Banking Law

Morgan Stanley lawyer had joke names for toxic assets sold overseas, including 'subprime meltdown'

Internal Morgan Stanley documents revealed in a lawsuit show one of its lawyers had a low opinion of toxic assets sold to overseas banks.

Lawyer Philip Blumberg suggested joke names for the assets in a March 2007 email, Pro Publica reports. They included: Subprime Meltdown, ShitBag and Nuclear Holocaust.

The suit was filed by a Taiwanese bank that invested in collateralized debt obligations packaged by the bank as Stack 2006-1. “But the documents suggest a pattern of behavior larger than this one deal: people across the bank understood that the American housing market was in trouble,” Pro Publica says. “They took advantage of that knowledge to create and then bet against securities and then also to unload garbage investments on unsuspecting buyers.”

Morgan Stanley says those who bought the bundled assets were sophisticated buyers, the bank disclosed that it might bet against the securities in short sales, the bank didn’t pick the bundled assets, and any short sales were part of larger trades. The bank also says Blumberg was responsible for documenting transactions, and “it was not his job or within his skill set to assess the state of the market or the credit quality of the transaction being discussed.”

Blumberg’s representatives did not comment when contacted by Pro Publica.

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