Saturday, October 8, 2011

Next Bailout Naked! Is It Bigger Than TARP? What's Really Goin' Down?

We had to struggle with the old enemies of peace - business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
- Franklin Delano Roosevelt (who welcomed his enemies hatred)

No wonder they want you to think its your fault that "we're broke."

Never forget.

It's not our fault.

The criminals who signed off for and implemented these schemes should be in court.

Every day until they receive a fair trial.

The following explains why you're hearing about Bank of America's troubles first. (If they are let off, then it's over for the taxpayers.)

Wanna set up a bank?

Like the Keating Brothers?

Sounds good to me. (And to all those who want to toss out the already far too mild remedies of the Dodd-Frank loophole closer.)


So this is bankers from Deutsche and Goldman and Bank of America essentially stealing the retirement nest eggs of firemen, teachers, cops, and other actors, as well as the investment monies of foreigners and hedge fund managers. To repeat: this was Wall Street hotshots stealing money from old ladies.
Remember the tapes from these highly paid barely-grown boys in the backroom that were played in court as these scumbags laughed about stealing from Grandma?

This is our Shoah moment, when our financial health and very lives were (and still are) being stolen in broad daylight without liability or recompense.

Any foreclosure settlement will allow the banks to pay one relatively small bill to cover all of their legal liabilities stemming from the monstrous frauds they all practiced in the years leading up to the 2008 crash (and even afterward), when they all schemed to create great masses of dicey/junk subprime loans and then disguise them as AAA-rated paper for sale to big private investors and institutions like state pension funds and union funds.

To recap the crime: the banks lent money to firms like Countrywide, who in turn created billions in dicey loans, who then sold them back to the banks, who chopped them up and sold them to, among other things, your state’s worker retirement funds.

So this is bankers from Deutsche and Goldman and Bank of America essentially stealing the retirement nest eggs of firemen, teachers, cops, and other actors, as well as the investment monies of foreigners and hedge fund managers. To repeat: this was Wall Street hotshots stealing money from old ladies. 

Along the road to this systematic thievery, a great many other, sometimes smaller offenses were committed. One involved the use of the MERS electronic registration system. By law, banks were supposed to register with county-level offices in each state every time they sold or resold a mortgage, and pay fees each time.

But they didn’t, instead registering with the private deed-transfer agency MERS, allowing them to systematically, and illegally, bypass local taxes.

So any “AG settlement” might allow the banks to avoid legal damages being sought from three different set of enraged creditors: the public institutions who invested in these sham securities, the private investors who did the same, and the localities who were cheated out of their taxes.

Let’s take a look at each of those three categories.

As far as private investors go, we’ve already had one lawsuit directed at Bank of America, over losses linked to purchases of bad MBS (mostly from Countrywide mortgages), which resulted in an $8.5 billion settlement.

That one settlement, covering 22 mostly private plaintiffs, cost one bank, Bank of America, nearly half the size of the entire proposed AG settlement. This is from the Times story about that deal, in June:

In a research note, Paul Miller of FBR Capital Markets projected that Bank of America could face a total of $25 billion of losses from the soured mortgages, the most of any of the major banks.
So a private analyst this summer was estimating that just one bank, Bank of America, could face more in damages than the Obama administration and the AGs are now trying to “wrest” from all the major banks, combined, for all their liabilities.

Just a few days ago, news of more such suits came in. An Irish company called Sealink Funding is suing Chase and Bank of America, seeking $4.5 billion combined in connection to losses in mortgage-backed securities sold to them by those banks. Meanwhile, a German bank, Landesbank Baden-Wurttemberg, is suing Chase for an additional $500 million in losses.

These huge amounts – a few billion here, a half a billion there – are coming from single companies, directed at single banks. And think about the Bank of America settlement for $8.5 billion: what’s the usual payoff in a lawsuit settlement? Ten cents on the dollar? Five?

In fact, the settlement amount in that case was just 2% of the face value of the loans when they were securitized ($424 billion), and represented just 4% of the principal still outstanding ($221 billion).

Why do those figures matter? Because the way these securitizations were structured, legally, Bank of America is obligated to buy back any loans that were sold fraudulently at face value – that is part of the legal language in the “pooling and servicing agreements” under which all of these mortgages were pooled.

So minus a settlement, Bank of America – one bank - had a potential liability of $424 billion just from its Countrywide holdings! And it got off for $8.5 billion, a major victory.

All of which puts in perspective the preposterously small size of the proposed AG settlement. $20 billion would be a lousy number if we were just talking about Bank of America. But all the big banks combined?

And that just covers legal exposure to private investors. How about public agencies and institutions? Well, just recently, the Federal Housing Finance Agency sued a group of the major banks (Chase, Barclay’s, and Citi, among others) over losses connected with, again, bad MBS.

This suit covers sales to the two GSEs, Fannie Mae and Freddie Mac, and they’re seeking $200 billion. The’re asking for $25 billion from Merrill Lynch (which is now owned by Bank of America) and $6 billion from Bank of America proper, meaning they’re claiming $30 billion in damages from just one bank.

This, again, puts into perspective the idea of a collective $20 billion settlement covering all the major banks.

But wait, there’s more. The FHFA lawsuit only covers the GSEs. How about state pension funds?

Well, over the summer, Bank of America caught another lawsuit, when a group of union and state pension funds sued Merrill Lynch for misleading them in a $16.5 offering of, you guessed it, MBS certificates. The suit included claims from Mississippi and Los Angeles County employees, the Connecticut Carpenters’ Annuity Fund, and others.

So again, just with those two lawsuits, one bank, Bank of America, is facing nearly $50 billion in damages. And this doesn’t even cover all of the other states and localities that were wiped out by sales of fraudulently-conceived MBS. California’s state pension fund, CalPERS, lost $100 billion all by itself between 2008 and 2009, largely due to plummeting MBS values.

That would explain why Kamala Harris had to pull out of the settlement talks: she must have realized that going through the courts, her state could probably recover far more than whatever California’s share of $20 billion would have been. It’s incredible that other states have not already come to the same conclusion.

Lastly, of course, there is the matter of lost taxes. To date, most of the lawsuits filed by counties over unpaid fees have been directed at MERS, the private electronic registry company through which the banks “legally transferred” all of these mortgage deeds.

For example, my old home county of Essex County, Massachusetts, recently sued MERS for $22 million in unpaid fees. Dallas County, Texas, lost even more, suing MERS and claiming it lost between $50 and $100 million in fees.

You can do the math. That’s two counties – not states, but counties – claiming they lost a total of at least $70 million. And yes, they’re suing MERS, but ultimately the real liability probably rests with the banks, who would probably have been paying those fees had MERS not existed.

Will any AG settlement cover that potential liability? I have no idea. But if the settlement is broad enough, and covers all activities connected with securitization, it might very well cover these unpaid fees.

How many hundreds of millions in fees will the states lose if that deal goes through? Has anyone even asked? Have any county officials even been consulted?

The point of all of this is, if you add up all of the MBS-related liability out there, the banks as it stands are facing an Armageddon of claims from all sides. It can’t possibly be less than a trillion dollars, and it’s probably much, much more.

But the Obama administration’s current plan is to let them all walk after paying a few shekels apiece into a $20 billion kitty.

Certainly, of course, one can see the logic of a universal deal that avoids the probable end result minus a federal settlement – bankruptcy for one or more of the big “TBTF” companies (especially Bank of America). After all, if all the suits go through, then the final settlement for most of those defrauded parties will be squat or close to it, since there won't be any money left to recover. So if they can come up with a deal that satisfies plaintiffs at least in part and keeps the banks solvent, I suppose that might be a good thing.

But the negotiators really have three actors they have to consider: the banks, the investors, and the homeowners, who of course were also victims of this artificial bubble.

The current proposed deal is a huge giveaway to the banks, a major shafting to most of the investors, and would probably give homeowners either next to nothing or some cosmetic reward, i.e. a little bit of principal forgiveness, counseling, etc.

If the Obama administration was serious about helping actual human beings through this settlement, then it would be fighting for homeowners to get the same bailout the banks would get. If the banks are getting a trillion or more dollars of legal immunity, why shouldn’t homeowners get that much debt forgiveness? Or, half that much? A quarter?

It’s encouraging that California and New York have already come to this conclusion. Hopefully, down the road, there will be a settlement, but one that’s fair to everyone. It's probably up to the states to stop this TARP-on-crack of a deal.
Now, do you understand why the executives at the top were worth those large bonuses?

They were geniuses.

And they got away with it.

So far.

I think these ex-Bank of America crime bosses' names are just about as precise as you can get:

BofA's Krawcheck and Price to Get $11 Million in Exit Pay

Due to the excellence of their results?
_ _ _ _ _ _ _

Job's event  finally goes viral worldwide.

Soon after news of Steve Jobs’ death emerged Wednesday, millions of hashtags, posts and YouTube videos erupted on Facebook and Twitter to memorialize his life and express sadness for the loss of a technology visionary. Twitter alone was overrun with 2.5 million tweets about Jobs in the 12 hours after he died. As someone who revolutionized the digital world, it seems eminently appropriate that mourners took their grieving online — especially since social media has, in many ways, helped reinvent the way we approach death in modern society.

Supercommittee rakes in corporate donations

 Need I say more?

Glenn Greenwald does, and being one of my favorite political commentators and essayists, he's all over these Occupy Wall Street naysayers with real reporting:

The Occupy Wall Street protest has been growing in numbers, respectability, and media attention for several weeks now.  Despite that, The New York Times' financial columnist who specializes in Wall Street coverage, Andrew Ross Sorkin, has neither visited the protests nor written about them — until today.  In  a column invoking the now-familiar journalistic tone of a zoologist examining a bizarre new species of animal discovered in the wild, Sorkin explains what prompted him to finally pay attention (via Michael Whitney):



Tom Harper said...

Great quote from FDR near the top of your post. Shows how much (i.e. not at all) things have changed since then.

Suzan said...

Thanks, Tom.

The things that have changed since then are the immense increase in avarice among those who are already choking on it and decrease in public care among those who had little to start with.

FDR, of course, was trying to right the wrongs of a wild-and-crazy deregulation era which threatened the long-term profitability of the US.

The guys today don't actually seem to care whether the US is the profit center it could be or not. They changed the rules to make their profitability a separate issue from their country's.

And lots of them are moving out or already have quickly.

Thus, our problem is countering the MSM nonsense about the most important news of the day and what's really happening in our country (and it isn't lollapoluzza celebrity marriages or who just got mugged - although it could be the latter if a bankster were involved).

Love ya,


"Warren Buffett is living up to his reputation as an astute investor. The rich hurt their own long term interests by their opposition to paying more taxes."

- George Soros