The Morgan Stanley Settlement

Morgan Stanley is a large financial company with headquarters in the United States. Besides its headquarters in New York City, this financial giant also has thousands of branch offices and tens of thousands of employees all over the United States and in other countries. The company has been in businesses since it was founded in the 1930s.

News About The Morgan Stanley Settlement

This is a very old and established financial services company. Still, some of the biggest news that involved Morgan Stanley brokerage is the agreement to pay a settlement of $2.6 billion for probes of its mortgage-backed securities practices. The way that the company handled these securities may not have complied with securities regulations. It also may have helped contribute to the 2008 Great Recession and financial crisis.

investment-fraudOf course, this is not the only company that had to pay a settlement for similar business practices. Other financial giants include Bank of America, Citigroup, and JP Morgan. In total, these companies had a combined total debt of over $35 billion. Another big financial company that is being targeted by the feds is Goldman Sachs.

Of course, this is not the only Morgan Stanley legal settlement recently. Other examples include a $1.25 billion settlement because of accusations of selling bad mortgage-backed securities to Freddie Mac and Fannie Mae. The FHFA sued at least 18 other companies for similar practices. Apparently, some of the packages of loans had default rates as high as 70 percent.

Another example includes a multi-million dollar settlement with the SEC because of claims that the company understated the number of subprime and delinquent montages that they had.

Why Is This Settlement News?

This settlement was made in response to claims that the Justice Department bundled in too many bad loans with their securities. Since the quality of these securities was not represented honestly, it may have caused investors to make bad choices. During the Great Recession, when many risky borrowers defaulted, the issue became more apparent.

Also, this settlement is not the only one the company has paid. However, it has been reported to be the largest one in the long history of Morgan Stanley.

While the Morgan Stanley settlement isn’t the biggest one for all companies, it was the largest one in the company’s history. The largest settlement was $4 billion that Chase agreed to pay. Recently, Deutsche Bank decided to pay also $2 for another similar accusation.

Did Mortgage-Backed Securities Cause The Great Recession?

Deception over the quality of mortgages might not have caused the financial crisis, but it undoubtedly contributed to the severity of it. The business practices led to significant problems because risky borrowers defaulted on loans in greater numbers at that time. Otherwise, many financial giants may have hoped to fly under the radar.

However, the problems did get noticed because of the defaults. It is easy enough to argue that they also made it worse because investors were mislead and lost money on investments that turned out to be hazardous.