With triple-A rated toxic CDOs, for many, it became purely a matter of the fees & commissions on the transactions and doing as many as possible. There were reportedly $27T in triple-A rated toxic CDO transactions done during the bubble … with trillions in fees & commissions disappearing into various pockets.”
Lynn wrote: “There had been some securitized mortgages (CDOs) in the S&L crisis with doctored supporting documents for fraud. In the late 90s, we were asked to look at what could be done for integrity/assurance of securitized mortgages (CDOs) supporting documents. In the first of this century, loan originators found they could pay rating agencies for triple-A ratings and immediately unload every loan (without regard to quality or borrower’s qualifications). Speciulators found that no-down, no-documentation, 1% interest payment only ARMs could make 2000% ROI buying&flipping properties in parts of the country with 20%-30% inflation. Buyers of triple-A rated toxic CDOs didn’t care about supporting documents, they were buying purely based on the triple-A rating. Rating agencies no longer cared about supporting documentation because they were being payed to give triple-A rating. Supporting documentation just slowed down loan originator’s process of issuing loans. Since nobody cared about supporting documentations, they became superfluous … which also resulted in there no longer being issue about supporting documentation integrity/assurance. Lending money used to be about making profit on the loan payments over the life of the loan. With triple-A rated toxic CDOs, for many, it became purely a matter of the fees & commissions on the transactions and doing as many as possible. There were reportedly $27T in triple-A rated toxic CDO transactions done during the bubble … with trillions in fees & commissions disappearing into various pockets.”
Lynn wrote: “Possibly aggregate 15%-20% take on the $27T ($5.4T) as the various transactions wander through the infrastructure (starting with original real estate sale). In the fall2008 congressional hearings into the rating agencies … the issue was raised that the rating agencies might blackmail the gov. into not doing anything with the threat of downgrading the govs’ credit rating (an issue that is in the news today).”
Tip of the Hat to Lynn Wheeler at Facebook.
Phi Beta Iota: What kind of credit rating should a government get that borrows one third of its annual operating budget, wages war world-wide without legislative mandate, and generally favors the 1% at the top at the expense of the 99% at the bottom? This used to be called eating your seed corn.