Via The Wall Street Journal today:

Federal prosecutors, working with securities regulators, are conducting a preliminary criminal probe into whether several major Wall Street banks misled investors about their roles in mortgage-bond deals, according to a person familiar with the matter.

The banks under early-stage criminal scrutiny—J.P. Morgan Chase & Co., Citigroup Inc., Deutsche Bank AG and UBS AG—have also received civil subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of banks’ selling and trading of mortgage-related deals, the person says. Under similar preliminary criminal scrutiny are Goldman Sachs Group Inc. and Morgan Stanley, as previously reported by The Wall Street Journal.

The Manhattan U.S. Attorney’s office and SEC are working hand-in-hand. At issue is whether the Wall Street firms made proper representations to investors in marketing, selling and trading pools of mortgage bonds called collateralized debt obligations, or CDOs.

Many major Wall Street banks created CDOs at the behest of players that made bets against the deals—and banks themselves sometimes bet against the deals. Bearish bets paid off when the mortgage market crashed.

   It’s still important to remember that even if there was no criminality involved, we should not be distracted from the legal behavior that is not a basis for a sound economy. Remember, even in the "good old days" (yes, that is sarcastic), a big piece of the activity on Wall Street was to figure out ways to raise money to finance leveraged buy-outs–many of which were done for the sole purpose of increasing stock value, which enriched executives, but came at the expense of hundreds of thousands of good-paying jobs that were eliminated for the sake of "efficiency"…which raise the stock price.