A common thread from BCCI to CRA to the mortgage meltdown to foreclosuregate has been the rampant big bank lawlessness and bank fraud without much prosecution. It’s almost as if once the banks found they could get away with fraud without consequence, they went for more and more massive fraud, and we ended up with the mess we have now. Since it seems that both political party establishments have been bought off to the point they will never touch the banks, it looked like nothing would be done to resolve our bank problems.

But now there may be a ray of hope. Lawsuits. Pimco, with Blackrock Capital and the NY Fed are suing to have the purchase of $47 billion of MBS putback. And now this from Karl Denninger at Market Ticker:

“Bill Frey, who runs the hedge fund Greenwich Capital, has organized a massive clearinghouse of mortgage investors for the express purpose of bringing lawsuits against big banks that issued bogus mortgage-backed securities. He told me this afternoon that he’s about to move: In the next couple of weeks Greenwich and other investors will bring big lawsuits against major banks.”

According to Denninger, the bar to bring these suits is usually prohibitively high; 25% of the MBS pool must join the suit to reach standing to sue. And since 80% of most pools are ‘senior” where they are the most protected, it’s a very high bar to reach. But if any of these big lawsuits succeed, more will follow cuzz a lot of investors have lost their shirts to the fraud of the banks. At that point, the Feds will likely have to step in and initiate bankruptcy proceedings because the amount of bad MBS dwarfs Bank reserves. And there ain’t near enough money around for the Fed to cover that hole in a bailout.