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Devils Are Here

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In chapter 9, the authors argue that in subprime two, the subprime companies dominated the industry and they became multibillion-dollar companies, which meant that their collapse would be a pernicious damage. Ameriquest became the biggest lender with 100 percent loan-to-value stated-income loan and pay option ARMs. Despite the fact that those practices were potential bomb which would kill everyone, Wall Street madly copied them for money.

In chapter 10, the authors insist that Countrywide's loosened guidelines for loans made subprime lending market muddy. The authors present the supporting examples that in 2004, American Banker accused Mozilo that he sold any kinds of loans with matching strategy; if a competitor offered a loan product, Countrywide would match it. According to former Countrywide executive, they tried to make the loan work although borrower couldn't meet the guidelines.

In chapter 11, the authors claim that Stan O'Neal tried to mimic Goldman Sachs's success so he took more risks. However, he failed because he didn't consider culture differences between Goldman Sachs and Merrill Lynch. For example, at Goldman, employees talked to each other about both bad and good things on their company. On the other hand, at Merrill Lynch, there was no argument with CEO and when there was bad news, someone was needed to be fired.

In chapter 12, the authors argue that Fannie Mae and Freddie Mac didn't do their noble job; supplying liquidity to housing market. Instead, they focused on keep increasing portfolio of mortgages to pace with the private market. These caused financial crisis. Also the authors insist OFHEO didn't their job as a regulator of FNM and FDM. This is supported by the restatement that showed Freddie had understated its earnings by some $5 billion in order to produce smooth earnings growth.

In chapter 13, the authors claim that AIG's wrapping triple-A CDO tranches played important role in financial crisis. This is supported by the fact that even though there is the risk of collateral triggers, Cassano ignored it, and Park found out the percentage of subprime securities in the CDOs was 85 percent instead of his expectation, 10 percent, but he didn't tell report to Cassano because of Cassano's temper.

In chapter 14, the authors insist that Bush administration's appointing Rolald Arnall to the U.S. ambassador to the Netherlands was not noble idea. The reasons are that his company, Ameriquest, had used deceptive lending practices; it had inflated appraisals and guaranteed refinancing without disclosing of penalties. What's worse was that even after Ameriquest's settlement, other lending companies had copied Ameriquest's way and subprime business had gone mad.

In chapter 15, the authors argue that Angelo Mozilo's, the CEO of Countrywide, aggressive mortgage strategies negatively affected to subprime business and financial



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