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Wait so the financial reform bill didn't touch credit rating agencies?

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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 investors.
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 borrowers default.
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.

posted on Dec, 30 2010 @ 01:47 AM
The consumer credit game is a sham. In order to have good credit you must place yourself into debt. In order to do so, you must obtain credit.

Credit, when applied to a business is merely an investment. While the same can be said of consumers, the investment is that you will fail to meet the terms of the credit.

This is why the debt industry is one of the largest industries in the world.

posted on Dec, 30 2010 @ 04:09 AM
It is great to see people starting to take notice and trying to understand the problem, there is a lot of deep and complex terminology scaring most people from even touching it. Starting to make sense of it and talking about it is the best way for the simple troubled concepts to surface and be addressed, good work.


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