In yet another reminder that litigation from the financial crisis has yet to run its course, bond insurer MBIA has sued Morgan Stanley, claiming the bank misrepresented the quality of the mortgages in various mortgage-backed securities MBIA insured. Most of the 5,000 loans embodied in the bond didn't meet the underwriting guidelines of the originators, the suit says.

This is hardly the first lawsuit MBIA has filed. It has previously sued the Countrywide Financial unit of Bank of America, Ally and Credit Suisse. We could well see more suits by it and other bond insurers.

For MBIA, this is barely a panacea for its financial woes--litigation rarely is--though it has already booked some gains from expected settlements. No less than hedge fund manager David Einhorn has a few problems with such gains. He has other issues with MBIA as well.

Einhorn questions, for example, whether assets may have been artificially inflated, as gains have been booked from the decline in value of certain liabilities. While allowable under accounting rules, he wonders whether this makes economic sense, according to Reuters. He has yet to say if his firm has taken a short position on the company.

All in all, the glory days of the bond insurers are long gone, and you have to wonder when they will recover.

 For more:
- here's an ABC article
- here's the Reuters article

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