Beyond Florida Real Estate: Are Bankers the New Mobsters?

Wall Street corruption blurs the lines between good guys and bad guys as this week’s headlines bubble to the top.

Unbelievably guilty in the court of public opinion. Now ultimately guilty in a court of law.

The conviction of Galleon hedge fund billionaire Raj Rajaratnam on all 14 counts of conspiracy and securities fraud is a prime example of rampant Wall Street greed and conspiracy.

It’s become clear that bankers took advantage of us all through the tricks and frauds of petty crooks. Ironically, these crooks bankers are now being brought down by the same investigatory wiretap techniques once used only in drug and mob cases. Perhaps “Bankster” is now the appropriate moniker.

Rajaratnam, formerly viewed as a skilled investor and stock market genius, should have stuck to “counting cards.” It’s one thing to make informed, intelligent investments by counting cards through legitimate research and public knowledge. It’s another matter entirely to “mark the cards” through insider secrets, privileged tips and paid informants.

Now, after a mosaic of insider trading and deception has been uncovered, the billionaire Rajaratnam is exposed as a card marker. Consequently, he faces the prospect of spending the rest of his life in federal prison.

Not surprisingly, this card marking culture is closely tied to the banks and mortgage-baked securities (MBS) industry that brought down the American real estate market. Banks simply were playing a game they new they couldn’t lose.

Our banks executed their own card marking by spiking investment portfolios with mortgages they knew would never be paid and then betting against those portfolios through the insurance markets. Rolling Stone magazine analogized the process to selling a car without breaks and then betting on it to crash.

Just as justice is being served on Rajaratnam, it appears banks are not in the clear of their spectacular malfeasance. Signals continue to point to the fact that MBS litigation against the banks is just beginning.

First, AIG has finally started taking legal action against some of the banks that induced it to insure mortgage products designed to fail.

Second, the U.S. Department of Justice has brought suit against Deutsche Bank and its subsidiary, MortgageIT, for several violations of the federal False Claims Act, common law negligence and gross negligence based upon years of reckless lending for more than $1 billion. Bloomberg reports that this may just be the beginning of suits by the government against lenders.

“We go where the evidence takes us, and if it takes us to the larger players on Wall Street, so be it,” said Helen Kanovsky, the Housing and Urban Development Department’s general counsel.

Finally, it’s possible that following the Deutsche Bank litigation, criminal charges may follow. Oppenheim Law wrote about the Matt Taibbi Rolling Stone Magazine article, “Why Isn’t Wall Street in Jail?” in March begging for accountability for this financial scandal. It appears the banks’ day of reckoning could be right around the corner.

Two weeks ago, the Levin report issued by the U.S. Senate, found that Goldman Sachs misled its clients about mortgage derivatives, was formally referred to the Department of Justice and SEC.

Ultimately, Goldman and its executives could face criminal charges for its actions leading up to the mortgage crisis as well as indictments for perjury in connection with executives’ testimony before Congress.

The bottom line is that hedge fund managers, investment bankers and our country’s largest banks grew too smart and too greedy for their own good. Finally, it seems justice will be served. The pendulum is swinging back… it always does.

From The Trenches,
Roy Oppenheim