Busted: Bankers and The Global Economy

June 19, 2008

FBI Begins Kicking Booty in Banker Fraud

The Federal Bureau of Investigation isn’t wasting time. America needs some fall guys. Who better than lying and scheming financial salesmen? Finally, crooked bankers, financial gurus and investment brokers should be shaking in their boots. The FBI is on the stick and hasn’t been wasting much time. Obviously, the preponderance of evidence is huge or the government wouldn’t moving this quickly. Previously, the FBI stated that the first arrests could have taken two years or more.

The first criminal cases of the credit crunch are two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin. The men allegedly misled investors in two funds that collapsed last summer on mortgage-backed securities.

Why fall guys you ask? The FBI will have to be up on their numbers to make this stick for these kind of high profile stakes. Bear Stearns managers have been far from alone in failing to warn investors. Wall Street has spent a lot of time deceiving themselves about the depth of the mortgage mess and continues to do so. They aren’t alone.

Wall Street lawyers will joyously proclaim that these guys can’t be wrong because everyone on Wall Street is so deceived. The crime is so large that the Feds may be tempted to run the other way.

More than 400 mortgage brokers, real estate agents, and other industry officials have been charged and nearly 300 have been arrested. These are the small timers with fraud currently running around $1 billion. The government has rounded up the Internal Revenue Service, the Secret Service, the Department of Housing and Urban Development, immigration and customs agencies, postal inspectors and the Federal Deposit Insurance Corporation to get the goods.

Will high-profile investment bankers and their cronies actually pay for their crimes because of their legal largess? Time will tell whether money will buy out the crooked finance industry. In the meantime, the finance industry would be well advised to watch their backsides.

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