When it comes to tackling organized crime on Wall Street, though, Oregon Treasurer Wheeler and Attorney General Kroger are a couple of tough customers.
This week, Wheeler and Kroger jointly announced that they're going after the once-mighty financial firm Bear Stearns & Co. for peddling junk investments on which the Oregon Public Employees Retirement Fund ultimately lost $17 million.
Bear Stearns used to deal in mortgage-backed securities, which involved putting together packages of mortgages and selling those packages to investors. Mortgage-backed securities are supposed to be safe, gilt-edged investments yielding a fixed annual return, rather like bonds.
But such securities are only as good as the mortgages backing them up, and the mortgages that Bear Stearns and others bundled into the securities they sold turned out to be as worthless as second-hand toilet paper.
What was even more reprehensible, the Wall Street pirates grossly misrepresented the quality of the securities. What the hell, let's not sugar-coat it - they lied.
Bear Sterns sold $17.5 billion worth of mortgage-backed certificates to ORPERF and other investors in 2006 and 2007, Wheeler and Kroger said. "While [they] were sold as high-quality 'investment grade' securities, they were actually part of a pool of 47,148 real estate loans that was largely made up of risky subprime and so-called 'Alt-A' mortgages."
In some cases the certificates were worth only 10% of what the sellers said they were. "Of the $17.5 billion in initial securities, rating firms downgraded $17 billion to 'below investment grade,'" according to Wheeler and Kroger. Another $16.2 billion worth of certificates once had a AAA rating, but 95% were downgraded to "junk bond" status. When the real estate bubble popped, investors - including ORPERF and other pension funds - lost their shirts.
Kroger and Wheeler announced that ORPERF is joining a class action lawsuit against Bear Sterns filed by six other pension funds. Bear Sterns, which let itself be sold to JP Morgan Chase in 2008 rather than go into bankruptcy, is facing a slew of other lawsuits by investors and its own former employees, and when all the legal dust settles it appears doubtful that Oregon will be able to collect a lot of money.
But it's not just about the money. Wall Street banksters need to learn (as they apparently haven't yet) that their crimes will have consequences - and that Oregon's investment watchdogs are vigilant, have sharp teeth, and don't hesitate to use them.
"We believe that these junk investments were intentionally mislabeled and all Oregonians are still reeling from the economic fallout," Wheeler said. "If you hurt Oregonians financially, we are coming after you."
Exactly right. For taking aggressive action against Bear Sterns (and Countrywide Financial Corp., which Wheeler sued in July) we're giving Kroger and Wheeler each a GLASS SLIPPER.
Congratulations, gentlemen, and good hunting.