bubble, it's the accounting industry, if it isn't accounting, it's the housing bubble. But what they don't focus on or say to the media is that the rest of the market is affected as well. The whole economy goes up and down, it isn't a single section of it. If one section of the economy goes under, it simply cannot lastingly affect everything else unless there is something mor sinister underlying everything.

Sure, they can create their own rules for mortgage lenders to follow. They can intervene in the market if they want. The result will be more economic problems and more hardships for the average citizen.

When the next bust occurs after this one (it will, because the Fed is already lowering rates today which is already acting to create artificial profits and prosperity for a few years, which will necessitate another bust again once the rates go back up because of inflation), it will be some other section of the industry, say the commodities market, that gets inflated whereby it has to bust later on. When it does, expect to see "investigations" into the commodities market, creating new rules for trading commodities.

This BS is going to occur year after year after year after year, because they are power hungry idiots, and each time another section of the market is going to be uber-regulated until there is nothing left to regulate.

Too many people think things are becoming less regulated, but there is MORE intervention into the economy than ever before. Intervention is not merely making laws, it also includes government spending. Making a law to raise taxes has the same affect on the economy as by raising government spending. In both cases, capital is being diverted from productive private ventures to wasteful government expenditures.

They SAY on TV that they are "de-regulating" everything, but this is utter hogwash. The Sarbanes Oxley Act has so many regulations in it, that it overwhelms all of the rare-case actual de-regulations going on. When there is one de-regulation, it goes on the news, but there is still the thousands of regs in the S.O. act, so the net effect is that we still have MORE regulation than we did 10 years ago. It's one of the reasons the economy cannot handle credit crunches. It's like a sick person (our economy) with crutches (stimulus package) being punched (Fed policies and government spending) in a storm (Marxist philosophy of society) with an idiot doctor (government) thinking it can save everything.

But instead of blaming their own inept policies, like for example Greenspan keeping the rate at a moronic 1% for more than a year, they instead blame the inflated market as always, even though it is not the markets' fault.

The Republican Road To Riches:

Well, it's not only simple, it seems to work over and over and over again:

[1] Privatize Your Profits

[2] Ration Out To Others Your Risks

Drew @ 51:

This BS is going to occur year after year after year after year, because they are power hungry idiots, and each time another section of the market is going to be uber-regulated until there is nothing left to regulate.

Too many people think things are becoming less regulated, but there is MORE intervention into the economy than ever before. Intervention is not merely making laws, it also includes government spending. Making a law to raise taxes has the same affect on the economy as by raising government spending. In both cases, capital is being diverted from productive private ventures to wasteful government expenditures.

They SAY on TV that they are "de-regulating" everything, but this is utter hogwash. The Sarbanes Oxley Act has so many regulations in it, that it overwhelms all of the rare-case actual de-regulations going on. When there is one de-regulation, it goes on the news, but there is still the thousands of regs in the S.O. act, so the net effect is that we still have MORE regulation than we did 10 years ago. It's one of the reasons the economy cannot handle credit crunches. It's like a sick person (our economy) with crutches (stimulus package) being punched (Fed policies and government spending) in a storm (Marxist philosophy of society) with an idiot doctor (government) thinking it can save everything.

Wow.

I can't decide if you are divorced from reality or unable to think your way out of a paper bag.

Sarbanes-Oxley was created because the free market gave us Enron, Tyco, and Worldcom, in which, junk stock was sold as reasonable investments and people with savings accounts and other ridiculously secure investments lost them. Regulation of the accounting industry would help but Sarbanes-Oxley has never been used in litigation (so, that kind of blows a hole in your "too much regulation" argument.)

De-regulation has always resulted in corrupt, well-connected assholes defrauding the consumer and the public. Read up on the Savings and Loan Scandal of the late 80's. Its the same thing that's going on now, except instead of borrowing against the insured savings and loan, the lenders were getting corrupt accountants to bundle and sell their worthless loans as secure investments. So, then the retirement and pension accounts start going downhill fast. According to the guy on 20/20, we're about 40% into it so far - its going to get a lot worse.

Oh, and by the way, Mr. "What we need is less regulation," from CBS:

In the past few months, Wall Street's top investment banks have written off more than $120 billion in losses related mortgage backed securities, and some are now under new management.

Two of the fired CEO's responsible for the biggest losses rode off into the sunset with some free money of their own. Charles Prince of Citigroup collected $29 million on his way out the door; Stan O'Neal of Merrill Lynch left with $161 million.

uncle joe mccarthy @ 28:

capnmike @ 8:

There are thousands of people just TOO DAMN LAZY to read a contract before they sign it, or too cheap to pay a lawyer a hundred bucks to read it for them,....or both. This isn't "predatory lending", it'a STUPID BORROWING. Of course, it is always easier to blame the banks than the idiots who did the borrowing. Americans, more than anyone in the world, love to whine and moan and portray themselves as victims. "oh waaah...poor little old me. Somebody held a gun to my head and made me do it (whatever it is)....Please protect me from my own stupidity!"

No sympathy here.

will you say the same when the ecomony collapses and you find yourself out of work and destitute?

cuz let me tell you, ill be the first to drive by you as you panhandle on some freeway offramp, to toss some shit into your uncaring face

Why is it that any time somebody says "Hey, you should take responsibility for your own actions and learn to live with the results, and stop whining and expecting the government or somebody to bail your sorry lazy ass out!", some Socialist moron accuses you of being "uncaring"....

Someone's gotta pay, so who's it gonna be?

- municipalities at home and overseas that bought Scam Street's shitty financial products (no new schools for you, dumbasses!)
- state pension funds (if you worked for a state agency for a long time and have a big chunk sunk in, might be a good idea to check where that money is sunk in
- foreign governments (HA, that'll teach those illegal aliens to invest in America. SUCKERS)
- hedge funds (frankly, fuck them!)
- anyone too moral or not savvy enough to pass the buck on to the next president oops i mean next securities firm

I don't think that one should be an ideologue against regulation. Some regulation is necessary and desirable and beneficial to the business community. For example, regulations that promote the stability of the markets decrease the risks which decrease the costs of capital. Reckless use of margin for example can produce bubbles. The idea of the markets is to provide an efficient means of connecting investors with companies needing infusion of funds, whether they be stocks or bonds. Regulations that prevent investment products from being misrepresented means that the representation can be relied upon, which makes the investment less risky.

That's where the mortgage backed securities in connection with the sub prime mortgages is such a concern. Basically, a sub prime mortgage was given to a borrower who no conventional lender in his right mind would loan money too. By definition, that mortgage is a risky instrument. But somehow, those instruments got bundled into securities that were rated the highest investment grade of "AAA". Now, for decades, the grading of securities by the ratings agencies has been used to evaluate the risk of the security and hence, the price. If that rating can't be relied upon, it increases the risk and hence the cost of capital for everyone. Hence the need for regulation to insure that securities are objectively graded. In the case of a deliberate misrepresentation of a security's risk, there should be severe enough criminal penalties to deter such misrepresentations.

In regulations, the benefits of the regulations should be measured against the costs of the regulations. Generally those regulations that promote honesty and allows investors to assess the true quality of a security decreases the risk in the markets, hence decreasing the costs of capital, and are a good thing for business and the economy.

SCHRODINGER'S CAT @ 62:

What I do not understand is why people bought into this scam .

I don't know that it's exclusive to America, but the idea that, "I deserve instant gratification!" certainly does seem to permeate this country.

NoBuddy @ 49:

The real scam was in the bundling of these loans into "mortgage backed securities" which were then assigned the highest investment grade "AAA" by the rating agencies, and then sold, enabling more loans. It was the bogus rating that allowed these securities to be sold for more than they were worth, providing the impetus for making more sub-prime loans. Now, certainly, many of these loans were unsuitable for the borrowers, but if these unsuitable loans (unsuitable makes them risky) were assigned the appropriate rating, they could not have been bundled and sold at a profit. The number one item that should be investigated was whether these mortgage backed securities were assigned the highest investment grade by the rating agencies with knowledge that they were not entitled to such a rating, in order to defraud the purchasers of these mortgage backed securities. Things such as collusion between the rating agencies and the bundler of these securities should be checked out.

you nailed it right on.

Andy K @ 63:

SCHRODINGER'S CAT @ 62:

What I do not understand is why people bought into this scam .

I don't know that it's exclusive to America, but the idea that, "I deserve instant gratification!" certainly does seem to permeate this country.

that thought crossed my mind earlier. in addition to keeping up with the jonses, there's a strong sense of entitlement among many americans . too many people here want it all, want it now, and feel they deserve everything, regardless of whether they can afford it or not.

to be fair though, a lot of that attitude is due to madison avenue manipulation; hard to resist it is.

Quarterback @ 40:

Let me make a prediction that if someone investigates the lobbyist behind the "Bankrupcy Reform Act", it will be the very same players that found out long ago that the gig was up and they began to build safety nets using money from the same people they preyed upon under the house of cards.

SOOO True. They knew it was coming. Well I did at least. Housing prices fall here in CA every 10 years or so. It was time. But this time it went way overboard. Hell we did not have this interest only shit the last time this happened. Watch everyone suffer now. Dont you all remember Bush stumping the great positives of "We have record home ownership." I do. And many of those people should never have been able to qualify for these homes.

Radian @ 54:

andrew @ 46:

hope @ 22:

capnmike @ 8:

So, by your reasoning, it's o.k. for me to go out, make a bunch of loans to people I know will never be able to repay those loans, then sell said loans to other people or have the taxpayers bail me out when those borrowers cannot pay!? Wow! I gotta get into that business!

... see, both of these comments, although seemingly opposed are correct...people who want something for nothing are wrong, as are those who falsely promise it to 'em, leaving someone else (you & me, ultimately) to hold the (empty) bag...

true dat.

if a lender was engaged in clearly predatory practices, by all means nail their balls to the wall, but on the other hand, whatever happened to 'caveat emptor'? at some point, people need to accept responsibility for their actions.

`

-------------------

Let's say there is another Great Depression coming and home prices drop by 90%. Simply, anyone who bought a house in the last couple decades shouldn't have bought a house.
Do you need to take responsibility for your actions of being stupid enough to have bought a house in the last 30 years, instead of waiting until the low of the coming depression?

Even the seemingly smartest of people fall for scams.

When will someone investigating this coming tsunami have the balls to subpoena Greenspan? Maybe they can also ask this pathetic bag of wrinkles how pallets full of money in the Billions just "vanished" in Iraq?

Ron.j @ 71:

Radian @ 54:

andrew @ 46:

hope @ 22:

... see, both of these comments, although seemingly opposed are correct...people who want something for nothing are wrong, as are those who falsely promise it to 'em, leaving someone else (you & me, ultimately) to hold the (empty) bag...

true dat.

if a lender was engaged in clearly predatory practices, by all means nail their balls to the wall, but on the other hand, whatever happened to 'caveat emptor'? at some point, people need to accept responsibility for their actions.

`

-------------------

Let's say there is another Great Depression coming and home prices drop by 90%. Simply, anyone who bought a house in the last couple decades shouldn't have bought a house.
Do you need to take responsibility for your actions of being stupid enough to have bought a house in the last 30 years, instead of waiting until the low of the coming depression?

Even the seemingly smartest of people fall for scams.

A landlord couldn't have said it much better.

So the BANK holds no responsibility for giving out bad loans? They just take their bailout money from the government, and walk away, scott free?

Yeah. It was all OUR fault for going to the ONLY PEOPLE IN THE WORLD WHO COULD GIVE US THE LOANS... and taking the ONLY OFER THING THAT THEY WERE WILLING TO GIVE US!

"Even the seemingly smartest of people fall for scams." But I don't think you even know what the scam is!

James @ 74:

"Predatory lending practices"? . . . . in fact, those predators are a PRODUCT of the fact that, when the Federal Reserve opens the floodgates, and makes the loans available, the only way that the lenders can stay competitive in a debtor's society is to give those loans out, even if the loans are given out to bad risks.

Ron Paul, and libertarians in general, have been bemoaning the monetization of our debt for years, but no one wants to listen. No, you want to listen to the "sexy" candidate, who will literally promise you the world, so they can get their names in a history book. The fact that they can't, and never will deliver, is irrelevant to the purpose of keeping the shell game going.

Stop thinking that mama government can take care of all your ills. And stop giving credence to those people who say that it can. They are either STUPID, or they are in on the scam!

Your post is bullshit. You seem to be saying:

1) Everything is the fault of the Federal Reserve, for maintaining easy credit terms for so long.

2) Any attempt by government to regulate the financial industry is a joke (and, following Ron Paul's libertarian line, a violation of the Constitution), and is therefore useless at best and counterproductive at worst.

I'll grant that you are right about 1). Alan Greenspan will go down in history as the man who fixed the bursting of the Tech bubble by aiding and abetting a far worse Real Estate bubble. The latter is so bad that it may mean the end of American strategic dominance - at the very moment in history when China and Europe are emerging as superpowers.

Your second point is nonsense. Effective, comprehensive oversight of financial markets and consumer finance is absolutely necessary. This has been clear since at least 1907, when the only thing that prevented a huge market crash was the fact that JP Morgan got a bunch of bankers together in a room and made them promise to buy stocks and keep loaning money.

The economy should not be left to the whims of a few powerful individuals, even when they act with integrity. And you also conveniently forget the massive abuses of the markets that occured before anti-trust laws were enacted, or at the time of the crash of 1929 - price-fixing, graft on a scale unknown even today, CEOs secretly selling short their own stocks, unrestrained insider trading, etc.

If you think this sort of thing should be allowed to happen, then you don't understand that democracy itself can't function when capitalism is subverted. It's ironic, but true: markets have to be supervised and regulated by government so that individuals pursuing wealth in those markets can make free choices and pay fair prices. Otherwise, corporations gain power over markets, and freedom is lost.

James... you don't have a frickin' clue what you are talking about.

While easy credit and available capital does play a role, the major difficulty was that there wasn't any regulations or regulators watching these hedge funds. They operated through loop holes and by-passed all of the safe guards that were in place for the banking industry.

The really bad stuff has yet to surface and it isn't about some poor black guy who couldn't afford an attorney to read and explain a contract to him... and yes poor black neighborhoods were deliberately targeted... the real crime is how they sold this to major institutions and penison funds by the use of SIV and bundles.

Harvard University has almost a billion dollars tied up in Hedge funds and so do other state school systems, endowments, and pension funds.

This is ENRON, Global Crossings, and Tyco all over again!

Avid Reader is the only one on this thread to really have an idea of just how bad this is and how really, really, really, bad its going to get.

Banks Sell 'Toxic Waste' CDOs to Calpers, Texas Teachers Fund

By David Evans

June 1 (Bloomberg) -- Bear Stearns Cos., the fifth-largest U.S. securities firm, is hawking the riskiest portions of collateralized debt obligations to public pension funds.

At a sales presentation of the bank's CDOs to 50 public pension fund managers in a Las Vegas hotel ballroom, Jean Fleischhacker, Bear Stearns senior managing director, tells fund managers they can get a 20 percent annual return from the bottom level of a CDO.

``It has a very high cash yield to it,'' Fleischhacker says at the March convention. ``I think a lot of people are confused about what this product is and how it works.''

Worldwide sales of CDOs -- which are packages of securities backed by bonds, mortgages and other loans -- have soared since 2003, reaching $503 billion last year, a fivefold increase in three years. Bankers call the bottom sections of a CDO, the ones most vulnerable to losses from bad debt, the equity tranches.

They also refer to them as toxic waste because as more borrowers default on loans, these investments would be the first to take losses. The investments could be wiped out.

Fleischhacker, 45, says she doesn't associate toxic waste with the equity tranches she's selling. Pension funds in the U.S. have bought these CDO portions in efforts to boost returns.

Many pension funds, facing growing numbers of retirees, are still reeling from investments that went sour after technology stocks peaked in March 2000. Fund managers buy equity tranches, which are also called ``first loss'' portions, even though those investments are never given a credit rating by Fitch Group Inc., Moody's Investors Service or Standard & Poor's.

`I Have Trouble'

The California Public Employees' Retirement System, the nation's largest public pension fund, has invested $140 million in such unrated CDO portions, according to data Calpers provided in response to a public records request. Citigroup Inc., the largest U.S. bank, sold the tranches to Calpers.

``I have trouble understanding public pension funds' delving into equity tranches, unless they know something the market doesn't know,'' says Edward Altman, director of the Fixed Income and Credit Markets program at New York University's Salomon Center for the Study of Financial Institutions.

``That's obviously a very risky play,'' he says. ``If there's a meltdown, which I expect, it will hit those tranches first.''

Calpers spokesman Clark McKinley declined to comment.

Because CDO contents are secretive, fund managers can't easily track the value of the components that go into these bundles. ``You need to monitor the collateral in your investment and make sure you're comfortable there will be no defaults,'' says Satyajit Das, a former Citigroup banker who has written 10 books on debt analysis.

Tough to Track

Most investors can't do that because it's extremely difficult to track the contents of any CDO or its current value, he says. About half of all CDOs sold in the U.S. in 2006 were loaded with subprime mortgage debt, according to Moody's and Morgan Stanley.

Since CDO managers can change the contents of a CDO after it's sold, investors may not know how much subprime risk they face, Das says.

As the $503 billion-a-year CDO market thrives, CDO marketers like Bear Stearns and Citigroup find buyers for the portions known as toxic waste, the equity tranches.

A typical $500 million CDO requires a $40 million unrated equity tranche, says Fleischhacker, who addressed the 12th annual Public Funds Summit, a meeting of pension fund managers, at the Loews Lake Las Vegas Resort on March 12.

http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aW5vEJn3LpVw

I am a real estate agent. Before anyone sees red! Let me tell you...I had to change brokers because I was being forced to sell homes at any cost. I am an ethical and smart person and I flat out told my brokers that I refuse to force anyone into a home that is purchased with the ARM. I was told "well if you think you are better than the rest of us, then you will never make it in this business!" Yeah, we see who is making it now! All of those leeches that call themselves real estate professionals are finding out now!

That is how the wannabe real estate agents were making coo-coo bucks. Not me! There are so many loan officers and real estate agents that have absolutely no knowledge, but because home buying became like an assembly line, they just kept getting away with it like roaches. I cannot stand what the greed and lack of ethics has done to my profession. I have been in it for the last 10 years. Now having to consider another profession since people avoid us like the plague!

hey, that's great.
when will they investigate the white house for national leaks?

The people who gave out these loans and pushed them onto people should be arrested for fraud. The people who packaged up the loans into bonds and then sold them around the world should be arrested for fraud. When you look at the lines of people who are waiting to get help about their homes, it looks an awful lot like the lines during the depression. Not quite the same situation, but people are suffering all the same. One of the people involved in all of this got a golden parachute of over $100 million dollars to leave his company. They lost billions when he was in his position. He shouldn't get one cent. If I screw up I'm out the door, and I'm lucky if I have time to gather up all my stuff.

Nothing will come of this, because the banks are part of the real government that owns and operates this country. The tax payers will once again get screwed, as they will be forced to make good on the banks' losses.

This is nothing but a result of unbridled, opportunistic greed, and there is a strong likelihood of the current situation having been planned from the beginning: the banks achieve usurious interest rates, the homeowners achieve little-to-zero equity and after they have been soaked for every dime they have, the banks foreclose and end up with the assets entierly in their hands. I wonder if people will ever realize that banks sand bankers, including the "Federal" Reserve, serve absolutely no one but themselves?

hope @ 22:
So, by your reasoning, it's o.k. for me to go out, make a bunch of loans to people I know will never be able to repay those loans, then sell said loans to other people or have the taxpayers bail me out when those borrowers cannot pay!? Wow! I gotta get into that business!

Snap!!!

Well Said.

clumberfeet @ 5:

I thought they made this, pay day loans and loan sharks illegal decades ago.
What happened?

I'll give you two guesses... and it wasn't the Democrats.

The FBI should stick to investigating domestic espionage
before we all glow in the dark.

Barbara Diamond
http://barbaradiamond.blogspot.com/

Blaming the banks is DUM

try blaming the gop and bush for OUTSOURCING JOBS to mecixo india and china
for lead paitned toys

NO HOMES = NO JOBS

dum assessssssssssss

PaulW @ 86:

Tim @ 2:

I'm still trying to find out where the scam is. I was offered one of these loans. I did my homework and it was clear that it wasn't for me or most people for that matter.

On the other hand, how could the fed not know there would be people stupid enough to take one these loans?

I'm a Mensa member, 132 IQ, Masters degree. And even *I* can't make heads or tails of half the mortgage papers I signed when I've bought my house.

I had the advantage of having a father who knows finance, and who has insisted that even in good times you get a fixed-rate mortgage and that's it, no extras, no frills, just get the house you can afford. My older brother was getting suckered into one of these subprime things a few years back, that lender was talking some sweet sh-t to him, and he's no idiot either, it was sheer luck it was Thanksgiving and my dad was there to talk some sense back into him.

Predatory lenders are exactly that: predatory. Both the stupid and the smart can get suckered in. I do have sympathy for most (not all, I do reserve the right to call specific individuals on their greed if need be) of those getting killed by their financial woes. I have no sympathy for the lenders and their banks: they HAD to know they were ripping people off for quick profits and easy money...

I couldn't agree with you more! I get so sick of the Ron Paul Libertarian pukes come on to these threads and spouting their crap about how if the home owner is so stupid they should burn and how is that isn't their responsibility bullshit.

In the first place the bulk of the sub-prime loans were made in poor neighborhoods and the mortgage brokers deliberately singled out those black and white poor neighborhoods because they are the least educated and least able to afford professional help in evaluating those loans.

Wells Fargo target of Baltimore lawsuit
The city alleges predatory lending in black neighborhoods; says the bank deceived borrowers who are now defaulting at twice the citywide average.
January 8 2008: 1:49 PM EST

BALTIMORE (AP) -- Black neighborhoods in Baltimore were disproportionately affected by the subprime mortgage fallout, according to a federal lawsuit expected Tuesday from the city, which is attempting to recoup the costs of maintaining neighborhoods wracked by foreclosures.

The suit alleges Wells Fargo Bank N.A. engaged in a pattern of predatory lending practices in Baltimore's poorest neighborhoods, leading to foreclosure rates nearly double the citywide average.

"When you have foreclosures, the property values drop, and you get less tax revenue. There's fire and police costs that come from abandoned and boarded-up and vacant properties," said John P. Relman, a Washington-based attorney who is representing the city in the lawsuit. "It leads to crime and drugs and school problems as the community is being destabilized."

The lawsuit alleges that San Francisco-based Wells Fargo, one of the nation's leading mortgage lenders, targeted black neighborhoods for deceptive lending practices - a practice known as reverse redlining, which is prohibited under the federal Fair Housing Act. For example, it claims that mortgages for homes worth $75,000 or less - most of which are located in minority neighborhoods - were sold at higher rates and laden with fees and surcharges.

http://money.cnn.com/2008/01/08/news/companies/wellsfargo_subprime.ap/

Once they got done fleecing the poor, then they hid the bad debt in SIVs (Structured Investment Vehicles) packaged them up in such a way that the purchasers could track down the bad debt in them and outright lied about their value and sold them all over the world through various international markets.

How bad is it? Harvard University's endowment bought almost a Billion Dollars in these Hedge fund SIVs, as well as teachers retirement funds in Texas, public school systems in Florida, and untold thousands of private investors.

This scam isn't big... it is down right huge!