Subprime SEC Investigations

"Regulatory investigations into mortgage-securities pricing are examining whether financial firms should have told the public earlier about the declining value of such securities and how they priced them on their books, people close to the matter say. ... The probes are among the roughly three dozen investigations opened by the SEC tied to the downturn of the subprime market, which primarily is tied to low-end borrowers. ... These days, far fewer than half of all securities trade on exchanges with readily avaliable price information, according to Goldman Sachs Group Inc., while more securities than ever are priced by dealers who don't publish quotes. ... Financial firms often use mathematical models with built-in assumptions in determining value, or 'marks' which might differ if they had to sell the securities. ... The SEC is asking questions specifically about whether financial firms were valuing mortgage-related securities differently on their own books compared to the valuations they applied to the holdings of customers such as hedge funds. ... In the current environment, investigators will be looking at whether a firm changed its valuation methodology to one that was more favorable in order to avoid or forestall taking big losses", WSJ, 21 December.

May individuals accused of mortgage fraud against banks use their "marks" to determine what the houses they borrowed on were "worth"? What will the SEC do if it finds financial institutions used different valuations for the securities in question? Will anyone "important" be indicted by the SDNY US Attorney's office? Don't hold your breath. Hey, Michael Garcia, are you following this?