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Too Big to Fail, But Not Beyond the Law: New York AG Turns Up the Heat on Big Banks

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

After hedge fund manager Raj Rajaratnam was found guilty of insider trading last week, my Breakout colleagues and I came to the same conclusion: The prosecution had just landed a very small minnow in a sea of rotten tuna.

The fact the [Rajaratnam] ruling comes the same week as Citigroup's reverse stock split and the Treasury Department's sale of AIG stock is a stark reminder of how much work federal investigators have to do - if only they'd get started, I wrote last week. (See: Rajaratnam Guilty of Insider Trading: Chilling Effect or Business as Usual?)

Well, it looks as if one investigator is getting started: New York Attorney General Eric Schneiderman is investigating the mortgage securities operations of Bank of America, Goldman Sachs and Morgan Stanley, The New York Times reports.

None of the three firms have commented publicly and doubtless will profess their innocence if and when they do. That is their right and, of course, they enjoy the presumption of innocence.

That said, Schneiderman's investigation is welcomed news, as Jeff Macke and I discuss in the accompanying video. Clearly there's enough circumstantial evidence to warrant greater investigation into the packaging and selling of MBS during the housing boom, as well as the foreclosure process in its aftermath.

If true, the NY AG deserves extra credit for, as The NYT reports, "operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices."

Even a record settlement like Goldman's $550 million deal with the SEC last year amounts to petty cash for an industry that booked billions in profits during the boom and raked in trillions in government bailouts after the bust. (Talk about double-dipping!)

If Schneiderman's investigation -- and other others (hopefully) to follow --show the banks operated legally and merely were caught in proverbial 100-year flood, as industry defenders claim, all the better. If that's the outcome, Americans can take some solace and (perhaps) move on from this nagging feeling the "rule of law" has been suspended for those with the money, power and influence to buy more money, power and influence.

For more Daily Ticker coverage of this topic, see:

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com