If you think, going on six years after the onset of the financial crisis, that we’ve learned about all we’re going to about wrongdoing in the run-up to the global financial crisis… well, you might be a business editor.

So a big tip of the Audit’s green eye shade to that dwindling band of reporters that continues to fight to tell the story of the great financial crisis.

An Audit GFC Hall of Fame would include a few dogged folks like Gretchen Morgenson and Louise Story, Michael Hudson, Mark Pittman, and Bob Ivry—all of whom (except Pittman, much to our regret) understand that there were still critically important stories to tell after 2009—particularly in the absence of any meaningful consequence for the perpetrators.

Jesse Eisinger and Jake Bernstein would be in there too, of course, recipients of the only Pulitzer Prize yet awarded for reporting on the financial crisis (for work published in 2010, it’s worth noting).

And Eisinger reaffirms in a new ProPublica/New York Times piece why the Crisis Club reporters have been right to keep pushing.

One of the most irritating narratives of the post-crisis has been the “hoocoodanode?” line, which says, essentially, that Wall Street was swept up in a mania and that no one knew a catastrophic reckoning was really possible, much less right around the corner. Morgenson recently caught Angelo Mozilo—one of the architects of the housing bubble—testifying that “The cause of the problems of foreclosures is not created by Countrywide, nor M.B.I.A. This is all about an unprecedented, cataclysmic situation, unprecedented in the history of this country.”

If you buy that false line, take a look at what Morgan Stanley’s people were saying in March 2007 about a CDO they were trying to offload to foreign investors. They called it a “Nuclear Holocaust,” “Shitbag,” and “Subprime Meltdown,” according to a lawsuit Eisinger finds. That kind of, um, prescience belies the idea that Wall Street didn’t know what it was doing. Really, a lot depends on how much you know about how the mortgages were made in the first place.

And it’s clear Morgan Stanley knew, from internal email from 2005 and 2006 that warns that its CDOs were being created out of fraudulent mortgages. This is a critical paragraph in Eisinger’s piece (emphasis mine):

Two of the employees who received those emails joined an internal hedge fund, headed by Howard Hubler, that was formed only the following month, in April 2006. As recounted in Michael Lewis’s “The Big Short,” Mr. Hubler infamously bet against the subprime market on Morgan Stanley’s behalf, a fact that Morgan Stanley’s chief financial officer conceded in late 2007. Mr. Hubler’s group was supposed to be separate from the rest of Morgan Stanley, but the two bankers continued to receive similar information about the underlying market, according to a person briefed on the matter.

Why isn’t this garden-variety fraud? Eisinger as much as asks. Good question.

After realizing the subprime market is going to crater based on private information, the bank creates a half-billion-dollar CDO (thereby helping further inflate the bubble) so it can short it and sells what it knows is a time bomb to unsuspecting investors. Nobody will pay for this, except perhaps the company’s shareholders.

Did you really doubt that we hadn’t fully investigated the financial crisis? The Financial Crisis Inquiry Commission didn’t find this. Neither, apparently, did the SEC or the Department of Justice.

It took discovery by lawyers for a Taiwanese bank in a private lawsuit and the continued interest of a journalist like Eisinger.

And this isn’t some fly-by-night mortgage shop. It’s Morgan Stanley.

 

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.