We always knew this was coming, They always knew this was coming and they always knew the taxpayers were going to pick up yet another Ponzi Tab to another brilliant sub-prime cover up!
FOX BUSINESS-
We said it was the Federal Housing Administration, which sells lenders a 100% guarantee against defaults on home mortgages typically for lower income people. FHA has seen defaults skyrocket on these loans.
But the Federal Housing Administration fought us vigorously on our story. So did liberal economic research groups.
Turns out they were wrong.
As the FHA is now set to soon release its annual report, the University of Pennsylvania’s Wharton School estimates that the FHA faces around $50 billion in losses in coming years.
IT is literally a trillion-dollar question: What will a humbled, reined-in Fannie Mae, the nation’s biggest mortgage provider, mean to the economy, the financial markets, interest rates and housing in America?
Since regulators disclosed evidence of widespread accounting improprieties at the company, which carries almost $1 trillion in mortgages on its books, the response from the financial markets has been surprisingly muted. To be sure, Fannie Mae’s stock has lost 14 percent of its value, but its debt securities have held fairly steady and the pools of mortgages it sells to investors have continued to attract buyers.
Even if Fannie Mae’s troubles are eventually worked out, there may be other, potentially nasty reverberations from the company’s weakened position. These include a possible hit to the dollar if foreign investors, who have bought so much of the company’s debt, become alarmed by the accounting problems and sell.
This is just slightly south of the entire settlement package of the Foreclosure Fraud settlement, which is also nilch for the acts committed.
Reuters-
Former customers of Bernard Madoff’s massive Ponzi scheme filed a class action lawsuit on Monday seeking to recover $19 billion from JPMorgan Chase & Co, claiming the bank willfully ignored signs of fraud.
JPMorgan was Madoff’s bank for two decades. The lawsuit, filed in federal court in Manhattan, claims the bank was “thoroughly complicit” in concealing Madoff’s fraud.
Europe’s muted commercial property debt securitisation market will not return to a multi-billion pounds business until a row is settled over controversial X-Notes, a bond used by issuing banks to protect their slice of profits.
“X-Notes are one of the biggest issues facing European CMBS, because (when the underlying loans fail) investors see the bank that issued the transaction still making a fortune, they’re actually quite hacked off,” one source told Reuters.
The first sign of what would ultimately become a $3 billion fraud surfaced Jan. 11, 2000, when Fannie Maeexecutive Samuel Smith discovered Taylor, Bean & Whitaker Mortgage Corp. sold him a loan owned by someone else.
Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, determined over the next two years that more than 200 loans acquired from Taylor Bean were bogus, non-performing or lacked critical components such as mortgage insurance.
That might have been the end of Taylor Bean and its chairman and principal owner, Lee Farkas. He is scheduled to be sentenced today in federal court in Alexandria, Virginia, for orchestrating what prosecutors call one of the “largest bank fraud schemes in this country’s history.”
All told, Harry Markopolos would rather not be the star of this new documentary. Not in 2011. If he had his way, his big film moment would have come a decade ago.
But here he is, featured in the upcoming film, “Chasing Madoff.”
The investment manager turned financial investigator, whose tireless research uncovered the Bernie Madoff ponzi scheme, the biggest such scheme in American history, insists that he was ignored by the SEC and other government officials for years despite his massive catalog of evidence.
This is not a glamorous approach to law enforcement, It is a slow laborious grind. As I presented to the National Association of Attorneys General, there are 10 major areas of bank and mortgage fraud:
1. MERS
2. Mortgage Pools (Warranties & Reps)
3. Bad Securitization (Quality)
4. “Misplaced” Mortgage Notes
5. Force-Placed Insurance
6. Illegal “Pyramid” Servicing Fees
7. Document Fraud for Sale
8. False Affidavits, Perjury (Robo-Signing)
9. Foreclosure Mills, Process servers exasperate problem
10. Active Servicemen losing homes while on tour of duty
Of this list, five issues are prosecution-ready, where individual states have jurisdiction. These include: 1) Force-Placed Insurance; 2) Illegal “Pyramid” Servicing Fees; 3) Fraud Documents for Sale; 4) False Affidavits, Perjury (Robo-Signing) and 5) Foreclosure Mills, Process servers.
Madoff said: “JPMorgan doesn’t have a chance in hell of not coming up with a big settlement.”
“I am not a banker but I know that $100bn going in and out of a bank account is something that should alert you to something.”
“JPMorgan got all the financial statements.”
“There were senior people at the bank who knew what was going on,” he emphasized, without naming anyone. There will be a big interview with Madoff in this weekend’s Financial Times.
“Today’s action is another significant step toward leveling the competitive playing field and enforcing market discipline on all financial institutions, no matter their size,” Sheila C. Bair, the F.D.I.C. chairwoman, said in a statement. Under the Dodd-Frank regulatory overhaul, “the shareholders and creditors will bear the cost of any failure, not taxpayers.”
Most Americans have never heard of it, but this mortgage industry holds interests in 50 percent of all U.S. home loans.
No, not Fannie Mae, or Freddie Mac either.
Mortgage Electronic Registration Systems, otherwise known as MERS, is a private firm that tracks ownership in hundreds of thousands of home loans. The computerized network allows banks to buy and sell mortgages without having to record the transfers at the county level.
An added bonus for the banks is the avoidance of county fees. When MERS is used to turn a regular mortgage into an investment, financial institutions don’t pay “recording fees,” which are usually small charges of between $50 and $100, to the counties where the underlying properties are physically located.
1. Citi’s “Due Diligence” And Early Discovery Of The Risks Of Possible Fraud
61. During the course of Citi’s 2005 initial “due diligence,” and as part of negotiating the final terms of the Prime Fund loan transaction, Citi learned, among other things, that Tremont received only paper copy trade confirmations approximately five (5) days conducted the alleged trading – a practice rife with the possibility for fraud due to the ability of the brokerage firm to backdate or manufacture trading activity with no ability on the customer’s part to check that the trades actually took place.
The allegations unveiled Thursday by the trustee amount to accusing the senior management of the bank (without naming anyone) of ignoring the public good to protect profits—and Bernie. Back when the complaint was under seal, Picard’s No. 1 counsel David Sheehan had asserted: “JPMorgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff.” In his statement, Sheehan said: “JPMC was at the very center of that fraud, and thoroughly complicit in it.” At the time, the bank called the trustee “irresponsible” and said the complaint was aimed at “headline-grabbing.”
For its part, JPMorgan Chase said Thursday that the bankruptcy trustee’s complaint is “based on distortions of both the relevant facts and the governing law. Contrary to the trustee’s allegation, JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff.”
The statement continued:
“Madoff’s firm was not an important or significant customer in the context of JPMorgan’s commercial banking business, and the revenues earned from Madoff’s bank account were modest and entirely consistent with conventional market rates and fees.” The statement added that the trustee’s claims that the bank earned big bucks from Madoff “is demonstrably false.”
The bank’s statement made no mention of the supposed First Rule of Banking: “Know Your Customer.”
My simultaneous translation of the JPMorgan statement is this: “We are such a giant global bank that whatever profits we made from Madoff are chump change. A settlement would not affect earnings, even though we have to stipulate that we administered the accounts Bernie used to carry out the largest Ponzi fraud in history, and even though we neither admit nor deny turning a blind eye to his machinations and making hundreds of millions in the process.”
Amended Complaint against all defendants / Complaint against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities Ltd. [Redacted] (related document(s) 1 ) Filed by Deborah H. Renner on behalf of Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC. (Renner, Deborah) (Entered: 02/03/2011)
PRESS RELEASE OF IRVING H. PICARD TRUSTEE FOR LIQUIDATION OF MADOFF INVESTMENT SECURITIES SEEKS $9 BILLION IN RECOVERIES, AND ADDITIONAL DAMAGES AT TRIAL, FROM HSBC, RELATED ENTITIES, FEEDER FUNDS IN MADOFF PONZI SCHEME
NEW YORK, NY, December 5, 2010 – Irving H. Picard, the Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) today announced the filing of a complaint in the United States Bankruptcy Court for the Southern District of New York, alleging 24 counts of financial fraud and misconduct against HSBC Holdings plc, HSBC Bank plc, and affiliated entities (collectively “HSBC”).
The complaint alleges that HSBC enabled Madoff’s Ponzi scheme through the creation, marketing and support of an international network of a dozen feeder funds based in Europe, the Caribbean, and Central America, which are also named in the complaint (collectively, the “Feeder Fund Defendants”). Other Defendants named in the filing include the management companies and service providers of those feeder funds, as well as certain of their directors and managers, namely Sonja Kohn, Genevalor, Mario Benbassat and his sons, Albert and Stephane, as well as Bank Medici and Unicredit, who together with other defendants helped fuel and extend Madoff’s Ponzi scheme across international borders.
The complaint seeks to recover nearly $1 billion in fees and profits and an additional $5.4 billion in
damages for JPMC’s decades-long role as BLMIS’s primary banker, aiding and abetting Madoff’s
fraud. All recovered monies will be placed into the Customer Fund and distributed, pro rata, to
Madoff customers with valid claims, the rightful owners of those monies.
“JP Morgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff,” said David J. Sheehan, counsel for the Trustee and a partner at Baker & Hostetler LLP, the court-appointed counsel for the Trustee. “While many financial institutions enabled Madoff’s fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it. JPMC was BLMIS’s primary banker for more than 20 years, and was responsible for knowing the business of its customers – in this case, a very large customer. Madoff would not have been able to commit this massive Ponzi scheme without this bank. JPMC should pay the price for its central role in enabling Madoff’s fraud.”
Continue below…to read TO BE FILED UNDER SEAL COMPLAINT
Retired judges are rushing through complex cases to speed foreclosures in Florida
By Matt Taibbi
Nov 10, 2010 2:25 PM EST
The following is an article from the November 11, 2010 issue of Rolling Stone. This issue is available Friday on newsstands, as well online in Rolling Stone’s digital archive. Click here to subscribe.
The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This “rocket docket,” as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and labyrinthine derivative deals of a type that didn’t even exist when most of them were active members of the bench. Their stated mission isn’t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments. Selling lead as gold, shit as Chanel No. 5, was the essence of the booming international fraud scheme that created most all of these now-failing home mortgages.
Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.
Quantitative Easing (QE I) spearheaded by the Chairman of delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.
That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.
Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid.
Why?
Let me be plain and blunt. The “unexpected developments” Bernanke referred to is the collapse of the global banks. This is FED speak and to those in the loop, this is the dire warning.
So many renowned economists have misdiagnosed the objective and consequences of quantitative easing. Central bankers’ scribes and the global mass media hoodwinked the people by saying that QE will enable the banks to lend monies to cash-starved companies and jump start the economy. The low interest rate regime would encourage all and sundry to borrow, consume and invest.
This was the fairy tale.
Then, there were some economists who were worried that as a result of the FED’s printing press (electronic or otherwise) working overtime, hyper-inflation would set in soon after.
But nothing happened. The multiplier effect of fractional reserve banking did not take off. Bank lending in fact stalled.
Why?
What happened?
Let me explain in simple terms step by step.
1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.
2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.
3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.
4) This devious scheme was effected by the FED’s quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created “money out of thin air” and used that “money” to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is “loaded” with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.
5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?
6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the “money” (it was merely book entries in the Fed’s books) that these global banks had were treated as “Excess Reserves”. This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?
7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be aware of this as otherwise, it would trigger a massive run on all the global banks!
8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis. .
Let me explain: A House was sold for say US$500,000. Borrower has a mortgage of US$450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent.
It is my estimation that they have to QE up to US$20 trillion at the minimum. The FED and no central banker would dare “create such an amount of money out of thin air” without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.
9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.
10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.
11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called “excess reserves” of the global banks, thus enabling these banks to “earn” interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?
12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the “monies” are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.
Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II.
Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks.
The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.
Warning:
When the ball hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs.
I expect that the FED and other central banks will pre-empt such a run and will do the following:
1) Disallow cash withdrawals from banks beyond a certain amount, say US$1,000 per day; 2) Disallow cash transactions up to a certain amount, say US$10,000 for certain transactions; 3) Transactions (investments) for metals (gold and silver) will be restricted; 4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II. 5) Imposition of capital controls etc.; 6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards; 7) Legislations to make it a criminal offence for any contraventions of the above.
Solution:
Maintain a bank balance sufficient to enable you to comply with the above potential impositions.
Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.
CONCLUSION
There will be a financial tsunami (round two) the likes of which the world has never seen.
Could this deposition hold the key to take all of MERS V3 & MERSCORP down!
There is not 1, 2 but 3 MERS, Inc. in the past.
Just like MERS et al signing documents dated years later from existence the Corporate employees do the same to their own corporate resolutions! Exists in 1998 and certifies it in 2002.
If this is not proof of a Ponzi Scheme then I don’t know what is… They hide the truth in many layers but as we keep pulling and peeling each layer back eventually we will come to the truth!
MERS et al has absolutely no supervision of what is being done by it’s non-members certifying authority PERIOD!
SUPERIOR COURT OF NEW JERSEY
CHANCERY DIVISION – ATLANTIC COUNTY
DOCKET NO. F-10209-08
BANK OF NEW YORK AS TRUSTEE FOR
THE CERTIFICATE HOLDERS CWABS,
INC. ASSET-BACKED CERTIFICATES,
SERIES 2005-AB3
Plaintiff(s),
vs.
VICTOR and ENOABASI UKPE
Defendant(s).
___________________________________________
VICTOR and ENOABASI UKPE
Counter claimants and
Third Party Plaintiffs,
vs.
BANK OF NEW YORK AS TRUSTEE FOR
THE CERTIFICATE HOLDERS CWABS,
INC. ASSET-BACKED CERTIFICATES,
SERIES 2005-AB3
Defendants on the Counterclaim,
and
AMERICA’S WHOLESALE LENDER;
COUNTRYWIDE HOME LOANS, INC.;
MORGAN FUNDING CORPORATION,
ROBERT CHILDERS; COUNTRYWIDE
HOME LOANS SERVICING LP,
PHELAN, HALLINAN & SCHMIEG,
P.C.,
Third Party Defendants
——————–
Deposition of William C. Hultman, Secretary and Treasurer of MERSCORP
Does MERS have any salaried employees?
A No.
Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.
Q Does MERS have any employees currently?
A No.
Q In the last five years has MERS had any
employees?
A No.
Q To whom do the officers of MERS report?
A The Board of Directors.
Q To your knowledge has Mr. Hallinan ever
reported to the Board?
A He would have reported through me if there was
something to report.
Q So if I understand your answer, at least the
MERS officers reflected on Hultman Exhibit 4, if they
had something to report would report to you even though
you’re not an employee of MERS, is that correct?
MR. BROCHIN: Object to the form of the
question.
A That’s correct.
Q And in what capacity would they report to you?
A As a corporate officer. I’m the secretary.
Q As a corporate officer of what?
Of MERS.
Q So you are the secretary of MERS, but are not
an employee of MERS?
A That’s correct.
etc…
How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.
Q Approximately?
A I wouldn’t even begin to be able to tell you
right now.
Q Is it in the thousands?
A Yes.
Q Have you been doing this all around the
country in every state in the country?
A Yes.
Q And all these officers I understand are unpaid
officers of MERS?
A Yes.
Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an
employee?
MR. BROCHIN: Object to the form of the
question.
A There are no employees of MERS.
Janet Tavakoli of Tavakoli Structured Finance tells what she thinks of recent fines the SEC has imposed on Wall Street giants and where she would like future investigations take place.
It’s ironic that the ENTIRE WORLD views it this way…Yet there is a few as we know it, that just turn their heads completely to this massive fraud! Unreal…
Day one of the Financial Crisis Inquiry Commission’s two-day hearing on AIG derivatives contracts featured testimony from Joseph Cassano, the former head of AIG’s financial products unit. Goldman Sachs president Gary Cohn was also on the Hill.
Meanwhile, the Democrats are still trying to salvage the regulatory reform bill, with critical support from Senator Scott Brown (R-Mass.) reportedly still uncertain.
According to Howard Davidowitz of Davidowitz & Associates, what connects the hearings and the Reg reform debate is the lack of focus on the real underlying cause of the financial crisis: Fraud.
“It was a massive fraud… a gigantic Ponzi Scheme, a lie and a fraud,” Davidowitz says of Wall Street circa 2007. “The whole thing was a fraud and it gets back to the accountants valuing the assets incorrectly.”
Because accountants and auditors allowed Wall Street firms to carry assets at “completely fraudulent” valuations, he says the industry looked hugely profitable and was able to use borrowed funds to make leveraged bets on all sorts of esoteric instruments. “Their bonuses were based on profits they never made and the leverage they never could have gotten if the numbers were right – no one would’ve given them the money in their right mind,” Davidowitz says.
To date, the accounting and audit firms have escaped any serious repercussions from the credit crisis, a stark difference to the corporate “death sentence” that befell Arthur Anderson for its alleged role in the Enron scandal.
To Davidowitz, that’s perhaps the greatest outrage of all: “Where were the accountants?,” he asks. “They did nothing, checked nothing, agreed to everything” and collected millions in fees while “shaking hands with the CEO.”
From left, Chester Higgins Jr./The New York Times; Andrew Harrer/Bloomberg News; Ramin Talaie for The New York Times
From left, Andrew Cuomo, the New York attorney general; Robert Khuzami, of the S.E.C.; and Preet Bharara, of the United States attorney’s office. The agencies are investigating Wall Street.
By NELSON D. SCHWARTZ and ERIC DASH
Published: May 13, 2010
It is starting to feel as if everyone on Wall Street is under investigation by someone for something.
News on Thursday that New York State prosecutors are examining whether eight banks hoodwinked credit ratings agencies opened yet another front in what is fast becoming the legal battle of a decade for the big names of finance.
Not since the conflicts at the center of Wall Street stock research were laid bare a decade ago, eventually resulting in a $1.4 billion industrywide settlement, have so many investigations swirled across the financial landscape.
Nearly two years after Washington rescued big banks with billions of taxpayer dollars, half a dozen government agencies are still trying, with mixed success, to peel back the layers of the collapse to determine who, if anyone, broke the rules.
The Securities and Exchange Commission, the Justice Department, the United States attorney’s office and more are examining how banks created, rated, sold and traded mortgage securities that turned out to be some of the worst investments ever devised.
Virtually all of the investigations, criminal as well as civil, are in their early stages, and investigators concede that their job is daunting. The S.E.C. has been examining major banks’ mortgage operations since last summer, but so far, it has filed a civil fraud claim against just one big player: Goldman Sachs. Goldman has vowed to fight.
But legal experts are already starting to handicap potential outcomes, not only for Goldman but for the broader industry as well. Many suggest that Wall Street banks may seek a global settlement akin to the 2002 agreement related to stock research. Indeed, Wall Street executives are already discussing among themselves what the broad contours of such a settlement might look like.
“I would be stunned if any of these cases go to trial,” said Frank Partnoy, a professor of law at the University of San Diego. “I think Wall Street needs to put this scandal behind it as quickly as possible and move on.”
As part of the 2002 settlement, 10 banks paid $1.4 billion total and pledged to change the way their analysts and investment bankers interacted to prevent conflicts of interest. This time, the price of any settlement would probably be higher and also come with a series of structural reforms.
David Boies, chairman of the law firm Boies, Schiller & Flexner, represented the government in its case against Microsoft and is now part of a federal challenge to California’s same-sex marriage ban. He said a settlement by banks might be painful but would ultimately be something Wall Street could live with. “The settlement may be bad for everyone, but not disastrous for anyone,” he said.
A settlement also would let the S.E.C. declare victory without having to bring a series of complex cases. The public, however, might never learn what really went wrong.
“The government doesn’t have the personnel to simultaneously prosecute several investment banks,” said John C. Coffee, a Columbia Law School professor.
The latest salvo came on Thursday from Andrew M. Cuomo, the New York attorney general. His office began an investigation into whether banks misled major ratings agencies to inflate the grades of subprime-linked investments.
Many Americans are probably already wondering why this has taken so long. The answer is that these cases are tricky, like the investments at the center of them.
But regulators also concede that they were reluctant to pursue banks aggressively until the financial industry stabilized. The S.E.C., for one, is now eager to prove that it is on its game after failing to spot the global Ponzi scheme orchestrated by Bernard L. Madoff, or head off the Wall Street excesses that nearly sank the entire economy.
The stakes are high for both sides. At a minimum, the failure to secure a civil verdict, or at least a mammoth settlement, would be another humiliation for regulators.
Wall Street wants to put this season of scandal behind it. That is particularly so given the debate over new financial regulations that is under way on Capitol Hill. The steady flow of new allegations could strengthen calls for tougher rules.
Even worse would be a criminal charge, which could put a firm out of business even if that firm were ultimately found not guilty, as was the case with the accounting giant Arthur Andersen after the fraud at Enron.
“No firm in the financial services field has the stomach for a criminal trial,” Mr. Coffee said.
Bankers have been reluctant until now to take their case to the public. But that is changing as Wall Street chieftains like Lloyd C. Blankfein of Goldman take to the airwaves and New York politicians warn that the city’s economy will be endangered by the attack on some of the city’s biggest employers and taxpayers.
“In New York, Wall Street is Main Street,” Gov. David A. Paterson has said. “You don’t hear anybody in New England complaining about clam chowder.”
There are broader political consequences as well. At the top, there is President Obama, who was backed by much of Wall Street in 2008. Many of those supporters now privately say they are disillusioned and frustrated by his attacks on their industry, which remains a vital source of campaign contributions for both parties.
Closer to home, the man who hopes to succeed Mr. Paterson, Mr. Cuomo, is painting himself as the new sheriff of Wall Street. Another attorney general, Eliot Spitzer, rode a series of Wall Street investigations to the governor’s mansion in 2006.
But ultimately, it is what Wall Street does best — making money — that is already on trial in the court of public opinion.
Put simply, the allegations against Wall Street were prompted by evidence that the firms may have devised and sold securities to investors without telling them they were simultaneously betting against them.
Wall Street firms typically play both sides of trades, whether to help buyers and sellers of everything from simple stocks to complicated derivatives complete their transactions, or to make proprietary bets on whether they would rise or fall.
These activities form half of the four-legged stool on which Wall Street’s profits and revenue rest, the others being advising on mergers and acquisitions and helping companies issue stocks, bonds and other securities.
“This case is a huge deal. It has the potential to be the mother of all Wall Street investigations,” said Mr. Partnoy of the University of San Diego. “The worry is that the government will go after dealings that Wall Street thought were insulated from review.”
Even some Wall Street executives concede that all the scrutiny makes proprietary trading a bit dubious. “The 20 guys in the room with the shades drawn are toast,” one senior executive of a major bank said.
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