Mortgage Meltdown

FDIC Gearing Up for Dead Bank Litigation?

So far this year, the FDIC has closed 57 banks (list here) at a cost of about $12.7 billion to the deposit insurance fund.  That is a lot of dead banks, and even more former bank directors and officers that may find themselves in the crosshairs of the FDIC in search of recovery for the billions of dollars it has paid out of the insurance fund -- that is, if there is a D&O insurance policy that could back up a judgment.

In an article at FinCriAdvisor, it was reported that the FDIC is sending out claim letters to managers of failed institutions in order to ferret out whether there may be insurance money available if the government were to bring a claim.  This is the first step in what could be a replay of the cases filed by the Resolution Trust Corporation in the wake of the last surge in financial institution failures - the savings and loan crisis.  And so it begins.

Despite Efforts, Tide of Foreclosures Continues

Despite efforts by States, the Federal Government, and private initiatives to reduce foreclosures, they appear to continue unabated (article here).  Foreclosures in the second quarter of 2009 increased 20% over last year to a record level of nearly 890,000, according to RealtyTrac.  In Nevada 1 out of every 34 housing units is in foreclosure.  In California 391,600 properties were subject to foreclosure filings.

DOJ Antitrust Division Looks Into CDS Pricing Issues

As reported by the Wall Street Journal (here), the Antitrust Division of the Department of Justice is investigating potential violations in the Credit Default Swap market, asking for information from Markit Group Holdings Ltd.  Markit was a key player in the explosion of the CDS market from virtually nothing into the $38 trillion market that it became.  Although not an exchange, Markit Group collected information from banks and brokers and published prices for various swaps.

So who is Markit Group Holdings?  Well, its largest shareholders include many of the large investment banks on Wall Street, including J.P. Morgan, Goldman Sachs, Citigroup, Deutsche Bank, Bank of America, Barclays, UBS, and Morgan Stanley.  Although the article is scant on details of the potential antitrust violations DOJ is investigating, the fact that all of the large banks banded together and created a company that basically set the prices of such a large market seems at least create the opportunity for manipulation of the market, manipulation of pricing, and the ability to keep any other company interested in competing with Markit Group frozen out of the business.

(photo courtesy of freefoto.com)