I can actually agree with a lot in Alison Frankel’s assessment of the New York Attorney General’s lawsuit against JPMorgan Chase over mortgage backed securities deficiencies. She’s right to express all the ways in which this is a cynical case, building on years-old legal work from bond insurers and investors. But she follows with this:

So why do I believe the AG’s suit is so significant? Because Schneiderman is the first regulator to acknowledge in a legal complaint that the mortgage securitization process was rotten to its core. He is the first government official to stand up and demand legal accountability on behalf of the market and all of its participants, not just for investors in individual MBS deals like Goldman’s Abacus CDO or the Magnetar and Citigroup CDOs. “This action is brought by Attorney General Eric T. Schneiderman on behalf of the people of the State of New York,” his complaint said. “The Attorney General is charged by law with protecting the integrity of the securities marketplace in the state, as well as the economic health and well-being of investors who reside or transact business in the state.” You can read that as boilerplate, or you can think about what it means.

The attorney general doesn’t just represent a bond insurer or a major MBS investor like Dexia or the German regional banks or even Fannie Mae and Freddie Mac’s conservator. They’ve all got their own private lawyers pursuing federal securities claims on their behalf. He doesn’t only represent BlackRock or Pimco or any of the other institutional investor clients of Gibbs & Bruns who have asserted billions of dollars of put-back claims against JPMorgan. And he doesn’t merely represent the pension funds that have found MBS class action litigation to be such an exercise in frustration.

Schneiderman represents all of us — the people of New York and all of the investors harmed by the allegedly deceptive practices of mortgage securitizers.

That’s potentially significant. And I have no problem with state and federal law enforcement catching up to the private sector in this manner. It can only help above the status quo.

But it also comes very late in the game. Schneiderman only has a few more months under the Martin Act statute of limitations before he loses the ability to bring the same cases using this template for other issuers of mortgage backed securities. By mid-2007 the deals were all gone, meaning that by mid-2013 the exposure is off the table. Even the two-year delay has massively reduced the exposure. The lawsuit estimates $22.5 billion in losses over these Bear Stearns MBS deals, because they only cover the October 2006-mid-2007 period. An analyst put the estimated exposure for JPMorgan Chase at $2-3 billion. Not nothing, but compared to the “hundreds of billions” that advocates want to get out of this deal and apply to homeowner and investor relief, even a worse haul than the foreclosure fraud settlement.

Furthermore, there are no individuals named in the case, and it all contemplates civil rather than criminal prosecution. The broader task force that this falls under the aegis of has not filed a single criminal subpoena. So we’re talking about money here, restitution, and not very much at that.

Frankel believes that the SEC or DoJ could bring securities fraud claims down the road if they so chose. Again, the foot dragging has a consequence. This is the same kind of case the SEC has been bringing and settling for years, only instead of on a deal-by-deal basis, it covers the whole of systematic securities fraud at Bear. Why did they stay out of the lawsuit?

Maybe this does herald a “new era” of MBS litigation, at the public level of law enforcement rather than from the aggrieved firms materially harmed. Advocates from the Campaign for a Fair Settlement and other groups expressed hope on a conference call today that this case is “a floor and not a ceiling,” a starting point for future action. “The important thing is the outcome,” said Tracy Van Slyke of the New Bottom Line on the call, saying that the leverage needed to be built to command hundreds of billions in relief for both investors and homeowners (why the fruits of an investor fraud case should go to homeowners is probably a question many will ask in the coming days). That leverage could be derived from incorporating securitization fail claims into the mix, which were pointedly held back. But a set of securities fraud cases with diminishing statutes of limitations on a state law-only basis? That’s not going to build a big enough table to get it done.

“Damages in this kind of civil litigation have to be large in order to register at all,” said Simon Johnson of MIT on the call. “If this becomes a slap on the wrist it will have no effect.” Well, that’s my point.

UPDATE: See also Adam Levitin.