Is Wall Streets full of crooks ?

[Treasure_Hunter]

TH, the tragedy in all this is responsible people such as yourself were victimized by the fall out.

We were all affected at some level. Investment accounts, retirement accounts, real estate holdings, employment. Though the investment side has recovered to a great extent, there are many wounded people out there from this thing. Some may never recover.

I am one of them. I worked for WorldCom lost a fortune in retirement , then lost all equity in my home, but hey still got my health, a sexy wife and 5 detectors so I will survive and should be able to afford the premium cat food to eat when I retire...LOL..

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[TheCoinKid]

To help retrack the tread lets get our scandals right.

Worldcom and Enron were accounting scandals where management cooked the books. Wall Street, might have been complicite on the periphery but it was Big Five Accounting firms that were criminally charged along with the top management of both firms.

Even 2008 - Wall Street only played a part. The truth is in a scandal there are bad guys purposely doing whatever they are doing to cause a problem. Think of of a cheating spouse. it is purposeful act. 2008, as it involved most of wall street wasnt purposeful. These guys honestly didn't know they were playing with fire.

This is how the largest investment banks on the planet got their short and curlies caught in a noose. Right along with the largest insurance companies. AIG thought that writing insurance on mortgage traunches was like shooting fish in a barrel. These guys want to pay us to insure triple AAA mortgages? AIG's attitude was yeah we'll take the rube's money and laugh all the way to the bank. They were arrogant and far from the smartest guys in the room. That would be Goldman Sachs who brokered the insurance. Truth is Goldman was only a middle man. They made $400,000,000 in brokerage fees. They didn't cause the downfall, though DC has scape goated them, pointing to the fees. BTW, their clients, the ones smart enough to see the stress cracks and understand their true meaning made billions.

Much blame to go around for 2008. From Wall Street, to banks that sold them the mortgages, to originators who sold the banks the mortgages, to mortgage brokers who qualified the unqualified, to realitors who went along with the lies, to Washington DC loosening the regulatory strings, to ratings agencies not doing their jobs, to the SEC and NASD/FINRA not doing theirs, to everyday people over extending themselves by lying on mortgage applications, and to the smartest guys on Wall Street not understanding what one doctor in California understood, that the entire thing was built on a house of cards. Yeah, there are plenty of places to point fingers.

NF,

I agree with much of what you've stated above, but believe that you are letting Wall Street (be sure to include the rating agencies here) off too lightly, and at the same time throwing the auditors (Arthur Andersen, in both cases) a bit too far under the bus.

WorldCom and Enron were much more than just "accounting scandals." In both cases, company management was intent on manipulating stock prices and bond ratings through various means, most of which was not even subject to audit. The companies continually disclosed information and made assurances to investors, bankers, advisors, analysts, rating agencies and legal counsel, citing mass amounts of inaccurate unaudited data (operating metrics, earnings guidance, plans and projections, other types of forward looking statements, etc..). Did AA do its job? In my opinion, no, but neither did the other parties mentioned. For the record, I was never a big AA fan.

Andersen (both the firm and the engagement partners) might have been criminally charged in these instances, but they certainly weren't convicted. In the case of WorldCom, they settled all civil litigation out of court. Two partners on the account were banned by the SEC from practice with public entities for a period of three years. No criminal trials or guilty pleas. In the case of Enron, Duncan (the engagement partner) was banned by the SEC from public practice for life, and two other partners were banned from public practice for a limited period of time. Andersen, as a firm, was eventually absolved from all legal wrongdoing in the Enron matter, but obviously, it was too late for them. Did they deserve to go out of business? Probably, but no more so than the other banks and firms that bit the dust in 2008.

In my opinion, the rating agencies were just as complicit as the auditors, but emerged relatively unscathed. Rating agencies collect fees from companies to perform due diligence and publish reports on creditworthiness. These reports are heavily relied-upon by the investment community. How are they any less complicit? Investment bankers are paid to perform due diligence on underwritten public offerings. Analysts are paid to analyze company data and make investment recommendations. How are they any less complicit? I know, these firms rely, in part, on audit reports, but there's quite a bit more to it than just that.

On another matter, I agree that GS is smarter than the average bear. But the smartest guy in the room? I would have to say, at least in 2008, it was The Oracle of Omaha. He's the one who helped GS through the 2008 crisis with a $5 billion loan and made out like a bandit.

Another good related read - "House of Cards"

Back to the OP, is Wall Street full of crooks? Well, I think most are honest citizens trying to make a buck. Are there too many crooks? Well, one is too many, and there's far more than just one.

TCK

 

[Native Floridian]

May Bernie Ebbers rot it hell!!! Jail is too good for that guy!

TH, sorry to hear this happened to you. You are innocent in this. Nothing you could have done differently.

I work with retirees and pre retirees. These people do have a choice. They can hold on to their company stock or sell it. One of the things we do is advise them to jettison as much of the company stock as possible so we get them diversified. Fraud is one thing, but with the way the markets are today you just never know what is going to come out of left field.

Years ago we were working with this Lucent guy. A mid manager. Rode his stock all the way up to about 3 mil. His plan was to pay off his house and build a retirement vaca home, and travel. he started building the vaca house before he paid off his first home. That was a no no. We imparted on this guy that he needed to sell his Lucent stock. He said we were crazy. Crazy to the point that he fired us in 1999. In 2002 he was back in my office pleading with me to find a way to help him. Help him what? Not be so greedy? To listen to common sense? In that time Lucent stock had gone from over 77 a share to under a dollar. We didn't know it was going to do this, we knew only that you don't keep all your eggs in one basket. Unfortunately there was no easy answer for this guy other than keep working.

Today we still use his example, along with Worldcom and a few others. In this business, at times, we see some ugly things. You don't forget grown men crying in your office.

BTW, I hear the premium stuff is the best!!!!!

 

[Treasure_Hunter]

Salomon Smith Barney and other brokers were still give buy ratings on WorldCom when they knew something was wrong..

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[Native Floridian]

TCK, great post!!

I love Warren but I'd say the smartest guys in the room were Steve Eisman, Michael Burry, and the guys at Cornwall Capital.


Meredith Whitney gets a one and done for calling it. Some of the traders/quants that Burry, Eisman, and Cornwall employed or hired certainly get some All Star votes. But , man, gotta tell ya, Burry saw it first. he had it nailed! Couldn't figure out how people were affording these big houses. Then got Deutsche Bank to create a product so he could short the mortgage market. Eisman, same thing. It was either his house keeper or children's nanny that got him to look at it. She needed help refinancing massive debt being carried on four or five rental properties in Brooklyn. Wait a minute, you're a nanny! I don't pay you enough to support five mortgages, even if they are rental properties. He then put his team on it and was shocked at what he discovered. House of cards indeed!

But definately, got much respect for the big guy from Omaha!

 

[Native Floridian]

TH, that wouldn't surprise me.

UBS was given advanced notice of the problems at Enron from one of their own UBS employees. That employee then confronted one of Enron's top management. The cat was definatley out of the bag. UBSs' reaction? They fired the guy and apologised to Enron's top managment calling the guy a rogue employee. The employee then went public, and UBS did the typical character assasination campaign.

That didn't end well for UBS.

 

[TheCoinKid]

NF,

I'm only vaguely familiar with the exploits of Cornwall Capital. I know they made a bundle shorting the sub-prime mortgage business, but I'm not versed on the type of financial instruments they used.

Having said that, the smartest guys in the room (or, at least those that appear to be) are sometimes the guys that exploit a market condition with a product that's new and/or has managed to fly under the regulators radar (like some of the second and third generation derivative instruments that precipitated/accelerated the 2008 crash). Was this by chance such an instrument?

TCK

 

[Dave44]

So I guess you all are up to date on this little ditty?
Congress Diminishes Insider Trading Requirements in STOCK Act

Yeah they were transparent for a couple of months. And to think nothing gets done in Washington! This went Quick! started by Reid I guess, through the house in about 5 minutes, signed by Obama in 2 minutes? Or something like that lolol.

Yeah, they are in the same boat as us, NOT.

 

[Native Floridian]

NF,

I'm only vaguely familiar with the exploits of Cornwall Capital. I know they made a bundle shorting the sub-prime mortgage business, but I'm not versed on the type of financial instruments they used.

Having said that, the smartest guys in the room (or, at least those that appear to be) are sometimes the guys that exploit a market condition with a product that's new and/or has managed to fly under the regulators radar (like some of the second and third generation derivative instruments that precipitated/accelerated the 2008 crash). Was this by chance such an instrument?

TCK

Cornwall used a security called a Credit Default Swap or CDS. A CDS is created when a buyer wants to short a loan. They pay a fee to the CDS seller. The CDS seller can be the loan's owner or a third party. if the seller doesn't own the loan they are called naked sellers.

Mortgages are bundled into two main types of securitized loans, Collateralized Mortgage Obligations (CMOs) and Ginnies Maes. A third type of secuirtized loan is a Collateralized Debt obligation (CDO). CDOs are corporate debt and other types of loan debt. Even auto loans have been bundled into CDOs.

Ginnie maes weren't involved in this mess as they are Guaranteed by the governement.

Settlement of a CDS is is by physical delivery or cash.

CDSs themselves were not a new product or idea. What was new was creating them to short the mortgage market.

Exploit isn't the main word I would use on Wall Street. Though i would use it in some cases. Capitalize is a word i would use. it's about putting your money were your research tells you to put it. If you see an opportunity or if you see an excess, anyone on this board can turn that belief into cash by buying or selling the appropriate security and waiting for their research to pan out. Think summer floods are going to drive up corn prices - buy corn. Think there is going to be a bumper crop of corn - sell corn. Your research makes you money if you are right. You've capitalized on your knowledge.

On the exploit side, Wall Street doesn't operate any differently than some here would act at a yard sale. You see a gold ring marked for sale for a dollar. From your experience as a treasure hunter you know it's gold, though it lacks any markings. Are you going to tell the seller hey wait a minute this is gold you've got to get this checked out or are you going to whip out a dollar and say sold! Everyone of us has to answer that question. Wall Street answers by giving the seller what they deserve.

 

[Native Floridian]

Exploit or capitalize?

A Wall Street firm sent out a notice to commerical banks that it was interested in buying any distressed loans that the banks had. Tell us whatcha got and we will let you know if we are interested. No arm twisting, no hammer down sales pitch.

A bank in Maryland contacted the firm to see if they would be interested in taking a distressed mortgage off their hands. The mortgage was to a hospital, the outstanding amount due was about 100 million dollars. And the bank wanted if off their books.


The Wall Street firm took a look at it, analyzed it, and offered the bank 50 cents on the dollar. The bank countered at 72 or 73 cents on the dollar. The bank didn't know it at the time, but they were, at that point, a hooked fish. Negotiation brought about a deal at 62 cents on the dollar. The Wall Street firm took the troubled loan off the bank's hands and the bankers walked away thinking they had just bamboozled one of Wall Street's biggest names. Walking away with 62 million dollars they were happy campers!


The Wall Street guys were happy to! Happy owning a 100 million dollar mortgage on the brink of default? Yup! When the firm analysed the loan, they weren't looking at probability of turning it around. They were looking at probability of default. It was the almost certainty of a default that motivated them to make an offer. You see, this was back in the early days of securitized loans. This particular loan was securitized through Ginnie Mae. All GNMA backed loans are backed fully by the United States Government. In a default the govt pays off the loan in full and the interest due.The Wall Streeters were betting on default.


Sure enough the loan defaulted, and 30 days later the U. S. Government paid the Wall Street firm the 100 million dollar outstanding loan balance. Along with the defaulted interest owed. The firm walked away with a with a 60% plus profit for a deal that took less than 90 days from beginning to end. 38 million dollars profit for 90 days work.

Everyone walked away happy. Everyone got what they wanted.

That the loan was in distress, not the Wall Streeter's fault.

That the loan was part of the GNMA program, not the Wall Streeter's department. They had nothing to do with that.

Did the Wall Streeters exploit the bankers or just capitalize on their own knowledge?

 

[Dave44]

Ginnie maes weren't involved in this mess as they are Guaranteed by the governement.
Really though Native Floridian, isn't the fact that many loans were Guaranteed by the government alot of the problem? It gave buyers of these instruments a false impression that they all were guaranteed. And in reality the gov made it easy to look that way. And the fair housing act Pushed these loans, hard.

 

[TheCoinKid]

NF,

Thanks for the great info. It wasn't my intent to illicit such a strong response on my use of the word "exploit," but just for the record, this is how Dictionary.com defines the word:

ex·ploit
[ik-sploit]
verb (used with object)

"to utilize, especially for profit; turn to practical account: to exploit a business opportunity. "

FWIW,

Regards,

TCK

 

[Native Floridian]

At the professional level the guarantees were understood. What wasn't clear was that the structure of the CMOs could bring down the house. No one believed a high enough default rate could be achieved to cause any real danger. The securitized mortgage market had been trading for better than 25 years without so much as a hiccup. If anything, that had built in a comfort level among all the stake holders.

There is a saying - what you don't know can't hurt you. However, that is far from true. The truth is there are things you don't know that you don't know and those things can hurt you. In this case, the impending collapse of the mortgage market was so unthinkable that we had experts telling us that those who were betting on a collapse were crazy. No such event could take place. Then it happened. You don't know what you don't know till it bites you in the ass!

Like i said, many places to point fingers. But govt guarantees isn't one of them.

 

[Dave44]

Okay NF,. So you are saying that gov policies had nothing to do with it then,, okay then, nothing to see here I guess.
Barney frank said as much when GWB tried to fix it in the early 2000s.
Video: Democrats insist ?nothing wrong? at Fannie Mae, Freddie Mac in 2004 « Hot Air
"By 2004, all of the elements of the current financial collapse had been in place for several years. The aggressive approach to enforcing the Community Reinvestment Act (CRA) started under Bill Clinton in 1998, and the seemingly endless appetite for paper by Fannie Mae and Freddie Mac had turned massive amounts of bad loans into mortgage-backed securities to spread their cancer throughout the system. In 2004, a year after the Bush administration tried to tighten regulation and oversight on Fannie and Freddie, Congress was told yet again that disaster loomed. The Democratic response is instructive to seeing who really sat back and allowed this collapse to occur"

Maxine Waters: Through nearly a dozen hearings, we were frankly trying to fix something that wasn’t broke. Mr. Chairman, we do not have a crisis at Freddie Mac, and particularly at Fannie Mae, under the outstanding leadership of Franklin Raines. [Raines would barely avoid prosecution for fraud.]

Gregory Meeks: … I’m just pissed off at OFHEO [the regulators trying to warn Congress of insolvency at the GSEs], because if it wasn’t for you, I don’t think we’d be here in the first place. … There’s been nothing that indicated that’s wrong with Fannie Mae, Freddie Mac has come up on its own … The question that then comes up is the competence that your agency has with reference to deciding and regulating these GSEs.

Lacy Clay: This hearing is about the political lynching of Franklin Raines.

In 2005, Fortune published a lengthy anaylsis of the impending crash of Fannie Mae, and included this altercation between OFHEO and Congress:

Two weeks later Falcon and Raines faced off against each other in a hearing before the House subcommittee on capital markets, which was chaired by Baker. Consider the circumstances. Falcon was Fannie’s regulator and had leveled serious charges, amounting to fraud, against Fannie Mae. Most CEOs would have seen the wisdom of humility at this point, but Raines showed little. “These accounting standards are highly complex and require determinations on which experts often disagree,” he said, adding that “there were no facts” that supported OFHEO’s charge that Fannie executives had deferred an expense in 1998 to earn bonuses.
And most of the Democrats present agreed with him. “This hearing is about the political lynching of Franklin Raines,” said Congressman William Lacy Clay of Missouri. Massachusetts Congressman Barney Frank said, “I see nothing in here that suggests that safety and soundness are an issue.” Other Democrats complained that the mere fact of releasing the report could increase the cost of home-ownership.
“Is it possible that by casting all of these aspersions … you potentially are weakening this institution in the market, that you are potentially weakening the housing market in this country?” Congressman Artur Davis of Alabama demanded. When Falcon tried to answer, Davis acted like a prosecutor grilling a hostile witness. He wanted a one-word answer: yes or no. “Is that possible?” he asked again.
“I have never seen anyone treated as disrespectfully as Armando Falcon was by the Democrats and by Franklin Raines,” recalls one congressional aide. Adds Andrew Cuomo: “I credit him for not folding and not caving and not running, because he took a tremendous beating.”
​

Unfortunately for the Democrats at this hearing, Raines then doubled down and demanded that the SEC give a second opinion on his business practices. After an investigation, the SEC agreed with Falcon and demanded that Fannie Mae restate its earnings all the way back to 2001 — at which point Raines’ fraud got uncovered. OFHEO had been correct, and the Democrats in this committee meeting had done their level best to interfere with the regulator to cover up for Raines’ fraud.
The Democrats attacking the regulator here didn’t do so out of some deep conviction against government regulation. They wanted to keep the gravy train rolling on questionable mortgages in order to endear themselves to the working class, and didn’t mind smearing the OFHEO regulator as a racist in order to succeed. The Republicans who wanted more oversight didn’t demand it as socialists looking for a government takeover of the financial sector, either, but because they saw the impending disaster looming for Fannie Mae.
Democrats distorted the market through the CRA and through Fannie and Freddie’s massive securitizing of bad debt, and then blocked regulators from doing their jobs.

 

[Dave44]

Just sayin, this thing was in the works, and gov bureaucrats were covering for it for a long time! Then there were the "friends of Angelo"
Countrywide VIP Loans Went to Key Lawmakers: Congressional Report | TIME.com

 

[Native Floridian]

Dave i misread the intent of your question.

Your question - Isn't the fact that many loans were guaranteed by the government a lot of the problem?

The answer to that queston is no. The only loans guaranteed by the government were issued thru GNMA where the underwriting standards never changed. The GNMA market was affected by the crash but the pools remained solvent without default.

Unfortunately bureaucrats and finger pointers throw the word guaranteed around a lot. Loans bundled thru Freddie and Fannie were never guaranteed. Though there stood a general assurance of payment, Wall Street understood the difference. Though they never believed a time would come when it mattered. Countrywide was an originator who got taken to the woodshed by the crash.

Government policies did contribute to the crash. Did they cause it? IMO, no. If anything Greed caused the crash. Greed from your neighbor refinancing his house every 3 years to Wall Street CEOs all to willing to offer easy money.

However if you want to hack away at the government maybe start a thread about the government causing the problem. There seem to be many here who dislike the government so you should be able to find many takers to agree with your POV.

 

[LinkHylian]

That's odd, I thought they spelled it "M.I.N.E."
The word "Crook" barely grazes as to what they really are. I'd say they are insider terrorists that love to see us rot from the inside out.
I missed ya TNet!!!

ROFLMAO !!!!!!!!

You guys are a riot!

At least you spelled Wall Street right!!!!



You know who should be along any time now. LOL!!!

 

[Native Floridian]

Link don't hold back!!!! Let us know how you really feel!

You may not like them but life as we know it would be vastly different without them. For example, it is highly unlikely you would own your own home. That goes for everybody here. Within the context of the turn this thread has taken regarding the mortgage meltdown, in the days before securitized Mortgages, in most cases, you needed 50% down to buy a house. That leaves most of us on the curb as renters. And, that's just the first problem. How are you going to accumulate the cash for a down payment if you don't have a job? You don't have a job because the local printing shop never had access to the capital it needed to expand and grow it's business. It never had access to capital because the local bank was it's only financing option. The bank's strict loan covenants put restrictions on not only how much cash the printing shop could borrow, but on the shop's own cash as well by demanding high minimum amounts be kept in accounts. This limited not only the shop's ability to expand but every other business in town as well. THis would play out across the country. Less growth means less employment. Less employment means less opportunity. Less opportunity means less prosperity.

So about Wall Street -you may not like living with them, but living without them would be worse for most of us.

 

[Treasure_Hunter]

Strange my parents first home they bought they were not required to put down 50% and that was in the mid 50's....

My first home I saved and put down 25% in early 80s, current home I put down same again 25%... But I also didn't try to buy more than I could afford ....

Why were mortgage companies giving loans with no income verification, why were they allowing buyers to buy homes with house payments that were over 50% of their take home pay? It was due to those practices that we had a housing bubble, Country Wide was one of them and they were bought by BOA, both public traded companies. Wall Street had their hands in the pie as well, they made billions of dollars and the average hard working joe got stuck with the bills...

My mortgage was originally with countrywide.

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[Dave44]

"However if you want to hack away at the government maybe start a thread about the government causing the problem. There seem to be many here who dislike the government so you should be able to find many takers to agree with your POV. "

Well NF. If you cannot see that government policies helped this whole fiasco you are not as open minded as you try to appear. Further, this thread has kind of gotten to the bash the greedy rich people stage and your statement here supports that. So, You would make fun of me pointing out government involvement, but you seem to push the 99 percenter way. HMMMM.

I think that wall street is chuck full of criminals, nuts and psychos. And believe it or not most of them are now on the left side of the aisle. And many CEOS are now lawyers. That leads to bad juju.