Nicole Deese, a securities attorney at Fowler, White & Boggs, told CNBC’s “Power Lunch” that allowing bond holders to sue investment banks that sold high-yield bonds backing sub-prime loans will “inhibit, if not entirely stifle, the flow of money from capital markets to the mortgage sector.”
She said high-yield bonds routinely come with high risk and this is fully disclosed.
“We want to encourage our investment banks to be creative with products,” Deese said Thursday. “If the buyer doesn’t like the product, if the terms of the product don’t suit the buyer, don’t buy the product.”
Thomas Ajamie, securities attorney at Ajamie, said there should be restrictions on selling high-yield/high-risk bonds to unsophisticated investors.
“If you’re going to sell these bonds to sophisticated investors, hedge funds, pension funds, (professional investors) know what they’re getting into,” Ajamie said. But there should be restrictions on selling these bonds to people who aren’t as sophisticated – retirees, working class folks who are trying to save for their kids.”
He said many people who bought high-risk bonds were investing for retirement or their children’s education.
Deese said such people “understood the risk” and “were paid handsomely for the risk for five to seven years.” She said it makes no sense for investors to now claim the investment was “inappropriate.”