Re: NYTimes - 'Everyone wants to know who is to blame for the losses paining Wall Street and homeowners.'


"jimstevens" <jimstevens@xxxxxxxxxxxxxxxxx> wrote in message
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[Default] On Tue, 22 Jan 2008 05:52:50 -0800 (PST), Florida
<demeter547opine@xxxxxxxxx> wrote:

The New York Times
http://www.nytimes.com/2008/01/22/business/22legal.html?em&ex=1201150800&en=8ebc53dbe6f43a1f&ei=5087%0A

January 22, 2008
If Everyone's Finger-Pointing, Who's to Blame?
By VIKAS BAJAJ

Everyone wants to know who is to blame for the losses paining Wall
Street and homeowners.

The answer, it seems, is someone else.

A wave of lawsuits is beginning to wash over the troubled mortgage
market and the rest of the financial world. Homeowners are suing
mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall
Street banks are suing loan specialists. And investors are suing
everyone.

The legal and regulatory wrangles could dwarf the ones that followed
the technology stock bust and the Enron and WorldCom debacles. But the
size and complexity of the modern mortgage market will make untangling
the latest mess even trickier. Some cases stretch across continents.
Others are likely to involve state and federal regulators.

"It will be a multiring circus," said Joseph A. Grundfest, a professor
of law and business and co-director of the Rock Center for Corporate
Governance at Stanford. "This particular species of litigation will be
manifest in many different types of lawsuits in many different
jurisdictions."

The legal battles stretch from Main Street to Wall Street and beyond.
Homeowners and subprime mortgage lenders are squaring off in scores of
cases that claim some lenders engaged in predatory lending practices
and other wrongdoing. Cleveland and Baltimore are pursuing cases
against Wall Street banks, saying local residents are suffering
because the banks fostered the proliferation of high-risk home loans.

Two questions lie at the heart of many of the cases. The first is
whether lenders and investment banks alerted borrowers and investors
to the risks posed by subprime loans or securities backed by them. The
second is how much they were legally obliged to disclose. "Those are
the two issues that are frequently raised," said Jayant W. Tambe, a
partner at the law firm Jones Day.

As defaults and foreclosures rise, the various players in the housing
market are all pointing fingers at each other. State prosecutors like
Andrew M. Cuomo, the attorney general of New York, are investigating
whether investment banks that packaged mortgages into securities
disclosed the risks to investors and credit ratings agencies.
Investment banks, in turn, are accusing lenders and mortgage brokers
of shoddy business practices.

"What strikes me here is that this a tainted system from A to Z," said
Tamar Frankel, a law professor at Boston University. "Everybody blames
everybody else. If you look at what is being said, there isn't one who
doesn't blame another and there is half-truth in everything."

Wall Street banks that sold mortgage investments around the world face
legal complaints from as far away as Australia and Norway. Lehman
Brothers, the Wall Street bank with the biggest mortgage business, is
being sued by towns in Australia that say a division of the firm
improperly sold them risky mortgage-linked investments. Lehman has
denied the charges and has said the unit, formerly known as Grange
Securities, acted properly.

Closer to home, members of a New Jersey family have sued Lehman for
$4.14 billion, saying the firm steered them into complex securities
that have become difficult to sell, Bloomberg News reported Friday.
Lehman denied the accusations.

In the United States, Lehman is suing at least six mortgage lenders
and brokers like Fremont Investment and Loan and the Fieldstone
Investment Corporation, claiming they sold Lehman dubious loans.
Lehman claims that borrowers' incomes were overstated, appraisals were
inflated and the homes were in poor condition. In most cases, the
lenders are fighting the allegations and Lehman's demand that they buy
back defaulted or otherwise problematic loans.

In another case, the PMI Group, a mortgage insurer, sued WMC Mortgage,
a subprime lender that has stopped making loans, and its corporate
parent, General Electric, in California Superior Court. PMI is trying
to force the companies to buy back or replace loans that the firm was
hired to insure and that it says were made fraudulently or in
violation of the standards that the lender said it was using.

According to the lawsuit, a review of loans found "a systemic failure
by WMC to apply sound underwriting standards and practices." Reviewing
a sample of the nearly 5,000 loans in the pool, Clayton, a consultant
that reviews mortgage loans, identified 120 "defective" loans for
which borrowers' incomes and employment were incorrect or where the
borrower's intention to live in the home was incorrect. WMC offered to
buy back 14 loans, according to the lawsuit.

Some of the loans have defaulted, and a trustee's report on the pool
of loans packaged and underwritten by UBS, the Swiss investment bank,
shows that losses on some defaulted mortgages are as high as 100
percent. As of November, about 27 percent of the loans in the pool
were either delinquent 60 days or more, in foreclosure or had resulted
in a repossessed home.

PMI is on the hook for losses on defaulted loans, lost interest and
principal payments to investors who own a $29.6 million slice of bonds
backed by the mortgages. A senior vice president at PMI, Glenn Corso,
said he was unsure how much the company had paid out so far.

A spokesman for G.E., Robert Rendine, declined to comment, citing the
pending litigation.

Securities lawyers say cases involving mortgage-backed securities,
which were generally sold privately to sophisticated institutional
investors, are far more complicated than those involving stocks, which
were sold publicly to everyday investors. Class-action lawsuits, a
favorite tool of plaintiffs' attorneys, will be employed less than
they were after the plunge in technology stocks a few years ago
because mortgage securities tend to vary in composition and
disclosure.

"This is going to be much more complicated to prove, and it's going to
be case by case as opposed to class-actions," said David J. Grais, who
is a partner at the Grais & Ellsworth law firm in New York and an
author of a recent paper on the legal liabilities of credit ratings
firms. "This resembles the S&L crisis in the '80s much more than it
does the tech bubble in the '90s."

Class-action filings spiked earlier this decade, jumping to 497 in
2001, from 215 the year before, according to Cornerstone Research,
which compiles the figures in cooperation with the Stanford Law
School. As those suits were resolved, new filings fell to a low of 118
in 2006. But as of mid-December, filings had jumped to 169, with about
32 of the cases related to the mortgage crisis.

Through the end of 2006, settlements in technology- and
telecommunications-related class-action suits brought by shareholders
totaled $15.4 billion, with more than a third of that coming from one
company, WorldCom, according to Cornerstone. Settlements in Enron-
related cases have totaled about $7.2 billion so far; the figure does
not include Securities and Exchange Commission fines and settlements.

Bringing securities fraud cases has been made harder by recent Supreme
Court decisions that favored Wall Street, companies and professionals
like accountants. The court ruled earlier this month that two
technology vendors could not be held liable for taking part in a
scheme designed by a cable company to inflate its revenue. Last
summer, in a ruling favoring the company, Tellabs, the court said that
securities cases could be dismissed if investors did not show "cogent
and compelling" evidence of intent to defraud.

Some plaintiffs are using other legal avenues like the pension law,
the Employment Retirement Income Security Act. Under that law,
managers who handle pension funds must act in the fiduciary interest
of their clients. State Street Global Advisors, which manages pension
money, has set aside $618 million to settle claims that the firm
invested in risky mortgage-related securities.

Some legal experts say that the recent Supreme Court decisions, which
are largely based on cases bought by shareholders, may not have much
bearing on the more complex cases that stem from securitization of
mortgages.

"There will be a whole new set of claims that deal with the unique
nature of the securitization market," Mr. Tambe of Jones Day said.
"There will have to be new decisions that deal with those claims and a
learning process for the bar and judiciary in those cases." //

The blame is easy to see. Federal policy in various administrations
was to find some way to boost employment and the economy. So, under
the mantle of equal opportunity and such lies, they pushed for every
renter with a pulse to buy a house. Many of these marginal employees
have no skills at managing money and were horrible risk candidates for
mortgage - but it did not matter.

Blaming the lenders, builders, banks, and all the rest is stupid as
any time policy changes, it creates conditions where some party will
act. In this case, the lenders, builders and all the rest were doing
just what Clinton and Bush and our leaders wanted to do.

I place the blame squarely at feet of these elected officials and
institutions such as the Fed. Read Greenspan's book on the frenzy to
support building more housing as good for economy. It was the Fed's
job to call attention to the great risks involved in superheating
housing markets so floods of speculators bid up prices along with
people who never should have been approved for loans.

Consider the following scenario. You live next to a lettuce farmer
and one morning the farmer is beating on your door because your cows
are eating his lettuce fields up. Do you blame the cows for being
cows or do you accept responsiblity for not locking the gate to the
pasture.

The great sadness is I don't see what other options were available
considering we produce nothing in America including children of our
own to pay our social security. We depend on floods of cheap labor to
build our houses and grow our crops because we don't value having
children of our own any more to grow our own population.

We are so screwed. Look for value companies that have strong presence
in multiple international markets, as they are a lot cheaper today and
are great deal IMV.

People are just too cowardly to live in a truly free market society. I guess
we will never see it but the only way this country will get back to
greatness is for the people to throw out every living soul that has a hand
in running this government and not letting anyone back in that won't honor
the Constitution and KEEP THE GOVERNMENT OUT OF THE ECONOMY. ALL THE
GOVERNMENT IS SUPPOSED TO DO IS REGULATE INTERSTATE COMMERCE!!! Is that too
difficult of a concept for our leaders to comprehend? You damn right it is.


--
The very first thing they teach freshmen
politicians is that a politician's main job
is to make people worry about something
so the government can fix it and tax it.

That's my story and I'm stickin' to it!

http://www.reason.com/
www.ij.org

JC


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