One reason why the crisis that began to unfold in the spring of last year was inevitable -- and why it continues to worsen, contrary to the opinion of so-called "experts" (e.g., highly-paid Wall Street "strategists") -- was because a gargantuan house of cards rested on models, assumptions, and values that were, for the most part, baseless.
It was hard for the man on the street to know this, of course, because thoroughly-conflicted insiders, clueless academics, corrupt politicians, toothless regulators and various industry shills were running around claiming that they knew what was going on and that everything was on the up-and-up.
In reality, not only were they unaware of the many inherent flaws of this Wall Street-sanctioned Ponzi scheme, it has become become increasingly apparent that some of these operators had a role in helping to perpetuate the fraud. Based on the following report from Bloomberg, "'Large Number' of Banks Mis-Marked Assets, U.K. Regulator Says," it looks like the authorities are starting to close in on the miscreants (better late than never?).
Incorrect securities pricing found at Credit Suisse Group AG, Morgan Stanley and Lehman Brothers Holdings Inc. is more widespread and will be investigated, the U.K.'s financial regulator said today.
The Financial Services Authority said it will begin the probe next year after finding that securities valuations at a "large number" of London banks were "materially flawed or inadequate," the agency said. The problems may worsen if banks fire compliance and risk officers, the FSA said.
"We recommend that you consider carefully any headcount reduction exercises that will affect valuation-control functions at this sensitive time," FSA Chief Executive Officer Hector Sants wrote in a letter to CEOs last week and made public today.
Incorrect pricing on London trading desks has contributed to $2.8 billion of writedowns. The FSA letter comes a week after the U.K. operations of Credit Suisse, Switzerland's second-largest bank, was fined 5.6 million pounds ($10.6 million) for failing to properly oversee pricing of asset-backed securities.
Spokeswoman Teresa La Thangue declined to say how many mis-marking incidents the FSA has uncovered or name companies targeted. "The fact that we've sent a `Dear CEO' letter isn't unprecedented, but it's rare," La Thangue said. "It means that it's an issue we're taking very seriously."
The FSA will be visiting firms and "wielding a big stick," said Patrick Buckingham, a regulatory lawyer at Herbert Smith and a former Lehman Brothers in-house lawyer.
