It is not an either or situation

Ohio Attorney General Takes Strong Stand on Crisis - NYTimes.com

The Ohio Attorney General sues Wall Street firms to return "money to investors, pension funds, schools and cities. " “We see what Washington doesn’t: the houses lying vacant, the eyesore stripped for copper piping with mattresses out back.” "We bailed out irresponsible banks, but we forgot about everyone else.”

[Update 10-13-10, Officials in 50 states launch foreclosure probe - Yahoo! News: "Officials in 50 states and the District of Columbia have launched a joint investigation into allegations that mortgage companies mishandled documents and broke laws in foreclosing on hundreds of thousands of homeowners."]

[Update10-14-10, Banks Ignored Signs of Trouble in Foreclosures - NYTimes.com: ". . . interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials."

Critics argue that his action doesn't effect change and that it should be let to the federal regulators. It seems clear that many businesses see paying settlements as a cost of doing business. Maine's former state attorney Mr. Tierney: “Is state action as effective as a federal regulator going after these companies? Absolutely not.” “But when regulators are too worried about giving offense, there’s no reason an enterprising attorney general can’t go in there.”

A sample of what the Ohio Attorney General obtained in settlements: "a $475 million Merrill Lynch settlement, $400 million from Marsh & McLennan and $725 million from the American International Group." Recently, he sued GMAC Mortgage because of the "filing fraudulent affidavits in hundreds of Ohio foreclosures."

See this BBC story for more on fraudulent foreclosures. It cries out for state action. "JPMorgan Chase and Ally GMAC Mortgage have suspended foreclosures in 23 states. At issue are claims that foreclosure documents were signed off without proper checks and people were wrongly evicted."

There is something warm and fuzzy about the state suing these companies.Will it effect change in corporate practices? Probably not - but that is where the feds ought to excel. But if the federal regulators are not getting money back for the states - states ought to act. They are not precluded.