BANKS - Too Big to Manage

PREVIOUSLY: WALL STREET- And the Mighty Shall Fall, Goldman Sachs

RELATED: "Citigroup to Pay Millions to Close Fraud Complaint" by EDWARD WYATT, New York Times 10/19/2011

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As the housing market began its collapse, Wall Street firms and sophisticated investors searched for ways to profit. Some of them found an easy method: Stuff a portfolio with risky mortgage-related investments, sell it to unsuspecting customers and bet against it.

Citigroup on Wednesday agreed to pay $285 million to settle a civil complaint by the Securities and Exchange Commission that it had defrauded investors who bought just such a deal. The transaction involved a $1 billion portfolio of mortgage-related investments, many of which were handpicked for the portfolio by Citigroup without telling investors of its role or that it had made bets that the investments would fall in value.

In the four years since the housing market began its steady descent, securities regulators have settled only two cases related to the financial crisis for a larger sum of money. This is also the third case brought by the S.E.C. accusing a major Wall Street institution of misleading customers about who was putting together a security and about their motive. Goldman Sachs and JPMorgan Chase & Company both settled similar cases last year.

The settlement will refund investors with interest and include a $95 million fine — a relative pittance for a giant like Citigroup. On Monday, the company reported that in the third quarter alone it earned profits of $3.8 billion on revenue of $20.8 billion. The settlement may also have trouble getting approval from Jed S. Rakoff, the federal district judge in New York who must ultimately sign off on the fine and who has taken a hard line on S.E.C. settlements.

Neither the S.E.C. nor the Justice Department would say whether the case raised questions about whether Citigroup had been involved in any criminal wrongdoing. But the case highlights a growing frustration felt by foreclosed homeowners, investors and Wall Street protesters alike that few, if any, senior banking executives have faced criminal charges for losses growing out of the financial crisis.

"Do Large Banks' Troubles Show They're Too Big to Manage?" PBS Newshour 10/19/2011

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JEFFREY BROWN (Newshour): Even as the Occupy Wall Street protests continue nearby, some of the nation's largest financial firms are reporting that they're feeling a very particular and different kind of pain right now to their bottom lines.

Goldman Sachs announced a $428 million loss for the third quarter yesterday, just the second loss since it went public in 1999. J.P. Morgan Chase, now the nation's biggest bank, posted a profit decline, its first in three years. And Bank of America, which just fell from number one, did have a third-quarter profit, but much of that was reportedly due to accounting procedures, instead of strong basic business.

We assess the state and future of the banks now with Bert Ely, a banking industry consultant who runs his own firm in Alexandria, Va., and Simon Johnson, MIT professor, former chief economist at the International Monetary Fund, and co-author of the book "13 Bankers."