BUSINESS
09/27/2012 07:53 am ET

Financial Crisis Scapegoat Identified: Seven And A Half Things To Know

Thing One: Scapegoat Snagged: It appears we may have at long last found a patsy for the financial crisis.

Kareem Serageldin, former head of structured credit trading at Credit Suisse, was arrested in London yesterday and will be extradited to the United States to face charges that were filed against him back in February, in what the Wall Street Journal describes as "the highest-level Wall Street executive to be charged in a case relating to the 2008 financial meltdown." But if this is the biggest arrest we're going to get out of the financial crisis, this is laughably weak. Snagging somebody like Serageldin or one of his traders is like arresting one of hundreds of looters during a blackout and not bothering to figure out how the blackout happened in the first place.

Serageldin and two of his traders are accused of not properly marking down the value of collateralized debt obligations stuffed with mortgages as the value of those mortgages fell in late 2007. They did this, according to Manhattan U.S. Attorney Preet Bharara, to make their trading book look profitable and get some multi-million-dollar bonuses at the end of the year. The two traders who worked for Serageldin have already pleaded guilty to conspiracy charges. Serageldin has said he did nothing wrong and has been cooperating with prosecutors for four years. As Bloomberg notes, he has repeatedly expressed surprise at the charges.

If the evidence Bharara has against Serageldin is to be believed, then Serageldin appears to be the unluckiest man on Wall Street today: He was caught in taped phone calls resisting bond write-downs and talking about how the bonds weren't being marked as low as they should be. There are probably hundreds, if not thousands, of Wall Street traders today muttering to themselves, "There but for the grace of God go I." Because not properly marking mortgage bonds to market was not a one-off crime that occasionally happened, but the modus operandi for Wall Street for years. It might be continuing to this day, for all we know. As the WSJ points out, suspicion about mortgage values made investors mistrust Wall Street, but it also made banks mistrust each other -- because everybody knew that everybody else was cooking the numbers.

So good on Bharara, I guess, for maybe managing to snag one tiny group of people doing it and talking about it openly in taped phone calls. But you could fill many of the empty seats at Citi Field with the people who were doing this and did not get caught. And in the best seats at Citi, you could place the bank CEOs, who also benefited from over-inflated mortgage values. And in all the rest of the seats at Citi, you could put all of the bankers who built and profited from the subprime-stuffed mortgage bonds in the first place. None of them have been, or likely ever will be, arrested, and the statute of limitations is running out on the whole mess very rapidly.

Thing Two: The $25 billion mortgage settlement, meant to make banks pay for screwing homeowners in the mortgage-foreclosure process, was announced with much fanfare as a boon to those homeowners. Except that the settlement has opened the door for scammers to walk in and screw many of those homeowners a second time, the Washington Post writes: "Across the country, the combination of rampant foreclosures, desperate homeowners, record-low interest rates and billions in available government aid have created fertile ground for scam artists, who have found new and creative ways to prey on the millions of Americans who owe more than their homes are worth."

Thing Three: Location, Location, Location: Great news, everybody, banks are lending to consumers again! Unless you happen to live in a major city on the East or West Coast. Otherwise, have some money. The Wall Street Journal's Dan Fitzpatrick writes: "In some smaller population centers across the Great Plains and Midwest that rely on energy, food processing and manufacturing industries, banks are taking as much risk as they did precrisis. But new lending still is trailing in larger coastal areas that were dominated by construction and finance."

Thing Four: Trading Speed Bumps Overseas: While U.S. regulators continue to dither about whether and how to slow down high-speed trading, regulators overseas are going ahead and doing something about it, Nathaniel Popper of The New York Times writes: "Industry leaders and regulators in several countries including Canada, Australia and Germany have adopted or proposed limits on high-speed trading and other technological developments that have come to define United States markets." Trouble is, a robot-induced flash crash in, say, Australia isn't going to send shock waves through the financial system, while a flash crash in the U.S. will. As Popper points out, high-speed trading is so entrenched, and so profitable, in the U.S. that it's little surprise regulators are dragging their feet here.

Thing Five: Spain's Banks -- Hey Why's Everybody Running Away? Money continues to drain out of Spanish banks, the Financial Times writes, as account-holders withdraw their cash to line their mattresses amid the financial crisis. The level of Spanish bank deposits is the lowest since April 2008. Prime Minister Mariano Rajoy is due today to announce a round of painful austerity measures, which have been the subject of sometimes-violent street protests this week.

Thing Six: So Much For The New Tech Bubble: The craptastic stock performance of Facebook, Groupon and other formerly hot tech properties has led venture capitalists to back slowly away from other Web startups, the Wall Street Journal writes: "Some entrepreneurs are finding that it's taking longer to raise cash. Many are resetting their expectations over valuations." The good news is that we at least don't have to worry about a tech bubble inflating too quickly just yet.

Thing Seven: The Refs Are Back: Our long national nightmare is over: The NFL has reached a deal with its referees' union, and the real refs will be back on the field for tonight's game in Baltimore. Funny thing is, the NFL owners ended up giving the union pretty much what it wanted, meaning the whole debacle of having failed Lingerie Football League refs officiate NFL games could have been avoided.

Thing Seven And One Half: That's Info-Tainment: So many GIFs of stupid infomercials, so little time (h/t Uproxx).

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Calendar Du Jour:

Economic Data:

8:30 a.m. ET: Weekly Jobless Claims for Sept. 22

8:30 a.m. ET: Durable Goods Orders for August

8:30 a.m. ET: Third Estimate of GDP for the Second Quarter

10:00 a.m. ET: Pending Home Sales for August

Corporate Earnings:

Before Market Open:

Discover Financial Services

After Market Close:

Accenture

Nike

Heard On The Tweets:

@JeffMacke: A corrupt game officiated by under-qualified officials in way over their head. The NFL is now Wall St. If you don't like it, don't play.

@PhilIzzo: So if markets tumbled on Plosser, Evans should send them soaring. Get my broker on the phone and fetch my drool bucket and trading Crocs.

@bradleydaviswsj: Hmm ... I'd say WWs I and II were worse, right? RT @FGoria Italian PM Monti says Europe is facing the the worst crises in its history

@zerohedge: WEIDMANN SAYS HE DOESN'T `SAY NO TO EVERYTHING' ON ECB COUNCIL. ECB "Shall we order spatzle for dinner?" Weidmann: "Yes"

@ReformedBroker: This morning's polls suggest that Ohio is leaning toward Obama, carnival food.

@MrsRupertPupkin: Accidentally prepared too much salad if anyone wants to come over & make sweet, sweet love.

And you can follow me on Twitter, too: @markgongloff

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