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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. Good morning. I'm Renee Montagne. During the housing boom, investors spend billions on mortgage related investments that turned toxic. Many investors are now suing the creators of those toxic assets.

Recently, our Planet Money team also invested in a toxic asset. When they got it, it was already just about worthless. They bought it to understand what had gone wrong. A few weeks after we first told you about that purchase, Planet Money's Chana Joffe-Walt got an email. Subject: Do you know your toxic asset is being sued?

CHANA JOFFE-WALT: We just bought her and our baby toxi(ph) was being sued? Sort of. It was actually kind of hard to figure out. In one moment of confusion I actually thought maybe we were being sued. Turns out the lawsuit is against the creators of our toxic asset. And the man doing the suing has the largest hands I've ever seen.

Mr. GEORGE LAUFENBERG (New Jersey Carpenters Funds): George Laufenberg. I'm the administrative manager of the New Jersey Carpenters Funds. We provide retirement and health benefits for all the carpenters unions and their beneficiaries in the state of New Jersey.

JOFFE-WALT: Are you a carpenter?

Mr. LAUFENBERG: Yes, I am. And I've watched our funds grow from combined assets of $80 million to 2.4 billion. And then it shrank rather quickly.

JOFFE-WALT: Once I realized George and the carpenters were suing us and that George was very nice, I also realized his lawsuit could be our opportunity. The carpenters spent $100,000 of their vacation fund on a toxic asset that is now worth $5,000.

So George's question: Who do we sue and what can we sue them for? And we happen to want to know the answer to that too. We don't want to sue. We just want to know who is to blame for what happened to our toxic asset.

So we're kind in the same boat. Just two toxic asset investors trying to figure out what happened here.

How do you make sense of who screwed up?

Mr. LAUFENBERG: I don't know if you really make sense on who screwed up. I mean, personally I get a little angry over it because the system basically let everybody down, period.

JOFFE-WALT: George and the carpenters got a lawyer, and this is him - Joel Laitman.

Mr. JOEL LAITMAN (Attorney): Pension funds all of a sudden were showing signs of dramatic collapse. The collapse was due to something amiss at the beginning. And that's what we started to investigate.

JOFFE-WALT: So here we go, down the who-is-to-blame rabbit hole. The carpenters' toxic asset began its life with the huge subprime mortgage lender, Countrywide. So did ours. Countrywide gave out all those bad home loans. They're definitely a villain. But Countrywide collapsed. They're not around anymore. Plus, they didn't sell anything directly to the carpenters.

Okay. So maybe it's the seller. That was RBS. RBS bought mortgages from Countrywide, packaged them into complex securities, and they were the guys who sold them as super-safe investments to people like George the carpenter and his pension fund.

So it's RBS - sue them. Now, to do that, George's lawyers have to find the smoking gun of securities lawyerdom: a misstatement. That's right. A phrase buried deep in documents that came with the toxic asset that lawyers can prove would mislead an investor. Never mind that the investor probably never read any of that stuff. Now Joel Laitman has to read it all, boxes and boxes of pages, documents that when piled on his conference room table go up to my collarbone.

How many pages would you have to go through this to figure out who to sue?

Mr. LAITMAN: To find a misstatement or omission, that's the hard thing.

JOFFE-WALT: How many pages is that?

Mr. LAITMAN: You have to read the whole thing many times of these underwriting guidelines, that the perspective...

JOFFE-WALT: But where are the underwriting guidelines...

Mr. LAITMAN: All of this.

JOFFE-WALT: And then Joel Laitman found it - page 81 of the offering document, three lines stating that the underlying collateral in the mortgage-backed securities had underwriting guidelines that required a credit check, a credit check that does not seem to have been performed on all of these loans. Ladies and gentleman, we have a case. The suit is working its way through court right now.

If you win, who pays you?

Mr. LAITMAN: It'll be the defendants who are in the case. So we're talking about...

JOFFE-WALT: RBS.

Mr. LAITMAN: RBS. RBS made significant money churning out these triple-A mortgage-backed securities, and they should be made to pay.

JOFFE-WALT: Here's the strange thing about making RBS pay. RBS nearly failed during the crisis. The British government had to bail the bank out. So the Brits now own an 84 percent stake in the company. So if RBS is our villain and they're made to pay, it's not going to be greedy bankers making good with the carpenters.

Tell me again what pub I'm calling. What pub is this?

Mr. CHRIS HAYES (Pub Owner): Don't you know? The Marquis of Westminster.

JOFFE-WALT: The Marquis of Westminster in London?

Mr. HAYES: That's right.

JOFFE-WALT: You're the manager?

Mr. HAYES: Im the owner. What else would you like to know?

JOFFE-WALT: And Chris, are you a British taxpayer?

Mr. HAYES: I am.

JOFFE-WALT: This s Chris Hayes, here to represent the entirety of the British taxpaying public for us. Chris, it turns out, followed the RBS bailout closely, as did a lot of people. He wasn't happy about it. I tell him about the carpenters in New Jersey, how they're suing RBS, which he partly owns, so he may end up paying those loses too. He gets thoughtful.

Mr. HAYES: When you buy something, I suppose you take the responsibility of what that company's done. So on one level it doesn't seem to be fair. But if it's a bunch of average men on the street trying to get their money back, I suppose I wouldn't mind so much. You know, if it's a bunch of carpenters, then good luck to them.

JOFFE-WALT: Whoever is at fault in this whole mess, it probably wasnt this guy. But then again, George the carpenter, an American taxpayer, has bailed out his share of banks too. I tell him about the pub in Britain. He kind of shrugs.

Mr. LAUFENBERG: If the taxpayers of Britain want to help us out of this, we welcome it. Thank you.

(Soundbite of laughter)

JOFFE-WALT: Chana Joffe-Walt, NPR News, New York.

MONTAGNE: And you can listen to more from our Planet Money team at the Planet Money podcast at NPR.org.

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