I'm going to cut to the chase and tell you our conclusion first.
We believe we can show that some Wall Street bankers had evidence, a year or two before the financial crisis hit, that there were serious problems with subprime mortgage investments.
Rather than wind down this business, they sped it up using financial trickery. These people earned huge bonuses for their actions. They also made the crisis considerably larger and more damaging.
The folks we're talking about work in the CDO department of big Wall Street banks — "the sexiest place to work on Wall Street," in the words of Jake Bernstein, one of the ProPublica reporters who worked on this story.
CDOs — collateralized debt obligations — were the primary way that big banks turned those subprime mortgages into what we now think of as toxic assets. But back in 2006, they were just the hot new part of the industry. The people working on CDOs could make millions of dollars a year, but their income depended on how many CDOs they sold.
I think of a CDO like a sausage. Take meat nobody wants, toss it in a grinder, and out comes something delicious.
With CDOs, you buy a bunch of unattractive bonds backed by subprime mortgages, put them all together, then sell off pieces of this new structure. And, like sausages in a diner on Sunday morning, CDOs were incredibly popular.
"CDOs, they are the heart of the American boom," says Jesse Eisinger, the other ProPublica reporter on the story. "Everyone wants them. Pension funds, insurance companies, small banks around the world."
It is a very appalling story and this great investigative reporting just, for me, goes to the fact that we have not had a real government investigation all this time later.
Glenn Thrush (Politico) reports that if Republicans regain control of the House they will launch various investigations. Possibly they will launch witch hunts. Fine by me. I do not feel like Democrats have done anything to get to the bottom of things. I feel that the Democrats have spent two years propping up Barack Obama instead of doing their damn job. So that is on them. If they lose it, they lose it.
This is C.I.'s "Iraq snapshot" for today: