Wary of Risk, Bankers Sold Shaky Mortgage Debt

[Bozita]

Source: NYTimes



December 6, 2007
Wary of Risk, Bankers Sold Shaky Mortgage Debt

By JENNY ANDERSON and VIKAS BAJAJ
As the subprime loan crisis deepens, Wall Street firms are increasingly coming under scrutiny for their role in selling risky mortgage-related securities to investors.

Many of the home loans tied to these investments quickly defaulted, resulting in billions of dollars of losses for investors. At the same time, many of the companies that sold these securities, concerned about a looming meltdown in the housing market, protected themselves from losses.

One big bank that saw the trouble coming, Goldman Sachs, began reducing its inventory of mortgages and mortgage securities late last year. Even so, Goldman went on to package and sell more than $6 billion of new securities backed by subprime mortgages during the first nine months of this year.

-snip-

What is clear is that home loans were highly lucrative to Wall Street and its bankers. The average total compensation for managing directors in the mortgage divisions of investment banks was $2.52 million in 2006, compared with $1.75 million for managing directors in other areas, according to Johnson Associates, a compensation consulting firm. This year, mortgage officials will probably earn $1.01 million, while other managing directors are expected to earn $1.75 million.

-snip

Read more: http://www.nytimes.com/2007/12/06/business/06hedge.html?hp

[annabanana]

1. I have this image of a long line of "owners"

of these mortgages, passing down these things like a game of "hot potato" with a hand grenade.

If it got tossed to them they could get a big bunch of money that they got to keep if it didn't "go off" in their hands.

[The Backlash Cometh]

2. So let me understand this,

There were managing directors taking in millions of dollars in salaries over this, and when we bailed out the hedge funds with public money, did we in essence take on this liability? WE were the ones that paid for those salaries?

[loudsue]

3. Yes. It's called corporate welfare....republican socialism.

It stinks.

[The Backlash Cometh]

5. This is precisely why I don't like Wall Street. It's a pyramid group.

They take the money up front, and we bail them out in the back.

And let's be honest. New Yorkers benefit from this because most of those Wall Streeters live in that state.

[antigop]

8. Yep. n/t

[Javaman]

10. I prefer to call it...

the foot in our ass that sent us over the cliff.

[Union Thug]

11. Corporate welfare is a step away from reaching the definition of...

....fascism. The term Corporate Welfare is illustrative only to contrast against social/public welfare. But I think that whenever corporate and state enterprises become so intricately woven together, then what we really are talking about is the economic expression of a fascist state....

[Roland99]

4. So that's how Goldman Sachs managed to not get hit hard like the others.

Greedy bastards.

[Victoras]

6. can we call this a 'plea bargain'

some of the banks & mortagage holders have agreed to the Presidents call for a 5 year
hold on many of those ARMs that are scheduled to soar the repayment rates and make many
households fall in default/foreclosure...

Is this 'voluntary' rescheduling of mortgage payments part of the deal
of not getting prosecuted themselves...for suckering home buyers, then the rest of the
investment community with this toxic investment paper?

~ lets see if the mortgage banks in turn, twist arms at the accounting firms that issued
completely false bond ratings on these varieties of mortgages, bundled as CDOs, SIVs, derivitatives, etc ~ there's more than one more shoe to drop !

[Lasher]

7. What it takes to be a successful hedge fund manager

Take a shabby sub-prime mortgage; chop it into "investment", "mezzanine" and "equity" tranches. Bundle it with other equally suspect Mortgage Backed Securities (MBS). Decide (arbitrarily) what the Collateralized Debt Obligations are worth. Tell your banker. Leverage at a ratio of 10 to 1. Take 2% "off the top" plus salary for your efforts. Buy a summer home in the Hampton's and a Lexus for the wife. Wait for the crash. Then repeat.

Congratulations; you are now a successful hedge fund manager!

Oh yeah; and don't forget to prepare a few soothing words for the investors who just lost their entire life savings and will now be spending their evenings squatting beneath a nearby freeway off-ramp.

"We're so very sorry, Mrs. Jones. Can we get you some cardboard-bedding to keep off the rain?"

http://investment.suite101.com/discussion.cfm/37

[AX10]

9. Hedge Funds are a scam. Chuck Schumer is their concubine.

He is the one holding up the bill that would tax these bastards at the regular rates.

:mad:

[redqueen]

14. Have the candidates been talking about that issue?

[closeupready]

12. You nailed it so well.

n/t

[Lasher]

16. I saw that piece here at DU months ago.

And I remembered it for the same reason you cited. It was written by Mike Whitney, who is a freelance writer living in Washington state. Here is a prophetic article he published 2 years ago:

http://www.counterpunch.org/whitney07272005.html

[johnp]

13. And here I am working for a living like a sucker

Well I guess if you ever get sick of working for a living, you could become a banker, or a politician, and just scam your way to the top. Hey, beats working.

[Highway61]

15. So let me get this straight.....

The big bankers saw this coming and quickly tried to wash their hands...throwing the hot potato into some subsidiary...folks loose their homes and they they stay safe and warm...

Makes perfect sense to me...

CEO salaries of:

Goldman Sachs...Mr Blankfein $37.5 mil/year
Countrywide Financial.... Angelo Mozilo $141.98mil/year
Morgan Stanley...Mr John Mack $7.4mil/year
JP Morgan Chase ...Mr Dimon $57.17 mil/year
Bank of America.... Mr Lewis $99.80mil/year
Bank of NY.....Mr Renyi $18.93mil/year
Merrill Lynch...Mr O'Neal $36.24mil/year

http://www.forbes.com/lists/2007/12/leahttp://www.forbes.com/lists/2007/12/lead_07ceos_CEO-Compensation_Comp_Name.htmld_07ceos_CEO-Compensation_Comp_Name.html

[donkeyotay]

18. Not only saw it coming, they knew what it was early since they were the insiders

that created it! How comforting is it to know that Paulson, the head of "our" treasury, formerly with Goldman Sachs, is working this out? You don't suppose we'll get screwed again, do you?

Meanwhile, the corporately compromised congress probably won't even pass the bill that would at least have hedge fund managers being taxed as much as waitresses. The highest pay for a hedge fund manager last year was $1.8 BILLION. That happens to be the same amoung of money as Wyden is asking for the state of Oregon for the next 5 years to offset lower timber receipts. Think of it, the amount of money for a state for 5 years is going to one individual, and they're claiming it's class warfare to think that one individual should at least pay regular taxes, let alone be taxed for cleaning up after this last bankster looting.

[Javaman]

17. I'm probably talking out of my ass here, but...

So this 5 year voluntary freeze comes along. The banks who still have loans, make look at this as an attractive offer, but what about the companies that bought up these loans? Aren't they basically collection agencies with a fancy title? I don't see it being in their best interest to freeze the rates, they probably bought the loans at a reduced price so they could make a profit, if they freeze the rates, they probably won't make a cent.

So how is this helping the buyer?


correct me please if I'm wrong. :)

[sjdnb]

19. What I don't understand is ....

how can all those scraping to get by, middle to older aged, mainly white, blue/off-white collar workers read all this stuff, day in and day out, and not realize every time they walk into a voting booth and pull the lever on GOP candidates they are screwing themselves?

What sort of delusion do you have to be under to ignore all of the evidence -- from Iraq to Iran, from Medicare to Social Security, from the deficit to billions of tax dollars lost to fraud or corruption --- not to stand up and say "I'm mad as h*ll and I won't take it anymore"?