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The "qualified" category should be kept simple and understandable and should not become a backdoor entry for abusive, unsound loans.
While public attention has focused on the Wall Street banking giants that packaged toxic pools of mortgages into little-understood securities, some community banks also fueled the financial crisis by making unsound loans, awarding bonuses based on loan quantity instead of quality, and investing too heavily in real estate loans.
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But its financial sector is still struggling to cope with hundreds of billions of dollars in bad loans to unsound, usually state-owned enterprises.
The thrift agency had said TierOne "engaged in unsafe or unsound banking practices," carrying too many bad loans on its books and lacking sufficient capital as a cushion against losses.
Many of these bad loans will be discovered to be unsound at the same time across many banks.
A far more ambitious programme is needed, one that will in effect nationalise the unsound banks temporarily, while regulators hive off their bad loans and then sell whatever good bits remain of the banks to help cover the cost.
According to Standard & Poor's (S&P), a rating agency, only six American non-bank companies carry a triple-A rating today, including Berkshire Hathaway and General Electric.But the rating is coming in for some stick from politicians and pundits alike, because it has cropped up in connection with that most unsound of loans, subprime mortgages.
He added that such pressuring is increasing, and in the process it is eroding the independent judgment of the appraisers and contributing to the ability of unscrupulous individuals to engage in improper and unsound mortgage loan practices.
Rules like these will do much to curtail unsafe, unsound and unfair loans.
But after this apparent exoneration and a vote of confidence by Mr. Carter — he stated in a news conference that he was proud of his budget director — critics seized on specific items that the comptroller considered unsound, like poorly secured loans to bank officers and their relatives.
With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com