Entries Tagged 'office 2003' ↓

With Microsoft Office 2003 Academic Edition it states: "FOR NON-COMMERCIAL, EDUCATIONAL USE ONLY" my question is, once you've finished study are you able to use it for home use? and can you use it for commercial use after the educational period? I suspect Microsoft doesn't give a rip whether you use it for educational purposes or home use, it's just their way of separating the business users from the home users.

The Permanent Subcommittee on Investigations has published a report into the financial crisis. it concluded that US regulators allowed banks to continue high risk lending while credit rating agencies inflated the ratings on securitisations for the investment banks that put the deals together. Joanne Atkin reports on its findings

in the run up to the financial crisis millions of American homeowners were sold mortgages they should never have been given. many of these borrowers ended up in arrears, with payment shocks and the inevitable foreclosures. but the villains in all this were a combination of the banks, the regulators and the credit rating agencies who between them caused the worst financial meltdown since the Great Depression of the 1930s.

This is the conclusion of an 18 month investigation by the Permanent Subcommittee on Investigations in the United States under the chairmanship of Senator Carl Levin. Hundreds of interviews took place, 50 million pages were read and the investigation culminated in a series of four hearings. Last month the Subcommittee issued a 635 page report into the causes and consequences of the financial crisis.

Levin said: “The financial crisis was a man-made economic assault, the product of reckless risk-taking and rampant conflict of interest on the part of some big banks, mortgage companies and credit rating agencies.

“Conflict of interest is the common thread that runs through this whole sordid story. Our report pulls back the curtain on shoddy, risky and deceptive practices. we showed that major financial institutions deceived their clients and the public, aided and abetted by conflicted and deferential regulators and credit rating agencies.”

The first of the four hearing examined the role of high risk home loans and the mortgage-backed securities that those loans produced, using as a case history the policies and practices of Washington Mutual Bank (WaMu). The second hearing looked at the role of the banking regulators, again using WaMu as a case history. The third hearing focused on the role of the credit rating agencies (CRAs), specifically the two largest – Moody's and Standard and Poor's. The final hearing focused on the role of investment banks, using Goldman Sachs as a case study.

High risk lending many banks changed their strategies in the early to mid-2000s to higher risk lending, primarily to generate more profits. they must share some of the blame for the financial meltdown but the case study the Subcommittee uses is that of Washington Mutual. WaMu ended up being the largest bank failure in US history after more than 100 years in the lending business. on 25 September 2008 it was closed and sold to JP Morgan. so what went wrong?

WaMu had traditionally been a prudent lender but from 2003 to 2006 it shifted its mortgage lending strategy from low risk, fixed rate mortgages, which fell from 64 per cent to 25 per cent of its loan originations, to high risk loans, jumping from 19 per cent to 55 per cent of its originations. WaMu could generate greater profits using this strategy.

Over this four-year period, WaMu increased its securitisation of sub-prime loans six-fold, primarily through its sub-prime lender Long Beach Mortgage Corporation. Securitisations of sub-prime mortgages increased from about $4.5 billion in 2003 to $29 billion in 2006. From 2000 to 2007 they securitised at least $77 billion in sub-prime loans. These mortgages were high risk, poor quality, sometimes fraudulent, at times without full disclosure to investors, and ended up weakening US financial markets. Some of its high risk loans were sold to Fannie Mae and Freddie Mac – and WaMu played one off the other to make more money.

WaMu also increased its origination of other high-risk loans, which it treated as prime loans, including its flagship product known as the Option ARM. Option ARMs allowed borrowers to pay an initial low “teaser rate” before a higher variable interest rate was triggered resulting in many borrowers defaulting. WaMu sold at least $115 billion in Option ARM loans to investors.

Internal reports show that Long Beach and WaMu loans did not comply with the bank’s own credit requirements. One of the regulators, Federal Deposit Insurance Corporation (FDIC), reviewed 4,000 Long Beach loans in 2003 and found that less than a quarter could be properly sold to investors. a 2005 review of loans from two of WaMu’s top loan officers found fraud in 58 per cent of the loans coming from one officer’s operations and 83 per cent from the other. Yet they continued working for the bank for three years, receiving prizes for their loan production. a 2008 review found that staff in another top loan producer’s office had been making up borrower information to speed up production.

Documents obtained by the Subcommittee showed that WaMu selected loans for its mortgage-backed securities because they were likely to default and many contained fraudulent borrower information. Investors were not informed of this. An internal 2008 report found that lax controls had allowed loans that had been identified as fraudulent to be sold to investors.

WaMu pay policies to staff also contributed to the problems. Loan officers and processors were paid more for issuing higher risk loans and for getting borrowers to pay higher interest rates, even if the borrower qualified for a lower rate – a practice that made big profits for WaMu in the short-term but made defaults more likely further down the line. These skewed compensation practices went right to the top. in 2008 CEO Kerry Killinger was paid $25 million just to leave the failing bank.

Levin said: “Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river. using a toxic mix of high risk lending, lax controls, and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad.”

Regulatory failures WaMu’s primary regulator was the Office of Thrift Supervision (OTS) but it repeatedly failed to correct WaMu’s unsafe and unsound lending practices, despite logging nearly 500 serious deficiencies at the bank over five years – from 2003 to 2008.

OTS acted like a parent with no backbone telling its child not to be naughty but nevertheless let the child carry on being naughty regardless. OTS used the bank’s short term profits to excuse high risk activities.

Although WaMu recorded increasing problems from its high risk loans, including delinquencies that doubled year after year in its risky Option ARM portfolio, OTS examiners failed to clamp down on WaMu’s high risk lending. OTS did not consider bringing an enforcement action against the bank until it began losing substantial sums in 2008. OTS also failed until 2008, to lower the bank’s overall high rating or the rating awarded to WaMu’s management, despite the bank’s ongoing failure to correct serious deficiencies.

When the Federal Deposit Insurance Corporation advocated taking tougher action, OTS officials not only refused, but impeded FDIC oversight of the bank. it would not give the FDIC examiner access to WaMu data, it refused for several months to give him any space on-site at the bank and rejected his requests to review bank loan files.

The OTS director treated WaMu, which was its largest bank and supplied 15 per cent of the agency’s budget, as a “constituent”. OTS viewed WaMu as its biggest client which paid the largest amount in fees of any bank.

Some OTS examiners did express misgivings about the lending practices but did not get the support of OTS management to end them. One examiner objected to NINA loans (No Income and No Asset) and although a policy officer agreed and stated NINA loans were “deemed unsafe and unsound by all the agencies”, the OTS allowed them and called the OTS policy officer a “loan ranger”.

Levin concluded: “Our bank regulators were not blind to the problems building up in the mortgage banking system. they knew. instead of getting in the game they sat on the bench. OTS, in particular, didn’t act on what it knew. it appeared to have been too close to the banks it oversaw. The bottom line is that OTS never said “no” to any of the high risk lending or shoddy lending practices that came to undermine WaMu’s portfolio, its stock price, its depositor base and its reputation. The result was bank failure, a financial system it helped poison with toxic mortgages, and an economic meltdown.”

Inflated credit ratings The report concluded that the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody’s and Standard & Poor’s that exposed the risky nature of mortgage-related investments. Just months before the same firms had deemed them to be “as safe as Treasury bills”.

The result was a collapse in the value of mortgage-related securities that devastated investors. Internal emails show that credit rating agency personnel knew their ratings would not “hold” and delayed imposing tougher ratings criteria to “massage the … numbers to preserve market share.”

Even after they finally adjusted their risk models to reflect the higher risk mortgages being issued, the firms often failed to apply the revised models to existing securities. they even helped investment banks rush risky investments to market before tougher rating criteria took effect.

The CRAs knew of the increased credit risks due to mortgage fraud, lax underwriting standards and unsustainable house price appreciation, but failed adequately to incorporate those factors into their credit rating models.

they also continued to pull in lucrative fees of up to $135,000 to rate a mortgage-backed security and up to $750,000 to rate a collateralised debt obligation (CDO). The report stated that these fees might have been lost if the CRAs angered issuers by providing lower ratings.

Mass downgrades by Moody’s and S&P shocked the markets. Hundreds of sub-prime RMBS were downgraded over a few days in July 2007 following the collapse of two Bear Stearns offshore hedge funds specialising in mortgage-backed securities. in October 2007 Moody’s downgraded hundreds of CDOs. on one day in January 2008 S&P downgraded over 6,300 RMBS and 1,900 CDOs. These downgrades helped cause the collapse of the sub-prime secondary market, triggering sales of assets that had lost investment grade status and damaging the holding of financial firms worldwide, contributing to the financial crisis.

The mass rating downgrades the CRAs finally initiated were not an effort to come clean, but were necessitated by skyrocketing mortgage delinquencies and securities plummeting in value. in the end, over 90 per cent of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006.

The report concluded: “When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees.”

Investment banks The investment banks’ role was to assemble and sell billions of dollars in mortgage-related investments that flooded financial markets with high-risk assets. The report highlights charges of $1 to $8 million in fees to construct, underwrite and market a mortgage-backed security and $5 to $10 million per CDO.

New documents detail how Deutsche Bank helped assembled a $1.1 billion CDO known as Gemstone 7, stood by as it was filled with low-quality assets that its top CDO trader referred to as “crap” and “pigs” and rushed to sell it “before the market falls off a cliff.” Deutsche Bank lost $4.5 billion when the mortgage market collapsed but would have lost even more if it had not cut its losses by selling CDOs like Gemstone.

When Goldman Sachs realised the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients. in 2007 Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage-related securities. At the same time the firm was betting against the mortgage market as a whole. Goldman Sachs assembled and aggressively marketed to its clients poor quality CDOs claiming they were good investments while betting that these same deals would fail.

Levin concluded: “Goldman Sachs and other investment banks played a crucial role in building and running the conveyor belt that fed toxic mortgages and mortgage-backed securities into the financial system.”

Recommendations The report includes 19 new recommendations to further curb Wall Street excesses and conflicts of interest. This follows on from last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act, which addressed many of the problems Levin’s investigation identified. For example, it eliminated the OTS, and limits the ability of banks to make risky investments for their own profit and prohibits them from betting against the same investments they sold to clients.

but Levin concedes: “those recommendations, like the Dodd-Frank Act itself, will be opposed by some members of the financial industry who want to continue their risk-taking ways.”

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