Adam Levitin: BofA v. MBIA and the Future of Private Label Securitization

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Adam Levitin: BofA v. MBIA and the Future of Private Label Securitization

Adam Levitin: BofA v. MBIA and the Future of Private Label Securitization

Credit Slips –

There’s a fascinating and absolutely cut-throat fight going on between BofA and MBIA. There’s been some good media coverage of how a litigation fight over MBS fraud has spilled over into a really nasty corporate finance battle. I think it shows yet another danger of too-big-to-fail firms:  they can adopt litigation tactics that others simply can’t in order to avoid liability.  Put another way, the lesson I take from this fight is that if you get into bed with a too-big-to-fail firm on a business deal, don’t expect the law to protect you if things go badly. Even if the law and the facts are on your side, that doesn’t mean you can beat a too-big-to-fail firm in court. Contracting with a too-big-to-fail firm is not like contracting with a regular firm. It’s more like contracting with a sovereign. If you put your head into the Leviathan’s jaws, well, ask Siegfried & Roy how well that worked out…  

The rather long post below gives an overview of the litigation and corporate finance machinations, before a trio of bigger picture observations about inter-creditor duties, empty-creditors, and the private-label securitization market’s denial of its lemons problem. 

[CREDIT SLIPS]

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