The Financial Crisis May Be Over, but the Lawsuits Continue

More

Insurance giant Allstate is suing Bank of America and others for over $700 million in losses it incurred after buying bad Countrywide mortgage-backed securities. BOA purchased the Countrywide, formerly the biggest private mortgage lender, in 2008. Here's what Allstate alleges, via Jonathan Stempel at Reuters:

Allstate said that starting in 2003, Countrywide quietly decided to boost market share by approving any mortgage product that a competitor was willing to offer, in a "proverbial race to the bottom." It said Countrywide then passed on the added risks to investors who bought debt backed by the mortgages.

"Defendants knew the loans offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties, and thus were highly likely to default," said the 150-page complaint filed Monday in Manhattan federal court.

This all may be true. But then why, pray tell, did Allstate's investment team purchase these securities? If Countrywide didn't provide investors like Allstate with fraudulent data about the loans backing the bonds they purchased, then how could it be held responsible? If it provided whatever information Allstate demanded to know about the bonds prior to purchase, then how could it be blamed? Certainly no one held a gun to those Allstate investors' heads and forced them to buy these mortgage-backed bonds -- so why did they?

If you buy Apple stock, and the company knows it's out of good ideas, so instead plans some truly awful, money-losing products for release in 2011 that decimate its stock price, can you sue the company? Should the burden lie with the seller or buyer of securities to determine how they will perform in future years? It seems a court will let us know.

Read the full story at Reuters.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

Why Are Americans So Bad at Saving Money?

The US is particularly miserable at putting aside money for the future. Should we blame our paychecks or our psychology?


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In