Bloomberg reported today that Ralph Cioffi and Matthew Tannin, former hedge fund managers for Bear Stearns, had been found not guilty of misleading investors in the funds they managed. Their investors lost $1.6 billion.
This was the first trial of its kind, related to the mortgage meltdown, and I'm glad to see this verdict. I believe the blame for the meltdown belongs to all participants in the industry. It started with people willing to take out a loan fraudulently, along with people willing to lend to them and even contribute to the fraud. It carried over to the loan sellers who sold loans they knew were fraudulent, and financial institutions that bought and securitized them despite the underlying fraud. It included the rating agencies and investors who looked the other way. And it included the due diligence advisors who didn't report the fraud they saw.
In other words, we, as an industry, are the ones responsible. It shouldn't be left to the ones who were last, or next to the last, in the chain to take the blame for the entire industry. Nor should it all be put on the borrowers, servicers, sellers or any other single party.
If something rises from the ashes of the mortgage meltdown, it should be a willingness on all parts to refuse to repeat those mistakes. Investors need to demand full and accurate disclosure; rating agencies need to hold their ground; underwriters need to be meticulous in selecting loans to securitize; lenders have to refuse to fund or buy fraudulent loans; and borrowers need to play by the rules.
To accomplish that, we need to have real change take hold in our industry. I'm seeing it, by the day, when I talk to dealers, investors and rating agencies. There are many in our industry who are committed to demonstrating that the mortgage market is one worth restarting. There will also be plenty of unscrupulous players who emerge over time. But I think the rest of us will prevail.
Comments
Bear Stearns pioneered the
Bear Stearns pioneered the securitization and asset-backed securities markets, and as investor losses mounted in those markets in 2006 and 2007, the company actually increased its exposure, especially the mortgage-backed assets that were central to the subprime mortgage crisis. In March 2008, the Federal Reserve Bank of New York provided an emergency loan to try to avert a sudden collapse of the company. The company could not be saved, however, and was sold to JPMorgan Chase for as low as ten dollars per share, a price far below the 52-week high of $133.20 per share, traded before the crisis, although not as low as the two dollars per share originally agreed upon by Bear Stearns and JP Morgan Chase
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William student of ccna training.