The global mortgage crisis litigation fallout

This chapter is an analysis on the legal recourse investors in subprime mortgage vehicles might have against originators, packagers and investment vehicle organizers in the subprime mortgage process based on the resulting bubble and the economic aftermath of its collapse. It does this by reviewing major sources of litigation and then looking through the lens of a major civil case involving two financial giants, Barclay's Bank and JP Morgan Chase the current owner of Bear Stearns. This approach is used because if a large well-financed plaintiff investor with a credible claim cannot make a good legal case against a participant controlling all aspects of the mortgage origination to investment chain it will be even more difficult with respect to smaller participants or those that worked with different or multiple participants in the chain on an arms-length-basis. Indeed the evidence indicates that only direct claims against specific players have a reasonable chance of success. Further, the case offers an excellent perspective concerning how even sophisticated investors to their regret got caught up in the intricacies and complexities of the global mortgage backed securities market and its related financial products. As part of this analysis the paper also addresses the origins of the subprime crisis and the cascading errors in judgment especially lapses in evaluating and documenting mortgage credit.