That said, Huvelle made a few stipulations:But Judge Ellen Segal Huvelle of the Federal District Court for the District of Columbia told lawyers for the government that she wanted the S.E.C. to certify that the remedies Citigroup claimed to have put in place to prevent a similar failure were adequate and would remain for a given period of time.

The judge also directed that the settlement agreement be reworded to make clear that the $75 million would be used to compensate shareholders who had suffered losses because of Citigroup's misstatements, and she told the S.E.C. and the bank to return in two weeks with new language that did that.

--

One gets the sense that Ellen Segal Huvelle, the presiding judge in the Security and Exchange Commission's lawsuit against Citigroup, isn't angry with the regulator and the bank, just disappointed.

Huvelle's latest complaint has to do with the safeguards Citigroup says it's put in place to prevent the kind of behavior that got it in trouble in the first place, Reuters reports. The SEC accuses Citi of failure to properly disclose to shareholders the increasing toxicity of its subprime assets in 2007. She would like more reassurance that the megabank's disclosure system has improved, so investors don't get ripped off in the future.

"There's nothing in here to address a flawed system; not a thing," she said today.

As for the proposed $75 million penalty, Huvelle appears to have come to terms with it, even though she'd previously faulted it for imposing an unfair burden on current shareholders and failing to adequately punish the people who were in charge at the time. She now thinks it "may be reasonable."

It's hard to imagine Huvelle would ever find the settlement ultra-compelling. Perhaps lawyers for Citigroup and the SEC can simply annoy her into approving it.

mtaylor@observer.com

Twitter: @mbrookstaylor

But it turns out he's now in an office suite in New Jersey, growing a firm called the Loan Value Group, which works with lenders to keep beleagured homeowners from leaving houses where more is owed on the mortgage than the property is actually worth. They do that by offering the borrower a cash reward for paying off their debt. "It is no different from me putting $20,000 in a sack on a kitchen table and saying, 'This is your money,'" Frank Pallotta, the firm’s executive vice president, and a former Morgan Stanley banker, told me for the story. "I can’t talk through numbers. But we’ve signed up many. We’re live and we’re rolling."

I tried to contact Arizona University's Brent White for the story, but didn't hear back from him until after my deadline. Professor White, who published an influential paper last month called "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis," said he had issues with the firm's recently-announced rewards program, which he believes coaxes homeowners "to make what may be an irrational economic decision to keep paying their mortgage when they would be better off walking away."

He said one of the firm's academic advisors reached out to him, and that he told them the same.

I pointed out that Loan Value Group's own Web site says, "Default is rational for many borrowers: While they forfeit their home, they rid themselves of a mortgage liability of even greater value." Professor White was surprised. "Yes, it is interesting that they recognizing that walking away can be a rational decision, yet suggest that homeowners who do so are somehow being irresponsible or immoral. This is especially ironic given the fact that the company is headed by a former mortgage trader at Morgan Stanley, which walked away from five underwater properties that it bought at the peak in San Francisco."

But he also said Loan Value Group's idea, in theory, has some plusses. A few others would be more optimistic. "Loan Value Group has one of the best ideas I’ve seen in the housing crisis so far," Reuter's Felix Salmon wrote yesterday, "It involves no legislation or government cash, it keeps homeowners in their home, it prevents distressed foreclosure sales, and it benefits both borrowers and lenders."

In his nice New Orleans drawl, Mr. Lewis said that this banker lost Morgan Stanley about $9 billion. “More than any single trader has ever lost in the history of Wall Street. And no one knows his name.”

They do now. Thanks mostly to that interview and Mr. Lewis’ The Big Short, a kind of recession-era sequel to his Wall Street classic Liar’s Poker, Howie Hubler has become an unwitting icon of the financial crisis. Even though he made a shrewd bet against subprime loans, he offset it by gambling hugely on slightly better mortgages that turned out to be extraordinarily worthless. Nevertheless, he left the bank with several million dollars, the book says, retiring to New Jersey with an unlisted telephone number.

A Wall Street villain’s story line, just like a comic-book bad guy’s, has distinct scenes. There’s the early decency, the sour turn, the grand act, the escape and then the disappearance. But what sometimes comes afterward, a quiet return, can be the most dramatic of all.

“I ONLY KNOW HIM as a good person. And I’m sure he’ll come out on top, basically, because of who he is. But it’s hard to analyze his world,” said the banker’s father, a New Jersey real estate broker named Howard Hubler Jr. His son is technically Howard Hubler III. “The other guy was the toughest of the three. He died at 97, and I never got a word in.”

The Wall Street son is tough, too. A former Montclair State College football player, he’s described in The Big Short as “loud and headstrong and bullying,” the type to react to any intellectual criticism of his trades by telling the critic to get the hell out of his face.

But what’s a personality quirk when you’re a top Morgan Stanley bond trader? He was good at what he did, and he was smart. By the end of 2004, he was skeptical of the subprime mortgage business, and craved new ways to bet against it. He found Morgan Stanley customers willing to sell him credit default swaps on pools of subprime mortgage loans, which, though there are many poetic ways of putting this, was like taking out an awesome insurance policy on a house you’ve built in quicksand.

But the economy’s fall took a while to begin, which was a problem for Mr. Hubler—who in April 2006 was put in charge of his own Morgan Stanley hedge fund, called the Global Proprietary Credit Group. To make up for the millions of dollars that it cost to carry his subprime bets until the bad times hit, he sold insurance on slightly better mortgages. He wagered on a disaster he clearly saw coming, and then against a worse disaster he was blind to—agreeing to insure the house next door, prettier but in the same sand. And because insuring something that’s less risky is less lucrative, he had to sell several times the amount of swaps that he himself had bought.

Before the fall, The Big Short reports, Mr. Hubler’s group felt offended when Morgan Stanley’s chief risk officer ordered tests to see what might happen to their bets if defaults caused losses of 10 percent to their subprime pool, which they thought would never happen. The coming drop was four times worse. The New York Times said his wagers cost Morgan Stanley $10 billion. Bank head John Mack called it “embarrassing for me, for our firm.”

“What happened to Howie Hubler?” Steve Kroft asked this month on 60 Minutes.

“He’s allowed to resign from Morgan Stanley and he takes with him millions of dollars in back pay,” Mr. Lewis answers. “Tens of millions of dollars in back pay.”

BUT LIFE GOES ON for fallen Wall Street executives. Lehman’s ex-CFO Erin Callan reportedly spends a lot of time at an East Hampton spinning studio; Bear Stearns’ Jimmy Cayne is said to be playing a lot of bridge; and Merrill Lynch’s Stan O’Neal sits on the board of a massive aluminum maker. Meanwhile, former top mortgage brokers like Jack Soussana have started loan modification companies that charge upfront fees to borrowers in exchange for a promise to get lenders to lower payments. “I’m not a shady person,” he told The Times last year. “We just changed the script and changed the product we were selling.”

Across the Hudson River, in an office suite in Rumson, N.J., Mr. Hubler has quietly slipped back into the mortgage business. According to marketing materials, he started a firm with former Morgan Stanley colleagues to advise mortgage lenders whose borrowers are threatening to walk away from homes that are worth less than what’s owed on them.

They’re called the Loan Value Group.

Last month, the company announced a patent-pending program that promises cash rewards to homeowners if they stay and fully pay off their mortgages. “It is no different from me putting $20,000 in a sack on a kitchen table and saying, ‘This is your money,’” Frank Pallotta, the firm’s executive vice president, and a former Morgan Stanley banker, told me this week. “I can’t talk through numbers. But we’ve signed up many. We’re live and we’re rolling.”

Mr. Hubler’s firm also includes his old proprietary trading squad’s executive director. “Default is rational for many borrowers: While they forfeit their home, they rid themselves of a mortgage liability of even greater value,” its Web site says, referring to the millions of American households who owe more on their homes than the homes are worth. One in four residences with a mortgage is currently underwater in this country.

Loan Value Group charges fees to lenders in exchange for organizing a reward that provides incentive for homeowners not to default. Because simply leaving can make financial sense, the company says, the solution is to target a borrower’s pocketbook.

Mr. Hubler would not speak for this article. “He’s pretty much adamant about not talking about this,” a spokesperson said. Neither would Richard Santulli, the company’s newly appointed chairman, who was CEO of the fractional aircraft ownership company NetJets until last August; nor the board member Michael Goodman, the former CEO of J.G. Wentworth, the lump-sum payment firm (“we understand it is hard to wait”!) that filed for bankruptcy last year.

But Mr. Pallotta, the executive vice president, was willing to speak. “People feel as though, you know, Howie was the problem and Wall Street was the problem,” he said. “And you know what? If there was a question of integrity, or trust, or the ability to bring value to a financial situation, we would not be this far.” When the firm’s rewards program was announced last month, Loan Value Group said it was already working with three hedge funds that own mortgages. “If they thought Howie was an S.O.B. or Frank was a BS artist, we wouldn’t have the traction.”

Asked about lenders they’re working with or borrowers who may stay in their underwater homes because of the promise of a reward, he said that customers want to be anonymous. “I haven’t seen tears,” he said, “but I’ve seen people say, ‘I can’t believe I got this.’”

But will struggling homeowners allow themselves to be lured into staying by a company led by former subprime mortgage bond traders? Especially one whose chief executive is being held up as an iconic and imbecilic villain in Mr. Lewis’ interviews with Charlie Rose, Maria Bartiromo, Erik Schatzker and Mr. Kroft? “We have no desire, we never did from the beginning, to sell the Loan Value Group name,” Mr. Pallotta said. “If you win the lottery, do you care if it’s Scratch and Pay or Scratch and Sniff or New Jersey Lotto? The money’s there.”

Besides, he said, “this Michael Lewis thing is very old news.”

mabelson@observer.com

A summarizing paragraph from the long story by legendary investigative reporter Wayne Barrett:

Basically, according to the article, Mr. Cuomo, now New York State attorney general, drove efforts by HUD to increase minority homeownership. His agency encouraged this by encouraging subprime lending. The subprime lending eventually led to the subprime crisis several years after Mr. Cuomo left HUD when the Clinton administration ended.

That's it, really: A place-holder Cabinet secretary who left office six years before the crisis started breaking is responsible because he wanted to increase minority homeownership. The rate-slashing Fed, predatory lenders, securities rating agencies, media cheerleaders, etc.--they're largely off the hook because it all started with Mario Cuomo's boy and his good intentions.

We don't buy it. If anything, Mr. Cuomo's effects on what was to come were wholly unintentional. Note the very last sentence of The Voice's massive story:

Check out this New York Times story from Tuesday by Abha Bhattarai on the origins of the current economic downturn. Two words: Green. Span.

On May 7, the New York State Assembly overwhelmingly passed legislation to institute a year moratorium on home foreclosure--during which a court would determine an appropriate minimun payment for the owner--and provide additional protections for families with subprime loans. The State Senate has yet to move forward on the issue. Meanwhile, federal legislation to address the subprime crisis is stalled in Washington.

In 2007, there were over 51,000 foreclosure filings in New York State according to RealtyTrac. During the first quarter of this year, 14,000 homeowners in New York began foreclosure proceedings, nearly 50 percent of which occurred in Queens, Brooklyn and Long Island.

Release on the ACORN rally below:

News from NY ACORN

For Planning Purposes for Tuesday, June 10^th

Dozens of Families Facing Foreclosure to Rally in Albany, Demand Action for Subprime Victims before Session Ends

Families from Across the State: Albany Business As Usual Means We’ll Lose Our Homes - We Can’t Wait Any Longer

What: More than two dozen families from around the state will come to Albany to demand legislators and the Governor hammer out an agreement to tackle New York’s foreclosure crisis before the legislature adjourns in two weeks. The families will tell their stories and explain how state inaction could result in the loss of their home. On May 7^th the New York State Assembly overwhelmingly passed legislation to institute a one year moratorium on home foreclosure and provide additional protections for families with subprime loans. The State Senate has taken no action on the issue. Federal legislation to address the subprime crisis is stalled in Washington.

When: Tuesday, June 10^th

Noon

Where: LCA Press Room

Convention Center / “the Egg”

State Attorney General Andrew Cuomo on Thursday announced a deal with the nation's major credit-rating agencies aimed at ensuring such scrutiny. The reforms would require greater disclosure and would change how the agencies are paid by the investment banks that seek their ratings.

Moody's Investors Service, Standard & Poor's and Fitch Ratings agreed to five reforms expected to be implemented over the next six months:

• Fee Reforms: Credit-rating agencies are typically compensated only if they are selected to rate mortgage-backed securities by an investment bank. The agencies will now establish a fee-for-service structure, where they will be compensated regardless of whether the investment bank ultimately selects them to rate a security.
• Disclosure Reforms: The agencies will disclose information about all securitizations submitted for their initial review. This will enable investors to determine whether issuers sought, but subsequently decided not to use, ratings from a credit rating agency.
• Loan Originator Review. The agencies will establish criteria for reviewing individual mortgage lenders (known as originators), as well as the lender’s origination processes. The agencies will review and evaluate these loan originators and disclose their originator evaluations on their Web sites.
• Due Diligence Reforms: The agencies will develop criteria for the due diligence information that is collected by investment banks on the mortgages comprising a mortgage-backed security. The agencies will receive loan level results of due diligence and review those results prior to issuing ratings. The credit rating agencies will also disclose their due diligence criteria on their websites.
• Credit Agency Independence: The agencies will perform an annual review of their mortgage-backed securities businesses to identify practices that could compromise their independent ratings. The agencies will remediate any practices that they find could compromise independence.
• Representations and Warranties: The agencies will require a series of representations and warranties from investment banks and other financially responsible parties about the loans underlying the securities.

So screamed a UBS shareholder at a February meeting of the Swiss banking giant's top executives and shareholders, according to an excellent report in the Sunday New York Times by Nelson D. Schwartz. The report catalogued the far-reaching effects of the American subprime mortgage crisis; one of those effects has been to fuel an anti-American bias in even the more traditionally serene parts of Europe.

Case in point: UBS at one point controlled $80 billion in subprime mortgage-backed securities. It's been forced to write down about $37 billion because of that gamble. It wasn't so much the financial loss that angered UBS shareholders (though that surely stung) but that the loss came because of what some Swiss saw as old-fashioned American over-consumption.

Thus the screams of "activist shareholder" Thomas Minder:

Mr. Minder rushed the executives on stage at the shareholders' meeting. Security guards dragged him away.

Said another UBS shareholder: "As a good housewife, I know you shouldn't put your eggs in one basket. A bank is not a casino."

As if Old Europe didn't dislike us enough because of the Iraq War.