Wall Street is coming in for a reputational kicking. Given the enormity of the subprime crisis – enfolding individual US homeowners, banks around the world and now local governments – news of subpoenas landing on the mats of Wall Street firms is hardly that momentous.

The fact that the attorney-general for New York state is interested in investigating the mortgage securitisation process is hardly surprising. What matters more is whether he finds anything interesting in the reams of paper his team will have to crawl through.

In the meantime, Wall Street has much more to worry about. The bigger deal is the state of the markets and whether Wall Street banks are in line for more writedowns on their holdings of mortgage-backed securities and collateralised debt obligations. It does not take a wild imagination to suggest that there could be more pain to come, either because hedging strategies prove ineffective or because observable prices lurch lower – the ABX index, for instance, is particularly prone to volatility.

Second, the drama unfolding in Florida, where the state-run investment pool had to freeze withdrawals, takes the crisis to a whole new level. For politicians, it is one thing to read about the pain the market is causing to sophisticated hedge fund managers, for instance. It is quite another thing to hear tales of hardship meeting routine payroll deadlines for teachers.

This could touch Wall Street again, in cases where financial groups are involved in managing off-balance sheet vehicles that have issued commercial paper and face refinancing problems. If the managers step in to support the vehicles, with no legal obligation, shareholders will ask why. If they do not, the reputational hit could get worse. It is not an enviable position.

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