Editorials

Fraud settlement a boost for Ky.

In 2008, the weight of lies and greed that built the subprime mortgage industry finally grew so heavy that it collapsed and took the economy with it.

Tens of thousands of Kentuckians still suffer the aftershocks from losing their homes and/or their jobs and from the sluggish economy that, six years later, is still not safely back on track.

So it was more than welcome news Thursday that the Kentucky Retirement Systems, thanks to the efforts of hard working attorneys in the Kentucky and U.S. attorney generals' offices, will recover $23 million for losses it suffered from investments in mortgage-backed securities that were not nearly as safe as they were advertised.

Kentucky will also share, with Maryland and Delaware, at least $150 million in what Kentucky Attorney General Jack Conway called "soft relief money" that Bank of America committed for lending in distressed communities.

That money will finance affordable rental housing and help individuals still struggling with foreclosure or underwater loans.

This money won't undo all the damage done to individuals, by any means. And the $23 million is a very small portion of the $17.6 billion liability that has built up at KRS, in large part because state government has not met its obligation to contribute to the fund.

But both are welcome and important as Kentucky still struggles to recover from the recession.

This settlement is also a refreshing, clear example of government working for the benefit of ordinary people at a cost to a huge business.

Kentucky has typically stayed in the background as these big national cases went forward. But in this case, Conway's office moved aggressively, asking the KRS board to hire it to go after the money. Thankfully, the board agreed.

Attorneys on Conway's staff worked with KRS to investigate and prosecute its claims. Kentucky became one of only six states that worked with the Department of Justice to pursue the case.

"It was classic securities fraud," Conway said Thursday.

Bank of America had purchased two of the worst offenders, Merrill Lynch and Countrywide Financial Corporation. Quite simply, the institutions told investors they were buying packages of safe loans when, in fact, they included what the sellers knew were some extremely risky mortgages.

The total settlement with Bank of America amounts to $16.65 billion, the largest civil settlement with a single business ever in American history.

Thursday Kentucky was on the right side of history. Thanks to all who made it happen.

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