FBI To Get To The Root Of The Financial Crisis

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The FBI is examining how the financial crisis began. Officials are investigating whether it was just greed that led to the meltdown, or whether laws were broken. In June, the agency began taking a look at the subprime mortgage market. Agents are also starting to focus on foreclosure rescue scams, in which homeowners are tricked out of their foreclosed properties.

RENEE MONTAGNE, host:

And while many of us are looking ahead to a time when it is safe again to check our financial statements, law enforcement officials are looking backward. The FBI wants to know how we got into this financial mess and whether the cause was simply greed or whether laws were broken. To sort out the investigation, we're joined by Dina Temple-Raston who covers the FBI for NPR. Good morning.

DINA TEMPLE-RASTON: Good morning, Renee.

MONTAGNE: Let's start with where many think the financial crisis did start. People who couldn't afford mortgages got them anyway. Is the FBI looking into whether laws were broken there, that is the predatory lending that was going on?

TEMPLE-RASTON: Well, the FBI started opening investigations back when this seemed like it was just a subprime mortgage crisis. Remember that back in June, you may recall, there was this big press conference to unveil something the FBI called Operation Malicious Mortgage, and the bureau announced that it had arrested more than 400 mortgage brokers, assessors, straw buyers, and basically those people who lied on their mortgage applications. You know, at the time this was part of the FBI's effort to show that people who were committing mortgage fraud were not only going to get caught, but they were going to get prosecuted too.

You know, more recently the FBI has been investigating a lot of what they call foreclosure rescue scams. Those happen when buyers hire someone to help them stay in their houses after foreclosure proceedings have begun, and those so-called foreclosure experts basically trick homeowners into signing away the title of their house without even knowing it. We've done several stories on this. This is something that the FBI is starting to focus on too.

MONTAGNE: And then over on Wall Street, we keep hearing about the FBI looking at what happened at Lehman Brothers or also the insurance giant AIG. What exactly are investigators looking for that would involve law breaking, you know, as opposed to simply greed?

TEMPLE-RASTON: Well, in most of the cases the FBI is focusing on the manipulation of asset values. They are trying to find smoking guns that show, for example, that Wall Street executives knew that these mortgage-backed securities weren't worth what they said they were worth. You know, already the FBI and other investigators are finding that, for example, people who appraised a certain asset were told in emails, in writing, to change the value of that asset.

You know, and the FBI is also starting to look into these credit rating agencies as well. There was a hearing on Capitol Hill yesterday that started digging into this. And some emails between rating agents were released. And some were pretty incriminating, I mean, one credit rating agency employee essentially said he would rate a deal a cow put together if he were asked to. And I think we're going to see more of that.

MONTAGNE: Dina, put this in perspective. Does every company that fails face an FBI investigation?

TEMPLE-RASTON: You know, that's a good question. Actually the bureau gets involved in some capacity every time one of these financial companies fails. This is something that the bureau started doing as a matter of course during the savings and loan crisis of the 1980s and 1990s. Back then, every time the government took over a bank, the FBI came in and monitored the situation, basically to make sure that crimes weren't committed. Sometimes when it was warranted, the bureau would open a formal investigation. But they were looking at the company, looking over shoulders. And that's what's going on here too.

MONTAGNE: And we're talking with NPR's Dina Temple-Raston about investigations into the financial meltdown. And let's look at New York. Of course, that's where Wall Street is. But besides federal investigations, a fair amount has happened in that state.

TEMPLE-RASTON: At the state level, yes. You know, New York Attorney General Andrew Cuomo has joined forces with local and federal law enforcement to see if there is something amiss in the credit default swap business. Remember, those were the pseudo insurance policies that a lot of financial institutions bought to protect themselves from mortgage-backed securities and other credit instruments in case they went south. People I've talked to said they are looking into this and that it's incredibly labor intensive because they are trying to pull the swaps apart.

MONTAGNE: And what about concern about new risks of wrongdoing with those hundreds of billions of dollars on the table in that rescue package?

TEMPLE-RASTON: Yes, I mean this is something that the FBI is saying worries them most, is that when they put together that $700 billion Bailout package, there weren't any enforcement provisions included. You know, when the Treasury initially was pulling that all together, the FBI asked for money to be put aside for enforcement. And instead the whole $700 billion went to Treasury, and nothing was appropriated to make sure that all this is done honestly. I mean, they're worried that the government is going to pay too much for these assets. They are wondering who's going to vet the value of these mortgage-backed securities. We're going to see if anything changes on that as the details of the program get more firmed up.

MONTAGNE: Dina, thanks very much.

TEMPLE-RASTON: My pleasure.

MONTAGNE: NPR's Dina Temple-Raston. She covers the FBI. And if you're trying to figure out how the financial crisis could affect you and where you fit into the global economy, visit NPR's "Planet Money" blog at npr.org.

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