Wall Street Faces Legal Probe on Sub-Prime Crisis
By Stephen Foley in New York
The New York state attorney general is examining whether Wall Street turned a blind eye as mortgages were foisted on borrowers who could not pay them back, and then misled investors when they sold them mortgage-backed securities.
Andrew Cuomo has sent subpoenas to several of the biggest Wall Street firms as part of his widening legal investigation into the causes of the mortgage market crisis.
Bear Stearns, Merrill Lynch and Deutsche Bank are among the companies which have been asked for information about how they assessed the quality of the home loans underlying derivatives such as mortgage-backed securities and collateralised debt obligations (CDOs). These derivatives have collapsed in value as low-income Americans begin defaulting on loans in record numbers.
The subpoenaed banks yesterday either declined to comment or said they would co-operate with all regulatory requests.
With millions of homeowners finding that they cannot refinance their mortgages before the expiry of low introductory interest rates, politicians fear a wave of foreclosures that could damage the wider US economy.
So far, most of the fury has been trained on unscrupulous mortgage brokers and on the credit rating agencies, which certified that many mortgage-backed derivatives were as safe an investment as government bonds. …