posted on Dec, 30 2010 @ 12:35 AM
I was looking at a website explaining the financial reform bill earlier right now
)... and I was surprised to learn that
credit rating agencies weren't touched by the bill. This is surprising because the credit rating agencies were AT THE HEART OF THE PROBLEM AND ONE
OF THE CAUSES OF THE SUBPRIME LOANS. Bankers were either (1) trying to make home buying more affordable or (2) trying to scam a lot of people.
Regardless, these credit rating agencies should have seen it coming.
Basically, the main problem with the home mortgage crisis was that credit rating agencies didn't see that the prime loans (people who could pay their
home mortgages) were really sub prime, and that created problems. So now we are having a lot of mortgage problems because of this irresponsibility on
behalf of the credit companies that gave these people that wouldn't normally be able to pay for these homes they were buying good credit scores!
Anyhow... this website explains the problem in good detail
Before the subprime crisis, a qualified home buyer would simply visit his own home town bank, and that bank would then offer to that qualifier
home buyer a traditional prime rate mortgage.
Investment bankers began to buy prime loans and put them together and make mortgages-backed securities and create derivatives (many mortgages-backed
securities together). In order to sell to investors, investment bankers would have to slice the derivatives in tranches and gave them ratings. This
process is called securitisation. These tranches have a range that go from AAA (triple A), being this the highest rating, to BBB- (triple B minus) the
lowest rate. The BBB´s are the first to lose money and the AAA´s are the last ones. The BBB´s have the highest credit risk. The BBB´s have a
higher expected yield (so the risk is the highest too). The problem began when prime loans got mixed with the subprime loans. Investment bankers
wanted to get a part of this action and then they began to include subprime Mortgages in the derivatives and they were selling them to outside
Then unfortunately a combination of the Wall Street greed and the Government´s desire to increase home ownership (The known American Dream) make
subprime mortgages become wildly available to the masses. This increase in home ownership caused an artificial increase in home prices until the
Because of these defaulting borrowers the derivatives in which the Subprime Mortgages are included became a worthless investment. Big and small
investors lost a fortune. Home prices began to fall, and foreclosures increased.
Now, I'm not for the financial reform bill because it's basically a power grab for the federal reserve which we know is up to no good and it's just
in bed with the bankers. In Orweillian language the bill creates a consumer watch dog to be run by the fed... and despite with the problems in the
financial crisis being so clear- credit rating agencies weren't touched? I would think that if it were a good bill than it would cover that... but
this is a bad bill, and it even makes it harder to sue over this kind of stuff.
So, I guess I have two thoughts on this: what the hell was congress thinking? Congress could have made a simple financial reform bill that could
have attacked the problems head on but instead they don't make a strong bill that does much of anything. So it means that even when the government
TRIES to do something with regulation, it can't touch the real problems... because well, I don't know if they're stupid or how many of them
received bribes not to do it. I'm not for government intervention myself but if I were a congressmen I would try to write a good bill. A good bill
is better than a bad bill because we're all worse off under the said bad bill. I also think that more analysis needs to be done of the financial
reform bill... I find it rather scary that credit rating agencies weren't touched, and I would like to know how they talked about what kinds of
things would pass in the bill or not.