{"id":176564,"date":"2020-05-15T18:52:00","date_gmt":"2020-05-15T23:52:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2020\/05\/15\/here-we-go-again\/"},"modified":"2020-05-15T18:52:00","modified_gmt":"2020-05-15T23:52:00","slug":"here-we-go-again","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2020\/05\/15\/here-we-go-again\/","title":{"rendered":"Here We Go Again"},"content":{"rendered":"
Pro Publica<\/i> has a story about Wall Street has been engaged in systematic fraud to pump up mortgage backed securities<\/a>.<\/div>\n

This is what took down the markets in 2008-09, and it’s not surprising that they are doing this again, since Barack Obama and Eric “Place” Holder, steadfastly refused to prosecute.<\/p>\n

No consequences, so they went back to ripping of the rest of us:
<\/span><\/p>\n

Among the toxic contributors to the financial crisis of 2008, few caused as much havoc as mortgages with dodgy numbers and inflated values<\/a>. Huge quantities of them were assembled into securities that crashed and burned, damaging homeowners and investors alike. Afterward, reforms were promised. Never again, regulators vowed, would real estate financiers be able to fudge numbers and threaten the entire economy.<\/p>\n

Twelve years later, there\u2019s evidence something similar is happening again.<\/p>\n

Some of the world\u2019s biggest banks \u2014 including Wells Fargo and Deutsche Bank \u2014 as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.<\/p>\n

Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it\u2019s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).<\/p>\n

Lenders and securities issuers have regularly altered financial data for commercial properties \u201cwithout justification,\u201d the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.<\/p>\n

ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 \u2014 without acknowledging or explaining the change.<\/p>\n

It\u2019s \u201chighly questionable\u201d to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. \u201cI don\u2019t understand why you can do that.\u201d<\/p>\n

\u2026\u2026\u2026<\/p>\n

The complaint suggests widespread efforts to make adjustments. Some expenses were erased from the ledger, for example, when a new loan was issued. Most changes were small; but a minor increase in profits can lead to approval for a significantly higher mortgage.<\/p>\n

The result: Many properties may have borrowed more than they could afford to pay back \u2014 even before the pandemic rocked their businesses \u2014 making a CMBS crash both more likely and more damaging. \u201cIt\u2019s a higher cliff from which they are falling,\u201d Flynn said. \u201cSo the loss severity is going to be greater and the probability of default is going to be greater.\u201d<\/p>\n

\u2026\u2026\u2026<\/p>\n

After lobbying by commercial real estate organizations and advocacy by real estate investor and Trump ally Tom Barrack \u2014 who warned of a looming commercial mortgage crash<\/a> \u2014 the Federal Reserve<\/a> pledged<\/a> in early April to prop up CMBS by loaning money to investors and letting them use their CMBS as collateral. The goal is to stabilize the market at a time when investors may be tempted to dump their securities, and also to support banks in issuing new bonds. (Barrack\u2019s company, Colony Capital, has since defaulted on $3.2 billion in debt backed by hotel and health care properties<\/a>, according to the Financial Times.)<\/p>\n

\u2026\u2026\u2026<\/p>\n

The notion that profit figures for some buildings are pumped up is surprising, said Kevin Riordan, a finance professor at Montclair State University. It raises questions about whether the proper disclosures are being made.<\/p>\n

Investors don\u2019t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors\u2019 information \u201cout of the gate has to be pretty close to being right,\u201d he said. \u201cOtherwise you\u2019re dealing with garbage. Garbage in, garbage out.\u201d<\/span><\/p><\/blockquote>\n

Once again, they are robbing us blind, and the response of the powers that be will be to bail them out.<\/p>\n

To quote the late Paul Volker, “The only useful thing banks have invented in the last 20 years is the ATM.”<\/p>\n","protected":false},"excerpt":{"rendered":"

Pro Publica has a story about Wall Street has been engaged in systematic fraud to pump up mortgage backed securities. This is what took down the markets in 2008-09, and it’s not surprising that they are doing this again, since Barack Obama and Eric “Place” Holder, steadfastly refused to prosecute. No consequences, so they went …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[368,456,575,389,393],"class_list":["post-176564","post","type-post","status-publish","format-standard","hentry","tag-corruption","tag-finance","tag-fraud","tag-history","tag-real-estate"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/176564"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=176564"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/176564\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=176564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=176564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=176564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}