Posted on 04/24/2008 4:42:24 PM PDT by bjs1779
April 24, 2008 Is Wall Street’s Top Cop Involved in a Subprime Cover Up?
The ongoing subprime credit crunch is far from over. As my colleague Eric Roseman pointed out in an article yesterday, the prime-indicator that signaled the crisis is flashing red again… this time in several economies overseas.
Here at home, Uncle Sam is doing his level-headed best to simply sweep this crisis under the rug. In fact, regulators have even gone so far as to hush-up an investigation into the demise of Bear Stearns. Shocked? Don’t be…
Back in January I described how U.S. credit-rating agencies were under pressure to maintain an investment grade seal of approval on hundreds of billions in sub-prime debt and other sordid asset-backed securities. But Washington’s attempt to cover-up this mess goes even further… straight to the top of the Securities Exchange Commission.
The SEC is responsible for regulating securities firms, and bringing enforcement actions when necessary. But it seems America’s “top-cop” abruptly ended an enforcement case into activities at Bear Stearns – just months before the firm imploded in March.
What Did the SEC Know About Bear Stearns, and Why Did They Do Nothing?
As far back as 2005 – in the hey-day of the subprime lending craze – the SEC “said it planned to recommend that Bear Stearns be charged for the way it priced and valued about $63 million of CDOs,” according to the Wall Street Journal.
These are the now toxic collateralized debt obligations that Bear Stearns, and other Wall Street firms happily churned out in record numbers during the boom. Aided and abetted with triple-A credit ratings from the big agencies to make them more saleable, Wall Street pawned-off these toxic securities to investors globally.
So far, big banks and brokerage firms have collectively suffered losses of more than $300 billion (and still counting) in the credit market bust that followed. Most of these losses and asset write-offs are due to CDOs; many of which are trading today at just a fraction of the value that Bear Stearns and others originally sold them for.
Since the SECs investigation into Bear Stearns activity apparently began way back in 2005, you’d think they would have dug up enough subprime dirt to bring an enforcement action. But last December, the SEC apparently “pulled back” from this investigation without bringing any formal charges against. Three months later, with Bear Stearns practically bankrupt, it was sold off to J.P. Morgan at a fire-sale price.
Taxpayers Have a Right to Know...
It turns out that Congress got wind of the Bear Stearns probe, and curious as to why the SEC prematurely scuttled its investigation, requested information. According to the story, “In an April 2 letter, Sen. Charles Grassley, an Iowa Republican, requested information from the SEC into the circumstances surrounding the dropped case.”
Citing “confidentiality” the SEC has so far refused to share details with Congress. However, taxpayers are now on the hook for $29 billion worth of Bear Stearns assets that the Federal Reserve was kind enough to “guarantee” as part of the fire sale to J.P. Morgan. So with taxpayer’s money on the line, I think Congress deserves an explanation.
What does the SEC have to hide anyway? Bear Stearns is now practically dead and buried. Are there details of Wall Street’s subprime shenanigans that the SEC doesn’t want investors to find out about? Inquiring minds want to know…
Thank goodness the dims have the Senate and House to protect us from these greedy Wall Street barons!/s
It always bothered me that Bush let the Clinton crimes go unresolved, also. Not even an investigation.
Ping.
“Thank goodness the dims have the Senate and House to protect us from these greedy Wall Street barons!”
Don’t hold your breath. The SEC has utterly nothing to do with protecting individual investors, nor does it get involved even in cases of outright fraud, unless the evidence is so overwhelming and so concrete that it literally cannot avoid doing so.
The SEC is today more of a promotional body, acting for the benefit of publicly-traded companies, much like the National Ass’n or Realtors is to housing/homebuilders.
Then who regulates the honestly of the markets these days? I think we are on to something.
I think what the SEC found scared them. It’s important not to shock the financial markets to hard, or the sudden collapse will do a lot more long term damage than a slower unwinding. The latter is what we’re seeing now.
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