Cretins Ahoy!


@PutneyDebates PutneyDebates
@RichardJMurphy The Courageous State would prosecute rigorously the fraudulent who created and sold CDS based on sub-prime mortgages.
To which the retired accountant from Wandsworth replied \”Indeed!\”.
What they both mean of course is that those who created CDOs based on sub-prime mortgages should be prosecuted. You know, like the Directors of Fannie Mae and Freddie Mac.
But they\’re too ignorant of finance to know the difference.

14 thoughts on “Cretins Ahoy!”

  1. They’re obviously talking about the rap albums by MC Banker and the Wunch. They put out a CD on sub primes and apparently Ritchie didn’t approve.

  2. The Courageous State should prosecute Fannie & Freddie, both effectively arms of the same State lol.

    I think there have been cases in the US of one part of the state suing another. Large cheques all round for the lawyers at taxpayers’ expense, whilst two branches of government wave their cocks at each other.

  3. Why are mortgage backed securities fraudulent? Insanely risky, as we’ve found out (on the impossible to accurately price if it goes horribly wrong therefore effectively worthless) but this is no less fraudulent than running a book on the 4:15 at Ayr.

    How about we prosecute those politicians who directed the regulators to force the banks to offer sub-prime mortgages?

  4. As Surreptitious Evil points out, there is nothing wrong with creating derivatives to spread or offload risk. In this case they got their calculations wrong that’s all.

  5. The 4:15 at Ayr?

    No? I assume you meant the politicians. Well, it’s sort of linked to the US “Community Reinvestment Act” 1977 (as endlessly amended.) Or, more precisely, to the regulatory encouragement of “above and beyond the required by the CRA” lending practices. Banks were scored according to their CRA policies, the most flexible of which then became published “best practice” and were essentially mandatory a couple of years later. Banks don’t like arguing with bank regulators and, as there was the assumption that the housing market was ever-upwards, there was little pressure from the risk mavens to scream about it. And the politicians bought votes with what they thought, at the time, was other people’s money.

    Guilty bastards include Carter, Bush 1 and Clinton. I’m not aware of anything so machinatorial UK-side. But that’s just because our politicians are less competent.

  6. Surreptitious evil;

    This (taken from this paper ;

    “There is, however, substantial empirical evidence that the Community
    Reinvestment Act was not a significant cause of the financial crisis.
    Empirical studies by two different teams of Federal Reserve economists
    both suggest that CRA lending accounted for a minority of subprime
    lending, and that CRA loans performed better than subprime loans that
    were driven purely by market considerations.”

    There you have it, CRA’s were a tiny fraction of the market, and failed much less often than sub-prime mortgages sold not through the CRA.

    Unless your argument is that the CRA opened adoor which would have remained closed otherwise (which I don’t find convincing). There really is no validity to it.

  7. Mat:

    Of what I write I have no first-hand knowledge but, rather, an appreciation based on the descriptions of others writing on the topic.

    Their contention seems to be that, with the CRA in place, bankers were increasingly subject to threat of suit by organizations such as ACORN, especially with regard to said banks plans for growth (and especially through acquisition).
    Many, it seems, were content to “lie back and think of England,” and, for some time, it was, for many (Countrywide/Mozillo, e.g.), a very successful course.

    In my own view, a principal malefactor (not to say criminal but certainly, at least, ignorant of consequences) in the creation/accumulation of “moral hazard” was the elder Bush in the matter of the bailout of S & L depositors to the full extent of their deposits (not merely $100K for which FSLIC was legally obligated). You can only get away with that sort of laxity for so long and, nearly always, “so long” comes along surely (and before too long).

    All of these (presumably unexpected) crises are predictable in advance and were anticipated by many (but especially by the Austrians). There isn’t a “fix” on the horizon that is politically tenable. So, no matter how bad or outrageous
    any one believes the present (or immediately past) fiasco to be (or to have been), worse (much worse) is in store (and nearly certain).

    Of course, that’s only my own view (and I’ve always been an incurable optimist).

  8. He probable meant the inventor of the Credit Default Swap, which lies at the heart of most synthetic crap in the capital markets. The person who takes the Credit for that is a certain Blythe Masters.

  9. I expect a small torrent of uninformed abuse when I say that a CDS based on sub-prime mortgages is not, per se, a work of Beelzebub.
    If you have someone who can do the sums and a lawyer who tells you that Californian mortgages are non-recourse and that some other states also supply home-buyers with a one-way option and that Bill Clinton mandated that you have to give the same number of mortgages to a group with a high default risk as one with a low-default risk then you can estimate the value of such a CDS. Often less than zero.
    If you are looking at a CDS based on sub-prime mortgages in the UK it might be more than zero.

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