Planet Money
10:01 pm
Sun September 11, 2011

The Return Of Toxie

Last year, as part of a reporting project, we bought a toxic asset — one of those complicated financial instruments that that nearly brought down the global economy.

We spent $1000 of our own money and bought a tiny slice of a bond backed by mortgages. We paid just a fraction of what it originally cost. It was such a good deal, we thought maybe we'd make a few bucks, which we'd give to charity.

That didn't happen. The mortgages in our toxic asset — Toxie, to those who knew her well — went bad so fast that we wound up losing half our money. Last fall, we declared Toxie dead.

Recently, though, a lawsuit was filed against the bank that put Toxie together. If this lawsuit is successful, we could conceivably receive the original face value of our slice of the toxic asset: $75,000.

In other words: Toxie lives!

Just a few days after the Toxie lawsuit was filed, the federal government got in on the action. The agency that oversees Fannie and Freddie filed 17 separate lawsuits against some of the world's biggest banks.

The government lawsuits (which we explained at length in this post) make pretty much the same arguments as the lawsuit over our toxic asset: The mortgages in the assets were much shoddier than promised.

The Toxie lawsuit describes a mortgage loan for $737,000, where the borrower claimed to earn $200,000 a year at a "communications company."

That borrower actually earned zero dollars that year, according to documents cited in the lawsuit.

"A couple of additional questions — like a paystub, or a call, or even just to see if the company existed — an extra two minutes of work just didn't occur," says Wit Solberg's an investor who helped us buy Toxie, and who bought himself another slice of the same toxic asset

A review of 786 mortgages backing our toxic asset showed that two thirds of them had been misrepresented in some way, according to the lawsuit.

The loans were initially issued by Countrywide, which was acquired by Bank of America in 2008. The lawsuit says B of A should buy back the defective mortgages at full face value — over $2 billion.

Bank of America sent us a statement saying it's not legally obligated to buy back all the mortgages.

The bank may argue that some of those people who took out those mortgages lied about their income, or their job, according to Jacob Frenkel, a lawyer we spoke with for this story.

Frenkel says this and other cases are likely to settle out of court.

Whatever the outcome, the lawsuits against the banks probably aren't going to satisfy the public's desire for justice, according to Frenkel.

"The path to resolution most of the public wanted to see was bank executives in handcuffs," he says. "That did not happen."

Prosecutors, Frenkel says, just didn't have the evidence for large-scale criminal cases.

Now we're left with lawsuits that aim to divide up the money that's left.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.