"Anyone surprised by last week's arrest of two former Bear Stearns hedge fund managers must have slept through the Enron era. If Enron, WorldCom, Tyco--and the list goes on--taught us anything, it is that whenever the investing public suffers staggering losses on Wall Street, we can expect to see someone hauled off in handcuffs. ... Despite the complex nature of the subprime meltdown, the government has presented an indictment that reads very much like a garden-variety fraud. ... There is no question that at some point permissible spin crosses the line and becomes willful misrepresentation. That is really what this prosecution is all about. ... All of these alleged misrepresentations go to the question of intent--whether the statements made by [C&T] to their investors were knowingly false--and form the basis of the charges of securities fruad, wire fraud and insider trading. But this case also raises the more troubling question of whether all of Wall Street's ills can--or should--be reduced to criminal prosecutions, rather than leaving it up to appropriate financial regulators. ... Let's put this case in some perspective. This is not Enron. ... Nor is it Tyco. ... Rather, this is part of a much larger failure that extends well beyond these two defendants and their former employer to include many of our largest financial institutions. ... But these two hedge fund managers were not alone in reaping huge profits for years from the subprime market", my emphasis, Robert Mintz (RM) at the WSJ, 26 June 2008.
I wonder if Little and Brune will conduct a "scorched earth defense"? Whaaaat? For a first witness, call, drumroll please, Helicopter Ben (HB). Ask him if he and the other Fed heads discuss the condition of the economy. Introduce Fed minutes as subject to judicial notice. Who knows? If C&T regularly discussed the same things HB & Co., did, I can see it now: Hank Paulson (HP), "formerly" of Goldman Sachs (GS) calls Benton Campbell (BC), US attorney for NY's Eastern District and mirable dictu, the indictment is quashed. Alternatively, the jury will wonder why HP and HB aren't on trial. I can see HB in the witness box as an "adverse" witness, yet C&T's expert.
I agree with WA, C&T look like scapegoats to me. I went to the WSJ's website and found the 27-page indictment. I conclude C&T are guilty of something thousands of others are: puffery and incompetence. I saw two statements in the indictment, which if proven, look criminal. They were statements of fact, not opinion. Why did BC select C&T for prosecution? My answer: to help HP's case for increasing the Fed's powers to protect investment banks (IB). On 19 June Chris Cox, SEC chairman had a piece in the WSJ, looking to expand supposed regulation of IB, see my 2 July 2008 post. The only thing I saw in it was granting IB Fed discount window access. The indictment indicated to me that C&T did not understand the products they sold. They could have used Eugene Fama's or Bob Hamada's class at Chicago. They might have learned something. Another witness for C&T, Moody's Yuri Yoshizawa. She only looks backwards. Also, drumroll please, the GSer who said we saw a 25-sigma event, see my 15 August 2007 post. Why not indict him? A 25-sigma event, wow! A mere 6-sigma event is a 1.01 billion to one shot!
I agree with RM about the "larger failure". Perhaps RM, now with McCarter & English and a former federal prosecutor can explain to us why C&T were selected for prosecution. I think I have the answer.