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Who Owns the MBS Claims? AIG or the Fed?

posted by Adam Levitin

Alison Frankel has a great column today on the fight going on between AIG and the NY Fed about who owns the securities fraud claims associated with the MBS that AIG sold to the NY Fed (or more precisely, its Maiden Lane SPV) as part of its bailout. 

I have no idea who is right in this dispute, but as Frankel observes, if the NY Fed is correct, it raises the question why the NY Fed has failed to prosecute the MBS fraud claims. The argument that there aren't meritorious claims is rather hard to swallow given that other regulators (FDIC, FHFA, NCUA) and institutions have brought fraud claims relating to MBS and some of those claims have resulted in settlements (including the still not finalized $8.5 billion settlement with BoA/Countrywide).  


" it raises the question why the NY Fed has failed to prosecute the MBS fraud claims."

Uhm maybe because the FED would be liable for selling those Maiden Lane assets when it knew they were materially defective?


The FED is owned by it's members and it's members are the potential defendants. Why would they sue themselves?

Follow the money paid to players in the "GSE Business Model".

Ask Irving Picard of Madoff fame, who benefited financially?

All money trails lead to the GSEs. They are the only ones with the open checkbook to the US Treasury.

What is so difficult to understand?

The point is that the Fed has done NOTHING to exercise crystal-clear tort claims.

The only possible conclusion that one can draw is that the massive purchases of MBS were in a sense a cover-up. That is, the idea was to disappear the banks' fraud in order to insure "financial stability."

This is plainly illegal and plainly a violation of the Federal Reserve Act. And in the long-term, the Fed will not create not financial stability but deep and lasting instability on a number of levels, including integrity of title and integrity of the Fed's balance sheet.

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