The Big Lie Goes Viral

Washington Post Article

Synopsis:

1. Fed Chair Alan Greenspan dropped rates to 1 percent

2. Low rates meant asset managers could no longer get decent yields from municipal bonds or Treasurys. Instead, they turned to high-yield mortgage-backed securities.

3. Moody’s, S&P and Fitch. They had placed an AAA rating on these junk securities, claiming they were as safe as U.S. Treasurys.

4. Derivatives had become a uniquely unregulated financial instrument. They are exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and, most important, reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.

5. The “Bear Stearns exemption” replaced the 1977 net capitalization rule’s 12-to-1 leverage limit. In its place, it allowed unlimited leverage for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns.

6. Wall Street’s compensation system was skewed toward short-term performance. It gives traders lots of upside and none of the downside. This creates incentives to take excessive risks.

7. The demand for higher-yielding paper led Wall Street to begin bundling mortgages. The highest yielding were subprime mortgages. This market was dominated by non-bank originators exempt from most regulations. The Fed could have supervised them, but Greenspan did not.

8. These mortgage originators’ lend-to-sell-to-securitizers model had them holding mortgages for a very short period. This allowed them to get creative with underwriting standards, abdicating traditional lending metrics such as income, credit rating, debt-service history and loan-to-value.

9. “Innovative” mortgage products were developed to reach more subprime borrowers.

See.  I told you so . . .
Notice not a word about Barney Frank or Fannie/Freddie?
I am seeing that bullshit meme more and more: trying to blame it on Clinton and Fannie Mae.
Yeah, they MADE the banks write bad mortgages, bundle them up with other debt, get the whole thing rated AAA by the crooked rating agencies and then sell them to pension funds that invested the nest eggs of hard-working middle/working class folks in what they KNEW was garbage from day one...
I understand why the rich defend the banks and Wall Street, but anyone that makes less than $250k a year and defends the banks from the heinous crimes they committed is a f*****g moron.