Editor’s note: This article was first published in May 2011, as news adapted from The New York Times. Its references to recent weeks, the current situation and the open investigations, including one into US banks laundering Mexican drug money, refer to that time. The outcome of the New York inquiry is not covered.
The New York attorney general has requested information and documents in recent weeks from three of the big Wall Street banks, Bank of America, Goldman Sachs and Morgan Stanley, about their mortgage securities operations during the credit boom, a sign that a new investigation is under way into the practices that contributed to billions in mortgage losses.
The investigation focuses above all on the bundling of thousands of mortgage loans into securities that were sold to investors such as investment funds, mutual funds, pension funds and insurance companies.
Federal and state regulators have filed several civil lawsuits since the financial crisis broke out in 2008, some of which have led to settlements and fines; the most prominent ended in a 550 million dollar settlement between Goldman Sachs and the Securities and Exchange Commission.
But even more questions have been raised in private lawsuits brought against the banks by investors and others who say they were victims of questionable securitization practices. Some litigants have argued, for example, that the banks dumped problem loans into the securities and misled investors about the quality of the underlying mortgages when selling the investments.
Critics argue that the Wall Street banks knew the risk of reselling mortgages and of the collapse it would eventually cause in the global financial system. They also argue that the banks knew how dangerous their products were and that they were deceiving their investors, but above all that this was done with premeditation and for profit, at the cost of consequences that humanity would end up paying.
Thousands of civil suits by individual investors who lost their money when the crisis broke are being added to the official lawsuits, so the New York attorney general has asked for all the relevant documents in order to carry out one of the biggest investigations into “tax fraud” and “banking abuse” in history, one that could bring down the financial system as we know it, because it would also splash governments and regulatory agencies.
This investigation adds to another one already open into the laundering of money from Mexican drug trafficking, in which several US banks are being investigated.
In the end, what seemed impossible (the banks paying their share for the responsibility they bear) may finally happen, although according to experts, punishing the financial system could have unpredictable consequences for the world economy.
My question is… when will it be the Spanish banks’ turn? So far they seem to be free of any investigation, and yet I’m sure they also played this nameless game.
Source: The New York Times.
Featured image: Arild Vågen, CC BY-SA 4.0, via Wikimedia Commons.
