It's always interesting to see how Bear Stearns University - School of Finance operated during the credit bubble. Were any credit professionals at the big banks looking at data on their Bloomberg Terminals during this time? Isn't that the reason why financial institutions (CIOs) pay thousands of dollars a month to analyze opaque loan data, mortgage-backed securities, and credit default swaps? Or were entry level, post-grad junior analysts the only ones looking at trends at this point. There should be more MBS charts on the St. Louis Fed's FRED database. The Federal Reserve regulates the financial system right? After the crisis, it is still hard to find quality data on the mortgage and MBS markets.
"30. Defendants were aware that many of their loan originators were selling defective loans but continued to buy and securitize those loans. For example, according to a June 2006 internal Bear Stearns email, almost 60% of AHM loans that were purchased through the conduit were 30 or more days delinquent. After learning this information, Defendants went on to issue over 30 subprime and Alt-A securitizations that included AHM loans. At least four of these securitizations contained 30% or more loans originated by or purchased from AHM, including SACO I Trust (“SACO”) 2006-8, Structured Asset Mortgage Investments II Trust (“SAMI”) 2007-AR4, SAMI 2007-AR6, and SAMI 2007-AR7. Other internal communications reflect Defendants’ awareness of the bad quality of loans that were being included in other securitizations. In connection with the Bear Stearns Second Lien Trust 2007-1 (“BSSLT 2007-1”) securitization, for example, one Bear Stearns executive asked whether the securitization was a “going out of business sale” and expressed a desire to “close this dog.” In another internal email, the SACO 2006-8 securitization was referred to as a “SACK OF SHIT” and a “shit breather.”
The art of blowing up the financial system. QC = Quality Control.
73. Due in large part to the defective loans Defendants purchased and securitized, by at least 2006, Defendants’ QC operations could no longer keep pace with the overwhelming number of claims that needed to be filed. According to a February 28, 2006, internal audit report that was distributed to senior management, as of October 2005 there was “a significant backlog for collecting from and submitting claims to sellers.” The backlog consisted of at least 9,000 outstanding claims valued at over $720 million. The report recommended that “[p]olicies … be developed and procedures enhanced to ensure that claims are processed and collected in a more timely manner.”
74. Despite their awareness of deficiencies in the claims recovery process, Defendants did little to fix the problem. As a senior executive observed months later, the “[c]laims situation continues to be a disaster – hitting crisis,” because “our operation cannot support the claims collection methodology we have been trying to pursue.”
75. Defendants did not disclose to investors that their QC function was “overwhelmed” to the point of being in “crisis” and did not operate, as advertised, in a manner that would work to investors’ benefit.
From the PBS documentary "Inside the Meltdown" on Bear Stearns' demise.
Before Bear got bailed out, CNBC's David Faber asked Bear Stearns' CEO Alan Schwartz if Bear Stearns had liquidity issues or problems with counterparties, which ultimately brought down the firm.