Bailout

How much information does Cuomo have?

By Felix Salmon

Joe Weisenthal points out that we’ve diverged in unusual directions when it comes to the story about Andrew Cuomo investigating the banks over providing misleading information to the ratings agencies. He’s normally the libertarian caveat-emptor guy, but thinks this could be a big deal:

This issue isn’t nothing, because if there’s a clear pattern of providing improper data to the raters — and again, this is just an early-stage investigation — then the banks begin to look like they were specifically trying to deceive customers on behalf of their own trading desks or special clients (like John Paulson).

I, on the other hand, suspect that this is more of a fishing expedition, thanks in part to a line in the NYT story about how the banks in question were “contacted after subpoenas were issued by Mr. Cuomo’s office late Wednesday night notifying the banks of his investigation”. (Weirdly, that line has now disappeared from the story.) I concluded from that that the investigation was just beginning, and that the NYT had been told about it even before the banks were.

That said, I’m no expert on the internal workings of the NY AG’s office. It’s entirely possible that Cuomo has already put together a colorable case against the banks, and is now issuing his subpoenas just to fill in the gaps, as it were. On the other hand, reading Story’s rather vague story, I get the feeling that there’s relatively little in the way of solid evidence as yet, and that, as Weisenthal notes, this investigation really is in its very early stages.

So, can someone help me out on this? When the subpoenas start flying, is that a sign that the AG has already got the goods, or that he’s only just beginning to look for them?

Full post as published by Macroprudential on May 13, 2010 (boomark / email).