THE BURNED OVER DISTRICT

In this case e-mails and other documents show that Morgan Stanley was very mush involved in getting notorious bad mortgage lender New Century to make riskier mortgage loans, riskier than the garbage they were already churning out at the time.

Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to which one of Wall Street’s leading banks, Morgan Stanley, actively influenced New Century’s push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments.

“Morgan Stanley is involved in almost every strategic decision that New Century makes in securitized products,” a Morgan Stanley internal report from late 2004 said, referring to the loans the bank packaged into mortgage bonds.

The Justice Department is currently examining the relationship between New Century and Morgan Stanley, and the bank’s sale of mortgage securities in the run-up to the financial crisis, according to a person briefed on the matter. After winning tens of billions of dollars from other banks, the Justice Department has turned its focus to Morgan Stanley, and is aiming to reach a settlement early next year, according to the person.

The new documents and emails, from 2004 to 2007, were recently filed in connection with a lawsuit and are not related to the Justice Department case. But they provide an inside picture of the process through which Morgan Stanley pushed New Century to issue more mortgages with burdensome conditions that would be lucrative for Morgan Stanley — including loans with balloon payments, adjustable interest rates and prepayment penalties that made them harder to refinance.

The bank appears to have gained its influence, in part, because it was regularly the largest single buyer of subprime loans from New Century.

The documents indicate that Morgan Stanley employees were aware of the low credit quality — and occasionally joked about it — even as they continued to snap up loans from New Century. A top due diligence executive at Morgan Stanley, Pamela Barrow, wrote to a colleague in 2006 sarcastically describing the “first payment defaulting straw buyin’ house-swappin first time wanna be home buyers.”

More proof that Wall St prior to the collapse was just one great big RICO enterprise. Nothing of consequence is expected to result.