Ratings agencies: “can’t live with them and can’t live without them.” Federal efforts to penalize and reform Wall Street rating agencies are slow, weak and possibly futile. The companies were at the root of fraudulent practices in 2008 that gutted the economy. Meanwhile, 16 states are suing Standard & Poor’s for inflated ratings of securities.
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Overhaul of rating agencies bogs down four years after financial crisis
The Justice Department’s lawsuit against Standard & Poor’s this week has revived focus on the role of the rating agencies in causing the financial crisis. Yet four years after shoddy mortgage investments bearing top grades nearly took down the country’s economy, government attempts to revamp the rating-agency industry have stalled.
Nearly everyone agrees there needs to be an overhaul of the way complex financial products get rated for their riskiness. But attempts to change the system keep running into the same roadblock: The rating agencies, however flawed, have become so crucial to the workings of Wall Street that no one can live without them.
Experts say that the Justice Department lawsuit is not enough — and that the longer the government delays broad solutions, the more vulnerable the economy is to the risks that took it down in 2008.
The lawsuit “may help the government appear to be dealing with the problem and holding the S&P to account, but that isn’t dealing with the core problems,” said Jeffrey Manns, associate professor of law at George Washington University.
State sues S&P – alleges fraud in mortgage ratings
By Andrew S. Ross San Francisco Chronicle February 6, 2013
Two years after a congressionally appointed commission published its findings on the causes of the financial crash of 2008 that led to the Great Recession, government agencies are going after one of the cogs.
On Tuesday, California charged Standard & Poor’s, the nation’s largest credit rating agency, with fraudulent practices that resulted in close to $1 billion of losses incurred by the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and other institutional investors in the state.
About 15 other states are also suing S&P, as is the U.S. Justice Department, which is seeking up to $5 billion in civil fraud damages relating to the stamp of approval the firm gave to mortgage-backed securities in the mid-2000s that turned out to be dogs.
The suits allege that S&P misrepresented the credit-worthiness of some $4 trillion worth of securities it rated between 2004 and 2007, and deliberately “downplayed and disregarded the true extent of the credit risks,” according to the Justice Department.
Obama weighing executive actions on housing, gays and other issues
By Zachary A. Goldfarb Washington Post February 11, 2013
President Obama is considering a series of new executive actions aimed at working around a recalcitrant Congress, including policies that could allow struggling homeowners to refinance their mortgages, provide new protections for gays and lesbians, make buildings more energy-efficient and toughen regulations for coal-fired power plants, according to people outside the White House involved in discussions on the issues.
One of the first orders is expected this week, when the Obama administration will call for the creation of new standards on what critical private-sector companies should do to protect their computer systems from hackers.
The moves underscore Obama’s increasingly aggressive use of executive authority, including 23 administrative actions on gun violence last month and previous orders that delayed deportations of young illegal immigrants and will lower student loan payments.
These and other potential actions suggest that Obama is likely to rely heavily on executive powers to set domestic policy in his second term. One White House official said that while the president does not see the actions as substitutes for more substantial legislation, he also wants to move forward on top priorities.
Sentencing delayed for developers of Austin office building
By Gary Dinges Austin American-Statesman February 7, 2013
Sentencing has been delayed for two developers who admitted using fraudulent documents to obtain a $39 million loan that financed construction of a Central Austin office tower, according to the U.S. Department of Justice.
Andy Sarwal and Fred Yeo had been set to learn their fates on Wednesday in U.S. District Court in Dallas, an agency spokeswoman told the American-Statesman, but it has now been pushed to March 22.
The two men could receive a maximum of 30 years in prison, five years of probation, a fine of up to $1 million and an order to pay restitution, records indicate.
Sarwal and Yeo, according to court documents, crafted a bogus bank statement that indicated Sarwal had more than $7 million in a nonexistent investment account. That statement reportedly helped convince two banks to lend money for the eight-story University Park building at the former Concordia University site, near East 32nd Street and Interstate 35.
The banks ultimately foreclosed on the building, whose tenants include the Longhorn Network and Aveda Institute Austin.
Housing market recovery spreads to new markets
By Alejandro Lazo Los Angeles Times February 6, 2013
The housing recovery spread to more markets in February, according to industry data, indicating that more parts of the country are showing signs of improving economic health.
A total of 259 metropolitan areas were listed as improving, according to an index produced by the National Assn. of Home Builders. That was an increase from 242 markets listed as improving in January.
“Today, the story is about how widespread the recovery has become as conditions steadily improve in markets nationwide,” David Crowe, chief economist for the builders group, said in a news release.
The index tracks employment growth, home price appreciation and single-family housing permit growth.
It was the sixth consecutive month of improvement in the index. All 50 states now have at least one improving metro area. Newly added areas include Rome, Ga.; Fort Wayne, Ind.; Myrtle Beach, S.C.; Albuquerque, N.M.; and Racine, Wis.
The housing recovery began in earnest last year. The rebound came as foreclosures declined, housing inventory plummeted, mortgage interest rates hit record lows and demand from investors surged last year.
In addition, the overhang of the last housing bust resulted in some unexpected benefits.
For instance, the high number of underwater borrowers actually served as a boost to the market rather than being a drag, as people kept their homes off the market, decreasing inventory.
California buyers should expect a tight market for months to come.
Shelters seeing more elderly homeless
By Deb Gruver Wichita Eagle February 11, 2013
On the afternoon of Jan. 17, when the temperature dipped below freezing, a family from Kingman drove to Wichita, dumped a 78-year-old relative at the Inter-Faith Inn homeless shelter and quickly drove away.
They left her on the sidewalk with her wheelchair and a few suitcases.
“She wasn’t crying,” case manager Amanda Merritt recalled. “But she was upset about the situation. She said they were kicking her out.”
They left so quickly that no one from the shelter was able to talk to them, Merritt said. They didn’t even knock on the shelter door to make sure there was room at the inn.
“That’s unbelievable that someone would do that,” said Janis Cox, co-chairwoman of Advocates to End Chronic Homelessness, an area faith-based volunteer group.
Shelter staff took the woman, who was in poor health, inside.
To accommodate her frailties, the staff hustled to set her up with a room on the ground floor.
She stayed at the shelter more than two weeks until she found an out-of-state friend who agreed to take her in. She left Wichita a week ago.
The woman’s story may seem unbelievable, but it’s not that rare, said Sandy Swank, director of housing and homeless services for Inter-Faith Ministries.
A 2010 study by the Homeless Research Institute, an arm of the National Alliance to End Homelessness, projected that the number of elderly people who are homeless would increase by 33 percent, from 44,172 in 2010 to 58,772 by 2020, and would double to 95,000 by 2050.