Wall Streets Sub Prime Debt Ponzi Scheme
Subprime lender American Business Financial Services was offering 13-month notes with a yield of 12.99 percent and an ``uninsured money market note'' with a yield of 6.05 percent. Investors snapped up the unrated American Business notes.
Buck Meyer bought $300,000 worth. Meyer, who has two children, planned to use the interest payments from the American Business bonds to cover the mortgage payments on his new home outside Chattanooga, Tennessee.
Bear Stearns, the largest underwriter of mortgage bonds last year, Zurich-based Credit Suisse, JPMorgan, the third- biggest bank, and Morgan Stanley, the No. 2 securities firm based on market capitalization...
each collected about $50 million in fees by lending money to American Business and repackaging home loans from the Philadelphia-based company into $3.6 billion of mortgage-backed bonds between 2000 and 2003.
Bear Stearns Chief Executive Officer James Cayne, JPMorgan CEO James Dimon and Morgan Stanley CEO John Mack each received at least $40 million in compensation last year, regulatory filings show. Credit Suisse Chairman Walter Kielholz was paid 16 million Swiss francs ($13.2 million).
In the last five years, American Business made more than $6 billion of loans. Between 2000 and 2004 the founders earned $9.9 million, according to data compiled by Bloomberg.
American Business obtained funding for the mortgages from lines of credit provided by the Wall Street firms. The mortgages were then sold to trusts that issued bonds backed by the interest and principal payments on the home loans. The credit lines were secured by the mortgages.
The company recorded as profit fees from administering mortgages that it would receive in coming years, using standard accounting rules.
90 days after Meyer bought his bonds, American Business entered bankruptcy during the strongest housing market ever. Mortgage rates were near all-time lows set in 2003 and home sales set annual records that year.
The amount of "profit" was inflated because American Business underestimated the rate of defaults, making it look like they would receive more fees and resulting in ``phantom'' gains from the sales of mortgages. A record 10 percent of the loans are delinquent or in foreclosure, according to UBS AG.
In the three prior years, American Financial was losing $200 million a year even though it appeared solvent. The state securities regulator beginning in November 2005 issued subpoenas to some of the firms as part of a probe into how Pennsylvanians and other investors lost hundreds of millions of dollars,
Whether Wall Street's best and brightest were reckless in their pursuit of profits and somehow responsible for the consequences will be decided in a Philadelphia court.
That's where the four top brands of finance are accused of creating an ``illusion'' that American Business was a safe investment, according to a lawsuit filed on behalf of Meyer and the more than 25,000 other individuals who held about $600 million of the company's bonds when it went bankrupt in 2005.
26,534 proofs of claim have been filed from creditors as of January, many from retirees who invested their life savings. "At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer.
The Nattering One muses, how could Wall Street's best and brightest not have seen this coming? Is it guilt by omission or are they really that stupid? Me thinks the former, rather than the latter.
From Bloomberg
Buck Meyer bought $300,000 worth. Meyer, who has two children, planned to use the interest payments from the American Business bonds to cover the mortgage payments on his new home outside Chattanooga, Tennessee.
Bear Stearns, the largest underwriter of mortgage bonds last year, Zurich-based Credit Suisse, JPMorgan, the third- biggest bank, and Morgan Stanley, the No. 2 securities firm based on market capitalization...
each collected about $50 million in fees by lending money to American Business and repackaging home loans from the Philadelphia-based company into $3.6 billion of mortgage-backed bonds between 2000 and 2003.
Bear Stearns Chief Executive Officer James Cayne, JPMorgan CEO James Dimon and Morgan Stanley CEO John Mack each received at least $40 million in compensation last year, regulatory filings show. Credit Suisse Chairman Walter Kielholz was paid 16 million Swiss francs ($13.2 million).
In the last five years, American Business made more than $6 billion of loans. Between 2000 and 2004 the founders earned $9.9 million, according to data compiled by Bloomberg.
American Business obtained funding for the mortgages from lines of credit provided by the Wall Street firms. The mortgages were then sold to trusts that issued bonds backed by the interest and principal payments on the home loans. The credit lines were secured by the mortgages.
The company recorded as profit fees from administering mortgages that it would receive in coming years, using standard accounting rules.
90 days after Meyer bought his bonds, American Business entered bankruptcy during the strongest housing market ever. Mortgage rates were near all-time lows set in 2003 and home sales set annual records that year.
The amount of "profit" was inflated because American Business underestimated the rate of defaults, making it look like they would receive more fees and resulting in ``phantom'' gains from the sales of mortgages. A record 10 percent of the loans are delinquent or in foreclosure, according to UBS AG.
In the three prior years, American Financial was losing $200 million a year even though it appeared solvent. The state securities regulator beginning in November 2005 issued subpoenas to some of the firms as part of a probe into how Pennsylvanians and other investors lost hundreds of millions of dollars,
Whether Wall Street's best and brightest were reckless in their pursuit of profits and somehow responsible for the consequences will be decided in a Philadelphia court.
That's where the four top brands of finance are accused of creating an ``illusion'' that American Business was a safe investment, according to a lawsuit filed on behalf of Meyer and the more than 25,000 other individuals who held about $600 million of the company's bonds when it went bankrupt in 2005.
26,534 proofs of claim have been filed from creditors as of January, many from retirees who invested their life savings. "At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer.
The Nattering One muses, how could Wall Street's best and brightest not have seen this coming? Is it guilt by omission or are they really that stupid? Me thinks the former, rather than the latter.
From Bloomberg
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