KEY POINTS:
Believing that the collapse of Bear Stearns marked the bottom of the slump, many investors have shifted their focus from the effects of the credit crisis on the finance industry to fretting about its longer-term consequences on the economy.
US federal agencies, however, still have their eyes firmly trained on how the extension of mortgage loans to "sub-prime" borrowers spiralled into a crisis that engulfed Wall St - and are stepping up their efforts to find miscreants and prosecute fraud.
A "credit crisis task force" has been created, pulling in representatives of the FBI, the Securities and Exchange Commission, which regulates Wall St, and even the US secret service, plus a slew of other regulators.
The aim is to co-ordinate sprawling investigations into whether sub-prime borrowers were misled by mortgage brokers, whether lenders deliberately turned a blind eye when borrowers lied about their incomes, whether Wall St banks mis-sold complex derivatives backed by sub-prime loans, and whether financial institutions illegally hid the risks of their investments from shareholders.
By banding together, the agencies have recognised the need to follow a chain of evidence. This might lead from a Florida homeowner whose income was mis-stated on a mortgage application, through the broker that encouraged or made the mis-statement, via the lenders and up to the Wall St banks that bought and packaged mortgages into new securities, and then to the banks' audit and risk committees, which decided how to report holdings of securities that have cost them more than US$300 billion in write-downs.
Leaks of information have revealed that investigations are under way into whether Bear Stearns misled investors in two of its hedge funds, which traded mortgage securities, and whether UBS deliberately over-valued securities on its books. Both have refused to comment on the investigations.
American Home Mortgage Investment, a lender which collapsed last year, is also known to be under investigation, but other lenders too are being scrutinised.
Analysts also expect lawsuits and probes into the sale of auction rate securities, a type of bond that many retail investors were led to believe was equivalent to cash, but which they have found hard to sell since the credit crisis.
The task force had its first formal meeting on Friday, led by assistant US attorney Jonathan Green in Brooklyn, New York.
- INDEPENDENT
