In these days of national security, where it seems like everybody knows your business and activities, you have to wonder how come there was so many unethical things going on in the mortgage market the past few years yet no one allegedly saw it coming. You could pretty much figure that with skyrocketing home values and low interest rates, not to mention the “teaser” rates and “liar loans” that someone, somewhere would have had a clue. With all these pie in the sky developments, it was bound to attract shady and unethical people looking for a fast buck. It is obvious that they did. Was anyone keeping an eye on these developments?

Here’s a quote - Chris Swecker had this to say: “It has the potential to be an epidemic. We think we can prevent a problem that could have as much impact as the S&L crisis.” Who is Swecker? He is the FBI official in charge of criminal investigations, and he made this comment to reporters in 2004.

Banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments in the last year or so. People are walking away from their homes, and defaults are still on the rise. Weakness in the mortgage market is heard about almost daily on the news. I have to ask myself - if the FBI was aware that this was happening, why was no formal investigation launched, and the whole mess nipped in the bud before it came to this?

According to the FBI, there was some action on their part. However, there were only 100 investigators nationwide who were doing anything, and more focus was placed on identity theft and child pornography than the mortgage market crisis. It was also reported that the FBI was under the gun at the time of Swecker’s reporting by Congress and the White House to focus on anti-terrorism. The mortgage debacle took the back seat in light of these efforts.

According to the LA Times, it appears that the FBI is focusing on simple, easy to solve cases. With little manpower in the field to work on white collar crime, it is easy to see that they will fail to get to the heart of the matter. To their credit, they do have 21 open cases on the books, delving into possible large-scale fraud related to the subprime meltdown. Possible targets include investment firms that sold billions in securities backed by shaky subprime mortgages. They are also looking at credit rating agencies that gave high marks to the now-worthless securities and failed to protect investors in the process. A federal grand jury in Los Angeles has subpoenaed records from three large California lenders Countrywide Financial Corp., New Century Financial Corp. and IndyMac Federal Bank.

You can’t really fault the FBI for a lot of this current crisis, even though they were aware of it happening. I have long said that banks and lending institutions need tighter regulation to prevent this in the first place. Many, I am sure, will disagree with that, but I have a feeling that a lot of investors who lost a great deal of money over the past year would be more than willing to give this concept some serious thought.