Post by unlawflcombatnt on Jul 17, 2007 15:03:58 GMT -6
Peter Schiff has provided another of his brief, insightful assessments of market events in his July 13, 2007, article titled:
Time to Face the Music
Schiff sums up the mess created by dishonest financial reporting, involving ratings agencies, investment banks, and Wall Street in general. Even the Federal government has jumped into the middle of the mess (on the behalf of the wealthiest Americans), as demonstrated by Bush's HUD Secretary, Alphonso Jackson, going to China to solicit Chinese purchase of worthless American debt instruments. Below are excerpts from Schiff's article.
(from 7/13/07)
"This week, bond rating agencies Moody’s and Standard & Poor’s finally announced downgrades on billions of dollars of bonds backed by subprime mortgages. Though the cuts will certainly not reflect the full weakness of the bonds, and will not include nearly as many issues as they should, they nevertheless amount to the beginning of the end of the phony mortgage investment market and the unrealistically high home prices that it helped support.
In a sign of desperation, the U.S. has dispatched Housing and Urban Development Secretary Alphonso Jackson to Beijing to beg the Chinese to use some of their $1.3 trillion in foreign reserves to buy more U.S. mortgage backed securities. Talk about chutzpa! We bash them publicly, but behind the scenes we go hat in hand seeking their help. If the Chinese have any sense they will send the Secretary packing. After all, why should they use Chinese taxpayer money to bail out the U.S. housing market by purchasing securities that no American would touch with a ten-foot chopstick?
Is it just me, or haven’t I seen this movie before? In the 1990’s, the very Wall Street firms that created these securitized mortgage products were busy packaging worthless dot.com start-ups into multi-billion dollar IPOs. Back then the game involved in-house analysts slapping “strong buy” ratings on companies that the investment bankers themselves knew were worthless. This time around, the bankers persuaded ratings agencies such as Moody’s and S&P to rubber stamp investment grade ratings on mortgage backed bonds that the bankers knew were extremely risky.
Unfortunately, investors have very short memories when it comes to these scams. They don't understand the profit motives that are behind Wall Street's cleverest strategies. Whether it’s worthless companies or worthless bonds, Wall Street will sell anything if it can make a buck, no matter what it has to say or do to make the sale. The biggest problem for investors is that the riskier the investment, the more profit Wall Street makes selling it.
In its defense, S&P claims that their ratings were based on faulty data. This doesn't hold water....
Also, to assume that these problems extend only to subprime debt is extremely naïve. Many prime adjustable rate mortgages will face similar problems as mortgage rates continue to reset higher. Despite their unblemished credit reports, many of the prime borrowers were “qualified” based solely on their abilities to afford the temporary teaser rates. No consideration at all was given to whether or not they could afford the higher rates to which those mortgages would ultimately reset. This also includes mortgages guaranteed by Fannie Mae and Freddie Mac!...."
The full article can be found at
Time to Face the Music
Time to Face the Music
Schiff sums up the mess created by dishonest financial reporting, involving ratings agencies, investment banks, and Wall Street in general. Even the Federal government has jumped into the middle of the mess (on the behalf of the wealthiest Americans), as demonstrated by Bush's HUD Secretary, Alphonso Jackson, going to China to solicit Chinese purchase of worthless American debt instruments. Below are excerpts from Schiff's article.
(from 7/13/07)
"This week, bond rating agencies Moody’s and Standard & Poor’s finally announced downgrades on billions of dollars of bonds backed by subprime mortgages. Though the cuts will certainly not reflect the full weakness of the bonds, and will not include nearly as many issues as they should, they nevertheless amount to the beginning of the end of the phony mortgage investment market and the unrealistically high home prices that it helped support.
In a sign of desperation, the U.S. has dispatched Housing and Urban Development Secretary Alphonso Jackson to Beijing to beg the Chinese to use some of their $1.3 trillion in foreign reserves to buy more U.S. mortgage backed securities. Talk about chutzpa! We bash them publicly, but behind the scenes we go hat in hand seeking their help. If the Chinese have any sense they will send the Secretary packing. After all, why should they use Chinese taxpayer money to bail out the U.S. housing market by purchasing securities that no American would touch with a ten-foot chopstick?
Is it just me, or haven’t I seen this movie before? In the 1990’s, the very Wall Street firms that created these securitized mortgage products were busy packaging worthless dot.com start-ups into multi-billion dollar IPOs. Back then the game involved in-house analysts slapping “strong buy” ratings on companies that the investment bankers themselves knew were worthless. This time around, the bankers persuaded ratings agencies such as Moody’s and S&P to rubber stamp investment grade ratings on mortgage backed bonds that the bankers knew were extremely risky.
Unfortunately, investors have very short memories when it comes to these scams. They don't understand the profit motives that are behind Wall Street's cleverest strategies. Whether it’s worthless companies or worthless bonds, Wall Street will sell anything if it can make a buck, no matter what it has to say or do to make the sale. The biggest problem for investors is that the riskier the investment, the more profit Wall Street makes selling it.
In its defense, S&P claims that their ratings were based on faulty data. This doesn't hold water....
Also, to assume that these problems extend only to subprime debt is extremely naïve. Many prime adjustable rate mortgages will face similar problems as mortgage rates continue to reset higher. Despite their unblemished credit reports, many of the prime borrowers were “qualified” based solely on their abilities to afford the temporary teaser rates. No consideration at all was given to whether or not they could afford the higher rates to which those mortgages would ultimately reset. This also includes mortgages guaranteed by Fannie Mae and Freddie Mac!...."
The full article can be found at
Time to Face the Music