Wednesday, February 1, 2012

Mortgage Bond Traders to be Charged

Former Credit Suisse mortgage bond traders will reportedly be criminally charged in coming days. The criminal charges will purportedly allege that these Wall Street traders misstated the value of mortgage bonds, purposely misleading Credit Suisse investors, all in an effort to boost their own bonuses in the run-up to the mortgage crisis.

According to the Wall Street Journal: "Federal prosecutors are preparing to file criminal charges against former Wall Street traders alleging they misstated the value of mortgage bonds, an issue central to the 2008 financial crisis, according to people familiar with the matter.

The Manhattan U.S. Attorney's office is planning to allege in a criminal complaint that several former traders at Credit Suisse Group AG, a major global investment bank, misled the bank's investors by booking inflated prices of mortgage bonds to boost their bonuses, despite knowing the values of those securities had dropped, according to the people familiar with the matter. Credit Suisse itself won't be charged in the case, these people say. The names of the traders couldn't be determined. Charges could be filed as early as Wednesday, these people say."

Most agree that valuation of mortgage bonds and Wall Street's efforts to securitize and package these mortgages into collateralized debt obligations played a major role in the collapse of the global markets in 2008-2009. Misleading investors as to the accurate valuation of these mortgage bonds and the credit rating agencies failure to truly rate the mortgage backed securities as risky, amongst many other issues, led to near financial calamity.

Again, per the WSJ: "Wall Street valuations of mortgage securities were a major factor in the market turmoil of 2008. For years, financial firms had packaged hundreds of billions of dollars of subprime mortgages into securities. When those mortgages soured, investment banks resisted taking losses, fearing that their own investors and clients would panic.

They ultimately took big write-downs on their mortgage portfolios—totaling hundreds of billions of dollars—throwing markets into turmoil and triggering losses that toppled financial giants Bear Stearns Cos. and Lehman Brothers Inc."

Perhaps efforts to hold rogue traders accountable will be a first step in policing Wall Street excess and recklessness.

1 comment:

  1. This is very good post.
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