Baldy wrote:kalm wrote:
I just did.
No, you just ran off at the mouth.
If I were wrong, I'm sure you wouldn't have any problem finding proof.
Then in 2003-2004, the subprime mortgage crisis began.[20] The market shifted away from regulated GSEs and radically toward Mortgage Backed Securities (MBS) issued by unregulated private-label securitization conduits, typically operated by investment banks.
As mortgage originators began to distribute more and more of their loans through private label MBS, GSEs lost the ability to monitor and control mortgage originators. Competition between the GSEs and private securitizers for loans further undermined GSEs power and strengthened mortgage originators. This contributed to a decline in underwriting standards and was a major cause of the financial crisis. [21]
Investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk. Whereas the GSEs guaranteed the performance of their MBS, private securitizers generally did not, and might only retain a thin slice of risk. [21]
Often, banks would offload this risk to insurance companies or other counterparties through credit default swaps, making their actual risk exposures extremely difficult for investors and creditors to discern. [22]
The shift toward riskier mortgages and private label MBS distribution occurred as financial institutions sought to maintain earnings levels that had been elevated during 2001-2003 by an unprecedented refinancing boom due to historically low interest rates. Earnings depended on volume, so maintaining elevated earnings levels necessitated expanding the borrower pool using lower underwriting standards and new products that the GSEs would not (initially) securitize. Thus, the shift away from GSE securitization to private-label securitization (PLS) also corresponded with a shift in mortgage product type, from traditional, amortizing, fixed-rate mortgages (FRMs) to nontraditional, structurally riskier, nonamortizing, adjustable-rate mortgages (ARMs), and in the start of a sharp deterioration in mortgage underwriting standards.[20] The growth of PLS, however, forced the GSEs to lower their underwriting standards in an attempt to reclaim lost market share to please their private shareholders. Shareholder pressure pushed the GSEs into competition with PLS for market share, and the GSEs loosened their guarantee business underwriting standards in order to compete. In contrast, the wholly public FHA/Ginnie Mae maintained their underwriting standards and instead ceded market share.[20]
Forms of credit default swaps had been in existence from at least the early 1990s,[48] with early trades carried out by Bankers Trust in 1991.[49] J.P. Morgan & Co. is widely credited with creating the modern credit default swap in 1994.In that instance, J.P. Morgan had extended a $4.8 billion credit line to Exxon, which faced the threat of $5 billion in punitive damages for the Exxon Valdez oil spill...
Mindful of the concentration of default risk as one of the causes of the S&L crisis, regulators initially found CDS's ability to disperse default risk attractive.[49] In 2000, credit default swaps became largely exempt from regulation by both the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Commodity Futures Modernization Act of 2000, which was also responsible for the Enron loophole,[10] specifically stated that CDSs are neither futures nor securities and so are outside the remit of the SEC and CFTC...[49]
American International Group (AIG) lost more than US$18 billion through a subsidiary over the preceding three quarters on Credit Default Swaps (CDS).[27] The US federal government then gave the company US$85 billion in an attempt to stabilize the
Counterparty controversy
AIG was required to post additional collateral with many creditors and counter-parties, touching off controversy when over $100 billion was paid out to major global financial institutions that had previously received TARP money. While this money was legally owed to the banks by AIG (under agreements made via credit default swaps purchased from AIG by the institutions), a number of Congressmen and media members expressed outrage that taxpayer money was going to these banks through AIG.[58] In January, 2010, a document known as "Schedule A – List of Derivative Transactions" was released to the public, against the wishes of the New York Fed. It listed many of the insurance deals that AIG had with various other parties, such as Goldman Sachs, Société Générale, Deutsche Bank, and Merrill Lynch.
[59][60]
Had AIG been allowed to fail in a controlled manner through bankruptcy, bondholders and derivative counterparties (major banks) would have suffered significant losses, limiting the amount of taxpayer funds directly used. Fed Chairman Ben Bernanke argued: "If a federal agency had [appropriate authority] on September 16, [2008], they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now."[61]
[edit]Post-bailout expenditures
The week following the September bailout, AIG employees and distributors participated in a California retreat which cost $444,000 and featured spa treatments, banquets, and golf outings.[62][63]
It was reported that the trip was a reward for top-performing life-insurance agents planned before the bailout.[64] Less than 24 hours after the news of the party was first reported by the media, it was reported that the Federal Reserve had agreed to give AIG an additional loan of up to $37.8 billion.[65] AP reported on October 17 that AIG executives spent $86,000 on a previously scheduled English hunting trip. News of the lavish spending came just days after AIG received an additional $37.8 billion loan from the Federal Reserve, on top of a previous $85 billion emergency loan granted the month before. Regarding the hunting trip, the company responded, "We regret that this event was not canceled."[66] An October 30, 2008 article from CNBC reported that AIG had already drawn upon $90 billion of the $123 billion allocated for loans.[67] On November 10, 2008, just a few days before renegotiating another bailout with the US Government for $40 billion, ABC News reported that AIG spent $343,000 on a trip to a lavish resort in Phoenix, Arizona. [68]
[edit]Settlement of credit default swaps
On October 22, 2008, those creditors of Lehman Brothers who bought credit default swaps to hedge them against Lehman bankruptcy settled those accounts. The net payments were $5.2 billion[69] even though initial estimates of the amount of the settlement were between $100 billion and $400 billion.[70]
By December 2008, AIG had paid at least $18.7 billion to various financial institutions, including Goldman Sachs and Société Générale to retire obligations related to credit default swaps (CDS). As much as $53.5 billion related to swap payouts are part of the bailout.[71]
On March 15, 2009, under mounting pressure from Congress and after consultation with the Federal Reserve, AIG disclosed a list of major recipients of collateral postings and payments under credit default swaps, guaranteed investment agreements, and securities lending agreements.[72] Below is data from one of the charts AIG released, representing only a portion of the total payouts, over a period of a few months.
AIG collateral postings to credit default swap counterparties, from the period September 16, 2008 to December 31, 2008[73]
Counterparty US $ posted Counterparty US $ posted
Société Générale $4,100,000,000 Deutsche Bank $2,600,000,000
Goldman Sachs $2,500,000,000 Merrill Lynch $1,800,000,000
Calyon $1,100,000,000 Barclays $900,000,000
UBS $800,000,000 DZ Bank $700,000,000
Wachovia $700,000,000 Rabobank $500,000,000
KFW $500,000,000 JPMorgan $400,000,000
Banco Santander $300,000,000 Danske Bank $200,000,000
RFC[74] $200,000,000 HSBC Bank $200,000,000
Morgan Stanley $200,000,000 Bank of America $200,000,000
Bank of Montreal $200,000,000 Royal Bank of Scotland $200,000,000
Other (unknown) $4,100,000,000
http://www.baldywilldisputeallofthisbec ... omwiki.com" onclick="window.open(this.href);return false;
You're confusing government guaranteed securitization and betting. But you're welcome.
