The Immunity-Shoe Drops and Investment Bankers Suck in Their Breath
January 27, 2008
Reviewer of Subprime Loans to Aid Inquiry
A company that analyzed the quality of thousands of home loans for investment banks has agreed to provide evidence to New York state prosecutors that the banks had detailed information about the risks posed by ill-fated subprime mortgages.
Investigators are looking at whether that information, which could have prevented the collapse of securities backed by those loans, was deliberately withheld from investors.
Clayton Holdings, a company based in Connecticut that vetted home loans for many investment banks, has agreed to provide important documents and the testimony of its officials to the New York attorney general, Andrew M. Cuomo, in exchange for immunity from civil and criminal prosecution in the state.
The agreement, which was confirmed by Mr. Cuomo’s office and Clayton, forwards an investigation by the attorney general into the question of whether the investment banks withheld information they should have provided in the disclosures that accompanied the huge packages of loans they offered as securities.
In these disclosures, underwriters typically said that loans that did not meet even lowered lending standards, called exceptions, accounted for a “significant” or “substantial” portion of the loans contained in the securities, but they offered little hard, statistical information that Clayton promised prosecutors it would provide as evidence.
Investment rating firms like Moody’s and Fitch have said that they were deprived of this information before they gave the securities the top rating, triple-A.
Is there no one out there riding this horse but me?
Where are the investigative journalists at the New York Times and Washington Post? Is Wall Street just too damned close to 620 Eighth Avenue for Pinch Sulzberger to come trembling out of his office?
Pro Publica plans to establish a newsroom in New York City and have 24 journalists, one of the biggest investigative staffs in any medium . . . maybe Pinch can rent someone to bring a modicum of integrity back to the paper and offset the stench of having actually put Bill Kristol on the payroll.
Back to the matter at hand, 'exception loan' is the politically correct term for what the investment bankers themselves called 'liar loans,' while they raked in the chips. Everyone was getting rich on this newly minted portion of society--the have-nots from which there was now an invented possibility to squeeze a buck.
I bet there were lots of sniggering winks at the self-congratulatory $200 lunches in Manhattan over that new investment vehicle.
"Investment banks, for their part, have said that they provided adequate disclosures, and they even kept some of the securities on their books."
Well, I guess.
When you're in the middle of a scam, the heat of battle, some of the fraud is bound to still be on the table (or twitching spasmodically on the floor) before it can be off-loaded.
And now this Cuomo guy is about to ruin the party, seriously ruin it, as in sending people to jail.
Anybody got an estate for sale in a country that has no extradition-treaty with America? That may be the last hot market left in real estate.
The next shoe to drop will be the bond-raters, who claim to have been 'deprived' of information necessary to authenticate that deep-kiss of triple A they were so willing to lay on the investment packages.
Waylon Jennings wrote a song, probably appropriate to the little guys at the rating companies who are damned well not going to jail for some $100 million investment banker;
Get Your Tongue Out of My Mouth, I'm Kissing You Goodbye
Not forever, just twenty years or so.
A lot of people are angry. Some of them for not being in on the deal, others who feel exposed by guys at the top and still more who saw this whole train wreck coming and had their ethics tainted. (Yes, Agnes, there are some ethics left in the financial game)
You can bet that, among the tens of thousands whose jobs are at risk of being pink-slipped, there are some very eager witnesses to what was done to whom by whose agreement.
Be careful out there about deleting e-mails and shredding documents, though. Except in the White House, it's impossible to shred or delete a witness who's been given immunity.