Saturday, November 8, 2008

Roly-Poly Ranieri Runs Out Of Investment Product Pizza

Lewis is the sartorial slob two neocons down from the First Lady.

The chickens do come home to roost. The father of subprime securities gets devoured by the subprime economic crisis:

WASHINGTON (AP) - Regulators shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.

The co-founder and chairman of parent Franklin Bank Corp. (FBTX) (FBTX), Lewis Ranieri, is credited with inventing mortgage-backed securities two decades ago, but apparently was unable to save his own company from getting ensnared in the home-loan bust.

The bank's failure is a bitter irony because it is the mortgage securitization business of which Ranieri is known as a pioneer - the repackaging of home loans as bonds that are sold to investors - that was at the heart of the mortgage and credit crises. Last spring, the audit committee of the company's board found in an investigation certain weaknesses in accounting, disclosure and other issues relating to residential real estate loans.

Lewis S. Ranieri joined the mortgage-trading desk of Salomon Brothers in the late seventies. He coined the industry term "securitization" for his progeny of converted bonds backed by home loans. Most relevant to today's fiscal mire, Ranieri was instrumental in breaking the regulatory barriers intent on curbing the widespread trading of these exotic investment products:

Salomon and Bank of America Corp. developed the first private mortgage-backed securities (MBS) -- bonds that pooled thousands of mortgages and passed homeowners' payments through to investors -- in 1977. Not a moment too soon: Skyrocketing interest rates were turning the business of savings and loans -- funding long-term mortgages with short-term deposits -- making it a financial death trap for banks just as the housing demands of maturing baby boomers began to surge.

Ranieri's job was to sell those bonds -- at a time when only 15 states recognized MBS as legal investments. With a trader's nerve and a salesman's persuasiveness, he did much more, creating the market to trade MBS and winning Washington lobbying battles to remove legal and tax barriers.

Thanks for the gift, Lew. But I'm pretty sure I didn't get you anything this holiday season? And what a pretty wrapping job. That's a big bow! I'm opening it early, okay?

Um . . . an empty box? Lew, you old card. Good one.

1 comment:

Warm Apple Pie said...
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