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Ear to the Ground

Government Lawsuits Against Big Banks Are a Go

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Posted on Sep 3, 2011
Flickr / woodleywonderworks (CC-BY)

Federal regulators filed lawsuits against 17 financial institutions Friday afternoon for allegedly misrepresenting the poor quality of mortgage securities they sold to Fannie Mae and Freddie Mac at the height of the housing bubble.

But while the Federal Housing Finance Agency filed the complaints at the close of business Friday, forewarning of the impending lawsuits had investors unloading shares of Bank of America, JPMorgan Chase and Goldman Sachs.

The suits stem from information drawn from 64 subpoenas that were issued a year ago. In addition to the companies, the complaints also name individuals at the firms who the government believes were responsible for pushing to turn subprime mortgages into securities with inflated credit ratings. —BF

The New York Times:

Within minutes of the filing of the suits, several banks responded with a preview of the legal arguments they will make in the coming months, namely that Fannie and Freddie were sophisticated investors who should have known the securities were not without risk, and that the losses were caused not by fraud or misrepresentation but by underlying difficulties in the housing market.

In a statement, Bank of America said Fannie and Freddie “claimed to understand the risks inherent in investing in subprime securities and continued to invest heavily in those securities even after their regulator told them they did not have the risk management capabilities to do so.” In spite of that warning, Bank of America said, the government-controlled mortgage giants “are now seeking to hold other market participants responsible for their losses.”

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By Jody Tolliver, September 6, 2011 at 11:26 am Link to this comment
(Unregistered commenter)

What does this mean for foreclosures?

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mrfreeze's avatar

By mrfreeze, September 3, 2011 at 10:46 pm Link to this comment

Stay healthy and keep breathing….don’t hold your breath waiting for anyone (or any bank) to be successfully prosecuted for these crimes. No on is going to jail. No one will pay the real price all the broken lives.

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By glider, September 3, 2011 at 8:15 pm Link to this comment

@prisnersdilema

and how convenient that any decision by the Feds on this would not come until after 2012 grin))

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By glider, September 3, 2011 at 4:15 pm Link to this comment

@prisnersdilema

Very insightful post.  Thanks!!!

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By ardee, September 3, 2011 at 3:43 pm Link to this comment

With an election coming up I see a cosmetic appearance of an active federal government. This is, I believe, an attempt to woo voters not prosecute criminals.

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prisnersdilema's avatar

By prisnersdilema, September 3, 2011 at 11:36 am Link to this comment

Just some more mis direction, and some federal sleight of hand.

It comes at a time when the states are mounting prosecutions of their own.

The Federal government in an effort to protect their beloved banks, have tried to get the states to back off. This effort as been largely unsuccessful.

The Banks must really be worried. There could be lots of states, from N.Y. to California considering suits of their own. To get back some of their money. Money, they no longer can collect in property taxes…

The answer of course, is just one law suit by the feds.

Of course the banks will settle for a pittance. And since federal law takes precedence over state law, this effectively protects the banks from further action by the states.

The Obama administration, gets to look like it’s finally done something, and the banks once again get a pass. Full protection, from those mean and nasty state attorney generals, who could ruin it all.

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blogdog's avatar

By blogdog, September 3, 2011 at 11:27 am Link to this comment

numerous loans go into default regularly - that’s the world of business - but when
loans, leveraged exponentially into fictitious wealth, through derivative
instruments, go into default, the normally controllable damage is suddenly out of
control

hedging commodities through futures is a valid activity - speculative derivatives
are by nature fraudulent - the rating agencies are coconspirators; moreover, responsibility must extend to those who re-legitimized derivatives… it’s well
known who they are - time to discipline those responsible is at hand

INVESTIGATE, INDITE, PROSECUTE and EXECUTE punishment to the full measure of
the law - dare not spare the rod on these children, otherwise they’ll be back

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