FHLB Seattle Sues Wall Street

February 17, 2010 by · Leave a Comment
Filed under: Bond Regulation 

FHLB Seattle, forced by regulators to write down millions in downgraded MBS last year , has effectively sued all of Wall Street for selling them $4 Billion in inappropriately underwritten MBS.  This action accuses the Street of intentionally selling MBS that was underwritten with lax standards, didn’t have proper documentation or supported by documentation that was “untrue.”

This is a huge new front in the ongoing war between investors and the street for responsibility. Did the Street knowingly sell toxic securities? Did the ratings agencies turn a blind eye to the shortcomings of the new issues to generate fees, or were they “gamed” by Wall Street? Do investors bear all of the responsibility for their decisions? Is it cavet emptor all the time? What if you bought securities under false pretenses?

FHLB Seattle is a formidable and serious litigant. The risk of the responsibility for “bad” loans being put back to the underwriter just went higher.

[$$]Mortgage Suit Targets the StreetWSJ.com, February 16, 2010

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