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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ridingycurve who wrote (68904)	8/27/2006 1:14:10 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

Your #2 points are covered separately under corruption. I can’t think of a single case where an insured institution has been “bailed out”.> The operative term here is "assuming" a bailout. How else can housing agency yields barely above treasuries be explained?

To: ridingycurve who wrote (68904)	8/27/2006 1:32:06 PM
From: ridingycurve	Respond to of 110194

Examples of High-Risk, Fraudulent Loans COB Big Shot drops off a loan application for XYZ company and other documents to CEO Lap Dog for presentation to the executive meeting the following morning. Since CEO Lap Dog has no abilities to perform financial analysis, he drops the information on the desk of VP Innocent Victim. VP determines that XYZ is on the verge of insolvency, does not have CF to repay the debt, and that the value of obsolete construction equipment to be pledged as collateral is grossly overstated. VP presents his findings at the exec committee meeting the following AM, whereupon Big Shot jumps to his feet yelling and screaming that, no matter what VP thinks, the blankety blank loan is going to be made. VP is thereafter excluded from exec committee meetings and it becomes apparent that he is very much in disfavor. Later VP is told by Lap Dog to make a multimillion $ transfer to a certain correspondent bank because said correspondent is going to make a large loan to Big Shot. VP points out that such compensating balances are violations of Title 18 of the U.S. Criminal Code. With a disgusting smirk, Lap Dog simply replies “I know it” and walks out of VP's office. Another officer is designated to make the transfer, and VP is soon out of a job (he would have left anyway). Only later does VP learn the importance of the loan to XYZ. It owes money to Big Shot which it cannot repay. Several more violations of Title 18. VP moves on to bigger and better things, XYZ’s entire loan balance is later written off; a few years later COB and CEO take Chapter 7, as does EVP Fairly Good Guy. He had inexplicable cosigned a note with COB and CEO, and is stiffed with the entire payoff. Three years after VP leaves the bank the FDIC FINALLY begins to catch on, and two years afterwards the FDIC mergers said failed bank into a larger, solvent bank. The FDIC never catches on to the fraud involved in the XYZ and compensating balance loans.

To: ridingycurve who wrote (68904)	8/27/2006 3:46:09 PM
From: Ramsey Su	Read Replies (3) \| Respond to of 110194

ridinycurve, I am not old enough to remember <ggggg> but was it not the case, once upon a time, that the FED actually regulates CD rates? When that was deregulated, I believe that was the first wave of "Moral Hazard". When depositors chase after the highest rates, regulated institutions are tempted to offer higher rates in order to attract depositors and taking on additional risk in the process. If not for FDIC insurance, would depositors be more selective? Why do they make risky loans? I believe all it takes is one major player to do so and all competitors would be forced to do same, or stand the chance of being wrong by being too conservative and lose market share. In the subprime world, that was exactly what happened. Ramsey