By Robert Lenzner, Forbes Staff Not a week goes by without one of these financial institutions agreeing to pay a huge fine, settle a lawsuit charging fraud, be sued, blued and tattooed by a myriad of private plaintiffs, regulatory organizations concerning a broad sweep of activities that together give a sordid portrait of the global financial system. I find it difficult to absorb the charges these giants sold the public mortgage securities less valuable than portrayed, or laundered money for drug gangs, terrorist groups and nations like Iran that were on an embargoed list, or participated in another allegedly fraudulent practice that hurt their clients on behalf of the search for higher profits. So, I was not surprised that the Justice Department decided to sue the rating agency Standard & Poors for allegedly rating the credit quality of some faulty securities that collapsed in value during the meltdown of 2008. Still, I have a feeling the demand for a fine of $5 billion from the rating agency on transactions where the profit was a modest $33 million alerts me to the possible notion of excess government demands. I reckon these demands– and the swelter of ongoing investigations and lawsuits before the statute of limitations is over– has to do with the public’s anger at being exploited by the denizens of Wall Street. I reckon it has to with finally putting Brandeis’ glorious disinfectant on the wrongs done and making transparent to some greater extent precisely what went on behind the scenes in the financial community. It has also to do with the inability– harsh critics say unwillingness– of Uncle Sam to put a few corner-office culprits in prison. Justice takes time because investigations require careful discovery of who did what to whom as exampled in the email traffic at the core of the S & P case as well as most of the money laundering which involved bankers on foreign shores who may not be subject to the vestiges of American criminal law. For example, we still don’t know whom exactly is responsible for shifting the deposits of Iran from Europe or the UK to our shores. We don’t know — and we may never know who at HSBC decided to do business with Mexican drug cartels and arms of Al Qaeda. Note well; they were European institutions, not American, But, they were European institutions operating here. Be prepared for a further onslaught of lawsuits, many brought by foreign buyers of the damned mortgage-backed securities merchandised willy-nilly by Merrill Lynch, Bear Stearns and Washington Mutual before they were purchased by JP Morgan, Bank of America and others. I am told there are 175 suits against Standard & Poors including several from Arab institutions. There are still investigations from state Attorney-Generals and most likely from the Justice Department. This means reserves for litigation by the banks will be hiked in preparation, which does impair earnings to some extent. It means the staining of reputations and more importantly raises the question about the adherence to statutes, and …read more
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