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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

February 16, 2010 at 9:45 AM

Seattle Federal Home Loan Bank goes after Wall Street

Top of the News: Americans have waited in vain for prosecutions of the banksters for helping cause the Great Recession through their swindles, ooops, risky bets on exotic securities and derivatives. Now some simple justice may come from lawsuits filed by the Federal Home Loan Bank of Seattle.

According to the Wall Street Journal, the institution has filed 11 suits in King County Superior Court claiming that underwriters misled it about the quality of $4 billion of mortgage-backed securities it bought during the housing boom. The banks include Bear Stearns, now owned by JPMorgan Chase, Goldman Sachs, Morgan Stanley and Countrywide, now owned by Bank of America. It’s demanding that the banks buy back the securities plus interest.

The federally chartered FHLB is one of 12 such institutions set up by the government during the Depression and owned by more than 8,000 banks and thrifts, intended to provide stable credit, especially to savings and loans, and small, rural banks. The Seattle FHLB was badly wounded by Washington Mutual, which accounted for a third of its lending business.

The Seattle bank wants the cases moved to federal court, and they will be closely followed by wronged investors. Read the Journal story here (subscription may be required).

The Back Story: Foreign holdings of U.S. Treasuries fell by a record $53 billion in December. The biggest change was China and Japan reducing their appetites for the securities (China cut back more than $34 billion).

Make of it what you will. A month doesn’t signal a trend, but clearly foreign investors worry about the Fed’s ability to deal with inflation, the federal deficit and the continued weakness in the American economy. Conservatives will see this as a sign the U.S. is headed to Greece’s fate without massive budget cuts (but not in their districts). Liberals will warn it’s another sign that our two wars and massive defense spending are unsustainable (while continuing those policies).

Today’s Econ Haiku:

Hello, Microsoft

Smart phone profits are calling

But can you pick up

Comments | More in Banking, Inflation

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