Every MD running a trading desk comes to work and asks “who’s stealing from me today?” That’s the Wall Street mentality.
sorry, I don't know Wall Street lingo, what is "MD" here?
Managing director I believe
Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
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Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#12Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#13Instead we just assume this is happening and extend 0% credit to all the investment banks so that they don't blow up on their fraudulent bets and shady accounting
Since we'll never prove anybody had the necessary knowledge of breaking the law and ignorance is an excuse when you write the law specifically that way
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#14This makes complete sense and there’s no question commercial restate is turning into a bit of a house of cards.
In some big cities you have many large buildings where their primary tenant was WeWork, which appears to be imploding, and now adding onto that the whole covid WFM shift where companies are starting to cancel and downsize future leases. When you start to dig into the revenue streams behind these buildings and the owners ability to pay the mortgage back it starts to look really shady in some cases.
Most buildings need a fairly high percentage of the floors to be leased out for the building rent to cover the mortgage and moving forward it seems a lot of buildings will struggle to hit that number. It’s going to be an interesting time for commercial office real estate.
On the plus side if you’re looking for office space there are going to be some amazing deals!
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#15> Investors don’t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors’ information “out of the gate has to be pretty close to being right,” he said. “Otherwise you’re dealing with garbage. Garbage in, garbage out.”
Is there a way to add incentives so investors don’t analyze information from summaries?
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#16It’s sort of amazing how easy and widely accepted it is to submit, under oath, completely different corporate financial attestations depending on whether you are dealing with the IRS, the SEC, or FINRA. I can imagine 50 years ago, when they all got the ability to check electronically, and knew that everybody was cheating, but they couldn’t do anything because it would it would crash the economy, and also these comput…
My understanding is that after 9/11, a lot of federal law enforcement resources got retasked away from white collar crime and just never went back. And I think it's part of a general decline in interest in holding people with money to account; in the 1970s, the IRS used to audit 2.5% of returns. Now that's down to 0.45% and falling. This makes a fair bit of sense when you look at who has influence with legislators and elected politicians: the donors.
But what I think a lot of this misses is that the more a financial system is prone to cash extraction, the less good it becomes at value generation. As an example, we can look in software at the era of Microsoft's dominance. Microsoft was a great cash generator, but its dominance (and misuse of its market power) discouraged a lot of startups). Then antitrust enforcement and the rise of the browser unleashed a whole wave of innovation.
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#17> Investors don’t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors’ information “out of the gate has to be pretty close to being right,” he said. “Otherwise you’re dealing with garbage.…
Make fund managers partially liable financially for failure to do due diligence on the assets they’re investing in, versus relying on abridged information and credit rating agencies.
You can’t fix people, only incentives.
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#18It’s sort of amazing how easy and widely accepted it is to submit, under oath, completely different corporate financial attestations depending on whether you are dealing with the IRS, the SEC, or FINRA. I can imagine 50 years ago, when they all got the ability to check electronically, and knew that everybody was cheating, but they couldn’t do anything because it would it would crash the economy, and also these comput…
As a direct response, this is not strictly true. The SEC and IRS require financials prepared under different accounting standards, due to a different focus of each group (SEC - focused on overall profitability and activities of the Company; IRS - focused on cash flow and triggers of taxable events) I'm not familiar with the FINRA standards, but companies maintain their books and files to translate between SEC numbers ('book basis') and IRS basis ('tax basis')
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#19> Investors don’t comb through financial statements, added Riordan, who used to manage the CMBS portfolio for retirement fund giant TIAA-CREF. Instead, he said, they rely on summaries from investment banks and the credit ratings agencies that analyze the securities. To make wise decisions, investors’ information “out of the gate has to be pretty close to being right,” he said. “Otherwise you’re dealing with garbage.…
Came here to post this quote. I don't understand how you would base your decisions on ratings agencies after what happened in 2008 and the fact that the incentives are still totally misaligned.
The person quoted seems to indicate "investors" in this case means institutional funds as well, which is just frightening. Hope they can do their job otherwise this will go from big loss-causing mistake to contagion.
Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds
#20I find that a bit surprising. I used to structure CMBS transactions before the financial crisis and even then all income from properties would be ticked back against the leases and the dataset verified by an independent auditor.
In fact the CMBS market blew massive holes in banks balance sheets in 2008 but not because of fraud, but because the commercial property market tanked so much (and will likely not do much better after covid).
So it is always possible that underwriting standards drifted downward, and there are perhaps different standards in the US than Europe. But I find this story surprising and unlikely and would like to see more before forming an opinion.