Suing the banks

[Gob]

The US is planning to sue more than a dozen major banks for misrepresenting the quality of mortgages they sold during the housing bubble, the New York Times reports.

The Federal Housing Finance Agency will argue that the banks should have known the securities were not sound.

Bank of America, JPMorgan Chase, and Goldman Sachs are to face action, the newspaper quotes sources as saying.

The suits could be filed as early as Friday, it adds.

The Federal Housing Finance Agency - which oversees mortgage giants Fannie Mae and Freddie Mac - blames the banks for failing to perform adequate checks on the quality of mortgage securities they sold on to investors before the financial crisis in 2008.

Fannie Mae and Freddie Mac lost more than $30bn (£18.5bn), partly because of the deals, and had to be bailed out by the government.

The suits follow subpoenas the finance agency issued to banks last year, according to the newspaper.

The BBC's Marcus George in Washington says this is the latest of a number of lawsuits against financial institutions who were involved in the practice of issuing mortgage-backed securities.

However, some executives say the losses were made because of the wider economic downturn.

Others fear further litigation against banks could damage America's fragile recovery, our correspondent adds.

http://www.bbc.co.uk/news/world-us-canada-14758677

[Long Run]

So, we bail out the banks, so we can sue them, so we can bail them out again?

[BoSoxGal]

No, we're just trying to get some of our bailout money back now.

[dales]

Repeal their FDIC coverage!

[rubato]

Repeal their FDIC coverage!

So when they go bust the depositors can share the pain?


yrs,
rubato

[Gob]

So if the banks get sued, who will pick up the tab?

[dales]

Repeal their FDIC coverage!

So when they go bust the depositors can share the pain?


yrs,
rubato

I should've added " Threaten to"

I HATE BANKS!

[Sue U]

So if the banks get sued, who will pick up the tab?

Banks are like any other corporation; they make profits for their investors. Any liability for fraud will ultimately come out of those profits. In this case, the top US banks have been making staggering profits the last few years (and have been keeping that money out of circulation by failing to lend, but that's another rant).

[Long Run]

Situation overview. Regulators do a lousy job overseeing the banks. The banks start making riskier and riskier loans. The economy tanks, and the value of the security backing many loans evaporates. The banks are insolvent or nearly so. Politicians and regulators strumpet further causing a run on the banks who lose all of their once adequate liquidity. Regulators look for scapegoats, over-react and put numerous banks out of business, often the wrong ones (i.e., the ones who had little or nothing to do with making risky loans). 2011, no, that was S&L crisis of the late 1980s and early 90s. Now we are in for a deja vu all over again, it seems.

I don't know if any of this current crop of banks deserve to be sued, but I do not trust that the government regulators can be objective in this process. As an example, ask the shareholders of Far West Federal Bank who won their lawsuit against the S&L regulators who wrongfully killed off their bank.

And given that we bailed out many of these same banks, and those banks have repaid the credit the U.S. government provided, rather than hammering the institutions, maybe the actual individual wrongdoers should be the ones targeted. But again, it would be difficult to allow the regulators to do this since their track record is to avoid responsibility by trying to find others to blame.