New York AG Picks Up Ball the Feds Dropped on Banks

New York State Attorney General Eric Schneiderman is hoping to be the first law enforcement official to truly hold the big banks accountable for their actions in precipitating the subprime mortgage crisis. According to news reports today, Schneiderman has "has opened an investigation into the packaging of mortgage loans into securities." His first targets are Bank of America Corp., Morgan Stanley and Goldman Sachs. He is requesting meetings with bank officials and requesting documents.

Schneiderman is tapping into the public deep frustration that nobody -- and I mean nobody -- has yet been held criminally responsible for the systematic deception, conflicts of interest, and excessive risk-taking that surrounded the securization of subprime mortgage debt by Wall Street. The banks made hundreds of billions of dollars by bundling questionable loans together and then -- with the help of compromised rating agencies -- peddling this junk as AAA securities, luring everyone from local pension funds to foreign governments.

Schneiderman is stepping up just in time. For various reasons, which were detailed recently in an extraordinary New York Times investigation, federal authorities have totally dropped the ball in ensuring justice following the financial crisis. In contrast, the Savings and Loans scandal of the 1980s resulted in no fewer than 800 bank officials going to jail. Major figures in the last wave of corporate scandals also went to prison, including Bernie Ebbers of Worldcom, Jeffrey Skilling of Enron, and Dennis Kozlowski of Tyco.

The Times article notes that while criminal intent is difficult to prove:

"legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could. Investigators, they argue, could look more deeply at the failure of executives to fully disclose the scope of the risks on their books during the mortgage mania, or the amounts of questionable loans they bundled into securities sold to investors that soured.

This is where Schneiderman comes in.

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