Posted by: Dirk | February 2, 2008

The criminal extent of the subprime mess

The NY Times recently reported that the FBI will open an inquiry into the subprime mess.

The Federal Bureau of Investigation has opened criminal inquiries into 14 companies as part of a wide-ranging investigation of the troubled mortgage industry, F.B.I. officials said Tuesday.

The F.B.I. said it was looking into possible accounting fraud, insider trading or other violations in connection with loans made to borrowers with weak, or subprime, credit.

The investigation follows the revelation that the subprime field was plagued with fraudulent misrepresentations by lenders while middlemen looked the other way. Apparently, ‘applications with misrepresentations were also five times more likely to go into default’. The Fed’s way of not regulating the market has increased incentives for fraudulent behavior in what became a huge Ponzi scheme. So Alan Greenspan’s dream of all American’s owning a house has been an utopia. His successor Ben Bernanke is now to face up to a great challenge.

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