Tuesday, May 17, 2011

Schneiderman steps up to the banks

I am surprised and gratified that the New York Attorney General, Eric Schneiderman, has responded to the Senate’s report on the actions of the too-big-to-fail banks that caused the financial meltdown in 2008.  Yesterday, I had called for us to watch the U.S. and New York justice Departments in the aftermath of the Senate publication of a 650 page report labeled "Wall Street and the Financial Crisis:  Anatomy of a FInancial Collapse."  Would they act?  Would they take these giants to court?

Today, Schneierman’s office requested information from Bank of America, Goldman Sachs, and Morgan Stanley about their mortgage securities operations. 

At least one issue, in my mind, is defrauding their clients in order get rid of valueless Mortgage Backed Securities and other derivatives from their own books once they saw the housing bubble ready to collapse. 

In addition, I would expect an even bigger issue might be the investigation of fraud in creating these MBSs and CDOs and other nearly incomprehensible investment schemes in the first place, and getting them AAA ratings from the rating’s agencies.  A pretty large percentage of these securities were fraudulent from the outset.

I very much hope to see very large trials for some very large titans of the out of control financial industry. 

I compared today’s problem to the issue before Teddy Roosevelt over a hundred years ago, where he ended up being the great “Trust-buster”.  He ended up restoring competition in the markets by busting up the trusts which had robbed the system of competition.  I think the same needs to be done today to put competition back into our financial system by busting up the too-big-to-fail financial behomoths.

If the Obama and Holder don’t want to take on the oligarchy, perhaps New York can.