US Government Files Suit Against Banks

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US Government filed suit against several major banks that sold mortgage backed securities to Fannie Mae and Fannie Mac. They argue that the banks misrepresented the quality of the mortgages underlying the securities and that they failed to perform due diligence to insure that they conformed to their own quality standards. The banks argue that the mortgages were good when they were originated but that a poor economy led to their decline in value. They also claim that Fannie Mae and Fannie Mac are sophisticated clients who should have done their own due diligence. The banks also argue that the suits will harm their ability to make future loans and that will harm the economy. One analyst suggests that the government may have to bail out the banks again if they lose the law suits.