The settlement announced by the Justice Department Thursday involves at least 34,000 [black and Hispanic] borrowers who were charged higher fees or were steered into risky subprime mortgages when they could have qualified for a prime mortgage, ones offered to borrowers with the best credit. In settling, Wells Fargo said it “not only denies that it discriminated unlawfully, but affirmatively asserts that it has treated all of its customers without regard to race or national origin,” according to the consent order. The company is entering the settlement “solely for the purpose of avoiding contested litigation with the Department of Justice,” the order said. [WSJ]
Remember John Paulson’s big trade a few years ago? This subprime business something or other? It ended up pretty well for him, netting a bunch of billions and the respect of his peers but at the time, most people who JP told about it it had a good laugh at his expense and thought to themselves, “who is this fuckin’ guy,” Paulson recounts. Read more »
Supposedly “key facts related to subprime securities” were omitted and investors in the CDO lost $1 billion (whereas Paulson & Co, which apparently had a “hand in structuring the CDO in question,” made a billion). Dick Bové has no problem with this, and doesn’t think Goldman will either, which Mark Haines cannot believe.
More from the Times:
The suit also named Fabrice Tourre, a 31 year-old vice president at Goldman who helped create and sell the investment. The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.
You probably didn’t know it but the Jabroni Pony isn’t the only one with a new book on the financial crisis coming out today. Wall Street Journal reporter Greg Zuckerman’s got one, too (though his does not include promotion that involves being shot out of a cannon, naked, at the closing bell). While CG’s tome, which chronicles the fuck-ups of many a CEO, serves as a helpful guide on what not to do if you’re looking to avoid blowing up Wall Street, Zuckerman’s book, The Greatest Trade Ever, chronicles the stories of a bunch of guys who actually made money off that can’t lose asset class, subprime. But it wasn’t all rolling around in sticky fifties from the get-go. Daily Intel runs through the book’s subjects, and the adversity they had to overcome, before doing stuff like making $15 billion in one year, and writing a fuck-off letter to the industry, lobbying for the legalizing of weed. Take heart: even if you lack the motor skills to properly shave yourself, you could be the next John Paulson:
At times, [pre-king of the world] Paulson didn’t seem completely put together. When Brad Balter, a young broker, came to visit, Paulson chain-smoked cigarettes and had spots of blood on his shirt collar from a shaving mishap. Paulson’s head of marketing was stretched out in agony on a nearby couch, moaning about his back.
“I didn’t know what to think. It was a little surreal,” Balter recalls.
At times, Paulson became discouraged. His early investment performance was good but uneven, and he continued to have few clients. He was sure of his abilities but questioned whether he could make the fund a success.
One especially glum day, Paulson asked his father, “Am I in the wrong business? Is something wrong with me? “It was hard to be rejected, it was a lonely period,” Paulson recalls.
Also featured: the guy with the glass eye (Michael Burry), the guy who was known for his “unusually thick sideburns” (Greg Lippman), and everyone’s favorite burnout (Andrew Ladhe).
Bad News Bears: The Guys Who Bet Against The Subprime Bubble And Won [Daily Intel]
And not above paying for it. You can be fairly certain, if Goldman has decided to settle that it is only the first stage of the big subprime wind-up. Securitization is that much closer to being illegal. Hurray.
The Goldman Sachs Group agreed to pay up to $60 million to settle Massachusetts’ complaints about the investment bank’s role in the subprime mortgage business, state officials said Monday.
The agreement includes up to $50 million for holders of the mortgages — which were made at often high rates to people with poor credit — and a $10 million payment to the state, a spokeswoman for state Attorney General Martha Coakley said.
The settlement follows an investigation into how Wall Street banks originated mortgages and then packaged them into bonds. It is the first such accord with a bank to focus on securitization of subprime mortgages, spokeswoman Amie Breton said.
Wall Street packaged assets into bonds. The horror. The horror.
Goldman Settles Subprime Complaint in Massachusetts [The New York Times]
Freddie Mac dealt a blow to New York governor David Patterson’s plans to ease mortgage stress in the state. Last week Patterson went to Queens, one of the areas in New York hardest hit by foreclosures, and signed legislation creating a category of subprime mortgages that enjoy certain protections from foreclosures and in some cases imposing criminal penalties on fraudulent mortgage lenders. This morning Freddie Mac announced that it simply won’t purchase these loans.
Paul Jackson at Housing Wire reports:
Freddie Mac said the state’s new definition of subprime, and the pending regulations tied to them, “creates the potential for heightened legal and business risk exposures for the purchasers or assignees of these loans.” Spokesperson Brad German told Bloomberg News the legislation in New York holds lenders liable “in ways we have no way of monitoring and preventing.”
Of course, this is creating an uproar over those who wish to suspend market processes by expanding homeownership without expanding default and exposure risk. But Housing Wire’s sources suggest that numerous states and localities may wind up regulating themselves into a deeper housing mess by forcing lenders to exit rather than face ever-more burdensome risk in exchange for lower returns.
Freddie: Won’t Buy New York Subprime Mortgages [Housing Wire]
To fuck you again! Just kidding. We have no idea if that’s the master plan, but would it be so crazy to assume that John “Forclosure is Your Friend” Paulson is starting a fund to provide capital to financial firms hurt by mortgage writedowns in order to get them back on their feet just before telling people he’s been “hearing things” about liquidity issues but, more importantly, overly friendly interactions between whoever’s running the big ones at the time and petting zoo residents, and shorting the entire sector, all the while working on a passion project entitled “Convince Moz to Start a New Lender”? We submit it would not.
Paulson & Co. Plans Fund to Provide Capital to Banks [Bloomberg]
It’s often said that regulators are always solving the last problem while the next one creeps up on the markets unaware. That notion was certainly tempting yesterday as everyone who’s anyone in market regulation gathered at that conference near Washington, DC. But we couldn’t help thinking that despite speeches from the Fed’s Ben Bernanke, Treasury’s Hank Paulson and JP Morgan’s Jamie Dimon, the folks there didn’t even get as far as addressing what led us to the current financial crisis.
Let’s take Paulson’s proposal that covered bonds could restart the mortgage market. Ensuring that mortgage originators and those securitizing the problems have ongoing skin in the game may in fact improve the quality of those bonds. But Paulson made his proposal in the context of talking about reviving loans for subprime market. Will covered bonds restart interest there?
Not very likely.
There’s mucho dinero to be made in this mortgage meltdown situation, but instead of jumping in your time machine, traveling back to last summer and shorting subprime, why not get creative about it? According to the Journal, anyone interested in getting rich should dive into the fish fucking business, stat. Michael Corkery reports that the Gambusia affinis, i.e. the “mosquito fish,” is making a name for itself in California, Arizona, Florida and anywhere else you might find a ton of foreclosed homes con swimming pools. Apparently the abandoned estate’s water-based recreational facilities are becoming infested by mosquitoes, and causing worry about the spread of diseases like West Nile. Instead of using humans to spray pesticides, the fish are increasingly being deployed to the areas of concern, where they eat up to 500 larvae a day. “They are the real heroes,” said Josefa Cabadad, a technician with the Contra Costa Mosquito & Vector Control District. “I’ve never seen a mosquito in a pool with mosquito fish.” Start breeding.
For Mortgages Underwater, Help Swims In [WSJ]
You could be forgiven for missing the news that the Fed is now accepting as collateral securities backed by credit card debt and auto loans. It doesn’t look like a very good sign. It also makes me wonder:
What if the ratings on collateral the Fed has accepted slip below their minimum standard? Is there a covenant violation? Will the Fed liquidate? Force counterparties to buy them back?
I’m willing to bet the answer here is: “Nothing will happen.”
Is the Fed doing anything at all to scrutinize the “quality” of the ratings? What if a AAA rating is based on insurance via an (insolvent?) monoline? Is the Fed even looking at this? Do they have the ability to even if they want to?
Again, I’m willing to bet the answer here is: “No, and no.”
Fed Expands Auction, Accepts Wider Collateral [MarketWatch]