We finally came full circle relative to subprime, mortgage blues, and the subsequent recession. What we could not see in 2006 are new laws enacted today. Under sweeping financial overhauls that have now passed the House and Senate, home buyers won’t be able to get a mortgage without producing pay stubs or other evidence they can make their monthly payments.

A new consumer watchdog will police lenders who offer impossible-to-resist subprime mortgages and then jack up the interest rates to impossible-to-pay levels.

The bills, which still have to be blended into one that could reach the president’s desk this summer, also shine more light on complex but hidden financial instruments, the “derivatives” that made long-odds bets on whether Americans could make payments on mortgages they never should have qualified for.

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continuing to react to the mortgage crisis be creating new laws, one more law is on the books. Earlier Thursday, senators dealt a blow to the nation’s largest credit-rating agencies, approving tough new rules for the industry and voting to remove the government’s formal endorsement of a handful of firms.

Sen. Al Franken (D-Minn.) had taken aim at what he called “staggering conflicts of interest” in the current structure, in which issuers of financial products can shop for the most favorable ratings. Because issuers also pay the ratings agencies for their services, Franken said, the agencies have an incentive to give securities a higher rating than warranted.

“This conflict of interest has cost American investors and pensioners billions and billions of dollars,” Franken said, “because supposedly risk-free investments have failed or been downgraded to junk status.”

Franken’s measure seeks to end the practice of shopping for ratings by creating a clearinghouse regulated by the Securities and Exchange Commission. Financial companies seeking to have a new security rated would be assigned a rating agency by the clearinghouse. Firms could then seek out subsequent ratings on their own, but any discrepancies between the ratings would be made public.

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The New York attorney general has begun an investigation into eight banks to determine whether they provided misleading information to agencies that rate mortgage securities, The New York Times reported on Thursday.

New York Attorney General Andrew Cuomo’s office issued subpoenas late on Wednesday notifying the banks of his investigation, the Times reported on its Web site, citing two people with knowledge of the probe.

According to the report, the probe’s targets are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch, now owned by Bank of America.

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WASHINGTON, May 12 (Reuters) – The U.S. Senate on Wednesday voted to end mortgage kickbacks and so-called “liar loans,” two lending practices that played a role in the meltdown of the subprime mortgage market.

By a 63-36 vote, the Senate adopted a measure that would prohibit mortgage lenders from offering incentives to brokers who steer customers into more-expensive loans.

The amendment, which was added to a sweeping rewrite of financial regulations, also would end “liar loans” by requiring lenders to verify that borrowers have enough income to repay their mortgages.

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In a pay-to-play game ratings agencies were trusted by Americans until problems becmae obvious in 2007. An SEC investigation of ratings agencies could turn up some interesting facts. While the Dow Jones Industrial Average rose almost 4 percent Monday, share prices for Moody’s Corp. tumbled 7.19 percent as investors digested confirmation of a Securities and Exchange Commission investigation into the credit-rating agency.

The fall in Moody’s share value to $21.68 dragged down its chief competitor, Standard & Poor’s , part of McGraw-Hill Companies, which fell almost 4 percent.

Most Americans look forward to the truth and welcome the SEC investigation.

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A Democratic official familiar with Senate banking negotiations says a provision that would force banks to spin off their derivatives operations will be incorporated into sweeping regulatory legislation despite Obama administration misgivings.

The provision would cost the nation’s largest banks billions of dollars in business. In an agreement struck Sunday, Banking Committee Chairman Christopher Dodd agreed to replace his proposed restrictions on derivatives with those of the Senate Agriculture Committee.

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One of our most popular articles discusses repeal of Glass Steagall. Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations. He also explains why our article was so popular:

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999, they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking.

By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.

At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives when its director began to worry that derivative trading already was getting out of control.

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Arthur Wilmarth, law professor at George Washington University, believes the OCC, along with the Office of Thrift Supervision, had a lot to do with why subprime loans became as big a problem as it did, by taking the power to supervise banks away from the states.

Lisa Madigan, the attorney general of Illinois, said in her testimony in January that the OCC was “particularly zealous in its efforts to thwart state authority over national lenders, and lax in its efforts to protect consumers from the coming crisis.”

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Senior SEC staffers spent hours surfing pornographic websites on government-issued computers while they were supposed to be policing the nation’s financial system.

California Rep. Darrell Issa, the top Republican on the House Oversight and Government Reform Committee, said it was “disturbing that high-ranking officials within the SEC were spending more time looking at porn than taking action to help stave off the events that put our nation’s economy on the brink of collapse.”

He said in a statement Thursday that SEC officials “were preoccupied with other distractions” when they should have been overseeing the growing problems in the financial system.

The SEC’s inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press.

The memo says 31 of those probes occurred in the 2 1/2 years since the financial system teetered and nearly crashed.

The staffers’ behavior violated government-wide ethics rules, it says.

The memo provides fresh ammunition for Republicans who suspect the timing of the SEC’s lawsuit last week against Wall Street powerhouse Goldman Sachs Group Inc. News of the suit came as the Senate prepared to take up a sweeping overhaul of the rules governing banks and other financial companies.

The memo was written by SEC Inspector General David Kotz in response to a request from Sen. Charles Grassley, R-Iowa. It summarizes past inspector general probes and reports some shocking findings:

_ A senior attorney at the SEC’s Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.

_ An accountant was blocked more than 16,000 times in a month from visiting websites classified as “Sex” or “Pornography.” Yet he still managed to amass a collection of “very graphic” material on his hard drive by using Google images to bypass the SEC’s internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense, and received a 14-day suspension.

_ Seventeen of the employees were “at a senior level,” earning salaries of up to $222,418.

_ The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

An SEC spokesman declined to comment Thursday night.

About 16 percent of men with Internet access at work admit to looking at online porn while at the office, according to a 2006 survey by Websense Inc.

Former SEC spokesman Michael Robinson said he shares the public’s outrage about SEC staffers who enjoyed porn on the taxpayer dime when they were supposed to be keeping the markets safe.

“That kind of behavior is just intolerable and atrocious,” said Robinson, now with Levick Strategic Communications. He said he expects the head of the SEC, Mary Schapiro and her team, are “very focused on” the issue.

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From 2007 through 2009 Mortgage Blues reported on the subprime crisis. Daily articles highlighted a nation in turmoil as financial greed and abuse rocked the country.

Now Mortgage Blues gets to report on the aftermath. Lawsuits continue to see America in search of a single culprit. In one such suit by the SEC three former executives of Irvine California-based New Century Financial Corp were accused by regulators Monday of misleading investors as its subprime loan business faltered.

Shouting “Our company is doing well” while slipping into bankruptcy or facing lawsuits is nothing new. For example Household International Chairman William F. Aldinger told employees at an annual meeting that Household International was doing well. Charges of predatory lending, followed by depressed stock prices, were filed almost immediately thereafter.

In the New Centruy case it is interesting to note that the SEC took almost three years to file charges. New Century was the nation’s second-largest lender to borrowers with spotty credit before its demise in April 2007 signaled an unfolding crisis in the mortgage and housing markets that set off a deep global recession.

New Century was late getting out in front of problems. By contrast HSBC alerted everyone to problems in the summer of 2007. HSBC, thanks in part to the bank’s purchase of Household International, lost approximatley $45 billion before the debacle was over.

Shady lenders, shady practices, questionable loans, poor standards, and not government regulation allowed these rogue companies to ruin the United States. Job losses, falling home prices, and foreclosures followed.

The final result is a United States economy in shambles as unemployment reaches levels not seen since the Great Depression.

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