Law Suits Over Subprime Lender's Bonds

An Interesting article on Bloomberg.com titled "Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley" which continue to show that the fall out from subprime is not just isolated to bankrupt subprime lenders or the major banks that supported them. It is also not a isolated issue to the CDO's and whether or not Moody's will down grade these debt packages that are snapped up by Institutions, pension funds, insurance companies, and other banks. But the most sobering aspect is that everyday hardworking individuals who sought better return than what the treasury notes were yielding with the promise of a solid mortgage company who issued them.

It turns out that there was much more deception than meets the eye. The subprime mortgage lender's bonds were brought to investable packages by the big mortgage banks mentioned in the article. The lure of a solid backing by the reputable investmnt bank and the high flying subprime mortgage lender's pledge of stability lured many average investors in to these "safe" and "lucrative" investment vehicles.

Buck Meyer, mentioned in the article, invested $300,000 and lost every penny of it when the American Business Financial Services Inc's notes were defaulted. There are more sad stories such as these, which were misled by the major investment banks such as Bear Stearns and Morgan Stanley, all of whom are also implicated as major debt holders to the New Century's Chapter 11 bankruptcy filings, show that they have not acted in the best interest in disclosing the risks associated with these bonds.

It is aptly called a Ponzi scheme, a word which has been utilized in many other articles and complaints regarding the subprime mortgage lending practices, bond issuances, as well as the industry practices.

There are currently 26,534 claims filled for $750 million from the bankers and former officers and directors of defunct subprime mortgage companies in the Philadelphia Court of Commons. This class action law suits will continue and will begin to affect the upper echelon Wall Street investment banks and others such as Countrywide Financial as investors who lost all of their life savings will look for compensation for the "ponzi" scheme and deception.

This law suit makes sense in light of the fact that the major investment banks who purchased the debt from the subprime and prime lenders created liquidity by issuing bonds. Thus, the subprime fall out is not just relegated to the lenders who are in trouble. It affects the whole establishment who are working in the shadows peddling these menacing bonds to unsuspecting and misinformed investors.

The unraveling is gaining steam.