The president and his Treasury Secretary, Henry Paulson, late of Goldman Sachs, have proposed interest rate manipulations that will save billions for investors in sub-prime mortgages.

Andrew Cuomo, the New York Attorney General and former Secretary of Housing and Urban Development, has subpoenaed several Wall Street banks to examine due diligence providers. There has been no suggestion that Wall Street banks, themselves, will be criminally or civilly prosecuted for creating, maintaining, exploiting, and facilitating fraud in the derivative mortgage markets.

There has been criminal conduct at every stage of the mortgage business, and there is ample proof that virtually every major investment bank in the mortgage securitization business initiated fraud, or through conscious avoidance or reckless disregard of facts known to them, enabled, aided and abetted fraud.

The so-called sub-prime mortgage crisis was predictable and predicted, preventable, but not prevented. Greed, arrogance, criminal conduct, negligence, and fraud threaten to go unpunished.

Before the Enron era, there was serious mortgage fraud. From 1971-1974, I was lead federal prosecutor in what was then the nation's biggest mortgage fraud scandal, the New York FHA cases. Prosecutions were conducted in Los Angeles, Chicago, Detroit, Philadelphia, and other cities

Recently, while the Justice Department was busy with the Skillings, et al, and Congress was patting itself on its back for Sarbanes Oxley, Wall Street was doing deals that would leave financial and housing markets in turmoil. They were committing, aiding, and abetting mortgage fraud on a massive scale.

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Over the past seven years Wall Street investment banks changed their role in the mortgage business from middle money men, earning a minor interest spread, to owners of their own mortgage operations or partners with existing mortgage banks.

Through the sale of derivatives, billions in mortgages were sold to not only Fannie Mae and Freddie Mac, but also to private investors eager for outsized returns. Personal experience with Bear Stearns, Lehman Brothers, Credit Suisse, Delta Financial, Indy Mac, Washington Mutual, and close observation of Citicorp and Merrill Lynch, taught the fundamental truth that quality control over mortgage origination operations was openly ridiculed.

One investment bank laughed at the notion of protecting a $185 million reserve and said, "We could lose all of $185 million and it wouldn't even put a dent in our bottom line. Do you have any idea of how much money we're making?"

Another major investment bank's "internal investigation department" did nothing more than protect friends in the origination department, and make sure things looked good. This investment bank lost hundreds of millions of dollars in its mortgage operation in 2007.

In 2004, our firm broke a $14 million mortgage and construction loan fraud ring in the New York-New Jersey area. We obtained written confessions which implicated various mortgage company officials and others.

The United States Attorney's Office in Brooklyn never prosecuted. The client, a gigantic California mortgage company, simply said, "Will they sign deeds in lieu of foreclosure so we can get the properties back?" That company has now lost billions.

Who, then, is to blame? How is responsibility to be found?

Link investment banks to the fraud of their loan originators. The ladder leads from buyers to brokers to mortgage originators to financiers. Prove the financiers knew the fraud the originators practiced.

How to prove fraud on Wall Street? Wall Street investment banks used "netting" of securitized mortgage packages for the benefit of their investors. Netting is the practice whereby bad, or defaulted, mortgages underlying a securitized instrument are substituted in the portfolio and replaced with performing mortgages.

Until 2007 investors were simply bailed out. After substituting defaulted mortgages, the investment bank and the mortgage originator decide who will bear any loss.

What dialogue occurred in connection with the netting process? How much information about fraudulent loans was exchanged, and how much netting is required before the investment bank is charged with knowing the origination process is corrupt? Grand juries should be asking these questions. 

In the classic Ponzi scheme, old investors are paid from the proceeds of new investments. Investors in mortgage backed securities bought securitized loan packages, called investment bankers when portfolio loans went bad, and got new, performing, loans in exchange for bad, non-performing loans. The loan originator laid off the bad loan, resold the property, generated new fees, and redistributed the property under a new loan as part of another package. Perfect!

It is only a matter of time, however, before the supply of new money in a Ponzi scheme dries up. When the principals can no longer pay, the scheme is exposed. In 2007, the mortgage money dried up.

Every negotiation between an investment bank and the mortgage originator over the allocation of losses on bad loans was an opportunity to discover and prevent ongoing fraud. Every falsehood discovered in loan applications was notice that there were likely to be more, and that controls were necessary to stop the practice. Nobody cared to stop the practice. As I was told, "There's just too much money."

Until one or more major Wall Street banks is held accountable, until institutions and individuals are made to disgorge their billions in profits, until investor losses are made to stand without relief, there is simply no incentive for Wall Street to change its ways.

The 2006 Federal Ninth Circuit Court of Appeals case, "In re First Alliance Mortgage," established, for the first time in history, that an investment bank, Lehman Brothers, could be civilly liable for "aiding and abetting" the fraudulent loan origination practices of its loan origination customer.

There is precedent for successful prosecution. Civil? Criminal? Who's up?

Anthony Accetta is a former Assistant United States Attorney in the Eastern District of New York, a former First Assistant Attorney General, and a former Special Prosecutor in his adopted state of Colorado. He is the founder of a private investigations firm which specializes in due diligence in financial matters and has counted many Wall Street investment banks among his clients.