"there are quite a few entitites interested in holding the true perpertrators accountable... "

Okay, but shouldn't that include the government regulators that allowed the subprime lenders to practice their, uh, practices, in the first place? It looks to me like the city of cleveland, et al, are just being proactive by blaming someone else before someone blames them.

What a wonderfully litigious society we are in.

mfbenson: "Okay, but shouldn't that include the government regulators that allowed the subprime lenders to practice their, uh, practices, in the first place? It looks to me like the city of cleveland, et al, are just being proactive by blaming someone else before someone blames them."

To a large extent, I agree with you.

However, IMO...its a start...as the entities that could hold the regulators accountable ARE indeed the regulators. Its the fox guarding the henhouse to the umpteenth degree.

I'm not sure any one city has the resources with which to do that....however, if more and more cities choose to move forward in this respect, with Cleveland and Baltimore setting the example, one never knows what may ultimately be achieved...

Its far better than doing nothing....or pretending that but for the stupid/the gullible/the ill-informed Joe Average homebuyer this would never have happened.

Unlike the highly regulated securities industry, the mortgage industry is but lightly regulated. The Federal Reserve has the power to regulate it, but has chosen not to do so.

Logic-"However, IMO...it's a start...as the entities that could hold the regulators accountable ARE indeed the regulators. It's the fox guarding the henhouse to the umpteenth degree."

I agree. So do the state Attorney General's for N.Y. and MA.

New York probes Wall St. banks over suprime data: report
January 12, 08'

NEW YORK (Reuters) - New York prosecutors are investigating whether Wall Street banks withheld information about the risks stemming from subprime loan-linked investments, The New York Times reported on Saturday.

Citing people with knowledge of the matter, the newspaper said the inquiry, begun last summer by state Attorney General Andrew Cuomo, was focusing on how banks bundled billions of dollars of exception loans and other subprime debt into complex mortgage investments.

Charges could be filed as soon as the coming weeks, the Times said. Connecticut Attorney General Richard Blumenthal told the newspaper he was also conducting a review and cooperating with New York officials.

The federal Securities and Exchange Commission is also investigating, the Times said.

Reports commissioned by Wall Street banks raised alerts about the high-risk loans, known as exceptions, which fell short of even the lax credit standards of subprime mortgage companies and the Wall Street firms, the newspaper said, but the banks failed to disclose those details to credit-rating agencies or investors.

The inquiries highlight Wall Street's leading role in igniting the mortgage boom that has imploded with a burst of defaults and foreclosures. The crisis is sending shock waves through the financial world, and several big banks are expected to disclose additional losses on mortgage-related investments when they report earnings next week.

EXCEPTION LOANS

Industry officials say the so-called exception loans make up anywhere from 25 percent to 80 percent of the $1 trillion subprime mortgage market among portfolios they had seen, the Times said.

The banks also failed to disclose how many exception loans were backing the securities they sold, with underwriters using such words as "significant" or "substantial," securities law requires banks to disclose all pertinent facts about securities they underwrite, the report said.

Blumenthal said the disclosures in the banks' securities filings appeared to be "overbroad, useless reminders of risks," the Times said.

"They can't be disregarded as a potential defense," the newspaper quoted him as saying. "But a company that knows in effect that the disclosure is deceptive or misleading can't be shielded from accountability under many circumstances."

New York state law would allow for criminal as well as civil charges, the Times said.

Cuomo declined to comment, but the Times said he had subpoenaed Wall Street banks including Lehman Brothers (NYSE:LEH - News) and Deutsche Bank (XETRA:DBKGN.DE - News), as well as major credit-rating companies Moody's Investors Service, Standard & Poor's and Fitch Ratings. Mortgage consultants including Clayton Holdings (NasdaqGM:CLAY - News) in Connecticut and the Bohan Group, based in San Francisco, were also subpoenaed.

Officials at Wall Street banks and the American Securitization Forum declined to comment, the Times said, while credit-rating firms would not say they had been subpoenaed, but that they were generally not provided due diligence reports even when they asked for them.

"....the Times said, while credit-rating firms would not say they had been subpoenaed, but that they were generally not provided due diligence reports even when they asked for them."

Another red flag...clearly ignored.

"Its far better than doing nothing....or pretending that but for the stupid/the gullible/the ill-informed Joe Average homebuyer this would never have happened."

Well, that depends. Lenders that outright lied or deceived their borrowers are clearly not playing by the rules, but a borrower who knowingly takes on an ARM when interest rates are already low isn't exhibiting wisdom. Some people who did that were able to sell in time, at a profit - a rising market forgives much.

Sort of like the stock market, any fool can look like a genius in a bull market, but it takes a bear market to reveal the truly smart.

This natural trend for markets to remove the unwise players is being complicated by government bailouts for incautious borrowers. I think it will create more problems than it solves.

mfbenson: "Sort of like the stock market, any fool can look like a genius in a bull market, but it takes a bear market to reveal the truly smart."

Or..the truly corrupt.

"I'm not sure any one city has the resources with which to do that..."

I was thinking about this point and I can forsee the cities making an awkward argument: "We have the resources to litigate, but not the resources to regulate."

Unfortunately, many people out there will agree.

And the costs of litigation will ultimately be passed along down to the consumer.

"...but a borrower who knowingly takes on an ARM when interest rates are already low isn't exhibiting wisdom." I'd even take exception to that statement because people who can afford a mortgage and it's rate increase may very well just not want to pay higher rates of interest until they have to. I know alot of people who use that strategy and have refinanced fairly often over the last 5+ years.

While everyone is quick to blame lenders, and Wall Street and municipalities, how many of you have money placed in mutual funds and you want the highest rate of earnings or you pull your money from the fund and go to another fund or investment type? And how do you think those funds, which invest in mortgage backed securities, are able to pay you higher rates? It just might have something to do with them investing in more risky securities.

It's a circle...and folks like me who invest are just as much as part of the circle as the big,bad nasty guys.

kec01: "It's a circle...and folks like me who invest are just as much as part of the circle as the big,bad nasty guys."

Excellent point. However, if one wishes to stay away from investing in anything that smacks of fraud or deceptive practice, they have no choice but to not invest at all...

Basically, one has to assume that ALL entities are corrupt to some degree...as it is extremely difficult...if not impossible... to turn a huge profit without some of that in the mix...

The point is, one can either stuff their mattress with any money they wish to save....and see no return at all...or only invest in vehicles that provide full disclosure (which of course rules out hedge funds...which most if not all MF's invest in to some degree), and try to act via due diligence.

This is a very sad dilemma for truly honest people...as they are precluded from investing if they wish to not be part of the dirt. How very sad.

Apparently, the world of finance is indeed morally bankrupt (no pun intended) and therefore irretrievably broken...and all the good guys can do is live their lives forever trying to protect themselves from the bad guys..and all too often, without success.

All Cuomo is looking at are the securities issued (backed by the mortgages) NOT the actual mortgage practices that originated the loans.

"I know alot of people who use that strategy and have refinanced fairly often over the last 5+ years."

So do I. And now that the values of their houses are declining, that next refi won't be possible. An unwise strategy. Not to mention all the money in closing costs they've given away with each refi.

While I see no need for people to be so conservative with finances that they would actually plan for a loss in value (except perhaps those in the extreme bubble areas), at the same time their plans should not rely on a gain in value. A long time ago that was considered conventional wisdom, but then so was the idea that borrowers would only want ARMs during times of high interest rates.

"at the same time their plans should not rely on a gain in value"

They certainly shouldn't plan on using their houses to achieve a gain in value because history tells us that residential housing prices, after taking inflation into account, have remained quite stable since WWII, EXCEPT for the sharp run-up that started in the late 1990s. Of course, we all know what's going on with house prices right now. So we can conclude that house price will need to decline for some time to bring them back to their historic levels.

But that's certainly not true of money-based investments. Money makes money, as they say. Even very conservative money investments (money market accounts, treasury bonds, etc) increase somewhat in inflation-adjusted dollars. When you invest money, you are ultimately loaning it to someone, and that someone has to pay interest on it. Some of that interest ultimately comes back to the investor.

"On Wall Street, the losers in the collapse of the housing market are legion. The biggest winner looks to be John Paulson, a little-known hedge fund manager who smelled trouble two years ago."

Here is a link that might be useful: Wall Street Trader Paulson made Billions on Subprime

are Cleveland and Baltimore going to return the excess property taxes they collected on inflated property values fueled by easy lending practices?

"are Cleveland and Baltimore going to return the excess property taxes they collected on inflated property values fueled by easy lending practices?"

As house values decrease, so will the the taxes after the next assessment.
If owners sold at the inflated value, should they give some of their profits back to the seller since the homes have fallen in value?

berniek..great article..thanks for the link. It certainly documents the fact that the big guns KNEW this was a huge problem at minimum 2 years ago...but still played the game...and even tried to invent more....and basically concentrated on trying to CYA..

Interesting as well that if Paulson knew..clearly Greenspan knew as well...but..remained silent...and is now Paulson's "advisor".

This article only serves to prove that the culpability of the finance community is monumental...and the culpability of those victimized minute.

Payback time?

Here is a link that might be useful: Greenspan Joins Paulson & Co. As Adviser

Greenspan is the single most responsible person for the subprime meltdown and now he's joining the hedge fund group that made enormous profits on it!

Can't help but wonder what kind of informal ties, if any, he had with Paulson while he was still Fed Chairman.