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Greenspan Tells Congress Bad Data Hurt Wall Street
CWmike writes "Former Reserve Bank chairman Alan Greenspan has long praised technology as a tool to limit risks in financial markets. In 2005, he said better risk scoring by high-performance computing made it possible for lenders to extend credit to subprime borrowers. But today Greenspan told Congress that the data fed into financial systems was often a case of garbage in, garbage out. Christopher Cox, chairman of the Securities and Exchange Commission, told the committee that bad code led the credit rating agencies to give AAA ratings to mortgage-backed securities that didn't deserve them. Explaining in his testimony what failed, Cox noted a 2004 decision to rely on the computer models for assessing risks — a decision that essentially outsourced regulatory duties to Wall Street firms themselves."
As soon as the elections are complete, there will be criminal investigations into the fraud and illegal practices that lead to the financial crisis. There are reportedly a multitude of rules and laws that were broken in the course of this "gold rush" of bad-mortgage-backed-securities selling.
Every step of the way, each person involved knew that fundamentally, it was a bad risk. Everyone from the mortgage sellers, to the lenders, to the securities sellers. It's far from rocket science to know that adjustable rate mortgages being sold to people who won't be able to afford it once the adjustment comes is a bad idea. It was believed that somehow the practice of selling and re-selling bad debt would somehow spread the losses around so much that no one would notice... which is reasonable when it's one, one hundred or even one thousand bad loans... but not one million or more.
And for these clowns to try to blame the computer is simply insane. "We are going to lie to you and bet that you won't be willing to prove it."
The next thing we will hear is that the tubes of the internet were installed badly by Joe the plumber.