Des Moines Personal Injury Lawyer - Toxic Substances

Can Eating Sushi give you Minamata Disease?

Steve Lombardi — Wed, 09 Sep 2009 11:01:00 GMT

Shortly after 1908, a small fishing village in Japan saw the first outbreak of Minamata disease, an epilepsy-like affliction. The disease is a neurological condition caused by mercury poisoning that affects the human central nervous system. A CNS effect normally leads to balance problems, convulsions, and is ultimately lethal. The disease can also cause birth defects, which is why pregnant women are often advised not to eat certain kinds and amounts of seafood during pregnancy. It was not until 1957 that scientists learned that the mercury poisoning was related to the ingestion of seafood, which acted as a conduit for organic mercury. However, for Minamata disease to occur, a large amount of mercury poisoning must be present.

The disease and its effects received a lot of attention earlier this year when Jeremy Piven, a star of the popular show Entourage, claimed to be suffering from mercury poisoning. Rumors circulated that his symptoms might indicate the onset of the disease. However, some wondered if Piven’s illness was nothing more than an elaborate excuse to be let out of a contract to take part in a Broadway play, “Speed-the-Plow.” It was also rumored that Piven’s was unhappy with the play. Piven’s visited Good Morning America to talk about his illness and the speculation. On the show, Piven explained that he had six times the normal level of mercury which may have been the result of a twenty-year diet where all protein came from seafood. While Minamata disease remains a familiar issue in Japan, Piven’s illness brought a new awareness to the States, and left many wondering if sushi, which has gained popularity in North America, could cause mercury poisoning and Minamata disease.

David Ewing Duncan, author of Experimental Man: What One Man’s Body Reveals about his Future, Your Health, and Our Toxic World, gave his opinion about Piven’s illness and the potential danger for sushi on Fora TV. Duncan is a well-respected author and contributor to NPR, Wired, The New York Times, Atlantic Monthly, and a slew of other publications and news outlets. Duncan questioned why Piven’s would choose such a bizarre health condition to blame as a reason for leaving the Broadway play. However, Duncan also said that Piven’s illness was “not an impossible scenario.”

www.youtube.com/watch?v=BBWETTmO7WY

So what does this mean for sushi lovers?

There isn’t a great deal to worry about, so long as seafood consumers are cautious. The onset of Minamata disease is rare, and requires a large dose of mercury poisoning to occur. For those that have a predisposition genetically to mercury poisoning, or have a history of it in the family, fish lovers may wish to avoid sushi and sashimi made with tuna, especially yellowtail or bluefin. Tuna are a large fish and usually are at the top of the food chain; tuna tends to contain higher levels of mercury than other types of fish. Imitation crab, however, such as that used in popular California rolls, will have much less if no mercury.

Those people who consume a lot of fish might also consider tracking their mercury intake using a mercury calculator that can help you measures your exposure levels. Otherwise, sushi lovers should simply practice the old adage of “everything in moderation” and visit a medical professional if symptoms of mercury poisoning appear.

Remember those symptoms include epilepsy type symptoms that include imbalance, loss of motor skills and if not treated can lead to convulsions and death.

http://www.youtube.com/watch?v=ihFkyPv1jtU

What is the Minamata disease?

http://www.youtube.com/watch?v=dw7cKHpoPe8

Originally posted at InjuryBoard by Steve Lombardi

Iowa Mercury Rules And What they Mean to Your Health

Steve Lombardi — Tue, 08 Sep 2009 09:05:00 GMT

Humans have been putting mercury in their mouths for hundreds of years. It’s the silver liquid inside of glass thermometers and, despite its variety of uses, it can be extremely dangerous. The effects of mercury poisoning are as numerous as they are worrisome: fits of anger, insomnia, inability to learn, ulcerated gums, loose teeth and diarrhea. In case that’s not bad enough, sufferers also often encounter emphysema, headaches, chest pain, and a ringing in the ears. Considering the misery of mercury poisoning, the natural question is: How does it happen? How did I get mercury poison?

For a few, select people (mainly characters in mystery novels), an arch-nemesis will drop mercury into a drink. For the rest of us, the element comes from the environment; factories emit mercury, the mercury ends up in a stream, a fish soaks up some mercury, and then a person eats the fish. In fact, mercury has been one of the focus points of environmental activism by groups like the Sierra Club, and has been the target of legislation by the EPA. Currently, Iowa follows the national guidelines that have been established by the EPA, but recent new proposed laws have compelled factory owners to fight for their right to pollute.

Iowa’s laws about mercury pollution are fairly straightforward. By 2010, factory owners must reduce their emissions by 20%. The legislation then defines several different types of factories, based on power capacity and pollution level, and then sets limits for each type. Most importantly, the law states that factories must be monitored for at least a year before their emission-reduction projects begin. Factory owners say that these guidelines are too stringent, and will hurt the United States economically. Environmentalists, on the other hand, say they are necessary.

In the middle of all this legislation, it’s hard for a consumer to know what to do. Keep your eyes and ears open for news stories about mercury spills or instances of poisoning, and, if possible, make sure that any fish you eat comes from a safe source. Stay informed about the guidelines in your state; if you feel strongly about this issue, then get involved, and lend your support to the environmental groups or the business lobbies.

Originally posted at InjuryBoard by Steve Lombardi

Political Malpractice, A novel idea

Steve Lombardi — Fri, 17 Apr 2009 10:09:00 GMT

Here is a blog post about being able to sue politicians for malpractice in the same manner as are other professions. I’ve got an idea of how it could be done, but I’d better develop it first. That said posting this idea couldn’t wait.

Political Ads – The Top Ten

http://www.youtube.com/watch?v=j3MpFKGNZZA

10 Most Awkward Political Gaffes

http://www.youtube.com/watch?v=xfZg4UIuZe4

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: What are mortgage-backed securities?

Steve Lombardi — Tue, 14 Apr 2009 15:02:00 GMT

FINANCIAL WRONGDOING: What is a mortgage backed security?

Mortgage-backed securities are a particular kind of Collateralized Debt Obligations (CDO), that we reviewed yesterday.

http://www.youtube.com/watch?v=XjoJ9UF2hqg

Yesterday we covered CDO’s and learned these investments used three levels of investors that each received a different level of risk and reward. The levels or tranche's allowed us to spread the risk from defaults. Spreading the risk is important to attract those investors with the kind of money we need to make this work.

Aside from home loans there are commercial real estate loans. And of course like home mortgages, these loans can be paid off sooner than expected and that is in and of itself a risk to the investor. So now let's introduce commercial mortgage-backed securities or CMBS's.

Commercial mortgage-backed securities (CMBS) are secured by commercial and multifamily properties (such as apartment buildings, retail or office properties, hotels, schools, industrial properties and other commercial sites). The properties of these loans vary, with longer-term loans (5 years or longer) often being at fixed interest rates and having restrictions on prepayment, while shorter-term loans (1-3 years) are usually at variable rates and freely pre-payable.

For instance pension funds aren’t supposed to invest in risky investments. Pension funds require low risk investments and those returns are expected to be lower. Hedge funds like to gamble and in return they expect a much higher rate of return. The three levels of investors, senior, mezzanine and equity created the levels of risk and return that attracts those with money to invest. From pension funds to hedge funds and everyone in between came to the CDO and MBS investors. And those investors who were precluded from assuming very risky investments relied, to some extent, on those holding senior level tranches along with the rating companies that rated the risks associated with various investments.

Ah yes, the rating companies!! What about those rating companies?

More later this week but for today that’s the basic discussion of mortgage backed securities.

What is a tranche?

Let's visit Wordsmith.org where today's word, lucky enough is tranche.

A.Word.A.Day

with Anu Garg

tranche

PRONUNCIATION: visit the site and you can hear the word pronounced.

(transh)

MEANING:

noun: A portion, especially of money, investment, etc.

ETYMOLOGY:

From French tranche (slice), from trancher (to cut).

USAGE:

"Some of the banks, including Central Bank of India and Vijaya Bank, have already received the first tranche of capital."
Mergers of Public Sector Banks Favoured; Business Standard (Mumbai, India); Mar 31, 2009.

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: What are collateralized debt obligations?

Steve Lombardi — Mon, 13 Apr 2009 15:01:00 GMT

Collateralized Debt Obligation (CDO)

http://www.youtube.com/watch?v=XjoJ9UF2hqg

CDO’s are a way of turning mortgage debt into investments that can be bought and sold on the open market.

Investing in CDO’s involves calculating, using mathematical formulas, the risk involved in the debt going sour or the investment paying off a return on the money invested.

Three levels of risk were identified: Equity, Mezzanine and Senior. Senior holds the least risk of losing money on the investment because if the loans go sour senior gets paid first. Mezzanine level investors have less risk than do equity level investors but more than senior level investors. The equity level investors are like a shield to the mezzanine and senior level investors; if the debtor or mortgage payor defaults then equity level investors take the hit and theoretically shield the mezzanine and senior levels. To attract the front line of this mathematical investor football team the equity guys were promised a high rate of return. This promised was to be fulfilled by dividing up the expected return in a way that paid a low but “guaranteed” rate of return to the senior and mid level investors and then the equity folks get the rest, which was the lion’s share of the mortgage payments.

The banks may retain a stake in the loan sale by holding some or all of the equity portion of the investment.

Problems crept in when the junk loans were being written (liar loans) and the default rates started creeping higher and higher. The higher the default rate went the less money was left to return to the equity investors. Their 16.5% rate of return now plummets to 2% or less and the mezzanine investors get jittery as they see their promised return on money invested may be invaded.

This is in essence a mortgage back security. And as the writer points out it can be used with many types of assets that create cash flow to pay the investors. It can be used with lending to corporations and businesses.

Collateralized debt obligation (Balance Sheet CDO)

http://www.youtube.com/watch?v=WMwAyDnKjyk

So where do things go wrong? Well, not yet; first things first. First we need to learn the basics. Come back to the InjuryBoard for more information. This month, the month of April is financial wrongdoing month. Welcome aboard.

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: What is a Ponzi scheme and how did Madoff get away with it for so long?

Steve Lombardi — Fri, 10 Apr 2009 17:36:23 GMT

What is a Ponzi Scheme?

A Ponzi scheme is a form of a pyramid scheme. In a Ponzi scheme the instigator interacts with the investors. The ruse is carried out by creating the false impression that the money is actually invested and making a profit. The key to a Ponzi scheme is to get the initial investors to reinvest what they are paid, thereby reducing or eliminating the need to actually show a return on investments. Equally important are feeders who have been hired to manage other people's money and who turn to people like Madoff to make their jobs easier. Often times they are also victims, devoured by their own laziness, greed and stupidity. These people have a psychological makeup that often allows them to be easily schmoozed, impressed and cajoled through their own vanity and the illusion that they themselves must be important if someone like Madoff is paying attention to them. They continue to owe their investors a duty to perform due diligence in a professional manner but are easily side tracked with lavish parties and extremely large referral fees.

The investors are furhter defrauded through phony monthly statements that create the impression or illusion of investments and that those investments are earning a return on the corpus. It’s a giant illusion that requires a juggling of the books and the creating of phone reports. It also involves out right verbal lies to the investors (along with lies through reporting).

What causes a Ponzi scheme to be discovered?

1. Promoters and/or funds vanish.

2. Scheme collapses.

3. Scheme gets exposed.

http://www.youtube.com/watch?v=zRTPKcJGwe4

In the case of Bernard Madoff he exposed the scheme by admitting publicly what he had been doing and even used the term Ponzi scheme. Without knowing more it’s difficult to tell exactly what would have occurred but it seems with the financial and stock markets it’s more than likely the scheme was ready to collapse and he feared someone would expose it, taking his family down with him.

How easy is it to get caught up in one?

Busy people are as easy to take as are those without a very high financial intelligence. Greed is factor; wanting an unreasonable rate of return on their investment. Lazy people can get caught up in the Ponzi scheme. Lazy fund managers who don’t do the required due diligence to really understand the fund and how the promise of a return will be realized can also be taken in by the Ponzi schemer. They too, as intelligent fund managers can get taken and lose the money investors have entrusted to them.

$50B Scam Victims Speak

http://www.youtube.com/watch?v=lzAUUyd-woE

December 15, 2008

Who got taken by Madoff?

http://www.youtube.com/watch?v=K5bzLbIcIxw

December 17, 2008

How could one man work so many investors?

In the case of Bernard Madoff he used feeder firms who would send him investors, family and friends.

Where did the money go? The $50 billion is gone, mostly.

He spent it on a lavish lifestyle and to pay feeders to bring him more investors.

Aren’t we protected by the Securities and Exchange Commission?

Well, the SEC is supposed to protect investors from illegal financial activity and licensed brokers who act illegally. In the case of Bernard Madoff the SEC did investigate his investment company in 2005 and again in 2007. The matter was not on either of those occasions referred to the Commission for enforcement action. The SEC is overworked, understaffed and under funded; so we can not rely completely on this federal agency to protect us. The FDA and the Consumer Product Safety Commission are in the same position. So when we talk about protecting us or if we can believe in our government protecting us, we need to stop thinking in those terms.

If we can’t trust the SEC with protecting our money how can we trust the FDA with the drugs we ingest?

Madoff: “I’m very close with the regulators … As a matter of fact my niece just married one.” October 20, 2007.

http://www.youtube.com/watch?v=mMQTiD-FAlw

What interests me is how smug this group is acting towards regulation by the federal government and how Madoff seems to chide regulators as against making a profit; as if making a profit were something bad.

I said early on in the Bush Administration when everyone was bashing those who were against the war and against anything that was popular, that if we lawyers waited awhile we would see really bad things happening. “If you think it’s bad now just wait till you see what’s coming down the pipe line.” People in general were acting naïve and believing anyone that lied, but told them what they wanted to hear. This is a good example of what was and is wrong with wanting something for nothing. There is no free lunch.

We all want to spend less money on insurance but like all federal efforts, tort reforms that promise you a quick fix and great savings, without proving how or setting out a plan as to how it will realistically happen; simply can’t be believed. Like all promises that are too good to be true, 99.99% of the time it’s not going to fix anything except the profit margin of some special interest group.

Madoff Victim Commits Suicide – Lost $1 Billion of Client’s Money

http://www.youtube.com/watch?v=w1wPVlLHw20

December 23, 2008, slashed his wrists; suicide is not an answer.

90-Year-Old Madoff Victim Goes Back to Work

http://www.youtube.com/watch?v=UsuCfz47d4U

February 19, 2009, lost his entire life savings.

A grocery store owner, Ron Clements, created a greeter position for the long-time customer.

The investor is Ian Thiemann who now works 30 hours per week for $10 per hour.

How can you recognize a Ponzi scheme?

The FBI’s web site indicates to avoid a Ponzi scheme exercise due diligence in selecting investments and the people with whom you invest. Second, make sure you understand the investment. If the investor indicates his/her methods are secret or too complicated for most people to understand then that’s a sure indication of a scam.

What evidence can show the Ponzi schemers knowledge?

http://www.youtube.com/watch?v=phlwjf28NEk

January 30, 2009 – Why might Madoff have homesteaded in Palm Beach in Florida? Were they protecting assets from their creditors?

We look at those closest to him. Like a wife withdrawing $10 Million.

http://www.youtube.com/watch?v=DaUclTOOJ18

February 12, 2009

But the biggest question that remains unanswered is why is Madoff smiling?

http://www.youtube.com/watch?v=jESY1YReUrQ

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: Credit Default Swaps 2 – Financial weapons of mass destruction.

Steve Lombardi — Wed, 08 Apr 2009 12:07:00 GMT

Developing your understanding of credit markets and financial weapons of mass destruction.

http://www.youtube.com/watch?v=neAFEvNsiqw

Yesterday we posted part one of credit default swaps. Today we talk about why they were described by Warren Buffet as financial weapons of mass destruction. Warren Buffet is associated with Berkshire Hathaway.

http://www.youtube.com/watch?v=3z_UrOKtjHk

Who writes CDS’s?

Banks, pensions, insurance companies and even hedge funds write credit default swaps.

So where did our pension funds err?

Pension funds aren’t supposed to invest in anything that is less than a stellar investment with low risk. The corporations insuring the credit defaults assumed not every loan insured could possibly go into default.

Credit Default Swaps were bought and sold by and to hedge funds and other financial institutions. Financial institutions were betting on whether or not any borrowing corporation would default. Sort of like betting on what the weather will be tomorrow. It’s a giant investment shell game or better yet, a game of Russian default roulette. Everyone involved got nervous and started hedging their bets. In other words those involved in the financial markets all knew something was going to happen and that if it went bad it was going to be really bad for America.

How do we fix the markets in the future?

It's difficult for me to say, but here are a few ideas. We make those underwriting the debt own the debt. We make all those involved in the financial markets make complete disclosures to rating agencies.

Ratings Issue

http://www.youtube.com/watch?v=OFt7wiwIpvE

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: What are credit default swaps?

Steve Lombardi — Tue, 07 Apr 2009 11:59:00 GMT

Credit default swaps are a way of insuring credit instruments (loans) that make it easier for the lenders to sell the loans to investors. As the name implies the insurance is to protect the investor who buys the loans in the event of a default. The investor or investment banker give a part of what they expect to make in profit to insure the loan investment. This allows or creates a market of willing buyers. Without credit default swaps the investors would not be interested in buying the loans or loan portfolios without a comprehensive evaluation of the borrowers’ credit worthiness. This is called liquidity. Liquidity is the ease of an investment being bought and sold on the open markets.

In the case of large corporations borrowing billions of dollars it makes lending them the money an easier proposition because risk of default is being spread around to several other financial companies. The fee is like an insurance premium. A lot of rating the CDS depends on the rating of the insurer. Companies like Berkshire Hathaway have a lot of money sitting idle and they do get involved. The better the rating on the insuring company the higher the quality of what would otherwise be a higher risk investment.

It’s like your brother wanting to borrow money from you. Let’s say it’s $100.00. Your brother has no job and no savings. You’re not likely to lend him the money. But if your father said he would pay you back if your brother reneged then you’d be more willing to lend to your brother. Your risk comes in with Dad not being able to cover the $100.00 when your brother defaults on the loan.

So what happened that made things go wrong in America?

Let's start with switching AIG for Dad. American International Group is a huge company. If AIG has too much debt-insurance or is undercollateralized with covering their own debt, then AIG may have problems if their assets become devalued and their lenders demand more collateral. If there Moody's rating drops that will mean AIG will need to pay more for borrowed money. That's not good because if they calculate what they can afford to insure at one interest rate and that interest rate changes the investment can turn upside down.

Now so long as the rating company doesn’t catch on to what AIG is doing with insuring debt then AIG’s rating won’t change. But if Moody’s gets wind of what is insured they might change AIG’s rating; causing the cost of insuring credit default swaps to increase dramatically causing problems for everyone taking part in this investment scheme. Fact of the matter is, there is evidence to suggest that some hedge funds had bet against AIG surviving. This was a huge gamble with a foundation made of clay. The assumptions proved wrong and so went the investment. Problem is we really don't know how bad this is all going to turn out. Not even Buffet can predict what will happen.

http://www.youtube.com/watch?v=a1lVOO9Y080

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: How did the credit crisis develop?

Steve Lombardi — Mon, 06 Apr 2009 11:07:00 GMT

Jonathan Jarvis has created a slide show that explains in simple terms how the credit crisis developed. To understand about the credit crisis you have to understand the components known as prime mortgages, sub-prime mortgages, collateralized debt obligations, frozen credit markets and credit default swaps.

Homeowners and investors were brought together. Homeowners are represented by mortgages and investors by the money they invest in the stock market. The mortgages are represented by houses and investment money by institutions that invest our money in ventures that are supposed to make a return on the investments. These include pension funds, insurance companies, mutual funds and other companies that invest our money for a fee.

In the middle of the homeowners and the investment companies are the financial markets that are housed on Wall Street. When Alan Greenspan as the head of the Federal Reserve lowered the interest rate to 1% it caused investors to look for alternative investments to beat a 1% return that they would receive on T-Bills.

Traditionally when investment institutions had extra money they would buy government bonds or T-bills. After the dot.com bust the government began doing something different that caused investment institutions to look elsewhere for a return.

On the other hand banks can borrow from the Federal Reserve for 1%. The banks said yippee kayay! With oil prices climbing many foreign investors/governments had extra cash on hand; making credit abundantly available. The more money that was available the easier it was for bankers to borrow.

A zero leverage is when a person has $1,000 and buys a $1,000 item; then turns around and sells it for $1,100. You make a $100 without any borrowing or leverage.

It was at this point that leveraging starts to rare its ugly head. Some leveraging is good and some is very risky. If I have $200,000 to invest in a building and can borrow $2 million more I'm leveraging my investment money 1:10. The borrowed funds are backed up by collateral. In this case the commercial real estate. Assuming there are good solid leases in place with honest tenants, then this is a safe leverage for everyone involved.

Here is where it can go wrong. The person who sees the $1,000 item with $100 to make in profit heads to the bank and borrows $990,000 when they have only $10,000 of their own money to invest. The investor or businessman now has $1 million dollars to go out and buy 1,000 of the same items estimating a $100 profit on the sale of each; or a total return of $100,000. Subtracting his initial investment of $10,000 he's made $90,000.

So long as this guy is paying back his loan the banks are making money through loan interest payments. In a low interest market banks will line up to cut each other's throats to get this guy to borrow from them. Hey come to our bank we will give you a better deal; a lower interest rate, we will require less collateral and/or no prepayment penalty.

Wall Street sees deals everywhere. They see deals in putting together a hostile take over, IPO's, stock sales, stock purchases, indexing and a whole host of legal investment schemes. Wall Street borrows money by the billions. As a part of this process banks make a ton of money in fees from mergers and acquisitions, loans and structuring deals for Wall Street.

That's where you and I come along, remember we are the investors. We have money saved for retirement and want it busy earning a return on investment.

Wall Street sees us on the side lines clamoring for a piece of the ROI rally and that makes them think up ways to get our money busy. Here is their idea: Let's connect the investors to the homeowners through the mortgages that are being written.

In come the mortgage brokers who take the homeowner's loan application, then locate a lender who will underwrite the paper. (Mortgage = paper) The broker gets paid a commission and that's how the broker makes his living; by connecting the dots between home buyers who want a mortgage and lenders who lend the money. The more loans they broker, the more they earn.

Homeowners see buying a house as an investment. That has historically been true. Buy a house, make the payments, pay down the principal amount, and maintain the house and when you sell it you walk away with the equity.

Wall Street hasn't gone anywhere and those on Wall Street see these mortgages as something to invest in. Wall Street wants to buy your mortgage from your lender bank. The lender can earn a fee if your mortgage is sold to a Wall Street investment banker.

Now flip back to the guy borrowing $990,000 and turning his $10,000 of cash into $100,000. The investment banker does the same thing. The investment banker borrows hundreds of millions of dollars to buy thousands of our mortgages. These portfolios of loans are then packaged as securitized mortgages. Meaning investors won't see a single mortgage but a group of mortgages that have been grouped together and rated for risk. Risk is associated with which borrowers are more or less likely to be able to make the mortgage payments.

With the ownership of all these mortgages go all those mortgage payments. Though leveraging the investment banker is dramatically increasing the amount of cash flow coming in each month.

Investment bankers then get the idea they too can sell these packaged securitized mortgages by repackaging them. The loan portfolios are separated into three categories: safe, not so safe and risky. Not wanting to call them all by the same name the collateralized debt obligation is born. CDO.

You might ask why an investor would buy the CDO's with the risky mortgages. Well it has to do with the concept of risk and rate of return. (The riskier the investment, the higher the rate of return.) If you combine all three categories into one package the rate of return is averaged and is higher than just owning the safe mortgages. Investors are more willing to take at least some risky mortgages to get the safe and not so safe loans.

But this makes some investors nervous. They don't like the risk of buying mortgages where they haven't met the borrower and where risky loans are involved. Banks want the loans to be sold to investment bankers and so banks come up with loan insurance, called a credit default swap. Banks have the job of grading the loans and rating agencies get paid to put their stamp of approval on the loan packages. The top slice gets AAA as the best and safest of the mortgages underwritten. The not so safe mortgages get the BBB rating and the risky loans go unrated.

Hedge funds like the risky stuff because the return is higher.

With all these sales of mortgages the investment banker is making millions in commissions and fees. With the sales proceeds the investment banker repays the loans taken out to leverage purchases of securitized loans from the banks.

Investors are happy because they are making better than the 1% that Uncle Sam was offering on Treasury Bills. They demand more from investment bankers. "Bring us more CDOs!" they chant.

To fulfill this demand the investment banker contacts lenders saying, "Bring us more! Bring us more!” The banks want to earn more fees and commissions on selling these loans so they contact the mortgage brokers and say, "Bring us more! Bring us more!” The mortgage brokers need to create demand for more home mortgages and they in turn tell the bankers to lend more money to developers to build more houses. The loan brokers begin to look at the loan applications and identify questions that if not answered or answered little differently more applicants can be approved.

Goldman Sachs Redefines Greed - Trial Judges and Juries Need to Take Note, August 19, 2007

Liar's loans are introduced. The mortgage broker doesn't really care about the application being less than perfect because he isn't lending his own money and he makes a commission on the loan being made. The lender looks the other way because this loan will be in the office only hours before it's sold to an investment banker.

Wall Street knows what is going on and of the risk involved. If the loan goes into default they will end up with the house; something they really don't want. Remember Walls Streets finest don't live on Main Street. To offset this risk of possible foreclosure Wall Street makes an assumption; even if we end up with the collateral our losses will be offset by the ever increasing value of homes in the U.S. market.

That assumption underlies investment bankers buying even more risky loans.

They yell louder "Bring us more! Bring us more!” We don't care about down payments (the borrower having some skin in the game.), no proof of income (liar's loans) or documentation of anything on the application.

To fill this demand for more home loans banks begin selecting appraisers that are moldable. Lenders hire appraisers whose opinions about the home's value makes the same assumption as that of the investment bankers: Homes in the U.S. increase in value every year. That allows refinancing of existing mortgages, HELOCs (home equity loans) and new home owner loans with borrowers who traditionally would not qualify for a home loan.

Prime mortgages are to responsible and honest people. Sub prime mortgages are to those looking for a participation trophy. Sub prime borrowers are looking for something for nothing.

Pretty soon everybody in the chain from mortgage brokers to investment bankers are looking the other way and doing deals that should have not be done because no one intends to hold the paper or those that do are relying on one false assumption; that homes always increase in value. That false assumption is one that Harry Dent predicted more than ten years ago.

Meanwhile the SEC exacerbated the situation by allowing the major investment banks to bet the house on leveraging our pension and investment dollars to buy more risky packages of mortgages. On April 28, 2004 at 2:30 p.m. the SEC held a meeting and changed the net capital requirement for Wall Street allowing them to remove any semblance of common sense in prudent investing. And as we saw the temporary reduction in value of our homes toppled the major investment banks when they found themselves undercapitalized.

So ask yourself does deregulation as the Bush Administration proposed work? No some regulation is necessary to curb the natural tendencies of a free economy, greed. Now mind you wanting to accumulate wealth isn't bad and that's not what I'm saying. But what I am saying is greed is not good and without the right checks and balances human nature being what it is will always push the economy to those ends. What we should be asking ourselves is why didn't anyone in this chain just say stop you're selling a dream that doesn't exist for this person. This is bad business.

Is the Republican Party Dead? No, but the Wizard of Oz is alive and well. November 30, 2008

The Crisis of Credit Visualization, by Jonathan Jarvis.

http://www.youtube.com/watch?v=Q0zEXdDO5JU

Originally posted at InjuryBoard by Steve Lombardi

FINANCIAL MISCONDUCT: What is a liar's loan?

Steve Lombardi — Fri, 03 Apr 2009 13:14:00 GMT

What is a liar's loan? A liar's loan has to do with mortgages. The "liar's loan" is a phrase and in many instances is a misnomer. It was a misnomer because the borrower wanted to tell the truth about their income but the loan broker or even the lending officer at the bank entered the incorrect income information on the loan application. And that is where we start. Let’s start with the loan application.

As many of us know, to get a home mortgage you must first fill out a loan application. That application requires the applicant to disclose their income. A normal loan process requires additional proof other than the simple disclosure of income. Most lenders require production of a W2 or current pay check stub; some even require a signed information waiver allowing the lender to contact the borrower's employer to confirm income.

The purpose of disclosing income is to establish a basis that the applicant can afford the mortgage payment. Income levels allow different loan amounts. You can’t pay off a $2,000.00 per month loan payment if your income is only $1,500.00 per month. But you may be able to afford a $900.00 per month loan payment.

What went wrong were greedy loan brokers and lending officers who allowed incorrect or no income disclosures to be reported on the loan applications or many would-be borrowers. This allowed loans to be made (processed through underwriting) and the loans to be quickly packaged with other mortgages and sold into securitized loan packages where the investors didn’t appreciate what they were buying. The lenders did it to earn fees and commissions paid by investment bankers who wanted the loans to create theses packages of loans to sell.

So the nondisclosure or disclosure of incorrect income information is a liar’s loan.

Of course the liar’s loan is a time bomb of sorts. It’s just a matter of time before it blows up because the borrower, sooner or later can’t afford the loan and defaults. The lenders didn’t care because they would sell the loans and weren’t holding the paper. They were, like the loan brokers, selling the loans. Their only interests were in earning fees not in receiving monthly loan payments.

“The biggest Alt. A lender is Pasadena, Calif-based IndyMac Bancorp. (Charts) Trade publication Inside Mortgage Finance estimates it did $70.2 billion of the loans in 2006, up 48 percent from a year earlier. As the sector grew, its shares shot up nearly 50 percent in a year and hit a record high in April 2006. But with rising concern about the mortgage sector, its shares have plunged 36 percent since the start of 2007.

But it's not just the smaller lenders like IndyMac in the sector. Like subprime, some of the nation's largest finance firms are major players. Countrywide Financial (Charts), one of the nation's largest mortgage lenders, is the No. 2 Alt. A lender with $68 billion in loans, according Inside Mortgage Finance.”

The financial markets like the liquidity this system creates when lenders don’t own the paper and instead sell it to investment bankers who create securitized loan packages; but human nature being what it is greed creeps in and the system of checks and balances breaks down. Without regulation greed pushed the liar’s loans out the door in great numbers and into the investment portfolios of pension funds around the world.

According to the Urban Dictionary a “liar’s loan” is defined as, a “no-doc” or “low-doc” mortgage that does not require documentation of income.

For your enjoyment here is a PowerPoint presentation of the sub prime mortgage mess that included liar’s loan process. Sub prime loans are high risk loans. The higher the ration of monthly loan payment to monthly net income of the borrower the more likely it is the borrower will default on their mortgage. It’s more likely someone will fail to make a loan payment when their loan payment is $800.00 per month and they have only $900.00 of income than if the monthly loan payment were $400.00.

The reason why this is a tort is because the loan officer’s are ripping off the investors. But the loan officer’s weren’t alone in this tort. The tortfeasors, as we call the wrong doers are loan brokers, investment bankers to some extent, the appraisers, the builders, the realtors and everyone who earned a fee of some sort and knew these were loans were destined to fail due to income issues. The victims included stockholders at the bank, the investment firms, the pension funds and everyone who bought the securitized loan packages.

Even you may unsuspectingly be a victim. If you own stock in a company that has a financial unit you expect to earn a return on your investment in the stock. But if that investment unit bought securitized loan packages your stock price likely dropped due in part to defaults on subprime mortgages.

“GMAC, the finance unit of General Motors (Charts) that is now 51 percent owned by Cerberus Capital, is No. 3 on the list at $44 billion, and a unit of General Electric (Charts) is No. 4 at $28.3 billion, just ahead of Washington Mutual (Charts), the nation's largest thrift with $25 billion in the loans.

What is not known is which Wall Street firms, banks and hedge funds have bought hundreds of billions of dollars worth of mortgage-backed securities comprised of Alt. A loans, or have lines of credit out to the smaller Alt. A lenders.”

Essentially all involved were selling a dream that didn’t exist.

And what did they use to create the bomb? They used tic tock docs.

http://desmoines.injuryboard.com/uploadedFiles/subprime.ppt

Originally posted at InjuryBoard by Steve Lombardi