June 14th, 2011
by Peter Miller
Things are often hidden in plain sight, and few things have been better hidden then a federal report which everyone should read.
No, really, a dull, government document that runs 639 pages and contains no sex or violence should be required reading. Maybe it could be used as a condition for graduating from high school or as a prerequisite for getting a driver’s license.
Entitled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, this is no cut-and-paste job from Capitol Hill, or an effort by one political party to stomp another.
Instead, this is a bi-partisan report developed jointly by Sen. Carl Levin, D-Mich., and Sen. Tom Coburn, R-Okla., two politicians–one very liberal and the other very conservative–who likely agree on little but the weather.
The questions they raise are simple:
What brought down the economy?
Why have home values fallen?
What happened to a mortgage system which for years had been a model of safety and sanity, a system which allowed people to buy with little down and at reasonable mortgage quotes?
And, oh yes, what can we do to assure that this doesn’t happen again?
The answers…not so simple
To figure out the answers, the staff of the Senate’s Permanent Subcommittee on Investigations spent two years examining the concept of “too big to fail,” regulatory failure, inflated ratings, and investment bank abuses. Moreover, the report looks at particular companies such as Goldman Sachs, Moody’s, Deutsche Bank, Washington Mutual, Long Beach Mortgage Corporation, and others.
What went wrong?
The easy answer: a lot.
Here’s just a slice of what went wrong, according to the report:
Lenders introduced new levels of risk into the U.S. financial system by selling and securitizing complex home loans with high risk features and poor underwriting. The credit rating agencies labeled the resulting securities as safe investments, facilitating their purchase by institutional investors around the world. Federal banking regulators failed to ensure safe and sound lending practices and risk management, and stood on the sidelines as large financial institutions active in U.S. financial markets purchased billions of dollars in mortgage related securities containing high risk, poor quality mortgages.
Investment banks magnified the risk to the system by engineering and promoting risky mortgage related structured finance products, and enabling investors to use naked credit default swaps and synthetic instruments to bet on the failure rather than the success of U.S. financial instruments. Some investment banks also ignored the conflicts of interest created by their products, placed their financial interests before those of their clients, and even bet against the very securities they were recommending and marketing to their clients. Together these factors produced a mortgage market saturated with high risk, poor quality mortgages and securities that, when they began incurring losses, caused financial institutions around the world to lose billions of dollars, produced rampant unemployment and foreclosures, and ruptured faith in U.S. capital markets.
“At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest,” said Sen. Coburn. “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.”
What needs to change?
The Levin-Coburn report is remarkably blunt:
- It says the Office of the Comptroller of the Currency–a bank regulator since 1864–should be eliminated.
- Lenders should be required to maintain significant loss reserves when they offer risky financial products, the very requirement lenders are now fighting in Washington.
- Credit ratings agencies should be publicly ranked on the basis of their accuracy.
- Investors should have the right to sue when credit raters screw up.
Read the report for yourself
It’s virtually impossible to get a print copy of the report (though I have one), but in our electronic era that’s not a problem–the entire report is now online and awaits your review.
Even if you don’t read the whole thing, at least examine the Executive Summary and the report’s recommendations. You’ll be stunned by some of the findings, infuriated with others.
Peter G. Miller is syndicated to more than 100 newspapers and operates the real estate news site, OurBroker.com.
Source: Secret Washington report details the causes of the mortgage mess.
News Tags: federal report, Long Beach Mortgage Corporation, plain, washington mutual, regulatory failure, Comptroller of the Currency
I am not sure what "opportunity" you are referring to. If this is a work at home offer that you have to put up money to "process" home loans then it is probably a scam. Are you supplied with the loans or do you have to advertise for customers? Legitimate lenders handle everything in house or through brokers and don't require "home workers."
In most states, you have to be a "licensed" loan originator to take applications or advertise for home loans. Not all but the majority do. Some only require documented training classes but most require some form of registration with the state agency and a fee.
Before doing anything, I would research the company with your state's Office of Financial Institutions (it maybe called something else. You want the department that regulates those types of businesses) They should be registered in your state or at least have a state licensed branch office.