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Posts Tagged ‘complex-financial-instruments’

Threatens U.S. banks, a new heart attack?

An independent committee of the U.S. Congress warns of new losses of billions of the banks. This is due to sloppiness in the accounting department: There are many ambiguities in the mortgage.

Vagueness: many houses – one here, which is in Texas for sale – can prove the banks may not be that the mortgage they own.
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Again billion loss at Freddie Mac
The American real estate have in the past two years on average lost nearly half its value. That is a serious blow to the banks and in the fall of 2008 nearly led to the collapse of the entire financial system. So it can get worse? It can be. Now it turns out that the banks may not even know who owns the homes they have financed with cheap money. The “Congressional Oversight Panel”, an independent committee of the U.S. Congress warned, so before a second “banking heart attack” and calls for a new stress test for financial institutions.

How did it come to this mess? Before the housing bubble has burst, it went to the U.S. housing market as in the wooden sky. Representatives of savings banks turned windy houses to people who could never pay it. Investment banks fueled with highly complex financial instruments, investment vehicles, the returns promised to never corresponded to reality. “All of these subprime lenders grew so quickly and made their accounts in such a lousy, that they could conceal that they reached no real profits, but merely illusory accounting profits,” Michael Lewis describes the situation in his bestseller “The Big Shorts.”

Who is the owner of the mortgage?

After the near collapse in the autumn of 2008, the U.S. financial system of government and the central bank with a lot of money was saved. Around 700 billion dollars under the Tarp program provided the first aid. At the same time in the American Parliament, the Congress established a commission with the task to investigate the reasons for this debacle.

This Commission has now submitted an explosive report. It is warned that because of sloppy bookkeeping, a second heart attack threatens the U.S. banking system. In the worst case, it is said in the report of the Commission, it may be that the securitization of mortgages in recent years took place so rapidly that it sprinkle the capabilities of the courts and the financial system. In plain language: “The banks might not be able to prove that they actually are the owners of the mortgages, they sign on the right.”

“To those did not care what they have turned on the people”

The chaos in the books of U.S. banks would be a reason for gloating – it would not be as dramatic consequences. If in fact can not be proven who owns the houses, which are now foreclosed million times, then years of court cases and lawsuits threaten billions of dollars. The result would be a bloodbath for the U.S. banks. “To put this in perspective,” the Commission warns, “is that the market for securitized mortgages about 7600 billion dollars. And that even if only a small part of which has not been handled regularly, have dramatic effects could have on the balance sheets of banks. ”

Conclusion: The report of the Congressional Oversight Panel has clarified once more, bringing the bankers and subprime specialist Steve Eisman in Lewis’ “The Big Short” to the point as follows: “These guys lie down under the sun. What I have learned from hard experience: Wall Street … it was beautiful-no matter what they have turned on the people. “