First, Henry Paulson CEO of Goldman Sachs until July 2006!
Former Secretary of the Treasury, U.S. Department of the Treasury
President George W. Bush nominated Henry M. Paulson Jr. to be the 74th secretary of the treasury on June 19, 2006. The U.S. Senate unanimously confirmed Paulson to the position on June 28, 2006, and he was sworn into office on July 10, 2006, by Supreme Court Chief Justice John Roberts. As treasury secretary, Paulson was the president's leading policy advisor on a broad range of domestic and international economic issues. His term ended on Jan. 20, 2009.
What do you say to those who suggest the “private-label” mortgage-backed securities market on Wall Street encouraged the production of loans that performed far worse than those backed by Fannie and Freddie, and that the real attention of policy makers should be on addressing the misaligned incentives that created that problem?
Mr. Paulson: "Well, Fannie and Freddie bought the private-label securities…"
This Paulson knew to be TRUE because Goldman Sachs between 2004-2006 sold those securities to Fannie Mae and Freddie Mac. Paulson was the CEO of Goldman during that time.
For example, by the end of 2006, Goldman Sachs
Mortgage Company had sponsored the securitization of approximately $162 billion of residential
mortgage loans, including prime, subprime, Alt-A, FHA/VA/RHS, second lien, and home equity
lines of credit.
In specific categories, such as subprime RMBS securitizations, Goldman’s deal volume increased from $2.1 billion in 2003, to $9.7 billion in 2004, to $14.5 billion in 2005, to $15.0 billion in 2006. Id.
Similarly, in ALT-A RMBS securitizations, Goldman’s deal volume increased from $3.8 billion
in 2004, to $10.4 billion in 2005, to a staggering $20.5 billion in 2006.
As you can see, Henry Paulson, Secretary of the Treasury was running Goldman Sachs as its CEO and had sold over $162 billion in RMBS Private Label Securities. When Goldman sold the PLS (residential mortgage backed security) RMBS to Fannie and Freddie, Goldman and other Investment Banks, like Morgan Stanley, knew the securities were full of fraud as shown by the Lawsuits and Settlements the FHFA filed and won.
When Henry Paulson became the Secretary of Treasury in July 2006 and further made agreements with the FHFA to put Fannie and Freddie in conservatorship, His company Goldman Sachs he worked at for over 15 years and headed for 6 years was committing FRAUD according to the FHFA.
How is it that the FHFA sues Goldman Sachs for it PLS security sales in 2004-2006, but does not name Goldman's CEO with this fraud action? Because if it did, Henry would be responsible for the sales to Fannie Mae AAA bonds that are PLS. Treasury has a conflict of interest when it signs the PSPA with the FHFA over conservatorship since Paulson was selling the Fraudulent PLS to Fannie Mae which caused the capital diminish and would be the cause of the losses to Fannie Mae on its PLS securities.
There are a variety of underlying mortgage classifications in the pool:
Prime mortgages are conforming mortgages with prime borrowers, full documentation (such as verification of income and assets), strong credit scores, etc.
Alt-A mortgages are an ill-defined category, generally prime borrowers but non-conforming in some way, often lower documentation (or in some other way: vacation home, etc.) Alt-A mortgages tend to be larger in size than subprime loans and have significantly higher credit quality. For example, an Alt-A loan might be to an individual with multiple and varying sources of income; non-owner occupied, investment properties are often Alt-A loans. Because Alt-A loans are not conforming loans, they are not eligible for purchase by Fannie Mae or Freddie Mac.
Subprime mortgages have weaker credit scores, no verification of income or assets, etc.
Fannie could not buy Alt-A or subprime mortgages by its charters directly. But as an investment they could buy the senior AAA rated bonds from RMBS as an investment. The problem was the Rating agencies and Goldman Sacks had Fraudulently rated them AAA when they were truly JUNK.
Each tranche of the Securitizations received a credit rating upon issuance, which
purported to describe the riskiness of that tranche. The Defendants reported the credit ratings for
each tranche in the Prospectus Supplements. The credit rating provided for each of the GSE
Certificates was “investment grade,” always “AAA” or its equivalent. The accuracy of these
ratings was material to a reasonable investor’s decision to purchase the Certificates. As set forth
in Table 8 below, the ratings for the Securitizations were inflated as a result of Defendants’
provision of incorrect data concerning the attributes of the underlying mortgage collateral to the
ratings agencies, and, as a result, Defendants marketed and sold the GSE Certificates as AAA (or
its equivalent) when, in fact, they were not.
112. The data review revealed that for each Securitization, the Prospectus Supplement
misrepresented the percentage of non-owner-occupied properties, as determined by the data
review. The true percentage of non-owner-occupied properties versus the percentage stated in
the Prospectus Supplement for each Securitization is reflected in Table 6 below. Table 6
demonstrates that the Prospectus Supplements for each Securitization understated the percentage
of non-owner-occupied properties by at least 5.96 percent, and for many Securitizations by 10
percent or more.
ACCR 2005-4 Group 1 5.79 11.10 16.25 10.46
AHMA 2006-1 Group 1 42.10 19.96 53.66 11.56
FFML 2005-FF11 Group 1 5.94 8.25 13.70 7.76
FFML 2005-FF8 Group 1 4.01 10.96 14.53 10.52
FFML 2006-FF13 Group 1 0.00 10.56 10.56 10.56
FHLT 2006-E Group 1 13.77 12.09 24.20 10.42
GSAA 2005-11 Group 1 44.52 16.67 53.76 9.24
GSAA 2005-14 Group 1 55.52 13.39 61.48 5.96
GSAA 2005-15 Group 1 31.58 14.48 41.48 9.91
The above transactions all Rated "investment grade" were mostly under the supervision of Henry Paulson as CEO of Goldman Sachs during that period of time. The same Henry Paulson as Treasury who put Fannie Mae into conservatorship so that Fannie could not recover the buybacks of all the Fraudulent transactions committed by Goldman and Morgan Stanley. If Fannie called in the buybacks on these securities, Goldman and the like would have to of paid 100% of the security values to Fannie, thus insuring Fannie would not need a bailout. The drawback of course is Goldman and MS and the big banks did not have the Money to buyback the Bonds, and would of ALL went bankrupt trying to pay for their own FRAUD!
To get a sense of the dramatic nature of the shift in market share, a few numbers help tell the story. As recently as 2003, the agencies issued 76 percent or $2.13 trillion of the year's $2.72 trillion in mortgage-backed securities, according to data compiled by Inside Mortgage Finance. These numbers include Fannie Mae, Freddie Mac and Ginnie Mae securitizations.
In 2003, the non-agency or private-label RMBS was only 24 percent or $586 billion. Most of these were jumbo prime mortgages. The ground began to shift in the second half of 2004 as the refi boom subsided and interest rates began to rise, and home-price appreciation raced ahead at double-digit rates-prompting the introduction of a flurry of new affordability products.
By year-end 2004, agency RMBS issuance represented $1.02 trillion, while the non-agency piece had risen to $864 billion out of a total of $1.88 trillion, according to Inside Mortgage Finance.
In 2005, the private-label RMBS surged into the dominant position, with $1.19 trillion or 55 percent of the $2.16 trillion in securities issued, while the agencies issued $966 billion.
By the first half of 2006, the private-label share has strengthened still more to 57 percent or $577 billion, according to Inside Mortgage Finance. Agency issues totaled $439 billion of the $1.12 trillion market.
Countrywide Financial is the largest issuer of mortgage-backed securities in each of the following categories: jumbo prime, alt-Á and home-equity loans. Countrywide, however, ranks fourth in subprime RMBS issuance, behind subprime specialists Irvine, California-based Option One and Irvine, California-based New Century, followed by Washington Mutual (see Figure 7). As a giant in a fast-growing RMBS sector that is now dominating the mortgage industry, "Countrywide is emerging as the private-sector alternative to Fannie Mae and Freddie Mac," says McMahon.
Some of the remaining slots in the top 10 are occupied by large mortgage originators (Washington Mutual; GMAC-RFC, Minneapolis; Wells Fargo Home Mortgage, Des Moines, Iowa; Indymac, Pasadena, California), while Wall Street investment banking firms (Bear Stearns & Co., Lehman Brothers, Goldman Sachs) occupy most of the remaining positions. The Wall Street firms are acquiring mortgage origination and servicing platforms to become vertically integrated, just as Countrywide and other mortgage lenders have vertically integrated from the other end of the process by adding an ability to issue and underwrite mortgage-backed securities.
And just who is buying all these private-label mortgage-backed securities? The answer is: just about every institutional investor group in America, and many overseas.
And just who is buying all these private-label mortgage-backed securities? The answer is: just about every institutional investor group in America, and many overseas.
In the subprime RMBS category, for example, Fannie Mae and Freddie Mac are big buyers of AAA-rated floating-rate securities. Indeed, Fannie and Freddie are by far the biggest purchasers of subprime RMBS.
Last year, Fannie purchased $179.9 billion while Freddie purchased $41.3 billion, according to data from the agencies and the Office of Federal Housing Enterprise Oversight (OFHEO) compiled by Michael D. Youngblood, managing director of asset-backed securities research for Friedman, Billings, Ramsey & Co. Inc. (FBR), Arlington, Virginia. Freddie's investment in 2005 was sharply lower than its $90.7 billion purchases of subprime RMBS in 2004.
Money managers are another big buyer of subprime privatelabel MBS across all rating categories, according to Youngblood. In addition, asset-backed commercial paper (ABCP) conduits and structured investment vehicles (SIVs) buy AAA floating subprime RMBS. The list of investors also includes domestic U.S. banks, which invest in AAA floating and fixed, as well as foreign banks, which invest in those credit classes plus AA floating.
Pension funds prefer the AAA fixed securities, while insurance companies buy AAA fixed and both AA and A floating securities. Collateralized debt obligation (CDO) managers are also big buyers of AA, A and BBB floating securities. Hedge funds buy BBB and BB floating, while high-yield funds buy the BB floating, according to Youngblood.
A change in the mortgage-backed securities (MBS) market that began more than two years ago appears to have completely reshuffled the mortgage industry's deck of cards. Now, issuers of private-label residential MBS are holding the aces that were once held by the government-sponsored enterprises, Fannie Mae and Freddie Mac.
According to data collected by Inside Mortgage Finance, the mix of mortgage products has dramatically shifted since 2003. That year, 62% of originations were conventional, conforming loans underwritten to Fannie Mae or Freddie Mac guidelines. By contrast, in the first half of 2006, only 35% of mortgages were conventional, conforming loans.
As can be seen here, by 2006 the mortgage industry was changed by NON-agency PLS. This is not Fannie Mae and Freddie Mac MBS securities. This is the Bankers Mortgage industry, run outside the regulation of the federal government and turned into a free for all that collapsed in 2008. Fannie Mae could only buy conforming mortgages, It could not and did not buy ALT-A or subprime. I know you have heard they did buy these, but it was the bonds and not the mortgages that Fannie was buying from the likes of Goldman and Morgan Stanley and TBTF banks that had securitized these in PLS RMBS and sold the "bonds" in them in 3 sections. Investment Grade, Mid level risk, and Junk status. Fannie and Freddie only bought Investment Grade RMBS along with everyone else from pension funds to foreign countries. They were rated safe since the RMBS was seperated into loss sections, First loss was Junk, second loss was middle risk, Last to lose would be the investment grade which was set at about 60% of the entire bond. So even in a foreclosure the RMBS would pay out 100% to the investment grade. The problem was the underwriting left even this grade high and dry. The way for Fannie to insure its investment would be to call it in for a buyback insuring it was paid in full. The problem was this would bankrupt every single one of the RMBS originators. Goldman Sachs was one of such RMBS originators and under the leadership of Henry Paulson when the acts were perpetrated that would eventually bring down our entire financial system in 2008.
One can see the many emails of the time of all these institutions here:
FINANCIAL CRISIS (2007 - )
Financial Industry Financial Crisis E-Mails
Source document for Barron"s article on FNM
Saturday, March 08, 2008 12:50:05 PM
FNM Source Document for Barrons.pdf
Robert Steel spent nearly 30 years at Goldman Sachs, rising to vice chair of the firm. He joined the Chicago office in 1976 and served as that office's co-head of institutional sales. In 1987, he transferred to London, where he founded the Equity Capital Markets Group for Europe. At the time, Europe was privatizing major state-owned enterprises, like telecom, utility and energy interests, to transition to more market-driven economies. Steel was extensively involved in the privatization and capital-raising efforts for European corporations and governments. In 1988, he became partner in the firm. He later became head of Goldman Sachs Equities for Europe. In 1994, he relocated to New York and served as co-head of the Goldman Sachs Equities Division from 1996 to 2002 until his appointment as a vice chair of the firm. Upon his retirement from Goldman Sachs on February 1, 2004, he became advisory director and then senior director in December 2004.
Steel was appointed Under Secretary for Domestic Finance at the United States Department of the Treasury on October 10, 2006 and served until July 9, 2008
Of particular interest a email to Treasury from Barrons on page 468. The writer is talking about the DTA's of Fannie Mae and the need to Nationalize the corporations. He feels the whole mess can be cleaned up by using Fannie and Freddie as the "Bad Bank" for the REAL Bad Bankers and their Banks that caused this mess. Jason told Treasury that the DTA's could be brought back to life only if Fannie were to remain profitable, but did not see a way that Fannie could be profitable in the environment of 2008 and thought Nationalization was the only way. This is all pre-conservatoship.
A Closer Look at Fannie Mae and Freddie Mac:
What We Know, What We Think We Know and What We Don’t Know
Department of Finance
George Washington University
Robert Van Order
Oliver Carr Chair in Finance and Real Estate
George Washington University
Clearly the verdict is still out and will be until we get more data, especially disaggregated data,
and until we see the final results for the 2006-2008 vintages of mortgages and PLS. But we have
some suggestive information:
Things we know:
• Housing policy via Subprime PLS was not a major factor in Fannie/Freddie losses.
Losses mainly came from business lines, primarily Alt-A and interest only mortgages,
that had little to do with low income housing goals.
• Their portfolios were not an important source of their loss, which came entirely from
credit risk rather than interest rate risk, and which was primarily funded by their
“traditional” securitization business.
• Fannie and Freddie did not cause the subprime boom and bust. They did have a large role
in buying senior pieces of structured deals, but these were the easy AAA parts that lots of
investors wanted. They were not involved in the crucial CDO market or other vehicles for
selling the important junior pieces of the deals.
• Loans acquired by Fannie and Freddie outperformed PLS-funded loans across categories
and vintage years by ratios of over two to one.
Things we think we think we know:
• Fannie and Freddie were most likely not the victims of housing policy in dimensions
other than subprime PLS (like high LTV and FICO) because changes in those explain
little of their default changes.
• A large share of their losses on Alt-A and nontraditional loans was associated with
property value declines; these loans began with smaller than average shares of high LTV
loans but wound up with much higher shares of underwater mortgages, presumably
because of their locations and origination years.
• Fannie and Freddie were not a major factor in the price bubble.
Things we don’t know:
• We do not know how much of losses were from price declines and how much from loan
quality (especially Alt-A and interest-only mortgages). We have reason to believe that
both were important, and that quality was especially important in explaining the 2006 and
2007 vintages. 2007 was an especially unpalatable vintage.
• We don’t know what overall losses will finally be.
The data do not provide empirical support for the notion that Fannie and Freddie were building
up to a collapse over an extended period of time. Collapse happened quite quickly-almost
entirely via loans originated after 2005. The dummy variables for these vintage years are
significant irrespective of house price proxy, which suggests unobserved (from FHFA data)
changes in mortgage quality interacted with the price declines to result in seven-fold increases in
The main problems, economy-wide, were a price bubble, which took off while the GSEs’ market
share (including the subprime securities they acquired in 2003 and 2004) was falling, and a panic
in the shadow banking system, not in agency securities (firming up the implicit guarantee took
care of that). There were two major problems for the GSEs: they did not have the capital to
survive the decline in property values beginning around 2006, and they ramped up their risktaking
when their market share fell and the franchise was in danger. These are both serious
problems, but they are not unique to the GSE structure.
What needs said about this write up is:
Fannie and Freddie did not cause the subprime boom and bust. They did have a large role
in buying senior pieces of structured deals, but these were the easy AAA parts that lots of
investors wanted. They were not involved in the crucial CDO market or other vehicles for
selling the important junior pieces of the deals.
Again Fannie did not buy ALT-A or subprime mortgages, no matter what Henry Paulson said! He has an agenda to fool the american people and hide the truth behind his time as CEO of Goldman Sachs. Fannie and Freddie bought senior pieces of RMBS that were ALT-A and subprime AAA rated pieces that were investment grade. Fannie Mae did not deal with ALT-A or subprime lending directly and only bought the RMBS from the likes of Goldman that were AAA rated and were already securitized into investment grade "bonds". The truth is Fannie got the worst of the deal because the Fox was indeed in the Hen house and was taking over using the new law HERA as his method to save the world using Fannie Mae and Freddie Mac as the scapegoats for Paulsons own CEO dealings of Goldman Sachs before he could twist the law to favor his old bosses and buddies. Remember the FHFA sued and won against Goldman for its role in the Fraud on Fannie and Freddie. But what about the main actors? One of them was the Treasury Secretary of the USA!
To understand the crisis, the IMF put out a report:
Subprime: Tentacles of aCrisis
Randall Dodd December 2007
Fannie Mae would purchase only
mortgages that “conformed” to certain underwriting standards.
Those lending standards are used today to define “conforming”
loans and are synonymous with “prime” mortgages.Fannie
Mae proved to be very successful, and, by the
1960s, the borrowing it did to fund its mortgage purchases
constituted a significant share of the debt owed by the U.S.
government. To move Fannie Mae’s activities off the federal
operating budget, the government-sponsored mortgage market
was reorganized during the Johnson administration in
1968. This market structure, with government-sponsored enterprises
at its center, was a tremendous success and attracted
competition from other major financial institutions. After
the government charged Freddie Mac and Fannie Mae several
years ago with serious errors in complying with new
accounting rules for derivatives, the major Wall Street firms
launched an aggressive move into the issuance of mortgagebacked
securities.In 2003, the government-sponsored enterprises were the
source of 76 percent of the mortgage-backed and assetbacked
issuances; “private label” issues by major Wall Street
firms accounted for the remaining 24 percent, according
to Inside Mortgage Finance. By mid-2006, the government-sponsored
enterprise share had fallen to 43 percent, with private
label issues accounting for 57 percent. Among the large
private label issuers were well-known firms—such as Wells
Fargo, Lehman Brothers, Bear Stearns, JPMorgan, Goldman
Sachs, and Bank of America—as well as several major lenders
to high-risk subprime borrowers, such as Indymac, WAMU,
with this radical, and rapid, shift in market shares
came a similar change in underwriting standards. Whereas
Fannie Mae and Freddie Mac were almost entirely “prime”
mortgage lenders, the private label share grew in large part
through the origination and securitization of high-risk subprime
mortgages as well as “Alt-A” mortgages, which were
made to borrowers who were more creditworthy than subprime
customers but presented more risks than prime borrowers
(see table).The rise of subprime mortgage origination and securitization
created a problem that had not arisen in markets centered
on government-sponsored enterprises. How can such
low-rated debt securities be sold? The major buyers of prime
mortgage-backed securities were institutional investors,
but their investment rules and guidelines sharply restricted
their exposure to below-investment-grade securities. Small
amounts of the $1.1 trillion in subprime debt, $685 billion of
which was securitized as mortgaged-backed securities, could
be sold to various high-yield-seeking investors—but not
nearly the entire amount. The key to moving subprime
mortgage debt through the market
was to divide up the risk, creating low-risk investmentgrade
segments and higher-risk (lower-rated) segments from
the pool of mortgages. To do this, Wall Street used the collateralized
debt obligation, which was created in 1987 by the
now defunct investment firm Drexel Burnham Lambert as
part of its junk-bond financing of leveraged buyouts.The
subprime mortgages were pooled into collateralized
debt obligations, in which the securitized claims on
the pool’s payments were carved into various “tranches,” or
classes of risk. Like the underlying mortgages, the collateralized
debt obligations paid principal and interest. In a simple
three-tranche example, the least risky, or senior, tranche has
the first claim on the payments from the pooled mortgages.
The senior tranche has the highest credit rating, sometimes as
high as AAA, and receives a lower interest rate. After the senior
claims are paid, the middle, or mezzanine, tranche receives its
payments. Mezzanine represents much greater risk and usually
receives below-investment-grade credit ratings and a
higher rate of return. The lowest, or equity, tranche receives
payments only if the senior and mezzanine tranches are paid
in full. The equity tranche suffers the first losses on the pool,
is highly risky, and is usually unrated. It also offers the highest
rate of return because of the risk. Each class of securities
is sold separately and can be traded in secondary markets so
that prices can be discovered for each level of risk.In
a collateralized debt obligation, approximately 80 percent
of the subprime debt can be resold to institutional investors
and others as senior-tranche, investment-grade assets.
Hedge funds, the proprietary trading desks of Wall Street
firms, and some institutional investors chasing high-yield
investments found the lower tranches attractive.FitchRatings
warned in 2005, “Hedge funds have quickly
become important sources of capital to the credit market,” but
“there are legitimate concerns that these funds may end up
inadvertently exacerbating risks.” That is because hedge funds,
which invest in largely high-risk ventures, are not transparent
entities—their assets, liabilities, and trading activities are not disclosed
publicly—and they are sometimes highly leveraged, using
derivatives or borrowing large amounts to invest. So other investors
and regulators knew little of hedge funds’ activities, while,
as FitchRatings put it, because of their leverage, their “impact in
the global credit markets is greater than their assets under management
Press reports indicate that typical hedge fund leverage in the
purchase of high-yield tranches was 500 percent. That means
that $100 million in capital would be added to $500 million
in borrowed funds for a $600 million investment in equity
or mezzanine tranches of a subprime collateralized debt obligation.
If these subordinate tranches were 20 percent of the
total debt obligation, and the other 80 percent was sold as
investment-grade senior debt to institutional investors, then
that $100 million in hedge fund capital allowed originators
and private label mortgage-backed securities issuers to move
$3 billion through the subprime mortgage market—$2.4 billion
as investment-grade securities and $600 million as highyield
junk. Unlike publicly traded securities and futures contracts, these
collateralized debt obligations and credit derivatives are not
traded on exchanges. Instead they trade in over-the-counter
(OTC) markets. Exchanges act as go-betweens in every sale
and trades are public; in OTC markets, trading is bilateral
between customers and dealers, and prices and volumes
of trades are not disclosed. The price discovery process is
not transparent, and there is no surveillance of the market
to identify where there are large or vulnerable positions.
Moreover, unlike exchanges, these OTC markets have no designated
or otherwise institutionalized market makers or dealers
to ensure liquidity. As a result, when major events send
prices reeling, dealers stop acting as market makers and trading
can cease.When the crunch hit this past August, the markets for
subprime mortgage-backed securities became illiquid at
the very time that highly leveraged investors such as hedge
funds needed to adjust positions or trade out of losing positions
(see chart). This left hedge funds locked into damaging
positions at the same time they faced margin calls for
collateral from their prime brokers. (Hedge funds borrow
against the value of their assets, and when those values fall,
hedge funds need to come up with fresh capital or sell off
assets to repay the loan.) The situation was exacerbated
because, without trading, there were no market prices to
serve as benchmarks and no way to determine the value of
the various risk tranches.As
a result, hedge funds stopped trading, and the collateralized
debt obligation market and related credit derivatives
markets essentially ceased to exist. Issuers of collateralized
debt obligations could not sell their inventory and stopped
arranging new issues.With
no buyers in the secondary market, the subprime
mortgage originators could not sell the loans they had
made. This put enormous pressure on the many originators—a
large number of which were thinly capitalized,
unregulated finance companies. In turn, the bankers to
these originators withdrew their funding, and the originators
were unable to carry the inventory of mortgages they
had made. They immediately stopped making new loans,
at least new subprime loans, and some filed for bankruptcy
protection. In turn, prospective home buyers and refinancing
homeowners could not obtain nonconforming mortgages,
which prevented those with payment problems from
refinancing to avoid default. Demand in the housing industry
the same time that
hedge funds and other investors
stopped buying highrisk
tranches of subprime
risk, buyers of commercial
paper—corporate IOUs that
are normally at the top of
the creditworthiness pecking
paper after it came to light
that the underlying assets were
tranches of subprime mortgages.
High credit ratings were
once enough to satisfy investors’
concerns about credit risk,
but the collapse in prices of
equity and mezzanine tranches
led investors to reassess the
investment-grade risk segments.
The major banks and
broker-dealers that had made
guaranteed credit lines to the
conduits and structured investment
vehicles (SIVs) that were
the issuers of this commercial
paper had to honor those lines.
Banks had used these conduits
and SIVs to keep the subprime
assets off their books and to
avoid related capital requirements.
Suddenly, those assets
had to be moved back onto
the balance sheets of the major
banks and Wall Street firms. This required them to obtain
additional funding for the conduits and to take a capital
charge against the loans to the conduits—adding further to
the financial system’s demand for credit at a time when that
credit was drying up.Hedge
funds and high-yield investors also played a critical
role in the cross-border spread of this market rupture.
When the prices of the high-risk tranches plummeted and
investors could not trade out of
their losing positions, then other
assets—especially those with
large unrealized gains, such as
emerging market equities—were
sold to meet margin calls or to
offset losses. Equity markets fell
worldwide, and most emerging
market currencies similarly fell
in value, although most recovered
quickly.The OTC market’s lack of
transparency aggravated the
problem because investors, suddenly
risk averse, did not know
who was—and was not—exposed
to the subprime risk. The highyield
mortgage securities had
attracted many non-U.S. buyers. Several German banks that
invested in the U.S. subprime market required regulatory
intervention, and depositors made a run on Northern Rock,
a bank in the United Kingdom. The seizing up of the assetbacked
commercial paper market hit Canada, because the
guaranteed credit lines supporting asset-backed commercial
paper conduits proved to be badly written, creating legal
uncertainty at a critical time. The situation was not resolved
until the central bank publicly insisted that banks honor
their commitments regardless of the legalities.Locating
Several points of weakness contributed to the market failure
that allowed a 3 percentage point jump in serious delinquency
rates on a subsection of U.S. mortgages to throw a $57 trillion
U.S. financial system into turmoil and cause shudders across
• The market first broke down at the juncture where the
highest-risk tranches of subprime debt were placed with
highly leveraged investors. Hedge funds have no capital
requirements (they are unregulated in this regard), and the
industry practice of highly leveraged investing allowed for
excessive risk taking. Taking risks in proportion to invested
capital has the prudential benefit of limiting risk taking and
providing a buffer between losses and bankruptcy. Taking
risks in excess of prudential limits is an unstable foundation
for organizing capital markets and a weak point in the market
The market also ruptured because unregulated and
undercapitalized financial institutions were liquidity providers
to the OTC markets in subprime collateralized debt
obligations and credit derivatives. As soon as those markets’
solvency troubles emerged, they became illiquid and trading
Unregulated and undercapitalized mortgage originators
also contributed to the crunch. The originators, like
the hedge funds, operated with too little capital and used
short-term financing to fund the subprime mortgages they
made and expected to hold only briefly. When they could
not sell those mortgages to the
firms that packaged them into
securities, many unregulated
originators were forced out of
There is so much information here I can tell you from the IMF report, everyone but Fannie Mae and Freddie Mac fleeced the entire market and put the money in their pockets and ran for the hills.
The next article from December 2007 tells even more of the story about Henry Paulson.
Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender Published 4:00 am, Sunday, December 9, 2007
The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.
Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?
What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have worked their magic - not five years from now.
Those selling the "freeze" have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures. But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures. Rate freezes are at best a tool for delaying the inevitable foreclosures when even the most optimistic forecasters expect home prices to fall. In October, Goldman Sachs issued a report forecasting an incredible 35 to 40 percent drop in California home prices in the coming few years. To minimize losses, a mortgage bondholder would obviously be better off foreclosing on a home before prices plunge.
The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. If the investors agreed to loan modifications with the "real" wage and asset information from refinancing borrowers, mortgage originators and bundlers would have an excuse once the foreclosure occurred. They could say, "Fraud? What fraud?! You knew the borrower's real income and asset information later when he refinanced!"
The key is to refinance borrowers whose current loans involved fraud in the origination process. And I assure you it was a minority of borrowers whose loans didn't involve fraud.
The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?
Ultimately, the people in these secret Paulson meetings were probably less worried about saving the mortgage market than with saving themselves. Some might be looking at prison time.
As chief of Goldman Sachs, Paulson was involved, to degrees as yet unrevealed, in the mortgage securitization process during the halcyon days of mortgage fraud from 2004 to 2006.
Paulson became the U.S. Treasury secretary on July 10, 2006, after the extent of the debacle was coming into focus for those in the know. Goldman Sachs achieved recent accolades in the markets for having bet heavily against the housing market, while Citigroup, Morgan Stanley, Bear Sterns, Merrill Lynch and others got hammered for failing to time the end of the credit bubble.
Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.
If a mortgage bond investor sues Goldman Sachs to force the institution to buy back loans, could Paulson be forced to testify as to whether Goldman Sachs knew or had reason to know about fraud in the origination process of the loans it was bundling?
It is truly amazing that right now everyone in the country is deferring to Paulson and the heads of Countrywide, JPMorgan, Bank of America and others as the best group to work out a solution to this problem. No one is talking about the fact that these people created the problem and profited to the tune of hundreds of billions of dollars from it.
I suspect that such a group first sat down and tried to figure out how to protect their financial interests and avoid criminal liability. And then when they agreed on the plan, they decided to sell it as "helping working families stay in their homes." That's why these meetings were secret, and reporters and the public weren't invited.
The next time that Paulson is before the Senate Finance Committee, instead of asking, "How much money do you think we should give your banking buddies?" I'd like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs.
The Goldman report in October suggests that rampant investor demand is to blame for origination fraud - even though these investors were misled by high credit ratings from bond rating agencies being paid billions by the U.S. investment banks, like Goldman, that were selling the bundled mortgages.
This logic is like saying shoppers seeking bargain-priced soup encourage the grocery store owner to steal it. I mean, we're talking about criminal fraud here. We are on the cusp of a mammoth financial crisis, and the Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers. At stake is nothing short of the continued existence of the U.S. banking system.
Henry Paulson would have us believe that the demand for mortgages caused the collapse, but the past shows us the truth. The truth is Goldman Sachs and Henry Paulson's policies as CEO along with other bankers and banks took this country for a ride and enriched their own pockets while using HERA to imprison the only two participants in the Mortgage market that did not commit fraud. Fannie and Freddie were indeed sent to the electric chair by the very man who was leading the charge in 2004 to sell RMBS with a AAA rating to Fannie and Freddie and every other investor in the world. Why is this story being told from the perspective of the perpetrators? Because the truth would have them all in prison.
This article gives a heads up to what is about to come in a few months for Fannie and Freddie.
Next we have the FHFA lawsuits. Who are they suing for Fraud?
17 banks, full list with dollar amount sought by FHFA -
1. Ally Financial Inc. f/k/a GMAC, LLC ($6 billion)
2. Bank of America Corporation ($5 billion)
3. Barclays Bank PLC ($4.9 billion)
4. Citigroup, Inc ($3.5 billion)
5. Countrywide Financial Corporation ($26.6 billion, Countrywide was bought by Bank of America)
6. Credit Suisse Holdings (USA), Inc
7. Deutsche Bank AG ($14.2 billion)
8. First Horizon National Corporation ($883 million)
9. General Electric Company ($549 million)
10. Goldman Sachs & Co. ($11.1 billion)
11. HSBC North America Holdings, Inc. ($6.2 billion)
12. JPMorgan Chase & Co. ($33 billion)
13. Merrill Lynch & Co. / First Franklin Financial Corp. ($24.8 billion)
14. Morgan Stanley
15. Nomura Holding America Inc. ($2 billion)
16. The Royal Bank of Scotland Group PLC ($30.4 billion)
17. Société Générale ($1.3 billion)
Over $200 billion in fraud charges, and Henry Paulson's Goldman Sachs is being sued for $11.1 billion!
Yes, the same Henry Paulson that signed the SPSA and put Fannie in conservatorship because it was best for taxpayers. This was true, taxpayers would of seen every banking institution FAIL except Fannie Mae and Freddie Mac once the twins exercised the buybacks on the RMBS investments.
Here we have the list from the FHFA of the litigation it filed against the banks:
Ally Financial Inc. f/k/a GMAC, LLC
Bank of America Corporation
Barclays Bank PLC
Suisse Holdings (USA), Inc.
Credit Suisse Holdings (USA), Inc.
Deutsche Bank AG
First Horizon National Corporation
General Electric Company
Goldman Sachs & Co.
HSBC North America Holdings, Inc.
JPMorgan Chase & Co.
Merrill Lynch & Co. / First Franklin Financial Corp.
Nomura Holding America Inc.
The Royal Bank of Scotland Group PLC
All but The Royal Bank of Scotland Group has either settled or has lost in court.
The real kicker is the payouts came in at around $30 billion vs $200 billion, and the perpetrators were released from having to admit guilt. This from the action of the FHFA allowed the Fraud banks to leave Fannie and Freddie on the hook for over $170 billion dollars in losses while they walk away with a slap on the hand. All trials were requested for Jury trials and were going to be public. A tool to get these Banks to cave and allow for a settlement. If the information came to the light, people would go to prison from the outcry of the taxpayer that the FHFA and Treasury pretend to be looking out for. Henry Paulson again would make the short list of those that were there committing Fraud and getting away with it.
How about this Fact:
Henry M Paulson Jr
$16.40 mil (#81)
5-YEAR COMPENSATION TOTAL
Henry M Paulson Jr has been CEO of Goldman Sachs Group (GS) for 8 years. Mr. Paulson Jr has been with the company for 15 years .
The 60 year old executive ranks 12 within Diversified Financials
Knowing all this, would you say Henry Paulson just pull off the biggest heist in American history?
Would you say the Political will of the american people is not enough to know the truth?
Do you want the truth to be told?
I just told it.
I backed it up with many examples and references from the IMF and FHFA and Treasury.
Henry Paulson, you can keep your lie of protecting the taxpayers and know the TRUTH is coming!
Fannie Mae and Freddie Mac are victims, and Banks and Goldman Sachs got away with it, so far.