Matt Taibbi is Wrong
This Ain't a "Pass the Popcorn" moment
This investigation has the potential to be a Mother of All Nightmares situation for the banks for a couple of reasons. For one thing, the decision to go after the securitization process is a total prosecutorial bullseye. This is the ugly heart of the wide-scale fraud scheme of the bubble era. Again, the business model during this time was a giant bait-and-switch scam. Sleazy lenders like Countrywide and New Century first created huge masses of bad loans, committing every conceivable kind of fraud to get people into loans (from doctoring income statements with white-out to phonying FICO scores to engineering fake appraisals). They then moved the bad loans quickly to the big banks, which pooled them and chopped them up (this is the “securitization” process), sprinkled hocus-pocus math on them, and them sold them to suckers around the world as AAA-rated securities.(emphasis original)
The questions Schneiderman will seek to answer are these: did the banks securitize loans they knew were fraudulent, throwing the rotten mortgages into the stew before serving them to customers? Did they also commit insurance fraud by duping the bond insurers (known as “monoline” insurers) into thinking the mortgages were not as risky as they really were? And did they participate in the fraud scheme on a more basic level by lending huge amounts of money to the Countrywides of the world, knowing that they in turn would immediately use that money to create the bad loans? In other words, did the banks finance the fraud in addition to brokering it?
He's right on the basic facts, but he's wrong on what happens next.
There very well may be a settlement, with no admission of wrongdoing, but in terms for real consequences towards the Vampire Squid and the rest of the universe on Wall Street, nothing meaningful is going to happen.
Either the Feds get involved, and block Schneiderman, or he gets destroyed like Eliot Spitzer was, or he, or the state of New York, gets bought off, but we are not going to see the laws applied to people like this, despite pervasive criminality involved, because we live in their world, and they just rent it back to us.
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