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Tue May 19, 2020, 12:51 AM

Whistleblower: Wall Street is bundling toxic loans again, and it could be about to collapse

Whistleblower: Wall Street is bundling toxic loans again, and it could be about to collapse

May 18, 2020 9:40am by Hunter, Daily Kos Staff

https://m.dailykos.com/stories/1945756

"SNIP......

Briefly interrupting ever-bleaker pandemic news, we momentarily turn our attention to Wall Street, which has been clamoring for a hasty economic reopening regardless of expert advice to the contrary. A new ProPublica investigation examines whistleblower charges that some of the largest banks in the world have been "engaged in a systemic fraud" to inflate the value of commercial mortgages bundled into securities then sold to other investors.

If that sounds like precisely the sort of industry-wide fraud that led to the 2008 financial near-collapse, except that bundled residential mortgages have now been replaced with bundled commercial ones—you're right. We may be witnessing the seeds of the Great Recession Part II, hastened along this time by the pandemic that is threatening the entire world's commercial sectors even without banks playing Investment Jenga behind everyone's back.

ProPublica examined loans bundled into commercial mortgage-backed securities, or CMBS, after industry expert John Flynn filed a whistleblower complaint alleging the past profits of businesses included in those securities are being revised significantly upward, by the banks, when the loans are bundled off to be sold somewhere else. This would make the loans appear to be less risky than they were under the old numbers, and in ways that investors purchasing the bundles would not be particularly likely to suss out.

ProPublica found evidence that the whistleblower's claims are founded. A business with a net income of $1,101,207 in 2016 was claimed in a new CMBS to have had income of $1,352,353 for the same year. A loan for a trailer park, when bundled, was declared to have expenses "about a third lower" in past years than the business itself had reported during those years, boosting its income by nearly 30%. The investigators examined six loans, and found similar patterns in each.

......SNIP"

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Reply Whistleblower: Wall Street is bundling toxic loans again, and it could be about to collapse (Original post)
applegrove May 19 OP
CentralMass May 19 #1
hedda_foil May 19 #2
MoonlitKnight May 19 #3
Baitball Blogger May 19 #4
lastlib May 19 #7
Baitball Blogger May 19 #8
lastlib May 19 #10
Buckeyeblue May 19 #5
lastlib May 19 #6
Roland99 May 19 #9

Response to applegrove (Original post)

Tue May 19, 2020, 12:53 AM

1. It's like crack but these guys get enabled by our governnent and get bailed out

when they get caught.

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Response to applegrove (Original post)

Tue May 19, 2020, 01:06 AM

2. There's going to be a LOT of empty commercial space caused by the pandemic.

Covid closures so to speak. Not to mention all that space formerly needed for office workers who will now be encouraged to continue working from home permanently. The value of those already overvalued securities is going to drop like a stone.

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Response to applegrove (Original post)

Tue May 19, 2020, 01:14 AM

3. No problem!

The Fed is buying everything. No limits. Over $7 trillion so far.

We are going from a house of cards to a New York skyline of cards. And it will be brutal when it collapses.

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Response to applegrove (Original post)

Tue May 19, 2020, 06:19 AM

4. For the ordinary minions can someone translate?

What stocks should we avoid?

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Response to Baitball Blogger (Reply #4)

Tue May 19, 2020, 08:54 AM

7. Most of these issues affect the credit markets, ie, bonds.....

...which are a MUCH larger market than equities. As for stocks, it might be prudent to avoid any financials for the near future--they will be most affected by all this. But the reality is, when you tug on the financials and the credit markets, you're pulling on the whole edifice, and it's getting REAL shaky. Personally, I bailed out of most stocks several months ago, (It was quite fortuitous timing, thankfully, given the February-March meltdown.) although my 401k is still too heavily weighted in equities--I took a beating there.

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Response to lastlib (Reply #7)

Tue May 19, 2020, 08:59 AM

8. Thank you.

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Response to Baitball Blogger (Reply #4)

Tue May 19, 2020, 11:13 AM

10. To add on, the other area affected is the derivatives market....

...especially swaps and to a lesser extent futures. Derivatives are securities (like swaps, futures, options) whose value is dependent upon the value of underlying assets. The notional value of the swaps market alone is in the tens, if not the hundreds of TRILLIONS of dollars. There is a helluva lot of liability if these things implode, and they are not even regulated. That was a big part of the 2008 financial crisis--creatures known as credit default swaps were built around the sub-prime mortgages the banks were pushing, and when those mortgages started going south, the swaps that were built on them got pretty wobbly as a result. SOMEONE had to take on the liabilities, and the banks couldn't absorb it all. Hence the government bailouts.

It's all about to happen again.

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Response to applegrove (Original post)

Tue May 19, 2020, 08:28 AM

5. The big problem will not hit until next year

Banks are giving people a 6-12 months payment deferral on loans and mortgages. That means we won't see real delinquencies and foreclosures until next year.

The fallout from this crisis will get thrown at Biden's feet--if he gets elected president.

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Response to applegrove (Original post)

Tue May 19, 2020, 08:45 AM

6. The problems that caused the 2008 collapse were NEVER really fixed in a way to prevent another...

collapse. They were just glommed over enough to bring about a recovery.

Credit default swaps and other derivative instruments were never placed under regulatory control, thanks to that asshole POS Sen. Phil Gramm and his wife. Some regulations related to sub-prime mortgages were tightened, but not NEARLY enough, and their securitization goes on with inadequate oversight. Transparency on the CMBSs, as noted above, is still lacking. And as long as Repugs have power, they will not GET fixed. "Free market," dontcha know?

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Response to applegrove (Original post)

Tue May 19, 2020, 09:03 AM

9. Here we go again

*sigh*

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