1. Basis of complaint: Each State, absent statutory authority, has a right to protect its "Quasi Sovereign Interests" (QSI) in the State's physical and economic well being and prosperity, as well as the wellbeing of its citizenry. Plaintiff State of Texas ("the State") sues Goldman Sachs Group, Morgan Stanley, UBS, Merrill Lynch/BOA, Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank ("the Banks"), Moody’s, Standard and Poor’s, Fitch (“the Ratings Agencies”), AIG Insurance Company (AIG) and other John Doe defendants for causing financial crisis and physical harms; recession; unemployment; home and wealth loss; forced cutbacks in a wide variety of critical areas, including medical care, social services, and environmental protection. Damages to the State include but are not limited to reduction in the value of state investments and the increased costs to governmental units, including increased insurance costs to Texas governmental units seeking to issue bonds whose reputation has been unfairly impaired. Defendants caused budget shortfall of at least $18 billion to the State of Texas. The environment, health and wellbeing of the State and its citizenry are directly harmed. The first manifestations to children and other vulnerable citizens include hunger, disease and medical complication.

2. Damages recoverable. The doctrine permits damages from such underlying theories as common law fraud and RICO, and survived Motions to Dismiss in the State tobacco litigation. Texas v. American Tobacco, 14 F.Supp2d 956 (E.D. Tex 1997), relying on Georgia v Pa. RR, 324 US 439 (1945) (QSI in economic prosperity and public welfare); Snapp v. Puerto Rico, 458 US 592, 607 (1982) (State has QSI in physical or economic well being of the citizenry). Many of the older cases involved equitable relief, but the tobacco cases famously involved significant economic damages, including tobacco related State Medicaid costs. Separately, money damages for protection of QSI as an independent common law cause of action clearly survived the Tobacco litigation motion to dismiss, with superb language at p. 968, and commentary by the Court on the ability of experts to create a damage model. We have such experts.

This suit against Wall Street can encompass underlying doctrines ranging from negligence and common law fraud to statutory actions, also alleged in the tobacco cases, eg RICO. Fraudulent misrepresentation, well-defined and recognized by a unanimous United States Supreme Court in Bridge v. Phoenix, 553 US 630 (2008), is a logical doctrine for the case.

3. Standing. The key to standing in modern, QSI-type litigation exists in Mass. v. EPA, 549 US___ (2007), a climate change case involving federal regulation. In discussions as to modern standards for Motion to Dismiss on the proposed State v. Goldman Sachs et al Complaint, UC Irvine Dean Chemerinsky said to me: "I think your position is plausible and reasonable, particularly in light of Mass v. EPA. If the press calls, I will explain that I am fascinated by the logic of your argument and believe it can indeed survive a motion to dismiss in light of Mass. v. EPA."

The Supreme Court in Mass. v. EPA viewed "rising seas" as actionable, even though the damage is "widely shared." And, Justice Stevens held, causation alleged to be insignificant is still actionable. Recognizing the regulatory nature of the case, we've all been waiting to see how Justice Stevens' broad pronouncements on causation and dispersal of damage would be used in practice, particularly by the U.S. Government.

4. Recent important action. Happily for any State in proposed Financial litigation, even the State's opponent relies on Mass. v. EPA for its standing arguments in 2010 moving for dismissal of health care reform litigation. In Commonwealth of Virginia v. Sebelius (C.A. 3:10-cv-00188-HEH), the Federal Government uses Mass. v. EPA for an example of a State's properly alleged injury: rising seas. The Department of Justice's briefing emphasizes the scope of damages as affecting standing, criticizing the State of Virginia for not alleging damage to the well being of the state's populace generally, but only the interests of a "small minority,” while recognizing other citizens would be harmed by the State’s position.

5. Damages in the case. The State Finance suit will trace massive physical and economic harm to the citizens and State's well being and prosperity. The State will demonstrate the massive harms of recession, unemployment, loss of tax revenues, budget shortfall, wealth loss, increased costs and diminished reputation of bond issuance for state injury, as the experts will testify on modern capabilities for proper modeling of damages. The first manifestation to children and other vulnerable citizens include hunger, disease and medical complication.

Forensic CPA and Senior Business Evaluation Analyst Jeannie McClure explains:

"Modern economic modeling allows us to trace and identify the harms caused by Wall Street banks and other company conduct. We can prove the harm caused to the Texas economy and the prosperity and well being of its citizenry."

6. Uniqueness of the Doctrine. This is a special, unique doctrine. It is growing in importance in modern times where private industry and government increasingly affect State interests. (Think of oil spills, tea party debates, communications, technology, climate change, pollution control, and massive harms greatly dispersed). The State and its interests are unique.

A. Unique language: The State has a direct interest in protecting the prosperity and well being of the public, per the United States Supreme Court.

B. Unique in scope: Only if the damages (albeit dispersed) are significant will the cause trigger the doctrine of QSI. The sizes of damages determine if a line is crossed. See e.g., Snapp, infra.

C. Unique in public policy determination. This QSI doctrine is broad and thrives now after more than a century. Modern practice has expanded its use into tobacco and climate change litigation, and it's been embraced by the U.S. Government as the criteria in the health care reform litigation.

7. SIZE DOES MATTER. The massive scope of damage in a QSI case sustains the standing and strengthens the cause of action. Dispersal of the damages and inherent causation difficulties in any massive damages case can be addressed, as Justice Stevens explained in the great climate change decision, Mass. v. EPA.

8. Experts. Having reviewed the Complaint, and bringing their expertise to explain this action as viable, reasonable, plausible are:* Former Texas Attorney General and Gov. Mark White.* Dean Erwin Chemerinsky, UC Irvine Law School. * Prof. Charles Silver, UT Law School. * Forensic CPA and Senior Business Evaluation Analyst Jeannie McClure and other experts with whom she works (liability, causation, damages, economic modeling).* A variety of prominent lawyers, including Steve Malouf, Larry Joe Doherty, Tommy Fibich, and Mark Mueller.

9. Factual Support: Fault, Causation and Damages

In addition to expert testimony, many publicly available works analyze the Great Recession, including fault, causation and damages.

Roger Lowenstein's book The End of Wall Street provides insight, historically, including the September-October 2008 financial crisis and global crash. The following citations are to pages from the 2010 work of Lowenstein, a Wall Street Journal writer for a decade and a Bloomberg columnist.

Ratings' agencies private worries remained private. (87-88). In the Sept '08 crisis, Moody's downgraded $450 Billion worth of Collateral Debt Obligations (CDO). More than 80% had been rated AAA. And half had not only been downgraded but had filed notices of default (257).

Internal email traffic in ratings companies providing unjustified AAA ratings up to the crisis reveal such comments as "Let's all hope we are all wealthy and retired by the time this house of cards fails." (78).

Derivatives "effectively voided limits of leverage and rendered disclosure practices woefully inadequate." (57). CDOs, engineered by Wall Street banks, further removed the ability of the ultimate investor to scrutinize the quality of the underlying "lured" public (23-24). Investors scarcely capable of checking on underlying mortgages had no incentive due to the ratings system (38), and Wall Street had considerable leverage in controlling the ratings, paying fees only if they were pleased with the rating (40-41). So, ratings companies "bent" the standards (41).

AIG misconduct appears throughout the book, including AIG's Financial Products head Joesph Cassano's use of the parent's ratings for cheap credit for the London derivative operation. The credit agencies didn't object (43).

Cassano touted the AIG credit default swaps as easy money, selling insurance for "a catastrophe that would never happen" (53).

The bonus system “rewarded the troops for gambling the franchise. Traders’ bonuses were paid at year-end, but the ‘profits’ on which the bonuses were based derived from trades whose true profitability would not be known for many years” (74).

Bankers taking home enormous paychecks “were crafty financiers, but their cleverness served their personal interests first, their clients and shareholders second, and the economy barely at all. The bankers learned to fool the system: to game the rating agencies, to bundle deadbeat mortgages into paper that was triple A and foist it on trusting clients. They fooled their compensation committees and they fooled society, collecting astronomical pay for products (such as synthetic CDOs) that made only bankers richer. In the meantime, they led gilded lives; they shuttled in private jets, they nested in baronial mansions and weekend country homes” (75).

The author also covers the Countrywide fraud, where private concerns were never conveyed: "the public had no access to ...alarmus" (77).

Lowenstein emphasizes the massive economic harm caused by Wall Street misconduct (xxii-iii; 242, 256-57, 272, 282-7) including damages directly attributable to the crash caused by Wall Street hidden misconduct: $13 trillion wealth loss to ordinary Americans; deficit growth because of bailout, and jobs. Wall Street folly "destroyed the American workplace." (284).

Especially important was the squeeze on state and local governments. (255-6, footnote 10, with examples).

When Warren Buffet announced in October 2008 that the U.S. faces an economic Pearl Harbor (254), he captured the magnitude of the problem. Business began to grind to a halt, with commercial paper losing $95 billion in a week. (255-256).

10. Underview. Prof. Charles Silver, McDonald Chair in Civil Procedure at University of Texas School of Law provides perspective:

"No one doubts that the State of Texas could sue BP, Transocean, and Halliburton to protect its citizens from the consequences of the massive oil spill in the Gulf. This is true because the spill poses a threat to the general welfare of Texans. For the same reason, Texas can also sue the investment bankers and others whose actions contributed to the Great Recession, which has polluted the State's financial environment just as surely as the Deepwater Horizon disaster threatens to pollute the State's beaches and waters. A court will decide whether the proper legal cause of action is common law fraud, RICO, or something else, but the State is clearly entitled to protect its citizens from generalized harms to their economic or physical wellbeing."