Moody 's Committed No Crime Or Infraction

The bank at some point received negative attention for issuing credit to arms companies, including companies like Boeing, Lockheed Martin, General Dynamics, Textron, Colbun, BAE Systems and EADS. Some companies within the bank’s portfolio have also been involved in environmental and labor rights violations scandals, for instance Wal-Mart and Total USA. This negative attention may lead to loss of investor confidence in the bank.

People started to buy houses that they couldn’t afford and then they were left behind leaving. The economy is falling and so are the communities. Insects, graffiti, dirty pools are left behind since people are evicted and people don’t have were to go.

The company’s finance department had the chance to reduce the company’s weight in mortgage-backed securities. However, it chooses not to. The company’s financial adviser did not evaluate any risk that would emerge in the economic sector of the U.S during that year. Furthermore, the company had an opportunity to identify the consequence that would result due to the falling mortgages; somewhat the company neglected this risk and increased in value of portfolio.

The regulation that I have chosen for this paper is amendment in the Regulation X i.e. “Real Estate Settlement Procedures Act” and Regulation Z which is for “Truth in Lending”, for establishing the new disclosure requirements and forms in Regulation Z for the most closed-end consumer credit transactions secured by the real property. This regulation is controlled by the Bureau of Consumer Financial Protection. The role of the Consumer Financial Protection Bureau (CFPB) is to provide consumers information related to the terms of their agreements with financial companies during their application for a mortgage, choosing among credit cards, or using any number of other consumer financial products. The mortgage market is the single largest market for the consumer of financial products and the services in the United States, with approximately $10.4 trillion in loans outstanding. Since last decade, market went through an unprecedented cycle of the expansion and the contraction that was fuelled in the part by securitization of mortgages and the creation of increasingly sophisticated derivative products. This led to the collapse of financial system in 2008 and sparked the most severe recession in United States.

Then, in the 1990s, bonds were created consisting of subprime mortgages, which were higher risk mortgages with high interest rates, made to borrowers with lower credit levels. Essentially, banks were handing out mortgages like candy to consumers who were never going to be able to make the payments, but Wall Street kept buying and packaging the mortgages into bonds. Since these bonds were inherently riskier, one wonders why investors were still willing to buy. Investors, who look at ratings by agencies such as Moodys and Standard & Poors, had no reason to believe these bonds were risky investments. The agencies, whom were being paid by Wall Street, were assigning high ratings to these risky bonds.

In the lead up to the current recession, when the real estate market began to fall, there were so many investors shorting stocks and securitized mortgage packages that were already falling, that the market simply fell further. There were no buyers at the bottom, and the professional investors made millions off of the losses of others. Beyond this, there was no real federal regulation for securitized mortgages, since there was no real way to gauge the mathematical risk of any given package. This allowed the investors to take advantage of the system and to short loans on real people’s homes. Once these securities were worthless, many of the homebuyer’s defaulted on their mortgages and were left penniless. No matter from which angle this crisis is looked at, the blame rests squarely with the managers who began the entire cycle, the ones who pursued the securitization of mortgages. Their incompetence not only led to the losses of Americans who have never invested in the stock market, but to losses for their shareholders.

Second, the credit rating agencies gave out generous ratings to bonds, which are essentially worthless, to satisfy their customers` needs. For instance, when Mark Baum, a hedge fund manager, went to Standard and Poor`s Agency to question them

The incumbent credit raters had received severe criticism following the collapse in creditworthiness and prices of mortgage-and asset-backed securities during the financial crisis in 2008 and 2009. The three large rating agencies were accused of facilitating a vast bubble in these securities by issuing overly

Quickly these corporations became known as the Fallen Angels and they were looking to rebound in any way possible. Operating managers at the time believed the corporations would rebound fairly easily because corporations would have no choice but to put all their attention on controlling their debt. However, in a situation such as this, close precision and execution is required otherwise the smallest mistake can lead to failure. According to Warren Buffet, “a plan that requires dodging them all is a plan for disaster.” The accumulation of debt continued to rise and not even the healthiest of corporations could obtain the capital to finance it. Even though businesses continued to suffer from accumulating debt, Investment Bankers noted that researchers found over time “higher interest rates received from low grade bonds had more than compensated for their higher rate of default.” From this information, Investment Bankers saw this accumulation of debt as an opportunity for investors. They concluded it was beneficial to have a diversified portfolio of junk bonds because the returns would be higher than a portfolio of high grade bonds. However Warren Buffet disagrees and discovered a hole in this fundamental approach by the Investment Bankers.

In early 2007, the prices of the corresponding bonds increase as the mortgage loans begin to default. Baum asked an acquaintance at Standard & Poor’s, he discovers that there is a conflict of interest and dishonesty among the credit rating agencies. Baum’s staffs also question Vennett’s motives but Vennett maintains his position and invites Baum and his employees to American Securitization Forum in Las Vegas, where Baum had a chance to have a one-on-one interview with Wing Chau, the CDO manager who claimed to represent the interests of the investors. As Chau describes how synthetic CDOs make a chain of increasingly large bets on the faulty loans, Baum realized that the scale of the fraud will cause a complete collapse of the global economy.

By leveraging the company’s key asset with an eye on “flipping” or selling the company for a profit, CD&R can jeopardize Hertz’s credit rating

This report reviews the current financial crisis by looking at the lack of quality management through the mortgage supply chain. The crisis represents a failure of proper regulation and visibility throughout the mortgage supply chain. Only careful management of these quality issues through all financial institutions and through all aspects of the financial supply chain will remedy the past issues. This is a difficult task but not impossible. This report will discuss each section of the mortgage supply chain and how the weaknesses in the integration caused the financial crisis. Proposed legislation will be explained in detail. Several recommendations will be proposed, both short-term and long-term, which I believe

The security of mortgages since the late 1980’s meant that the mortgage debt has been recreated to provide the third parties, a flow of income which includes the investment banks.

In the second half of 2007, the banking industry and financial market showed signs of considerable stress by raising the default rate of mortgage and the decline in the value of residential mortgage-backed securities. This had led to a re-pricing of many debt instruments. By the end of 2007, Citigroup declared that the fair value of its U.S. sub-prime related direct exposure could decline by 20%. This affected Citigroup’s financial results and would incur further losses in the future.

- “They say nobody rings a bell at the top or the bottom of a market, but for credit, there was a bell rung last Christmas Eve,” says Jeffrey Peskind, of Phoenix Investment Adviser, a distressed bond fund manager.” 9