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Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

propublica.org

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Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#61

Post by jeiuejs9 »

PEJOE wrote: post #24

Wait until Propublica learns that lenders are underwriting based on pro-forma forward Adjusted EBITDA net leverage, not past EBITDA leverage. The whole idea of Adjusted EBITDA is insane to me. We add back "one-time," expenses and other items, but the underlying business ends up seeing similar "one-time," costs every year. The result is that companies often borrow at a leverage ratio that looks 30% smaller than it act…

Humans chase novelty

Old language acquires new annotations

The goal, whether it’s intuitive or planned, is to keep it from looking like the system itself can ever grind to a halt

They don’t care about your buy in to some language but keeping agency at scale economically active

Varoufakis was literally in the room as masters of market finance made shit up to keep markets moving

Humans do it all the time. To ever pretend some language model that “fits society” will ever stay the same is a fools errand

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#62

Post by PEJOE »

css wrote: post #46
PEJOE wrote: post #24

Wait until Propublica learns that lenders are underwriting based on pro-forma forward Adjusted EBITDA net leverage, not past EBITDA leverage. The whole idea of Adjusted EBITDA is insane to me. We add back "one-time," expenses and other items, but the underlying business ends up seeing similar "one-time," costs every year. The result is that companies often borrow at a leverage ratio that looks 30% smaller than it act…

There is nothing wrong with that if the banks are allowed to fail when the loans don’t pan out. Underwriting is supposed to be about managing risk, not completely avoiding it. The problem isn’t the analysis, rather it is not letting banks absorb the consequences of being wrong. > The whole idea of Adjusted EBITDA is insane to me. The straitjacket bank regulators have placed around the ability of banks to go outside o…

> There is nothing wrong with that if the banks are allowed to fail when the loans don’t pan out. Underwriting is supposed to be about managing risk, not completely avoiding it. The problem isn’t the analysis, rather it is not letting banks absorb the consequences of being wrong.

I agree with you, with the caveat that many of these receivables are taken off balance sheet through a securitization process, and the resulting structure is almost unable to technically default as long as the AAA tranche interest is paid. Responsibility for originating good loans, meaning they are creditworthy in a downturn, goes down if you can securitize them into a credit enhanced structure or sell them to another investor.

> Generally, I agree. The straitjacket then bank regulators have placed around the ability of banks to go outside of the government defined process of evaluating credit-worthiness doesn’t help. The rules make it near impossible for many companies to get loans. This problem incentivizes companies to play games to get around the crazy restrictions.

In my opinion (not worth much) the industry is simultaneously under and over regulated. Enough bad actors that reducing the regulation is a bad idea, but the existing regulation makes lending more challenging and constrains growth on most businesses, who are operated in good faith.

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#63

Post by Red_Leaves_Flyy »

lotsofpulp wrote: post #43
eli_gottlieb wrote: post #41

Earlier quoted context omitted.

Voter here. It's not just that I'm willing to subsist on dog kibble in 35 years to see most of Wall Street go to jail. It's that I'm willing to make that trade this year. If you founded a political party whose platform was "fuck Wall Street in every way possible, and damn the consequences", I think most of my generation would vote for that.

It would be nice if people who thought that came out and voted (skewing towards younger population). Obviously, a larger portion of the older population who do have their wealth tied up are not going to be a fan, and they tend to be the ones with the funds and votes to dictate political discourse.

Many of us do. But telling people to get out and vote when they've been disenfranchised, or will be fired, in essence, for voting is pretty tone deaf.

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#65

Post by lotsofpulp »

jschwartzi wrote: post #60
lotsofpulp wrote: post #36

Earlier quoted context omitted.

And then look at all the voters’ stances when they find out their 401k don’t look so great, or when their governments have to raise taxes to pay for pensions since the pension fund isn’t worth much.

I think we made a huge mistake going from pension to 401k for retirement. Pensions have a strong incentive to maintain solvency and so will be risk-averse, while with a 401k you are expected to be sophisticated enough to know how risk-averse you are given your retirement time horizon. A lot of people are not sophisticated at all with investing. So the upshot of that is that the 401k becomes a lever to encourage peopl…

> Pensions have a strong incentive to maintain solvency and so will be risk-averse,

If this was true, then pretty much every government in the US (and around the world) wouldn’t be saddled with enormous debt for labor performed in previous decades.

Government defined benefit pension plans assume 7%+ return on investment, that doesn’t scream risk averse. Nor does the fact that pensions regularly place their bets with VC funds, PE firms, REITs, and other risky investments.

The only thing defined benefit pensions do is give control of a huge pot of money to a small group of people with no transparency, inevitably resulting in corruption. With taxpayer funded pensions, you get the added bonus of today’s voters and workers and politicians pushing all the costs onto future generations of taxpayers.

Source: https://www.data-z.org/pension_database/

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#66

Post by wpietri »

Ididntdothis wrote: post #38
wpietri wrote: post #16

Earlier quoted context omitted.

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 an…

"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…

I agree totally, but want to draw one distinction. I think big companies are fine in big, competitive markets. They're generally terrible at innovation, of course (although not always; 3M is a counterexample, as is Apple). But as long as there is room for upstarts to make a good living, that doesn't worry me.

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#68

Post by pnutjam »

zentiggr wrote: post #26
larrydag wrote: post #8

Earlier quoted context omitted.

50 years ago banking was a very personal business. A business would work locally with their own bank. The bank knew the owners and since they banked with them knew their cash flows. Now banks are national conglomerates. There is a lot of cost in banking and many of the large banks have moved to automated systems to reduce overhead and labor. This doesn't excuse the bank but they are permitting credit for all sorts of…

How about greed? How many decades of repeated patterns of cooking figures, "losing" paperwork, and outright fraud does it take to see that a sizeable percentage of people running the largest financial companies just want to rake in whatever they can. Since so many products are so arcane and/or never disclosed in detail, there's ample opportunity to mess with and profit from just about anything that isn't prima facie…

Isn't this the same crap everyone was criticizing Italy for last time the economy took a dump?

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#69

Post by Ididntdothis »

wpietri wrote: post #66
Ididntdothis wrote: post #38

Earlier quoted context omitted.

"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…

I agree totally, but want to draw one distinction. I think big companies are fine in big, competitive markets. They're generally terrible at innovation, of course (although not always; 3M is a counterexample, as is Apple). But as long as there is room for upstarts to make a good living, that doesn't worry me.

I still would argue that compare to its size Apple’s innovation is lacking. They did a lot between 2000 and maybe 2010 but now they are just iterating on the same things with only a few innovative things sprinkled in. Like all big companies their main strength is efficient execution and optimization of systems.

Re: Whistleblower: Wall Street Has Engaged in Widespread Tampering of Mortgage Funds

#70

Post by jiveturkey »

css wrote: post #46
PEJOE wrote: post #24

Wait until Propublica learns that lenders are underwriting based on pro-forma forward Adjusted EBITDA net leverage, not past EBITDA leverage. The whole idea of Adjusted EBITDA is insane to me. We add back "one-time," expenses and other items, but the underlying business ends up seeing similar "one-time," costs every year. The result is that companies often borrow at a leverage ratio that looks 30% smaller than it act…

There is nothing wrong with that if the banks are allowed to fail when the loans don’t pan out. Underwriting is supposed to be about managing risk, not completely avoiding it. The problem isn’t the analysis, rather it is not letting banks absorb the consequences of being wrong. > The whole idea of Adjusted EBITDA is insane to me. The straitjacket bank regulators have placed around the ability of banks to go outside o…

> There is nothing wrong with that if the banks are allowed to fail when the loans don’t pan out.

And if investors (of the banks, or of the securities backed by such loans) are accurately apprised of the risk factors.

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