'Ratings shopping' makes a comeback in the US

Financial Times ^ | 15 September 2014

[Lorianne]

Sales of subprime mortgage bonds have withered since the financial crisis, but fresh concerns are arising as issuance of some other types of securitisations surges. Sales of bonds backed by loans used to finance car purchases undertaken by the least creditworthy borrowers have reached pre-crisis levels in the US, prompting a Department of Justice investigation. While losses on subprime auto asset-backed securities (ABS) remained low during the crisis, there are concerns that new specialised lending companies are making riskier loans which are then being bundled into the bonds.

Fitch Ratings has been hired to rate only four of the 29 subprime auto ABS deals sold so far this year, after telling issuers that the vast majority of the bonds did not deserve the triple-A ratings reserved for the highest-quality credits. Fitch – one of the “big three” agencies alongside Moody’s and Standard & Poor’s – warns that a flood of new entrants into the subprime auto lending market are lending to riskier borrowers as they seek to establish a foothold in the market. The creators of such securitisations typically pad the debt with extra cash or introduce other safety features – known as “credit enhancement” – to generate higher ratings on bonds comprised of riskier loans.

US sales of commercial mortgage-backed securities, or CMBS, have also staged a recovery with $102bn worth of the deals sold last year – the highest amount since the $231bn issued in 2007, according to Dealogic data. At the same time, some market participants have been warning that the quality of the loans that underpin the bonds – typically secured by shopping malls, office buildings and other commercial properties – has been slipping.

[palmer]

America has been hijacked by the financial scam artists, trial lawyers, and their pet politicians and LIV moochers and enablers. Instead of innovation and hard work the big rewards go to conniving and officially sanctioned looting. The liberal class pretends to be noble by giving OPM to the welfare class. The welfare class collects entitlements and plays the lottery as a career strategy. Immigrants flood into the country not just to cuts lawns off the books, but to live the American dream which now appears to be creating the biggest scam possible.

As Freeper CNN points out over and over, we all pretty much fail at keeping Americans gainfully employed. We aren't buying American goods and we aren't voting for politicians who want to strengthen American industry. Instead we "invest" in a market that is constructed from financial scams especially the largest one of all and perhaps the largest in human history: the wholesale printing of our currency to fund the scam mortgage market and the politicians boondoggles.

Nothing good will come from all of this. The dollar is being propped almost solely by the destruction of other currencies. We do that by the carry trade (creating boom and bust destruction in marginal economies), the exporting of our toxic financial products, the willful sabotage of other economies by means that should be reserved for just warfare and the massive funding of the largest US banks which pours money into numerous short term scams.

The solution to all of this is ridiculously simple, cut the federal government. This is seemingly impossible yet it will inevitably collapse. The working class will be taxed into oblivion and forced into the welfare class which will allow the inflated currency to be distributed directly to large numbers of people Zimbabwe style. The preeminence of American technology will disappear with our manufacturing and eventually the IT sector, as it is all replaced by the financial scam sector. With our copious resources we may end up more like Nigeria than Zimbabwe, but the 1% (by then 0.1%) will own all of that.