Mind Over Market

Wells Fargo's ceo Dick Kovacevich talks about the causes of the financial crisis on CNBC's Squawk Box, September 12, 2012 The following transcript has not been checked for accuracy. right now, though, more from our guest host today, dick kovacevich who is the former chairman and ceo of wells fargo. when we were talking a little bit ago, you were talking about how the financial crisis was caused, in your view, this was eight banks, 12 s & loans, citi, you could go back to those and go to the heads of those at that time. you think there were real problems happening. yeah, 11 and 12 s & ls, and one commercial bank, the rest were commercial banks. i think it was greed. they had to know that this stuff was not good. we went from -- there's always been subprime mortgages. we went from about 10% of the mortgage market to at the peak to 50% of the mortgage market being subprime lending. and this is no doc, low doc stated income, an open invitation for frau...

A year ago, a paper written by a student at Harvard College -- Anna Katherine Barnett-Hart -- received a fair amount of media attention. The paper examines the collateral performance and credit rating of asset-backed security collateralized debt obligations, so-called ABS CDOs. The author's findings are not surprising, in light of what is already known about the mortgage meltdown, but they do provide a better delineation of the parameters of the CDO meltdown. Given the intense interest in CDO deals following the Securities and Exchange Commission's charges of civil fraud against Goldman Sachs for a deal known as Abacus 2007 AC1, it is worth revisiting the findings in this research and analysis by a college senior seeking to graduate with honors. The author looks at both broad data on CDO performance and the ratings of credit rating agencies, but she also closely examines 735 ABS CDO deals. The author's main finding is that there was far too much in the way of low qual...

The deal dynamics in the 'securitization process' expanded the overall level of subprime lending and boosted the degree of risk in subprime residential mortgage-backed securities (RMBS) deals, according to a Fed working paper analysis of 1,267 securitization deals between 1997 to 2007. A new SEC rule in 2004 that, on paper, increased capital in five large broker-dealer banks -- Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley -- led to greater demand for lower credit quality subprime mortgage purchases. The evidence in deals from these investment banks in 2005 suggest they engaged in ‘ratings arbitrage’ to bring to the secondary market the lowest cost subprime loans that could earn an AAA investment rating, according to the Fed authors. By Robert Stowe England MindOverMarket.blogspot.com July 30, 2009 The securitization process – how loans are put together and assigned credit ratings – drove up the flow of credit in subprime residential mortgage-ba...