On Thursday, several Latin American clients of Stanford Financial Group filed suit against insurance broker Willis Group Holding Ltd. The lawsuit, which was filed in federal court in Dallas, contends that Willis Group was a willing and knowing participant aiding in the $7 billion fraud by Stanford.

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The group of investors are seeking more than $1 billion in damages. Stanford founder, Texas tycoon Allen Stanford and several others are facing criminal and civil charges for the $7 billion ponzi scheme.

Willis actions “crossed the line from the role of insurance brokers, to acting as sales agents for Stanford Financial,” lawyers for the group said in an e-mailed statement on Friday. The investors seek class action status.

Stanford Financial is just one of three businesses headed by Stanford that were sued by the U.S. Securities and Exchange Commission.

Stanford, who spent the last 15 years living in the Caribbean, has been in custody since June 18. He is being held without bail until trial, which is currently set for August.

Unfortunately, reaching highs is not necessarily a good thing. The Mortgage Bankers Association has released data that shows a staggering number of delinquencies and foreclosures in the first quarter. This data has been attributed to record unemployment numbers, as well as to other damaging side effects of the financial crisis.
 
The survey revealed that around 12.07 percent of mortgage loans were affected by delinquency or foreclosure, which is the largest number that the survey has recorded since it began in 1972. It also marks a rise of 8 percent since a year ago. 

Although the government has taken steps to reduce foreclosure rates, the data shows that the government either may not be doing enough or that it may need to change how it goes about doing so. Part of the difficulty in turning around the foreclosure situation has been that once-reliable borrowers have now begun to have trouble paying their mortgages, leading to a flood of troubled loans far beyond anything that has been seen before.

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Superstitious employees of Southwest Airlines must be wondering if the aviation industry is cursed: although the company has enjoyed a recent drop in the price of fuel, the drop has also been met with shrinking revenue that almost completely mitigates any benefit gained from the falling fuel prices.

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That is not the only source of consternation for Southwest Airlines. The swine flu panic sweeping the world has cut travel demands as worried travelers stay home instead. The economic recession has also done few favors for Southwest Airlines as would-be vacationers instead plan cheaper outings that do not include air travel.

Although Southwest Airlines has posted three straight quarterly losses, the company plans to expand service to several airports across the country, hoping to increase revenue. Only time will tell if Southwest’s efforts to creep back up out of the red will be successful.

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With the economy struggling, many larger banks in the U.S. continue to absorb smaller, weaker banks to make up for the surplus in banks. According to Bank of America’s CEO, Kenneth Lewis, Bank of America will not be among the financial institutions that actively seek mergers.

This revelation from Lewis comes at a time when huge bank mergers have become commonplace, such as Wells Fargo’s acquisition of Wachovia last year and JPMorgan Chase’s acquisition of Washington Mutual. Although Bank of America recently acquired Countrywide Financial and Merrill Lynch, the financial giant will not pursue a merger with another bank.

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The recent financial stress test led regulators to urge that Bank of America raise $33.9 billion, the highest amount out of all of the financial institutions tested, but Lewis disputed the validity of the test. According to him, the stress test depicted a much worse scenario than would ever be anticipated and that the answer is not to raise more capital, but to diversify existing capital.

With Kenneth Lewis remaining cautiously optimistic about the economy’s future, Bank of America will remain its own entity for now.

The latest telling of our current financial woe is Kate Kelly’s Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street. The author and Wall Street Journal reporter told Media Bistro about tearing through the work of writing the book and then getting back to full-time work at the paper the day after she turned in the manuscript.

“We wanted to get the book out quickly because we knew events were happening very fast in the marketplace,” she explained. “People seemed interested in what was going on in Wall Street and the markets, so for sure we wanted to get out quickly before there was a tsunami of books about broader issues and the crisis. We believed that Bear Stearns was the first domino to fall.”

When one of the oldest, most resilient firms on Wall Street is sold at a fire sale price, something has gone wildly wrong. Kate Kelly chronicles the final, frenzied 72 hours of Bear Stearns operations as an independent firm.

Kelly captures the culture that Bear Stearns had cultivated over several decades, one of “P.S.Ds” — employees who were poor, smart, and deeply desired becoming rich. Elite families and Ivy League degrees didn’t matter at Stearns as much as raw aggression and the willingness to do almost anything to make money for the firm. Hence the title - Street Fighters.

This brand of leaders were arrogant and successful, guiding the firm through every crisis from the Great Depression to the dotcom bubble. But the subprime mortgage crisis pitted key executives against each other.

The book grew out of Kate Kelly’s internatinally popular three-part series of articles on Bear Stearns, which ran on the front pages of The Wall Street Journal in May 2008.

Treasury Secretary Timothy Geithner called for legislation that would require derivatives to be traded on exchanges or clearinghouses, rather than in over-the-counter (OTC) transactions. This proposed authority over the largely unregulated derivatives multi-trillion-dollar market is aimed at mitigating the systemic risk that contributed to the current global financial crisis. Here are some of the responses to this week’s news.

TheDeal.com identified the stakeholders and explored the politics of derivatives regulation.

The key players here are regulators and payments systems executives around the world, two groups that have long been deeply intertwined and, to the public, mostly invisible. The battlefield has two locales: in Congress and other legislative bodies around the world, but mostly in the arcane and cloistered arena of the standards setters and payments consortia.

NPR pondered the history of options trading and the current battle between Barney Frank and Collin Peterson.

Barney Frank, of course, runs the House Financial Services Committee. He is looking to fundamentally overhaul financial market regulation. We keep hearing that he wants to have ALL financial market regulation under his committee’s umbrella. Which makes some sense: one system, one unified approach. But then there’s Collin Peterson. He runs the Committee on Agriculture. His most famous contribution is the controversial, much loathed and much loved (depending on your zip code) Farm Bill. Peterson wants derivatives to fall under his committee. What do financial derivatives have to do with agriculture? And why are these two Dems fighting?

Wonkette laid out the bare minimum of derivatives regulation.

There are two key things here, things that should not be controversial in any financial market of this magnitude: (1) derivatives must be traded through regulated central clearinghouses, not in SECRET, and (2) some percentage of reserves must be maintained to cover for losses, just in case, for example, “housing prices go down.”

Rick Bookstaber called for simplicity in derivatives.

Complexity is one of the demons that makes our financial markets crisis prone. Much of the complexity arises in the specter of derivatives and other “innovative” products. To reduce the risk of crisis we must exorcise this demon. We need a flight to simplicity. Geithner’s proposal for new derivatives regulations, which includes centralized clearing and exchange trading for standardized derivative products, moves us toward this goal.

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Fiat CEO Sergio Marchionne reportedly will head Chrysler after the automaker emerges from bankruptcy within two months. Marchionne met with the U.S. government about his plans for the company, and is scheduled to meet with Chrysler executives to work out the details of the merger.

“Chrysler is on track to re-emerge from bankruptcy in 60 days. I will become Chrysler CEO after that,” said Marchionne.

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The Italy-based Fiat aims to turn into a global force in the auto industry. They have interest in acquiring Saab and have already been in talks with GM about acquiriing its Opel and Vauxhall operations in Latin America and Europe.

“Saab is an interesting opportunity, the brand is however too small for the auto mass market. We could combine Saab with another brand. In the U.S., there’s a Saab dealership network. It would be a pity to give that up,” Marchionne explained.

How could it happen? That’s been the question on people’s lips and minds over the last several months. House of Cards: A Tale of Hubris and Wretched Excess on Wall Street helps to explain exactly what happened on Wall Street leading up to the devastation of 2008. And it’s no dry tale of transactions.

In House of Cards, author William Cohan doesn’t give bare facts and theories, he weaves a captivating story of the ten days that revealed financial stalwart Bear Stearns to be nothing but a house of cards subject to the forces of a perfect financial storm. It’s not easy to turn the machinations of Wall Street into readable drama, but Cohan achieves this and more. Says Business Week: 

“Cohan vividly documents the mix of arrogance, greed, recklessness, and pettiness that took down the 86 year old brokerage house and then the entire economy. It’s a page-turner in the tradition of the 1990 Barbarians at the Gate by Bryan Burrough and John Heylar, offering both a seemingly comprehensive understanding of the business and wide access to insiders….hard to put down, especially thanks to its dishy, often profane, quotes from insiders”

When on March 5, 2008, a Florida hedge fund manager declared Bear Stearns & Co., the nation’s fifth-largest investment bank insolvent, he wasn’t necesarily taken seriously, but ten days later, the financial giant no longer existed.  House of Cards details the how and why of this meltdown and the “end of the Second Gilded Age on Wall Street”. Cohan translates for the lay reader just how a combination of risky bets, corporate politics, lax government regulations, horrifying decision-making have pummeled the world financial system.

Especially intriguing are the insider accounts of the corporate culture of Bear Stearns, power battles, and the greed and inattention in relation to the firm’s huge positions in mortgage-backed securities.

And it’s not just the plot that makes House of Cardsread like a novel. The characters are colorful enough for fiction. There’s Ace Greenberg, the miserly old man who demanded the re-use of paper clips, and Jimmy Cayne, whose prowess at bridge assisted his corporate rise.

“Masterfully reported. Cohan has turned into one of our most able financial journalists….he deploys not only his hands-on experience of this exotic corner of the financial industry but also a remarkable gift for plain-spoken explanation…the other great strength of this important book is the breadth and skill of the author’s interviews…Cohan does a brilliant job of sketching in the eccentric, vulgar, greedy, profane and coarse individuals who ignored all these warnings to their own profit and the ruin of so many others. It’s impossible to do justice to his reportorial detail in a brief review…”

If only it were fiction.

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The World Bank points out that the economic crisis is becoming a calamity for the poorest of the world’s people. Indeed, even as the developed world speaks of a recovery soon (well, once this swine flu setback is overcome), those with the least access to wealth are likely to continue suffering long after the rest of the world has recovered from global recession.

I like the idea of helping out. My church has an education fund aimed at helping young people in third-world countries improve their skills and knowledge in the hopes that they can get better jobs. I like to contribute regularly to this fund.

Another idea is to offer microloans to those in developing nations. Grameen Bank and Kiva.org both offer programs that allow ordinary people to make small loans to entrepreneurs. These microloans have affordable interest rates. And, in third-world countries, $500 or $1,000 can make a much bigger difference than it does here. You can partially fund a microloan with as little as $25.

It is true that many of us are struggling here. However, many are struggling much worse, and it is an accepted tenet of good personal finance that once you have what you need, you start helping others.

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In Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, Daniel Gross paints a cynical picture of of the companies in dispair, the laid off workers, disappearing 401(k)s, and big government bailouts. Gross asserts that we got to the point of financial disaster by running the economy like a huge, pyramid scheme. Gross takes complicated issues and presents them in a way that the rest of us can understand.

Dumb Money picks apart the current crisis and ponders on what the future may hold by a journalist and author who specialized in business history and economics for a popular audience. Gross has written for Slate.com, the New York Times, The New Republic, and has contributed to more than 60 publications. Instead of a business or finance degree, Gross is was educated in American history at Harvard University. And we’re certainly living history right now. If you want to understand the story behind the headlines, get a copy of Dumb Money for the nightstand.