Wall Street 1, Cleveland 0: City can't sue banks for bad loans

NEW YORK (CNNMoney.com) -- The City of Cleveland's long-standing battle to pin its housing woes on Wall Street may have finally gone bust.

On Tuesday, a panel of federal judges rejected the city's appeal to pursue a lawsuit that charged nearly two dozen top banks with creating a "public nuisance" by dealing in bad loans.

In 2007 alone, Cleveland suffered more than 7,000 foreclosures and had four of the top 21 ZIP codes for bad loans. Many of those properties were being abandoned and turning to blight.

So in 2008, city officials sued the banks, hoping to recover hundreds of millions of dollars in damages for lost property tax revenue, the cost of demolishing abandoned homes and the cost of policing neighborhoods pocked by foreclosures.

But judges for the U.S. Court of Appeals for the Sixth Circuit dashed their hopes and rejected the notion that banks named in the suit -- including Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) as well as now defunct firms such as Countrywide or Bear Stearns -- were responsible.

Rather, they suggested that at least part of the blame lay with the companies that sold the mortgages as well as the individuals who signed up for the loans.

"The injuries that Cleveland alleges could have been caused by many other factors unconnected to the Defendants' conduct," wrote Judge Richard Suhrheinrich.

A spokesperson for the City of Cleveland was not immediately available for comment.

Cleveland is one of a number of cities across the country that has struck back at the banking industry for their role in fueling the housing market collapse.

Baltimore has pursued a similar case against Wells Fargo (WFC, Fortune 500), suggesting that the city's neighborhoods became unsafe and a public health threat as a result of the bank's discriminatory lending practices.

The cities of Chicago and Memphis have also filed separate suits against the California-based lender, suggesting it steered minorities, namely African Americans and Latinos, into subprime mortgages.