Lawsuit against Merrill Lynch, Pierce, Fenner and Smith, and Merrill Lynch Intl.

Quote

MBIA has announced that its insurance subsidiary, MBIA Insurance Corporation, and LaCrosse Financial Products have filed a lawsuit in the Supreme Court of the State of New York against Merrill Lynch, Pierce, Fenner and Smith, and Merrill Lynch International.
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The lawsuit seeks the rescission of certain credit default swap contracts (CDS contracts) and related insurance policies issued to Merrill Lynch, Pierce, Fenner and Smith, and Merrill Lynch International (collectively Merrill Lynch) as well as damages resulting from Merrill Lynch's misrepresentations and breaches of contract in connection with MBIA Insurance's (MBIA's) $5.7 billion in gross exposure to a series of structured product transactions that Merrill Lynch arranged and marketed between July 2006 and March 2007.
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MBIA believes that Merrill Lynch's effort to market the CDS contracts to MBIA was part of a deliberate strategy to offload billions of dollars in deteriorating US subprime residential mortgages that Merrill Lynch held on its books by packaging them into collateralized debt obligations (CDOs) or hedging their exposure through swaps guaranteed by insurers.

read more here -
http://www.insurance-business-review.com/article_news.asp?guid=6F98F3B0-940C-404D-A2D2-72CBA118C310

Where were the bank regulators in 2006 & 2007? Wasn't this after McCain tried to reform Freddie and Fannie? Maybe some others?

Didn't Barney Frank say something like, everything was ok, and McCain and others didn't want poor folks to buy homes?

Why didn't these distressed mortgages show up on their financials? Filings?

Help me understand please.

BTW - did the bank stress test show that Merrill needs more money?