07/19/2010 11:52 am ET | Updated May 25, 2011

Judging the Bankers: The Financial Crisis and the Courts

July 15th, the day that the financial reform bill passed the Senate, will likely serve as a critical milestone in the campaign to create a new legal infrastructure for the financial industry, one that, hopefully, will serve as a bulwark against risky conduct and future financial crises. Much work remains to be done, however.

What's more, financial reform legislation, the new regulations that need to be generated as a result of the law, and the creation of a Consumer Financial Protection Agency will do little to compensate for the losses caused by the present financial crisis.

If those responsible for the financial crisis are to be held accountable, grassroots efforts, like the Move Your Money campaign, will be well served by complementary efforts launched in the courts. Along those lines, another important event occurred on July 15th, one that may serve as a key turning point in the campaign to hold banks accountable for their responsibility for bringing about the present crisis.

As the whole world now knows, last week, the Securities and Exchange Commission announced that it was settling its landmark securities fraud case against Goldman Sachs for some of the investment bank's shady securities practices. The practices challenged by the SEC included allegations that the investment bank created investment vehicles doomed to fail: vehicles that were created in large part for some clients to bet that they would fail, while still other clients were led to believe they would not. The settlement, for over $500 million, is one of the largest securities fraud settlements in history.

While some may see it as a slap in the wrist for Goldman, the settlement may have profound repercussions across bank board rooms and litigation war rooms across the country. Many on Wall Street might hope that the Goldman settlement closes the book on accountability for the banking industry for its role in bringing about the financial crisis. While it may indeed be the beginning of the end for Wall Street accountability, it is more likely that this is, as Winston Churchill once said in the depths of World War II, only the end of the beginning.

Over the last few weeks, in addition to the Goldman settlement, a few critical events have also unfolded. Attorney General Richard Cordray of Ohio announced a $725 million settlement with AIG in a lawsuit over losses by Ohio pension funds due to that company's misdeeds.

In addition, for $102 million, Attorney General Martha Coakley of Massachusetts settled its suit with Morgan Stanley over its practices in funding risky and abusive subprime lending in that state.

And the Federal Housing Finance Agency filed dozens of subpoenas with an undisclosed list of investment banks that specialized in marketing mortgage-backed securities and sold such securities to Freddie Mac and Fannie Mae, perhaps under faulty marketing materials and false pretenses.

Those subpoenas may reveal information that could force the investment banks to buy back certain securities, compensating the GSEs for the losses they (i.e., American taxpayers) have suffered due to those investments. The cost of such buybacks could run in the tens of billions of dollars.

Finally, in a closely watched race, the Democratic candidate for Texas Attorney General, Barbara Ann Radnofsky, has made her argument that the state should sue the investment banks--like Texas and many other states did successfully against tobacco companies in the 1990s--a campaign issue with her Republican rival, current Attorney General Greg Abbott.

Rather than taking the air out of such campaigns, the Ohio AIG agreement, Coakley's settlement with Morgan Stanley and the Goldman agreement will likely embolden efforts to identify investment banks', mortgage banks' and credit ratings agencies' complicity in, and unjustified profits from, the lead up to the financial crisis.

As the old saying goes, a lie gets half way around the world before the truth gets its boots on. Perhaps the lies that "no one saw this coming," "the fault lies with low-income borrowers who had no business thinking they could be homeowners," and "America needs Wall Street to bathe in profits," may have gotten half way around the world. It seems, however, that the truth may have its good shoes on and is marching up the courthouse steps.