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https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 621 | GAO APPENDI X
- 622 - «GAO also recommends that Congress system atically address the need to revamp and modernize the
entire U.S. financial regulatory system. Gaps and weaknesses in OTC derivatives regulation clearly
demonstrate that the existing regulatory structure has not kept pace with the dramatic and rapid
... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 622 | GAO APPENDI X
- 623 - Develop and adopt a consistent set of capital standards for OTC derivatives dealers
sufficient to ensure that all of the major risks associated with derivatives as well as legally
enforceable netting agreements are reflected in capital.
Establish specific requirements for independent, k... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 623 | GAO APPENDI X
- 624 - Volume of Derivatives Activity ................................ ................................ ................................ ................................ ............. 26
Regulatory Framework ................................ ................................ ........................... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 624 | GAO APPENDI X
- 625 -
As regards implementation, the Executive Su mmary concludes the following:
«Recommendations.
A number of actions have been taken or proposed since 1994 that are consistent with the
recommen dations that GAO made in its 1994 report. However, GAO notes that its key recommen -
dations to ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 625 | GAO APPENDI X
- 626 - one or more of the existing federal financial regulators and to ensure that derivatives regulation is
consistent and comprehensive across reg ulatory agencies.»323
The FCIC -report about the 1994 GAO -report.
“Pages in the history of derivative trading”.
The following quote is copied ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 626 | GAO APPENDI X
- 627 - the CFTC’s action may increase the legal uncertainty concerning c ertain types of OTC derivatives.”
They proposed a moratorium on the CFTC’s ability to regulate OTC derivatives.
For months, Rubin, Greenspan, Levitt, and Deputy Treasury Secretary Lawrence Summers
opposed the CFTC’s efforts i... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 627 | GAO APPENDI X
- 628 - Appendix I. Overview of LTCM's Near Collapse And Related Events ................................ ................................ ................. 38
Hedge Funds ................................ ................................ ................................ ................................ |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 628 | GAO APPENDI X
- 629 - 12. SEC and CFTC Lack Autho rity to Regulate Affiliates of Broker -Dealers and FCMs;
13. Regulators Recommended Limited Expansion of SEC and CFTC Authority Over Activities of
Affiliates of Broker -Dealers and FCMs, but Regulatory Gap Would Remain;
14. Expanding SEC and CFTC Authority Over ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 629 | GAO APPENDI X
- 630 -
The following paragraph points out that there is insufficient attention to interrelationships:
«Because of the blurring in recent years of traditional lines that separate the businesses of banks
and securities and futures f irms, it is more important than ever for regulators to assess info... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 630 | GAO APPENDI X
- 631 - «In an effort to identify and prevent potential future crises, Congress s hould consider providing
SEC and CFTC with the authority to regulate the activities of securities and futures firms’ affiliates
similar to that provided the Federal Reserve with respect to bank holding companies. If thi... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 631 | GAO APPENDI X
- 632 - 2. Many of the points made by the CFTC are too vague to know whether they mean anything useful.
It is unclear why they are more than wi shful thinking. They seem to assume voluntary cooperation
of all relevant market participants, but don’t explain why this assumption is credible.
3. The gi... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 632 | GAO APPENDI X
- 633 - 2. As the GAO analyses show, phrases l ike “ developing data that might reveal potential systemic
risks ” are misleading because no (additional) data are needed to reveal systemic risk. More
transparency (data) is necessary to enable all participants to reduce and manage risks.
3. The Fed d... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 633 | GAO APPENDI X
- 634 - In addition to our general comments on the conclusions reached in the Draft Report, we have the
following three specific concerns:
First, the Draft Report compares, but does not distinguish, the levera ge ratios of LTCM and several
large securities firms. Though some securities firms had s... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 634 | GAO APPENDI X
- 635 - 3. Although the reaction of the SEC shows a more positive attitude than those of CFTC, Fed and
Treasury, its analytic weakness, and the absence of signs of understanding, give rise to doubts
about the adequacy of its supervision.344
Treasury
(The reaction is dated 25/10/99).
«Thank y... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 635 | GAO APPENDI X
- 636 - and Treasury could have systematically compared the GAO report with that of the PWG, but didn’t. It
is easy to see that its superficiality and noncommittal character ensured that no substantial
improvement took place.
Appendix. The LTCM report of the PWG.
The report is dated 28 April 19... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 636 | GAO APPENDI X
- 637 - studies that have been undertaken so far have suggested, the activities of highly leveraged institutions
do not appear to have played a significant role in precipitating the financial market crises of the past
few years. Further study of this issue will be u ndertaken by the Financial Stabili... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 637 | GEITHNER APPENDIX
- 638 - 10. Timothy Franz Geithner.
Table of contents of this appendix.
Summary and conclusions.
Miscellaneous notes.
Curriculum vitae.
28/2/06: speech at the 7th Annual Risk Management Conventi on & Exhibition of the GARP.
6/5/10: Geithner is heard by the FCIC.
Summ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 638 | GEITHNER APPENDIX
- 639 - 1995 -6 Deputy assistant secretary for international monetary and financial policy.
1996 -7 Senior deputy assistant secretary for international affairs.
1997 -8 Assistant secretary for international affairs.
1998 -2001 Under Secretary of the Treasury for International Affairs under ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 639 | GEITHNER APPENDIX
- 640 - 5th par agraph).
He notes that innovations generally precede adjustments of regulation. There is a “gap”:
«Market discipline exercised by counterparties should create incentives to close these gaps
relatively quickly, but competition among financial intermediarie s can, at least fo... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 640 | GEITHNER APPENDIX
- 641 - only to regulated or super vised institutions.357 They suggest that adverse developments outside the
banking system, such as the failure of a major nonbank financial intermediary, can potentially cause
greater damage to the core of the financial system than might have been the case in ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 641 | GEITHNER APPENDIX
- 642 -
Why by the way can’t a published speech give references to proofs?
6/5/10.
Geithner heard as a witness by the FCIC.
In his introduction Geithner asserts:
«And over time, a large parallel banking system took root outside of the regulatory framework
established for banks. In ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 642 | GEITHNER APPENDIX
- 643 - WITNESS GEITHNER: […] So I think the simplest way to answer your question about what did
we not know, what we did not know was the degree to which the system was reliant on ra tings, ratings
that did not capture what falling house prices would do to losses across the system. We did not ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 643 | GEITHNER APPENDIX
- 644 - say this, was that I think we faced growing risks across this financial system of exposure to a very
dramatic crisis. And part of it of course was what was happening in real estate markets. It was not
principally because of what was happening in subprime. It was a much broader phenomen... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 644 | GEITHNER APPENDIX
- 645 - fund failures had on the system as a whole. A lot of examples of things that those results that were
helpful for the system. But [it] absolutely did not do enough soon enough to ma ke the system strong
enough to withstand that.»
It is a pity that he does not explain why he did nothing... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 645 | GRAPHS
- 646 - 11. (Additional) Graphs.
The front cover of Annual Report 2001 of Fannie Mae.
|
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- 647 - Fig 5.1 of the FCIC report, on p. 69/97.
Funding f or Mortgages, in percent by source.
SOURCE: Federal Reserve Flow of Funds Report.
|
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 647 | GRAPHS
- 648 - Fig 5.2 of the FCIC report, on p. 70/98.
Subprime mortgage originations, in billions of dollars.
Note: Percent securitized is defined as subprime securities issued divided by originations in a given
year. In 2007, securities issued exceeded originations.
SOURCE: Inside Mortgage Finance ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 648 | GRAPHS
- 649 - Fig. 7.3 of the FCIC report, on p. 124/152.
Buyers of Non -GSE Mortgage -Backed Securities. In billions of dollars.
SOURCES: Inside Mortgage Finance, Fannie Mae, Freddie Mac.
Fig. 11 .1 of the FCIC report, on p. 216/244.
Mortgage Delinquencies by Region. In percent, by region.
... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 649 | GRAPHS
- 650 - Fig. 11.2 of the FCIC report, on p. 217/245.
Mortgage Delinquencies by loan type. In percent, by type.
NOTE: Serious delinquencies include mortgages 90 days or more past due and those in foreclosure.
SOURCE: Mortgage Bankers Association Na tional Delinquency Survey.
|
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 650 | GRAPHS
- 651 - Fig. 11.4 of the FCIC report, on p. 229/257.
Impaired Securities. In billions of dollars.
Impairment of 2005 -2007 vintage mortgage -backed securities (MBS) and CDOs as of year -end 2009,
by initial rating. A security is impaire d when it is downgraded to C or Ca, or when it suffers a
principa... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 651 | GRAPHS
- 652 - IMF GFSR April 2008, p. 56.
European and U.S. Structured Credit Issuance (in billions of U.S. dollars)
Sources: Inside MBS & ABS; JPMorgan Chase & Co.; and European Securitization Forum.
Note: CDOs = collateralized debt obligations; ABS = asset -backed securities, including auto, credit ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 652 | GRAPHS
- 653 - IMF GFSR April 2008, Figure 1.12, p. 13.
Comparison of Financial Cr ises
IMF GFSR April 2008, Figure 1.13, p. 13.
Expected Bank Losses as of March 2008 (In billions of U.S. dollars)
|
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 653 | GRAPHS
- 654 - Preliminary FCIC staff report GSEs and the financial crisis, Figure 10, p. 14.
Total MBS outstanding.
The figure «shows the growth of the two companies in terms of the total volume of guaranteed MBS
that were held outside of the GSEs’ own portfolio. These MBS are referred to as “MBS outs... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 654 | GRAPHS
- 655 - FHFA: Mortgage Markets and the Enterprises in 2007,362 Figure 33.363
Enterprise Share of Residential Mortgage Debt Outstanding.
Source: Fannie Mae, Freddie Mac, Boar d of Governors of the Federal Reserve System.
First report of the parliamentary inquiry commissie De Wit (CDW), p. 37... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 655 |
GREENSPAN APPENDIX
- 656 - 12. Alan Greenspan .
This appendix concerns Greenspan. There is a separate appendix about the Fed.
Table of contents of this appendix.
From the Wiki -page Greenspan.
Congressional testimony on October 23, 2008.
From the hearing of Greenspan by the FCIC on April 7, 201... |
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GREENSPAN APPENDIX
- 657 - For some relevant informatio n about Greenspan in the period before the Fed see Part 1 of the film
Inside Job .
August 11, 1987 - January 31, 2006. Fed chairman. ((Re)appointed by the presidents Reagan, George
H. W. Bush, Clinton en George W. Bush).
Greenspan meddled with poli... |
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GREENSPAN APPENDIX
- 658 - «Alan Greenspan, the F ed chairman during the two decades leading up to the crash, told the
Commission that it was beyond the ability of regulators to ever foresee such a sharp decline. “History
tells us [regulators] cannot identify the timing of a crisis, or anticipate exactly where ... |
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GREENSPAN APPENDIX
- 659 - running into a bubble and we would have to start to retrench, the Congress would say we haven't a
clue what you are talking about. And I can virtually guarantee, indeed, if you want to go back and lo ok
at what various members of the House and the Senate said during these periods, on ... |
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GREENSPAN APPENDIX
- 660 - failed to recognize the systemic risk posed by an unregulated over -the-counter derivatives market; and
they permitted the financial system and the economy to reach the brink of disaster. You also failed to
prevent many of our banks from consolidating and growing into gigantic instit... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 660 |
GREENSPAN APPENDIX
- 661 - was witnessing a housing bubble. On June 18,369 2005, The Economist magazine’s cover story posited
that the day of reckoning was at hand, with the headline “House Prices: After the Fall.” The
illustration depicted a bric k plummeting out of the sky. “It is not going to be pretty,” th... |
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GREENSPAN APPENDIX
- 662 - decrease economic efficiency, and that . . . limit choices and options for the consumer of financial
services.” Removing the barriers “would permit banking organizations to compete more effectively in
their natural markets. The result would be a more efficient financial system providi... |
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GREENSPAN APPENDIX
- 663 - economic distress by facilitating the extraction of some of the equity that home -owners had built
up.”373 In February 2004, he reiterated his point, referring to “a large extraction of cash from home
equity.” »374 FCIC p . 88/116.
Speculates irresponsibly:
«Nationwide, house pr... |
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IMF APPENDIX
- 664 - 13. Evaluation of some crisis -relevant IMF reports.
This appendix eval uates the following IMF reports:
Global financial stability report (GFSR) 2005 -2 (September 2005)
GFSR 2006 -1 (April 2006)
Annual report (AR) 2006 (September 2006)
GFSR 2007 -1 (April 2007).
AR 2... |
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IMF APPENDIX
- 665 - 10. None of the reports betrays knowledge or understanding of the GAO 1994 -1999 reports, and
nothing in the IMF reports shows analytic capabilities comparable to those of the GAO. The
OFHE O and CGFS reports are ignored as well. In other words: IMF is not acquainted with the
literature it... |
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IMF APPENDIX
- 666 - Dominique Strauss Kahn. In his case too, there were good reasons for denying his suitability for the
IMF-position. Both as regards competence and integrity. Idem for Christine Lagarde.379
The head office of the IMF is in Washi ngton D.C. The IMF has approximately 2610 employees.380
In ... |
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IMF APPENDIX
- 667 - of the United States, and consequently private investors’ current appetite for U.S. dollar assets, allow
for a smooth financing of global imbalances. The same benign forces underpinning continued growth
and buoyant financial markets, however, have also created larger global imbalances and b... |
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IMF APPENDIX
- 668 - events would be regarded as specific rather than gen eralized, further containing future market
volatility.»
(This is the complete, unabridged section).
Several of the assertions in this section are debatable if not untrue (see below), and in general no or
insufficient substantiation... |
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IMF APPENDIX
- 669 - depreciation and downgrading as a consequence of market disruptions. Even though these
phenomena are logical and seen in all historical crises.
3. Chapter 2 does not consider derivatives i n the context of the financial system as a whole. The
question whether they cause risks for the oper... |
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IMF APPENDIX
- 670 - more nuanced view of the financial outlook for the remainder of 2006 and beyond.
As this report has argued earlier, globalization and financial innovations have advanced the scope
for capital markets to channel credit to various users in the economy. In particular, the emergence of
numer... |
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IMF APPENDIX
- 671 - addition, operational risks, such as delays in credit derivative trade confir mations , assignments of
contracts to third parties, and contract settlements, have been identified as weaknesses, and remedial
actions are being undertaken by market participants to address them.»
So without an... |
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IMF APPENDIX
- 672 - «There is growing recognition that the dispersion of credit risk by banks to a broader and more
diverse group of investors, rather than warehousing such risk on their balance sheets, has helped to
make the banking and overall financial system more resilient» .390
The sentence refers to th... |
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IMF APPENDIX
- 673 - such developments are being restrained by a lack of clarity regarding the regulatory and rating agency
treatment of such transactio ns.»396
As to clarity this leaves something to be desired. If only because it is not clear what reliable and
useful information about risks looks like. The pa... |
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IMF APPENDIX
- 674 - The Summing up begins with a section Assessment of Financial Stability and Policy Implication.
The following gives an impression:
«Directors welcomed the continued resilience of the global financial system, which has been
suppor ted by solid global growth, low inflation, abundant liquidit... |
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IMF APPENDIX
- 675 - Note that the growth of household debt is mentioned among the causes of risk increase, but not that
of government debts. Which would remain a risk even if reduced by the virtually impossible amount
of 10%.
The third paragraph shows that the IMF is aware of developments in the American hom... |
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IMF APPENDIX
- 676 - The annual reports of the IMF cover the period 1/5 until (& including) 30/4. Annual report 2006
covers 1/5/05 -30/4/06. The files with the annual report 2006 are dated 6/9/06. The website does not
offer the annual report as a single file. There is a separate file for each chapter, appendix... |
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IMF APPENDIX
- 677 - o Balance sheet analysis
o Global economic and financial impact of an avian flu pandemic
The introduction begins as follows:
«Surveillance is one of the IMF’s main tools in the prevention of financial crises. Although the
crises of the 1990s have been followed b y several years of re... |
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IMF APPENDIX
- 678 - were written independently and have not been discussed or coordinated.
Quotes and evaluation.
The report has an Annex Summing up by the Chairman beside an Executive summary in the front.
The Executive summary begins as follows:
«Favorable global economic prospects, particularly ... |
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IMF APPENDIX
- 679 - following:
«Global economic conditions have been supportive of a benign financial environment, but there are
now emerging developments that have the potential to weaken financial stability. [...] The challenge,
therefore, is to further strengthen the financial system to ensure its resili... |
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IMF APPENDIX
- 680 - IMF AR 2009 (July 2009; file created 14/9/09 & modified 23/9/09) .422
Conclusion.
The crisis has not changed the IMF. As before, it writes as if knowing and understanding
everything. The crisis has proven that its understanding is fully 100% nonsense. IMF AR 2009 is
written as if IMF... |
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IMF APPENDIX
- 681 - past.
The point is that all causes mentioned have causes that may remain unchanged by dealing only with
those mentioned.
The IMF does not acknowledge its own failure, and (therefore…) does not try to find the causes of
this failure. Many of the remarks it makes could and should have been... |
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IRISH REPORTS APPENDIX
- 682 - 14. Two Irish Investigation Reports.
The two reports are:
The Irish banking crisis regulatory and financial stability policy 2003 -2008. A Report to the
Minister for Finance by th e Governor of the Central Bank. 31 May 2010.
Misjudging risk: causes of the systemic banki... |
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IRISH REPORTS APPENDIX
- 683 - measures such as additional capital buffer requirements for risky property lending. Although some
initiatives were taken, deference and diffidence on the part of the CBFSAI led to insufficient dec isive
action or even clear and pointed warnings. There was an unresolved anxiety tha... |
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IRISH REPORTS APPENDIX
- 684 - that this implies incompete nce and lack of integrity. No effort is made to find causes and
remedies.
8. The report lends support to the conclusion that hierarchical organisation promotes repression:
everyone has to follow the leader and accept his views, even if irrational, dan... |
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IRISH REPORTS APPENDIX
- 685 - 2.12 To Sum Up - the Mechanism of Contagion 49
CHAPTER 3 - EXTERNAL AUDITORS 51
3.1 The Issue 51
3.2 Background 51
3.3 The Statutory Audit and Going Concern 53
3.4 Auditing Irish Banks 53
3.5 Audit Limitations and an “Expectations G ap” 54
3.6 Other Communication by ... |
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IRISH REPORTS APPENDIX
- 686 -
«Herding
The willingness of investors and banks to simultaneousl y invest in, lend to and own the same type of
assets, accompanied by insufficient information gathering and processing.»
«Leverage
The degree to which an investor or business is utilising borrowed money/debt... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 686 |
IRISH REPORTS APPENDIX
- 687 - In designing the constraints and rules for banking in the future, full account will need to be taken of
the failure of private and public institutions to appreciate the emerging risks and to take action. If
responsible authorities are affected by the prevailing paradigms, they can... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 687 |
IRISH REPORTS APPENDIX
- 688 - In addition, there were some indications that prudential concerns voiced within the operational part
of certain banks may have been discouraged. Early warning signs generated lower down in the
organisation may in some cases not have reached management o r the board. If so, the pre... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 688 |
IRISH REPORTS APPENDIX
- 689 - «The DoF and the Minister for Finance were regularly provided with a Financial Stability Report,
officially jointly written by the CB and the FR. In practice, the FR appears to have participated
primarily at board level.445»446
«Generally, international organisations (IMF, EU, ... |
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IRISH REPORTS APPENDIX
- 690 - The last two proposals are nice, but ignore the reasons of the management for not doing this on a
regular basis in the past. Neither here nor in the following lessons does the commission tackle the
deeper causes of the p roblems it has noted.
The commission should at least have ... |
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IRISH REPORTS APPENDIX
- 691 - not appreciated at senior levels there. However, there are signs that a hierarchical culture, with
elemen ts of self -censorship at various levels, developed in the CB. Of course, this eventually made it
even harder to address the increasing instabilities in the financial market.4... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 691 |
IRISH REPORTS APPENDIX
- 692 - According to the commission, this background «goes some way towards explaining why the crisis,
despite being the culmination of a nu mber of clearly unsustainable developments, was so totally and
generally unexpected almost up to the very last minute.»454
The reactions to the GAO... |
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IRISH REPORTS APPENDIX
- 693 - eroded within the Irish banking system, as evidenced by the very rapid growth in lending and
wholesale funding. The Commission has not found any clear and documented cause for the
simultaneous lack of action by various watchdog authorities; it can therefore offer only the partly ... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 693 |
IRISH REPORTS APPENDIX
- 694 - The commission does not make suggestions regarding irrational thinking, groupthink and herding,
let alone repression and intolerance. The report is clearly incomplete. |
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MOODY’S APPENDIX
- 695 - 15. On the FCIC -hearings of Moody’s employees.
Moody’s Corporation was one of the three main rating agencies. (The other two being Standard &
Poors, and Fitch). In 2006 it had an average of approximately 3300 employees worldwide.460
Time and location of the hearings.
The hear... |
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MOODY’S APPENDIX
- 696 - and analyzed the documents, and drawn a number of conclusions, the FCIC could have held very
different hearings. For specific suggestions see Wellinks meineed .
No knowledge of CGFS or GAO reports, or the OFHEO systemic risk report.
No knowledge or understanding of the GAO -reports... |
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MOODY’S APPENDIX
- 697 - one wants to avoid crises and the consequences of bubble implosion.465 In other words: in risk
management and safety tests one should use historical time series which are sufficientl y long to
include several bubbles and crises.
Rating undefined.
Insufficient competence is also s... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 697 |
MOODY’S APPENDIX
- 698 - problem. The under standing necessary for making good ratings, for which people can accept liability,
is absent).
In 1997 -2007 a cultural transformation took place in Mo ody’s. Together with the changing
priorities, the possibilities of independent evaluation by analysts were redu... |
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MOODY’S APPENDIX
- 699 - but utterly unprofessional all the same.471 Without having considered their possible consequences. The
unthinking reader agrees with the author that there is no reason for action.
For comparison, the following gives a few quotes from the secti on Financial markets on pp. 44 -46
of ... |
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MOODY’S APPENDIX
- 700 - The conclusion should be that there is no excuse for the underes timation by the rating analysts of
the consequences of a housing downturn. They should have taken account of the possibility of a crash,
and/or major negative effects on the financial system of a fall in home prices. A (g... |
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MOODY’S APPENDIX
- 701 - Graham sees a «recurring pattern in American society where we see bright warning lights going off
which are igno red until they mature into a catastrophe.»
The generalization “we” is incorrect and misleading. It hides the fact that those noting warning
lights are not the ones who ar... |
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MOODY’S APPENDIX
- 702 - Raymond McDaniel , Chairman and CEO of Moody's Corporation.
The transcript doesn’t say more about these people, and they themselves don’t do either.
Session 3. Lawyers/ legal analysts.
Mark Froeba «My name is Mark Froeba. I'm a lawyer. I live and work here in New York City,... |
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MOODY’S APPENDIX
- 703 - standards.»
According to Siegel everybody believed in his ratings, and nobody foresaw a crash.
«Moody’s, like other market participants, certainly did not foresee as imminent the severity or
speed of deterioration that occurred in the U.S. housing market after that period or the r... |
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MOODY’S APPENDIX
- 704 - hiring staff, and I just couldn’t understand it then and I still don’t now.»
As if the higher management simply didn’t mind about people and quality.
A snapshot of short -sightedness and underestimation:
«MR. WEILL: I was part, as I said in my testimony, on the surveillance team... |
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MOODY’S APPENDIX
- 705 - 2. There is a structural problem of being unable to say no even when required by minimal
quality standards.
3. How could business continue as usual at a time of general downgrading?
Notwithstanding what the chairman says, the time series graph of the ABX index supports the
claim t... |
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MOODY’S APPENDIX
- 706 - Thompson asks for the background of the reassignment and departure of Witt:
«Dr. Witt, in the business I come from, when someone gets reassigned, sometimes that's a
euphemism for something else. What does that m ean in your language?
DR. WITT: I believe that I was reassigned out of ... |
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MOODY’S APPENDIX
- 707 - But as noted earlier, the second “fact” may be a figment of the mi nd of Graham, and in reality due no
more than coincidence.
The concept of “rating” is insufficiently analyzed and defined.
As regards the quality of the ratings, the members of the FCIC are unable to be more specif... |
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MOODY’S APPENDIX
- 708 - warnings had been given, but that rating agencies, supervisors and governments should always take
account of the possibility of a bubble, and the possibility of a reversal of a trend in home prices.
Irrespective of warnings. This is noted by neither FCIC nor CDW, who let everything dep... |
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MOODY’S APPENDIX
- 709 - The “as a society” of Graham is of course entirely unfounded, and, given th e distribution of
functions and responsibilitues, a very reprehensible accusation.
Regulation of supervision of rating agencies.
«MR. McDANIEL: Pursuant to the Credit Rating Agency Reform Act of 2006, whi... |
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MOODY’S APPENDIX
- 710 - 2007 where you had the residential mortgage -backed securities clearly up for downgrade and at the
same time are rating CDOs based on the same underlying RMBSs, and went ahead and ra ted them
AAA. It doesn't seem like all the relevant information was brought into the rating process. An... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 710 |
MOODY’S APPENDIX
- 711 - MR. BUFFETT: - how would I rate states and major municipalities? I mean, if the federal
government will step in to he lp them, they are AAA. If the Federal government won't step in to help
them, who knows what they are? I mean, if you're looking now at something where you could look
b... |
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MOODY’S APPENDIX
- 712 - with his chairmanship of the FCIC, because he has no credentials at all for a role as researcher/
inquirer. His lack of understanding and his rancor (prejudice) show that he is unfit for an inquiry
commission. It certainly troubles his relation with (the clearly open) Froeba.
The ar... |
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MOODY’S APPENDIX
- 713 - How Brian Clarkson kept the pressure on his employees:
«CHAIRMAN AN GELIDES: […] You mentioned specific threats against employees if they didn't,
what, rate deals?
MR. FROEBA: Well, I think I left out some discussion of ways in which Brian threatened to fire
people. That was a key ... |
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MOODY’S APPENDIX
- 714 - market share. His questioning suggests that there we re also changes in methods for other reasons than
market share.
During the questioning by Graham it is explained how an AAA security could be created out of
BBB securities. Essentially the trick is to assume independence of the p... |
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MOODY’S APPENDIX
- 715 - MR. KOLCHINSKY: I think in general, legal liability was almost - discussions of legal liability,
almost nonexistent. That was part of the problem. People didn't think. […] I actually want to also add
to the other question about the lawyers and accountants, lawyers and accountants have ... |
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MOODY’S APPENDIX
- 716 - «MR. KOLCHINSKY: One thing, you know, I - once they did make a decision to downgrade in
'07, in September, and I found out about it and actually tried to stop the factory, a manager, Ms.
Yoshizawa, did not wan t to do that. And I actually spoke to Dr. Witt. I didn't know what to do. He... |
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MOODY’S APPENDIX
- 717 - pace of the developments in the financial products with its updating of rating methods. The updating
problem did get attention, and it was even concluded that the ratings should be less optimistic. But a
paper with that conclusion was not clea red for publication.
« COMMISSIONER BOR... |
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OCC APPENDIX
- 718 - 16. On the OCC annual reports 2006 -2008.
Short summary.
The character of the annual reports of the OCC is similar to that of the annual reports of the other
US supervisors. They give far too little open and serious attention to OCC activities a nd to the part of
the financial syste... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 718 |
OCC APPENDIX
- 719 - Eugene Ludwig 1993 –1998
John D. Hawke, Jr. 1998 –2004
John C. Dugan 2005 – 2010
Thomas J. Curry 2012 – present491
Conclusions from the evaluation of the annual reports 2006 -2008.
1. In terms of the g oals which it had formulated itself the OCC has failed;492
2. Important c... |
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OCC APPENDIX
- 720 - 1. A safe and sound national banking system.
2. Fair access to financial services and fair treatment of bank customers.
3. A flexible legal and regulatory framework that enables the national banking system to provide
a full, competitive array of financial services.
4. An expert, highly... |
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OCC APPENDIX
- 721 - are concerned that banks may not properly manage the risks they entail, especially in an environment
of rising interest rates and softening real estate markets. Our guidance therefore cautions banks to
assess a borrower’s ability to repay the loan at the fully amortized rate and to ensure t... |
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