Sunday, December 1, 2013

Wall Street Is Up To Its Old Tricks That Triggered The Financial Crisis

The Dodd-Frank bill was created by Congress to prevent another financial crisis like the last crisis.  Some of the key elements in the bill have been weakened by extensive lobbying efforts in Washington.  Now they can package mortgages with only a 5% down payments into mortgage backed securities that they sell to investors.  Furthermore, they are no longer required to hold a 5% interest in the mortgages that they put into the MBS's that they produce.  The SEC has also decided that it will not determine which rating agency will be used by the banks to rate each MBS.  The rating agencies will have an incentive to provide AAA ratings in order to secure profitable business from the banks.  The banks also want the government to guarantee the MBS's.  Taxpayers will take the hit for any defaults.

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