Where ya been?

Full disclosure: I have never bought a CDS, and have never looked at a prospectus for a CDS.

I don’t know if they were sold fraudulently.

My understanding is that CDS are specifically exempted from regulation, from a rider authored by Phil Gramm, attached to a spending bill in 1999.

While I am sure it is an oversimplification, my understanding is that a CDS is an insurance policy purchased by an investor, to cover the investor in the event that a bond defaults. That bond could be based in mortgages, or corporate debts.

Since they were unregulated, the issuers of the CDS were not subject to the reserves requirements of other kinds of insurance policies.

Selling insurance policies without the means of paying in the event of redemption is fraud. Of course, I am not a lawyer either, but if PEMCO refuses to pay if my house burns down, saying they do not have the money, I would hire one.

I’d welcome a vetting of this simplified POV.

Did you buy or examine any proposals to buy CDS?

How are CDS considered fraud?

I think it was pretty hard to get to be a Master of Wall Street, but that didn’t stop them from pretending that credit default swaps were actually insurance policies backed by real assets.

It’s so much easier to comprehend lawlessness at the retail level, involving hundreds of dollars, than it is to comprehend it at the national level, where billions were siphoned off.

The Merit link was funny.

For those readers that don’t know the background, here’s a decent story.

http://community.seattletimes.nwsource.com/archive/?date=20061203&slug=merit03

Welcome back!

We’ll probably find that we have our share of fraud here in the Seattle, (Lisa Bautista comes to mind), but as far as I can tell, it never reached the epidemic proportions hit in other areas, like Miami.

http://www.miamiherald.com/multimedia/news/mortgage/

The barrier to entry for LO’s (and mortgage companies/banks)was shockingly low, and the prevalent attitude that the market solves everything, and government is the only barrier to the the betterment of mankind, also greatly contributed to the problem.

Markets must be regulated, and banks need to risk their own money to make wise investment decisions.

The tide is turning. Swim hard.

Fraud was definitely out of control here in Chicago. We had entire fraud rings operated out of sham companies. Basically, gangs figured out they could open up mortgage companies, real estate brokerages, appraisals, and title companies (AND ATTORNEYS too) and through ABAs control the whole thing. Not to mention being overrun by boiler room shops.

I would bet a huge number of the foreclosure are fraud related. The fraud identified in the local chicago media represents hundreds of foreclosed homes. The one person I came across who got convicted (a wells fargo AE) had like 100 homes or something fraudulently purchased and the bulk went into foreclosure which is how he was caught.

That is why none of these bailout programs are going to work. When the lenders start really evaluating the foreclosures, the vast majority are not going to be situations that can be saved under any circumstances. The housing crisis is simply the biggest fraud ever perpetrated on the public. Nothing more.

I agree with Tim that barriers are too low for entry into these fields as was mortgage lending up till recently. I knew people hired into mortgage jobs as sales positions focused job descriptions. That to me is a first sign of concern.

Recently I held an informal survey on Active Rain to find out how many credit hours agents need in various states. http://activerain.com/blogsview/659581/How-many-hours-does The lowest was an average of 6 credit hours per year (12 for biannual renewal). In my 5 years of RE so far my credit hours taken (renewal hours only) already would equate to about 17.5 years of minimum coursework in some states of the US. I’m thrilled to see that Washington is increasing their requirements as of 2010. http://www.teamreba.com/blog/2008/08/12/starting-in-2010-new-real-estate-brokers-will-be-giving-wa-state-the-fingerprint/

Tm, you’re old enough to handle the truth.

- I mean, isn’t that the kind of complacency that led to this crisis?

Hmmm. I don’t know; what kind of complacency led to the crisis?

The American public knew less about credit default swaps and collateralized debt obligations than they know about global warming, water pollution, rocket propulsion, and how to throw the knuckleball. Complacency wasn’t the problem, ignorance was.

- Doesn’t fraud perpetrated by agents and loan officers embarrass the real estate community?

Yes.

- Wouldn’t it be a better solution to get them out of the business?

Yes.

- No fraud data?

What did I write?

- At some point does one become part of the problem, or part of the solution.

And your solution is . . .

Lookit: I don’t mean to be argumentative. But throwing our hands in the air screaming, “But something should be done!” isn’t a solution. Until we’ve decided on -something-, we have, noth-ing.

So, come up with something!

For these and many other reasons, it was a system destined to cause problems.