Since the housing market crashed in 2007 there has been an endless amount of federal and independent investigations into the practices of many of Wall Street’s giants. Recently federal investigations have begun to focus on one bank in particular.
The current investigation is intended to prove whether or not Deutsche Bank created collateralized debt obligations CDO’s with sub-standard mortgages and then bet/profited from their failure. There appears to be a mountain of evidence that is leading investigators to believe just that.
Deutsche Bank was created in Berlin, Germany in 1870 and currently occupies offices in the heart of America’s financial district at 60 Wall Street in New York, New York. During the peak years of business Deutsche created and secured an estimated $42 billion in CDO’s. According to the Wall Street Journal Deutsche was the 4th largest issuer of CDO’s in the country. Some economists believe that the creation CDO’s packaged with sub-prime securities played a large part in the downfall of the housing market in the U.S.
One on the major issues at hand for investigators is not only the creation of these less than quality CDO’s, but it is also interested in the impropriety of these companies who created sub standard securities and then allegedly bet against the performance of what they created. Wall Street has a knack for coming up with cutting edge financial products to make them and their investor’s money. The question that investigators are trying to answer is whether or not Deutsche’s practices were business as usual or were they involved in practices that were forbid by the S.E.C.
Adding fuel to the fire investigators are interested in the link between Deutsche Bank and a Missouri lender named NovaStar Financial Inc. NovaStar was a sub-prime lender that was financed by Deutsche. The connection seems to be clear at this point and the issue with NovaStar was made clear by a flier that the company released that stated “Ignore the rules and qualify more borrowers with our Credit Score Override Program”. NovaStar became a magnet for traditionally unqualified borrowers and issued millions of dollars in sub-prime loans that were financed by Deutsche. Deutsche then packaged these less than desirable loans and sold them to unsuspecting investors.
The investigation of Deutsche and other companies will take some time but the intent is clear. Government oversight is not as the Republicans say “a needless increase of government”, but a necessity born out of the greed of Wall Street’s wizards.