Faced with both lawsuits from irate investors and regulatory action from government officials, Wachovia followed the lead of other institutions which sold volatile auction rate securities to investors looking for a money market fund. The bank will spend $9b. to buy back the illiquid investments from investors and pay a $50m. fine.

The move is the clearest sign yet that new CEO Robert Steel will be marching in lock-step with federal regulators as the massive de-leveraging of US financial markets rolls on. This means another solid year of trying to place a value on some of the bank’s dicey assets and realizing any losses that might entail.

On the auction rate front it is plain that brokers at Wachovia and elsewhere did not have the slightest idea what they were selling, an illustration of the valuation and risk breakdown that caused the current mess.