Legal Newsline

Tuesday, April 7, 2020

Cuomo inquiry targets large banks

By John O'Brien | May 13, 2010


NEW YORK (Legal Newsline) - New York Attorney General Andrew Cuomo is probing eight banks he believes might have misled credit rating agencies.

Cuomo's investigation was reported Wednesday in The New York Times. The targets might have fooled credit agencies into giving higher grades to mortgage securities than they should have received, Cuomo feels.

The banks under investigation are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch.

Lynch is owned by Bank of America, the target of another lawsuit brought by Cuomo. It alleges Bank of America misled shareholders about the financial state of Merrill Lynch during the purchase.

The three credit rating agencies are Standard & Poors, Fitch Ratings and Moody's Investors Service.

Those three are already the target of a lawsuit brought by Ohio Attorney General Richard Cordray.

Cordray said the credit-rating firms marketed mortgage-backed securities, saying they had the highest ratings and lowest risk.

Cordray, the former Democratic state treasurer, said the rating firms put high rating on the on toxic mortgage debt in return for high fees paid by those they were rating.

"The rating agencies' total disregard for the life's work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what's wrong with Wall Street today," Cordray said.

Duke University professor Michael Munger has said that Cuomo should look in the mirror when he seeks causes of the financial crisis.

Munger says Cuomo's reign as secretary of the Department of Housing and Urban Development Authority under President Bill Clinton was a big cause of the financial problems of today.

Cuomo required Fannie Mae and Freddie Mac to buy $2.4 trillion in mortgages over a 10-year span. Cuomo said that meant affordable housing for 28.1 million low- and moderate-income families.

"The fact is that pressure had been placed on both private banks and Fannie Mae and Freddie Mac to increase the amount of affordable housing available for people who couldn't afford it," Munger said.

"Banks were making loans they wouldn't make under normal circumstances. They were pressed by both Congress and Cuomo and the HUD. Basically, they were putting a government stamp of approval on them to buy these as investment-grade assets.

"To put it bluntly, the government was setting a trap... For Andrew Cuomo to blame somebody else, he caused it as much as anybody, or his agency caused it more than anybody -- and certainly more than any bank merger."

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Organizations in this Story

New York Attorney GeneralMoody's Investors ServiceMorgan StanleyCitigroup