Subprime Crisis Investigation

21 04 2010

Currently, banks and companies are reporting earnings for the first quarter of 2010. Many are reporting profits, which is a stark difference from the results we have seen during the financial crisis of the last couple of years.

At the same time, the Security Exchange Commission (SEC) is now leading an investigation into the subprime finacial crisis. They have filed a fraud suit against Goldman Sachs claiming that they did not disclose information to customers regarding conflicts in the sale of subprime mortgage securities. (Investors in the particular subprime security, known as Abacus 2007-AC1, ultimately lost $1 billion.)

This move by the SEC is probably the first of many, as they attempt to get to the bottom of what other firms may have engaged in similar deals.

Why does this matter? Now that there is light at the end of the tunnel, and firms are seeing improvements, a dark cloud remains. Of course we want to see firms experiencing success, and the economy improving, but we don’t want them to forget what caused this problem, and we certainly don’t want to see it happen again. Hopefully the SEC will be able to find some applicable answers as they continue their investigations.

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