Recent Items

On the Buffett Purchase of BofA Preferred

Posted on by

Bank of America’s stock is now up 11.6% on the leak that the Charlotte bank is selling $5 billion of 6% cumulative perpetual preferred and in the money warrants ($7.14 strike price), again $5 billion in total

This is an admission of weakness, not strength. Bank of America had maintained it didn’t need equity as recently as yesterday and of course before that too, then does a sweetheart deal to build confidence (FT Alphaville has a nice summary of the terms, hat tip Richard Smith).

This preferred stock sale does not boost the Charlotte bank’s tangible common equity. It does not come close to filling the a smidge under $50 billion of overvaluation of its second liens, nor does it stop the continuing bleed of litigation, which will only increase over time. And a Buffett does not have enough firepower to rescue a Bank of America if this confidence boosting con fizzles.

The bulls’ hope is that BofA will have enough time to earn its way out of this mess. But if a Eurocrisis hits, and this looks like a sooner rather than later event, investors will avoid risk first and think critically later. The real determinant is whether this gambit does much to bring in Bank of America’s CDS spreads, which were trading at higher-than-Lehman-before-its-failure levels.

The enthusiasm for this move seems to be fading a tad. The stock was up nearly 12% when I started this post and it is now up only 7.7-8.0% (oh, now back up to up 9%). Admittedly, some of the rally yesterday may have been due to a leak of this investment. And don’t kid yourself: if there is any rescue of BofA, just as with the Goldman TARP infusion, the public will get a worse deal than the Sage of Omaha just extracted.

Tom Adams noted by e-mai:

This is being spun as good news for BofA but it is really a sign of just how much trouble they are in. This is step one of their rescue. The powers that be felt they could not wait any longer with BofA so damaged, and that a run or crisis was one bad news day away (earlier this week I predicted some rescue action within 2-3 weeks). Step two, some additional lifeline will show up in September. Step three will be a sale of Merrill.

Update: We aren’t alone in our dim view of this deal. From Nicholas Santiago:

Here are a few key reasons that tell us this deal is forecasting problems ahead.

1. It was just a few day’s ago that Bank of America stated that they did not need any capital, now we know that was not true. The second largest bank in the United States needed capital and they needed it bad. We can only wonder how long this deal will help to lift the market. Just look at 2008, this could be a repeat of things to come.

2. The Warren Buffett investment in BAC stock also tells us that the European banks are not the only banks in serious trouble. The leading banks in the United States are in serious trouble as well. If there is one cockroach there is usually a million.

3. Warren Buffett has made a career of investing in troubled companies for the sake of the economy. The last time he made an investment such as this one was back in 2008 with Goldman Sachs Group Inc.(NYSE:GS). It is important to remember that Goldman Sachs was bailed out by the tax payer in what was called the TARP program. Buffett knows that the U.S. taxpayer will bail him out if he is wrong and Bank of America stock does go belly up.

Print Friendly
Twitter32DiggReddit0StumbleUpon0Facebook24LinkedIn3Google+4bufferEmail

135 comments

  1. thedude

    Asinine. While I find the terms to be a little bit egregious (those warrants are BS), you are wrong on a number of key points. The preferred will be included in Tier 1 for several years until the full Basel III standards get implemented (if they ever do, many of the European banks will not make them). Second, where do you get your figure for overvaluation of second liens that you take as gospel? And why haven’t you netted out your own wrong figure with the provisions that have already been taken? Lastly, while BofA might have lots of litigation left, what does that have to do with their solvency and liquidity? Those costs are already elevated and reflected in current results. In fact, after the large Fannie, Assured Guaranty, and BNY settlements those costs may actually go down! Furthermore those costs have resulted in settlements on R&Ws at levels far below what you bears thought were actual exposures.

    It is clear what you would like to happen (more bank failures and economic hardship for America), but I am not sure why you are lying to try to make that happen. Luckily there are optimists and thinkers in our country to drown you out.

    1. Yves Smith Post author

      I indicated yesterday that the second liens NET OF PROVISIONS are about $80 billion. That needs to be written down another 60%. BofA clearly saw my post yesterday and did not dispute my estimate.

      And the post is correct re tangible common equity, which is the benchmarfk BofA has stressed in all its recent investor communications, is not affected. There is nothing inaccurate in the post. TCE is considered the more conservative measure of a company’s value. Treasury was pushing for the use of TCE as the best metric in international negotiations.

      BofA has lied repeatedly about its mortgage exposures. They said $20 billion in additional reserves would put it behind them and then they had to retreat from that statement within weeks. The $8.5 billion settlement is effectively dead, the AIG suit killed that. They may have a deal eventually, but it will take 2-3 years and involve a ton more dough if it ever gets done.

      Yes, five of their six businesses are fine, but the sixth has cancer. They are pretending it doesn’t. They need to do the business equivalent of surgery and chemo and instead are acting as if confidence building and antibiotics will cure them.

    2. Susan the other

      Actually, the bulls hope they will have enough time to get themselves out of this mess.

    3. Daniel Pennell

      I do not know this to be a certainty and I will leave all but the other issues but credibility to others, but here is my humble take.

      First, you can take nothing the banks tell you as the truth. Here Moynihan has demonstrated that once again the bank executives have been lying as he just said that BAC had no additional capital needs yet we know they have been trying to sell assets and now this Buffet deal.

      Second, it looks to me as though the floodgates are starting to crack open on the mortgage mess. By this I mean that the MERS issues &the securitization issues are starting to gain traction. With the AGs unable to reach a deal. With the ny AG going at the securitization trusts and the MA AG going after MERS, the civil suits challenging the validity of the securitizations (AHMSI v LPS & KOC v BNY & AIG v BAC) it looks to me like there is a very real and a huge risk of ver very large put back and civil liability costs. In my humble opinion, these costs could in theory nearly equal the book value of the bank in a worst case scenario.

      1. Economista Non Grata

        It’s all very simple, you don’t even need to pull out a calculator….

        1. The miss-pricing of assets …. and
        2. The miss-pricing of liabilities….

        You can do 1 in your favor, or you can do 2 in your favor, but you can’t do them both…..

        That’s all folks….

        Best regards,

        Econolicious

    4. Mark

      the dude, I am inclined to agree with you on the second liens. Unless they are extraordinarily toxic, a 60% write-down is very severe. It would not surprise me if current provisions are OK or can be absorbed by future interest income on the loans. Numbers in this range have been thrown around a lot by a number of people in the media, but they don’t make any sense to me. (Of course, there is a lot I don’t know, and I could be very wrong about this.)

      That being said, I think you are in a fantasy world when it comes to representations and warranties. Fannie and Freddie have provided backdoor bailouts by agreeing to settlements that are extraordinarily favorable for BofA. However, the Assured settlement amounted to around 50% of Assured’s losses on the loan pools involved.

      Non-GSE loans originated and sold are on their way to generating ~$300B of losses. (Yes they were that toxic.) If other investors are able to recover 50 cents on the dollar, that means $150B for BofA. If you subtract current provisions (for R&W, not loans losses) and settlements made to date, BofA is still on the hook for over $100B. If lawsuits involving MBIA (and others) go the wrong direction, BofA will really become Bank of America (as in we will own it). Realistically, I doubt the numbers grow that large, because most investors will not be as effective as Assured or MBIA, but the risk is very big.

      I also think Yves is right about the Berkshire deal. The economics are horrible. Basically, $5B buys Berkshire preferreds with a face amount of $5B (but admittedly under market dividend yield) plus warrants worth around $3B (based on current share price and volatility implied by the longest duration publicly traded options on BofA shares). This screams of desperation, and one cannot help but wonder if BofA’s situation is very dire.

      1. Yves Smith Post author

        A second is worth nothing in a foreclosure these days. Various experts have argued for even higher writedowns, particularly since many of the loans being kept as current are in fact only technically so (as in the bank is accepting a payment well below the stipulated minimum, which they can do if they choose. They don’t have this latitude on first mortgages).

        As indicated later in this thread, the two top independent experts in this field, Chris Whalen and Josh Rosner, both agree with this estimate. Tom Adams, who is a securitization expert and very much on top of default and delinquency data, thinks a higher writeoff is warranted.

  2. Let 'em Eat Crow

    Bank failures mean economic hardship for whom exactly?
    Mr. Buffet avoided prosecution in an AIG fraud scheme, another stellar mark for one of the world’s most wealthy biz magnate.

    1. Yves Smith Post author

      Again, BofA is not gonna fail, or at least not in the normal fashion. I expect them to be forced to relent yet again on capital raising. I don’t see them getting far enough in shoring up equity levels via asset sales in this environment. In a market stress scenario, the Fed would throw tons of liquidity at them. So has a bank failed if the Fed shores it up? Technically, no, but any sensible creditor would extract a pound of flesh for that, and we don’t. And we keep zombies going, which worked out swimmingly well in Japan.

      Management is in denial re the hole they are in. The real confidence booster would be bringing in new management.

      1. nick

        perhaps bofa didn’t actually need the capital, they just took it and gave buffet a bettter deal because of who he is. His name automatically brings more confidence into the picture, and it looks like bofa is willing to pay for that reputation of his.

      2. Anonymous Jones

        “Management is in denial re the hole they are in. The real confidence booster would be bringing in new management.”

        I know you’re responding quickly, but thinking through the use of pronouns is going to help in the analysis.

        I think the deal with Buffett shows that the management sees, to some degree, that the company *BAC* is in trouble.

        Management will never consider “new management” as a salve for the troubles of *BAC*, even if it might be so. Management cares about *management’s* troubles and only when those directly overlap with *BAC’s* troubles do they care about *BAC’s* troubles.

        So what you are saying is really dependent upon what you mean by “they.”

        1. nick

          I think it’s a little early to suggest bank of Americas management is looting bank of America. I think they have a vested interest in each other, which is so manifest I feel stupid saying it.

        2. Yves Smith Post author

          I didn’t suggest an agent re bringing in new management, the construction is passive.

          The board could force Moynihan out. That will happen if the stock price doesn’t improve “enough” (query what “enough” is). Regulators could also force that, but I don’t see that happening.

          1. nick

            im guesssing maynahan has to create an amazing amount of equity with the buffet capital, especially after bofa just said they didn’t need any capital.

  3. Brett

    Come on Yves, you are digging in here rather than rethinking this. Now you are predicting BAC failure and a possible rescue soon? You can’t possibly forecast that with any certainty. For someone who quotes Nassim Nicolas Taleb so often, you certainly must have skipped over the chapters about how the future is impossible to predict so we shouldn’t even try (and how financial commentators continuously embarrass themselves by getting it wrong).

    I think if Buffett comes to you and wants to invest $5 billion, and you have a capital cloud hanging over your head (clearly the market was saying it thought BAC needs capital), you take that deal. Buffett deal should calm Mr. Market for a while and let Moynihan get back to trying sell off any non-core assets that could fetch a good price.

    It’s extend and pretend in some respects, but given that the economy has already crashed, we are at a much safer (i.e. less bubbly) point than we were in 2006/2007. It makes a difference what the broader economic prospects are. And we are looking at austerity induced malaise, which is somewhat better than falling off a cliff. BAC doesn’t seem to have a gigantic exposure to the Eurozone — it’s impossible to predict if there is a meltdown there what happens, but let’s just say if there is one and it creates a cascading effect it’ll impact much more than just BAC. Everyone will be in trouble, not just BAC.

    But I think the Buffett deal means that the predicted numbers from people like Blodget (a possible $200 billion hole in the balance sheet) are unrealistic. Even Buffett isn’t going to sink $5 billion, no matter how rosy the terms, in a bank that has that kind of a hole. $25-$50 billion is the more realistic number. And it doesn’t need to be found today but over time. These giant liabilities are out into the future — and given how captured our political system is by the financial industry, I wouldn’t count out some more surprises, on the positive side (from the bank’s viewpoint), for the bank’s outlook.

    1. Yves Smith Post author

      Please reread the post. Do I say anywhere the bank is about to fail? No. I do say it is under stress. Big difference. And “rescue” per Tom Adams does not have to mean government. Another sweetheart deals, say to a sovereign wealth fund, might be the next development.

      I am saying it’s not out of the woods. I would not short it here but I sure as hell would not go long.

      They will sell more businesses. They need to do a real equity raise, dilution or not. But many of the logical buyers for their businesses are under financial stress too. That’s why the preferred course of action, selling non-core units, is probably not gonna get them that far. Look at their disposal of their stake in their Chinese bank. That was on now it seems to be off.

      Remember, to shore up equity levels, they don’t need to sell them, they need to show a gain on sale. A meaningful one. Their current problem isn’t liquidity, it would take a long period of stress for that to come into play. It is their low capital level, their baked in and likely losses over the next few years (which is not gonna be a great period for bank earnings, look at how banks are cutting staff like mad now), and management’s evident refusal to sell stock even if it is very dilutive. It’s the constraint of the dilution that is getting in their way.

      What would change perceptions most is throwing out Moynihan and installing a management that was dedicated to shoring up equity levels dilution or not.

      And not every Buffett rescue trade has been a winner. Look at US Air.

      http://seekingalpha.com/article/133226-us-airways-buffetts-biggest-mistake

      The mortgage litigation bleed is going to be bigger than anyone thinks right now. The liabilities are major. BofA is clearly in denial, otherwise they’d have BK’d Countrywide by now and would have braced themselves for the fraudulent conveyance fight. This is a slow drip drip drip of confidence. This is a different pattern than normally weighs on banks. That puts it out of normal bounds and makes it much harder to see how it plays out.

      1. Brett

        Ok I took rescue to mean U.S. government coming to their aid. My mistake.

        Well just to play devil’s advocate to my own reply, I would also throw Buffett’s Goldman Sachs investment in there with something that appears like a great idea today but easily could have been a terrible decision. Though Preferred Shares rank higher in the totem pole than common shares regarding getting anything back in a bankruptcy proceeding, Buffett still would have probably taken a substantial loss if the financial system had been allowed to fail in 2008.

        He injected $5 billion in capital for Goldman during the height of the credit crunch, and had the government not followed him and put in tens of billions into the big banks (Goldman among them), and had the government not bailed out AIG 100 cents on the dollar (for a total of 12.9 billion going to Goldman), Goldman would have been bust and so would have Buffett’s investment.

        I agree there is lots of uncertainty today in predicting how things will turn out — but, still I disagree with your belief that taking Buffett’s money amounts to an “admission of weakness.” Had BAC’s stock continued to crater (and it still could after the Buffett investment fades from people’s memory), and let’s say BAC needed rescuing down the line from taxpayer money (or some other embarrassing rescue), it would have leaked that Buffett offered Moynihan $5 billion a while back and the fool didn’t take it. I think he had to take it given it was Buffett and given that his bank does need capital.

        Maybe there is have been communication problems (that is, Moynihan continuing to say they don’t need capital), but his actions seem to show that he is raising capital. And they do have much more of a cushion today than they had in 2007.

        You say they are delusional about their reality, and maybe so. They could be more optimistic than warranted. But still, I would argue they have no imminent demands for capital. Their problems are out in the future. And cost cutting, selling assets, marking down bad loans and continuing to reserve for losses (they put $20 billion aside last quarter, which will remain there whether or not the $8.8 billion deal some how miraculously doesn’t get nullified) slowly knocks down those substantial liabilities. Those are down payments on the litigation losses.

        With the friends they have, and with the Obama administration as corrupt as it is (doing everything in their power to protect the banksters), they might not be too irrational being optimistic that they’ll get out of this mortgage lawsuit mess with a pittance of a fine. And should Obama get swept out of office in 2012 (which seems likely), and President Perry is newly throned, I would say they’ll have someone in backup who is equal or on par with Obama and his steadfast support of the rich elite and banks in particular. Perry certainly won’t be focused on holding rich people accountable for their crimes. Life is good being a bankster in the 2000s.

        It’s sad to admit this, but betting on BAC means betting that no one will be held accountable and that the rule of law will not prevail. It seems like a good bet right now. I would like to be wrong about BAC on that account alone, but I wouldn’t bet on it. Holding elites accountable for what they did is just not in the interest of the politicians who benefit from their largess.

        1. Yves Smith Post author

          The government can only refuse to go forward with regulatory or DoJ prosecutions. They can’t stop private litigation. That is what too many people are missing. Even if there is a 50 state or 45 state AG deal, it does absolutely nothing to stop private litigation. Did you really expect the government to sue the banks? No. So why is everyone excited re a settlement of litigation that was never gonna happen anyhow? This is just confirmation of the obvious.

          And if Schneiderman and Biden continue to press forward, which seems likely, what they unearth will pave the way for additional private litigation.

          1. Susan the other

            Yes, of course this is obvious and my comment just below was before your comment. We are all so damned angry.

      2. Susan the other

        Yves, sorry. I think Warren Buffett is a fat and fatuous old fart who lived off the fat of the land for 40 years and suddenly looked up after a big painful burp and realized he was in deep shit like all the pigs at the trough. So he is not to be believed. Nor is BAC. Nor is Obama. Nor is his administration. Nor is Congress. Nor are the “Banks” whoever they really are. So whada we do?

        We devalue the dollar. We invest as a nation in redevelopment. We begin to build a new “infrastructure.” And we do this asap. If not sooner. Where the F is Obama?

        We go forward; we do not excuse ourselves; we look to the future.

        1. F. Beard

          Poor Warren is now officially a usurer and (legal) counterfeiter. Luckily he is a young man and has time to mend his ways.

        2. Buffet Assists Haiti

          Excellent slaughterhouse imagery. Yes, America must “gore” Grandpa, he ain’t no hero, and America must aspire to something better. His lil’money blown festival to re-elect an administration of wretched failure is disgusting. A Bank criminal administration that argued for war while attacking those who dared step in their way, ritualistically wrapping it’s coiled venomous hands around the Nobel Peace Prize, blowing away humanity to secure the loot in foreign lands. A defeated, defiant, arrogant nation that tortures, kills, punishes poverty, crushes justice, cherishes secrecy and tyranny and relentlessly claims superiority is dangerous beligerence.

        3. Typing Monkey

          I think Warren Buffett is a fat and fatuous old fart who lived off the fat of the land for 40 years and suddenly looked up after a big painful burp and realized he was in deep shit like all the pigs at the trough. So he is not to be believed. Nor is BAC. [...] Nor are the “Banks” whoever they really are. So whada we do?”

          Ad hominems aside, I don’t understand your point at all.

          Buffett is making what he considers to be a highly favourable bet. He is putting down a hell of a lot of money (a least by my standards) to do so. What is there to “believe”??

          If you believe he is in “deep shit”, then find a way to short his stock (or a proxy of it). Having said that, have you gone through BRK’s financial statements? Almost $40billion in cash on hand? Total assets of ~$350bn Vs ~$60bn total debt (almost all of which is long term, btw–no liquidity problems here!)? Well over $100bn annual revenues?? If this is your idea of “deep shit”, what kind of numbers would you consider to be adequate??

      3. Typing Monkey

        And not every Buffett rescue trade has been a winner. Look at US Air.

        It’s so bizarre that I am posting so much that leans towards Buffett, whereas I am usually a detractor, but:

        1. USAir turned out to be profitable for BRK.

        2. Given the margin for error he has, every deal doesn’t have to be a winner–if his decisions are right significantly more often than they are wrong, he will do just fine (and he obviously has been, at least according to my standards)

        3. So what if he is wrong? I don’t think there’s any argument that BAC is a shoddily run bank. The question is, “At what price would going long BAC be a decent bet?”

        If you’re annoyed that other people are going to buy just because Buffett did and lose money for doing so–well, perhaps some of those clowns need to learn by now to do their own work and to think for themselves. Why get mad at Buffett for this?

    2. Your Daddy

      I agree with your valid criticism about financial prophesiers engaging in 21st century market fortune-letting.
      But I think you’re reaching in saying that Buffett came to BOA. All signs point to the reverse.

      Also, what does Europe have to do with with the rotting, rapidly deteriorating (because of litigation costs; and the USA housing/construction market in the toilet and unlikely to recover [to therefore justify current valuations sitting on the balance sheet] piles of toxic dung BOA is sitting on because of the Countrywide acquisition and the subsequent collapse of American real estate valuations?

      BOA is not under duress because of the happenings of Euroland but because of its mortgage related assets and derivatives exposure.

    3. js

      Actually, predicting the future is *not* that hard. I spent years screaming at the top of my lungs that RE was *way* overpriced and would lead to a huge crash in the economy. (“Oh, no it won’t! This is the New Economy”, they all replied.)

      Predicting *when* something is going to happen, *that’s* the hard part.

    4. maximilien

      “Even Buffet isn’t going to sink $5 billion….”

      Here’s J.K. Galbraith (from The Great Crash 1929) on the stock geniuses of the 1920′s:

      “If one has been a financial genius, faith in one’s genius does not dissolve at once. To the battered but unbowed genius, support of the stock of one’s own company still seemed a bold, imaginative, and effective course. Indeed, it seemed the only alternative to slow but certain death. So to the extent that their cash resources allowed, the managements of the trusts chose faster, though equally certain death. They bought their own worthless stock. Men have been swindled by other men on many occasions. Autumn 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.”

      Is Buffet caught in an autumn 1929 redux?

      1. TC

        Poignant reminder and relevant to the moment. The fee-driven, securities-based Ponzi scheme yet to have its Lazarus moment, the mountain of debt created in its build out not only still living, but fattened with more debt from lenders of last resort, and no benevolent life on Mars yet discovered by NASA that might distort demand for financial assets even further. It’s over.

        Supposing 6% offers enough income to offset the cost of hedging principal, then I can see how Buffett at this point might be acting to protect his interests in the other insolvent fee junkies he owns. Per Buffett’s savvy, this might be as far as it goes (that is beyond buying out Burlington Northern, which I thought was very savvy given the future of the casino economy). In commenting yesterday at zerohedge I thought there might be something more to Buffett’s BAC investment. Today I’m less sure.

        In addition to exposing BAC’s true capital needs there has been no mention of Buffett’s effective indication that, a similar investment in common stocks is not likely to produce a superior return. The moribund technical condition of BAC common no doubt implicitly supports this conclusion.

      2. Nathanael

        Buffett, for all his reputation as a long-term investor in sound companies, is actually perfectly happy to bottom-feed by loan-sharking to companies which are not sound, and to make short-term gambles when he thinks he can time the market.

        He’s made lots of money both ways.

        Given that he’s getting senior preferred stock, he may well be in a position to recover his money even in a liquidation.

        And for all we know he’s already short-selling against the warrants.

        Now, I know he’s made at least one disastrously bad move by owning Wells Fargo common stock. So yeah, he may well have lost his touch. But this doesn’t necessarily indicate it, because this is a case of, frankly, predatory lending, which can pay off even when you’re lending to bad risks.

  4. Namazu

    Thank you, Yves, for your granular financial analysis and the service it provides. I hope you will have time to weigh in on the political implications of the recent sequence of events:

    1. Brian Moynihan meets with the President and Treasury Secretary.

    2. Warren Buffett writes an Op-Ed for the NYT which reads like Obama campaign material and ignores the larger deficit and debt debate.

    3. Obama approvingly quotes Buffett multiple times.

    4. BAC’s capital adequacy comes under heavy scrutiny.

    5. Obama and Buffett speak by phone.

    6. Buffett provides BAC expensive capital in a bespoke deal.

    You’ve called out the administration on the crony capitalism issue before, but have they taken it to a new level? Either way, Buffett now seems to have fully earned his crony badge.

    1. Yves Smith Post author

      I don’t see the two as connected. Schneiderman does not owe the state or national Democratic apparatus anything. He appears not to have any ambitions to run for higher office. He really seems to want to do the right thing and maybe be the state AG equivalent of a Morgenthau.

      And if you believe the “see this means BofA is gonna be just peachy, the stock price fall is all crazies who overreact, Buffett is smarter than the rest of us” then that means it is just fine for all litigation to proceed. Buffett has clearly factored that in :-)

  5. Da Brotha'

    Why doesn’t Buffet get all philanthropic with LPS? That there’s a fine corp that Banksters could synchronize their systems wif’.

  6. thedude

    Second liens, the ones that remain performing after these terrible economic times we have just come through need to take a 60% haircut??? What is YOUR justification for this? The burden of proof is on YOU for this statement. BAC has put out lots and lots of data on what its exposures are, what it is provisioning for, performing and non performing stats, etc.

    BAC does NOT have a capital problem today. It is WELL above regulatory levels and will be above even more stringent Basel III levels when it needs to be several years out from here. You do not have granular portfolio level proof of any capital shortfall and so you should never be opining on any bank’s capital surplus or shortfall when it is well above regulatory levels.

    To suggest that BAC acknowledged a problem by reading your blog post and not responding is like saying President Obama is tacitly admitting he is a muslim extremist because he didn’t respond to a wingnut’s letter accusing him of such. Laughable.

    We will see about the settlements Yves. Nothing has been written on that. It is notable that the settlements were well below all of the bearish analysts estimates though. These are deals struck by parties on both sides and I don’t see why anyone, especially the NY AG has a say in it.

    BAC never lied about their exposures by the way. Estimates are just that, estimates. They are based on constantly changing factors like home prices, GDP and population growth, unemployment levels, etc. Go re-read the conference call transcripts and then please show some proof for this baseless accusation.

    Lastly, Yves, BAC did raise $5B of equity capital deal through the warrants in Buffet’s sweetheart deal, even if the preferreds ultimately get excluded from Tier 1. So you are in fact, just plain wrong all over here.

    1. Yves Smith Post author

      You really cannot read. As I indicated in my earlier response, the post is correct, the deal does nada for tangible common equity. There is no new capital until the warrants are exersised, and they are ten year warrants. Buffett can probably book them as in the money when they are, he does not need to exercise them until right before they expire. The only reason he might choose to do so earlier is for political reasons.

      And it is insufficient to be a meaningful offset to baked in losses on thier seconds and likely future litigation losses.

      I never said anything re Tier 1 capital. And Treasury and BofA both have stressed TCE. Just go read the transcript from the Fairholme conference call two weeks ago.

      Straw man me one more time and you get banned and the comment will be deleted. That is a violation of comments policy. One mistake I can take as being sloppy reading on your part. You are now just ranting and making stuff up, and I have no tolerance for that.

      And you seem unaware of the fact that in my earlier post, I raised four issues about BAC, and BAC DID object to two of them specifically via Henry Blodget (Blodget pointed to my post as providing support for his estimate of a need of $100 billion to $200 billion in capital). So you are 100% wrong. They not only read it, they made a response, and did NOT dispute the estimate of $48 billion needed in further writedowns on second liens. Their silence is a tacit confirmation, they can’t dispute that this is a credible estimate.

      My estimate of 60% is consistent with the estimates of the two top independent US banking experts, Chris Whalen and Josh Rosner. Seconds almost universally get wiped out in foreclosures. And there are lots of backlogged foreclosures in the pipeline. Frankly, my estimate is conservative. Others have argued the seconds should be written down 100%.

      What you seem unaware of is all the banks are going to extreme efforts to pretend the seconds are good. They are, on a widespread basis, going into negative amortization. Virtually all of BoA’s seconds are HELOCs. On HELOCs, the banks are telling consumers on the verge of becoming seriously delinquent (90 days of no payment) “just send anything”. They then treat the loan as current. Regulators are aware of this and giving the banks a pass.

      An estimate that is wrong WITHIN WEEKS is either gross incompetence or lying. Let me tell you, there is widespread evidence that Countrywide did not convey notes correctly to securitizations. There are multiple investigations that confirm that, the testimony of Lisa DiMartini in Kemp v. Countrywide, and I’ve gotten separate confirmation from former senior execs in the industry. That alone implies liability to BofA of well over their $20 billion estimate. It is simply not credible that they don’t know this.

      BofA was yesterday circulating a talking point memo disputing that it needed to raise additional capital. Moynihan said it didn’t need it in the conference call with Fairholme. And now it raises costly capital? This is lying, and if you choose to deny that, you sure look like a chump.

      So don’t tell me I know nothing when you bear the hallmarks of being long BAC and having gotten in at a higher price. You can shoot messengers all you want.

      1. monday1929

        Yves, theDude is clearly a semi-skilled shill- “…after these terrible economic times we have just come through….” sounds like subliminal 101. I think he is a legacy preference admission who barely graduated an Ivy with purchased term papers. He is too clumsy, maybe just trying to waste some of your time?

      2. Mikey

        Yves – Ignore this clown. He is obviously being purposefully obtuse. Even his denials are non-denials.
        If you could track his ISP address, it would have 100 N. Tryon St. Charlotte, NC 28205 as it’s location.

      3. Jim

        Yves, all I’ll say is that if I were CFO of a struggling financial institution whose stock price was being impacted by influential blogs/publications, I’d tell my IR team to do address those concerns. And if they don’t have the resources, I’d have them go to Wharton, have some MBAs sign NDAs for a short-term assignment, and have them type away.

        That’s all I’ll say.

      4. chris

        I think DUDE is the sam dude that was telling everyone how much of a steal CITI was at $25 a few years back….and telling the world how stupid anyone was if they were not loading up on Citi bank shares at 21-25$…..then of course it went to about 2.50…….
        Dude must be a shill for B of A or his Dad works there or something because he is playing the fool.
        Can’t imagine a genius like that has the time to blog read in between counting all the stacks of money he is making…..
        Anyone thinking 5 billion means much to warren buffet needs to get a calculator. Buffet is trying to do what makes a vulture look pretty. He is trying increase faux levels of confidence …he believes in the country and the system and he wants everyone else to also.
        The other thing is that what is he going to say when the President asks him for help…..by putting in capital to BAC…????? He says yes just like he did for GS. and he was saved by the government then and likely expects the bank to eventually get a pass on most of their problems..in hopes that it would influence judges on private litigation cases.
        One more thing about dude and second mortgages…..There is likely close to zero seconds or helocs that are backed by any collateral since the prices of homes has cratered. If the heloc to the LTV to 90%, the total value of mortgage and 2nd is still under water by 20% or more. Even if they are performing there has to be some level of risk added what amounts to a ton of “unsecured” loans. How can it be called anythign else if the entire amount of the 2nd and part of the first are back by vapor?

        It is more like BAC picked up a few million of signature loans, with no risk premium built into the rate. How can they say even the performing loans are not 100% at risk of default? They have no equity so for the bank to recover a 2nd they would have to foreclose and take back a property that is underwater by 50k so they could in theory recoup 20k second? I don’t think so.

        I don’t care what the bank is saying or what Pro BAC shills are saying either….the bank is on the hook for a ton of money that is tied to the real estate market and a growing economy. Earning their way out of this is not happening. anytime soon.
        The argument for writing down seconds 100% makes total sense. What else can be done realistically if the house is 40% water? I think the bank is just trying to bs everyone into thinking they have any real leverage left on the 2nds. There will be a lot less people being concerned about 2nd mortgages if the realized the bank is between a rock and a hard place in regards to collecting wnds mortgages on underwater property. How often will the bank, in the current situation, want to foreclose on the 2400 first mortgage in order to collect on the 300 a month 2nd?
        My opinion has nothing to do with earnings or tier one tier 2 etc, etc…but just thinking about the big picture I don’t se how the 2nd could be worth much at all ….60% write down is not enough.

        Anyone

    2. Nathanael

      Warrants are basically options. Buffett *never* has to exercise them. They consist of no investment whatsoever.

  7. bjk

    They could sell more convertible preferred. Right now the stock is not heavily shorted, but if they pump the stock price up over the next few weeks back to $10, get hedge funds to buy the convertibles, at the same time announce that everything is great and recap is in place, then the hedge funds can short it back to $5 with the convertible in their pocket. And BAC gets another $5-$10 billion.

    1. Yves Smith Post author

      It isn’t rational, but my sense is $10 is the magic number. If they can get the stock over that level, that takes the pressure off them big time until the next round of bad news, which could take a while.

      1. Mark

        $10 could happen soon, but it would also not be surprising to see the share price tank as the market absorbs just how terrible the deal was. I hope this does not happen because it will take the rest of the market down with it, and my 401K and IRAs are feeling enough pain already.

        The more I think about it the more this deal worries me. It could backfire because it makes a definitive statement about BofA’s financial condition. Like most banks, BofA relies on counterparties’ confidence. If this translates to a loss of confidence in BofA, it could pull the bank down. This would not be rational, because BofA is backstopped by the US, but investors have shown themselves to be anything but rational over the past six months.

  8. bjk

    Then the hedge funds can buy another offering at $5 and cover their shorts. The last time, promise.

  9. thedude

    Tier 1 is converging on TCE under Basel III implementation, but regardless Buffett is getting warrants (700mm) to purchase $5B worth of common stock. This will be both TCE and Tier 1. This is cold hard fact.

    Whalen and Rosen are both capable bank analysts, but very much in the bearish camp. Their estimates for BAC’s R&W exposures were far too aggressive for example. There are plenty of other analysts out there with different opinions and estimates than these two.

    I cannot imagine a world in which 100% of the HELOCs and second liens in this country are written down, nor even 60%. There is a portion of them that are terrible, literally worth 0 cents on the dollar. But there are many more that are money good and will be paid down by your average hard working American over time.

    Also, there is a good reason to push foreclosures and even defaults out. Most people don’t stay unemployed forever. Balance sheets have improved in this country since 2008 and they continue to given our positive savings rate.

    My motivation here is not to pump up a bank stock, it’s to get smart people like yourself to stop freaking other people out about bank crises because it only serves to increase pessimism and decrease economic transactions in the real economy. There is a real cost for all of us and we all need to remember that BAC is no Lehman. The funding structure is different, the assets are different, and most importantly it has had and will continue to have the benefit of TIME to earn its way out of bad times.

    1. scott

      If you walk slowly and carefully past the zombie banks, thinking positive and calm thoughts, they won’t get angry and hurt the children! Hmm, OK.

    2. monday1929

      Oh, I know you, dude. You were the one explaining in 2008 that banks should not have to valur their assets at “fire-sale” prices that were soon to recover. As I explained to the likes of you then, Time is Not on your side this time. The Depression will sweep you away. The “Doom and Gloomers” are not the realists but the Delusional elites who want just one more year of bonuses before being strung up by angry mobs. You will reap what you have sown.

      1. thedude

        Do tell, what have I sown you crazy loon?

        “Grab yer pitchfork maw, we’re going to hunt us some bankers for dinner!”

        I feel really sorry for you tea party, gold bug, Zero Hedge reading, sky is falling mopes. Glen Beck is building his mansions on your back.

        1. The Dick

          The Baggers are on your side. We all remember the Dick Armey crowd making a well funded appearance shouting about losers and other assorted bullshit. Charming folks.

        2. monday1929

          You have me as wrong as you have the facts. And the Tea party seems to have no problem with criminal bankers.

    3. Yves Smith Post author

      Did you read what I wrote earlier? These are 10 year warrants. He can probably show their MTM value in his financials. There is NO reason for him to convert prior to their expiration unless he for some reason is in a charitable mood. Buffett’s Goldman warrants don’t expire until 2013. They aren’t in the money now and he didn’t exercise them when they were.

      And it is no capital to BofA until it is converted.

      1. thedude

        Fair point, it will become TCE when exercised. BAC management clearly does not think it needs to raise TCE today, which makes sense given the cushion between regulatory ratios and where BAC is at. Maybe that changes and you will be proven right. If you are right, then unemployment will be very high and home equity very low across the country.

        One thing I am confused on: why do all the BAC haters think management needs to be replaced? What is a new management team going to do? They can’t reverse the Countrywide purchase, they can’t improve employment or home values in the US, etc. Even if it’s capital that BAC needs, the current management team has just proven that it is willing to raise capital at large discounts to tangible book value.

    4. F. Beard

      But there are many more that are money good and will be paid down by your average hard working American over time. thedude

      You mean non-bankers; those who exist to earn what the bankers create except they never make enough since bankers only create the principal and not the interest for loans.

    5. justanobserver

      people don’t stay unemployed forever ?

      you really are an optimist. you do know about this things called “average length of unemployment”, that has hit a record and has been very high for a long time. new jobless claims at near 400000 for years.

      50+ and 60+ citizens can’t find work.

      you’re full of it. in our brave new economy it’s entirely possible people will _remain_ unemployed for the forseeable future.

      and as unemployment ticks up due to austerity, things are going to get much worse.

      1. thedude

        Less than 1 in 10 people is unemployed in this country. Your demand for goods and services is not decreasing, nor is mine, nor is most of the population’s. And the population continues to grow. I think we’re going to be ok.

        1. justanobserver

          aaah, the classic the U3 number is everything argument. 1 in 10 people are unemployed. spoken like someone who has a secure financial future.

          how many are part time ?
          how many get benefits ?
          how many are getting a lousy wage in less real dollars now than 10 years ago ?
          how many have given up looking for work ?
          how many make enough to save for their retirement as Obama continues to try and undercut SS and Medicare ?

          1 in 10 – yeah, right. don’t try to con me with that u3 number, or anybody else that reads NC.

          and we are not necessarily going to be alright. what kind of simple minded tripe is that ? things could get much worse as the powers that be continue to make poor decisions that hurt people that work for a living.

        2. Nathanael

          1 in 10 is approximately the unemployment rate. That is *HIGH*. Socially speaking, that is dangerously high. 1 in 4 is when governments get overthrown violently, but 1 in 10 already causes massive unrest.

  10. lambert strether

    I’d say a smoking, BoA-shaped crater in Charlotte’s nice little downtown area is the last thing Obama would want to see, given that the 2012 D convention is in Charlotte. So BoA is perfectly safe. Carry on with the looting, boys!

  11. Matt

    Part of the show seems the Blodgett/Milken/SAC ilk bear raid on BofA just like was done to Bear, Lehmann, etc etc. Not that BofA does not deserve it, just that even BofA can be a pawn in some other parties’ gamings.

    The Fannie and Freddie preferred stock holders are bag holders now. Not sure if Warren has a better deal here.

    1. Yves Smith Post author

      Um, you aren’t right on Bear, and I don’t think right on Lehman. The run on Bear started in Europe, and it was bank yanking counterparty credit. It was a credit market event, the stock followed.

      Einhorn was the loud Lehman critic.

  12. Crazy Horse

    We have been sold the fiction that Warren Buffet is some sort of capitalist God who can do no wrong.

    I personally sat across the table from a dapper little man in an ill-fitting suit who wanted me to oversee a project that was the worst investment I had ever seen in my particular specialty. He claimed to be Charlie Munger from Berkshire Hathaway, but was so naive and uninformed that I concluded he was an imposter of the type we sometimes saw in our business. Turns out he was indeed Buffet’s right hand man.

      1. Yves Smith Post author

        This same guy gave lots of specifics on the incident before, detailed enough to be credible.

        And i’ve done M&A. I’ve seen big names involved in some astonishing garbage barges.

    1. Chris of Stumptown

      And this is credible when you can’t even spell Buffett’s name?

      Please, next time do take ten minutes to think up a semi plausible story, kthxbai.

    2. Rex

      I have no reason to dispute the main point of your story but, “a dapper little man in an ill-fitting suit”, is a rather oxymoronic phrase.

      1. monday1929

        The man was dapper, the suit was not. Perhaps he was Klipspringer, sprung from the pages of Gatsby?

  13. RA

    This probably means that the Fed and Treasury have assured Buffett that it will “do whatever it takes” to save BofA. He’s been down that road before.

    1. Kevin Murphy

      Please provide evidence for this. He, and other value investors make a living out of stock purchases such as this one. He is very conservative with his shareholders’ money and seems to have cash when others don’t. This allows Berkshire to be in a position to make these kinds of investments.

      1. Yves Smith Post author

        You are sounding like a shill. Buffett can’t have evaluated the mortgage risk here, that’s a major exercise, and this kind of litigation is a cutting edge area of the law. He’s going on the same logic as John Hempton: Uncle Sam won’t let this go under. The problem is Dodd Frank restricts how you resolve banks, they have a lot fewer degrees of freedom re bailouts.

        Not all of his rescues have panned out, US Air is the poster child here.

        Floyd Norris was not overwhelmed by this deal:

        When Mr. Buffett made his first Wall Street rescue, of Salomon Brothers amid a scandal two decades ago, he was reported to have called his investment a Treasury bill with a lottery ticket attached. He would get a solid return if the company merely survived, and a great one if it prospered.

        Seen that way, this is not nearly as risky as a bet as a purchase of B of A stock would be. That may be the essential point that led the early euphoria to fade. B of A stock leaped to $8.80 soon after the opening this morning, but was under $8 by 11 a.m.

        http://economix.blogs.nytimes.com/2011/08/25/risks-rescues-and-remorse/

        1. RA

          Given his access to government as an advisor, it’s very difficult for me to believe that he is even making a guess here when it comes to Uncle Sam.

          Hindsight is 20/20 and it seems clear now that Buffett knew exactly what actions were going to be taken during the financial crisis. I find it very doubtful that he has any doubts about how the govt plans to work out BofA. It’s almost certain he has been given assurances for his taking a position and providing positive PR.

        2. Chris of Stumptown

          Buffett can’t have evaluated the mortgage risk here, that’s a major exercise, and this kind of litigation is a cutting edge area of the law.

          Come on. Berkshire Hathaway has been a bank investor since the invention of dirt. Do you really think they have done so without due diligence of legal issues?

          From what I’ve read, Buffett took the Lehman 10k and abandoned any intention to invest within a day.

          Buffett makes mistakes like anyone but to suggest he doesn’t apprehend banking liability doesn’t wash.

          1. Yves Smith Post author

            Buffett covers quite a few industries. He is an investor in Wells, and Wells has been lying through its teeth on mortgages and its conduct. So if he goes to Wells for info, he is certain to be misled. Wells is in as bad shape as BofA, but they’ve managed the PR better, so it isn’t recognized in the market yet.

            The experts on this are not the traditional securitization law firms. They have major opinion liability. If you’d listened to the big name experts on this, you’d be wrong.

          2. Nathanael

            Buffett is absolutely getting defrauded by “his friends” at Wells Fargo, and this is frankly the biggest downside risk to Berkshire Hathaway stock right now.

            The BoA deal is on Warren’s usual extremely-dear terms, where even if the company basically goes under he may well get his money back. The Wells Fargo stock he owns, in contrast, is garbage.

      2. Crazy Horse

        Mr. Murphy,
        Have you ever watched very wealthy individuals make decisions about the yachts they buy? They may know how to accumulate billions by buying political influence, but usually are clueless when it comes to buying a 20 million dollar status symbol. The yacht that Buffet/Munger had bought was a 4 million dollar candidate for the crusher, built without reference to the structural design by the naval architect, unsafe even while tied to the dock, and they wanted to build a shipyard to finish it out, whereupon it would have been a 12 million dollar unsafe-at-any-speed candidate for the crusher. During 20 years in the business, Munger was the most clueless customer I have ever encountered.

        So Kevin, you are welcome to your faith-based view of the infallibility of our masters of the universe, but in this instance my opinions are based upon direct experience.

        1. RA

          Buffett is no dummy here. Watch the Charlie Rose interview he did where he states that he was told that govt officials were going to do “whatever it takes.” It’s pretty easy to step up to the plate when you have that knowledge.

          Buffett is on the inside on BofA. He’s not making any guesses. He KNOWS what it going to take place if push comes to shove.

          Ask yourself why Buffett shows up on CNBC when these deals are announced giving Becky Quick exclusive interviews. He’s being used by the govt to provide confidence in the banking system in return for his support via substantial investments in key names.

          1. Economista Non Grata

            I have no doubt that Buffet will make some money in this deal if he’s lucky, or at worst, break even if he’s not…. That’s what happens when you have a cozy relationship with the President of the United States…. However, I can almost guarantee that if you, John Q. Public buy into this line of Bull Shit, you will get your ass handed to you…..

            Ms. Smith has done a great job of warning you so don’t come crying to her…..

            All of my diligence demonstrates that BAC is an insolvent institution and that Warren only removed one symbolical straw off of the camel’s back….

            Best regards,

            Econolicious

        2. Kevin Murphy

          Sorry Crazyhorse but it sure sounded like a rather fantastic story when you first posted it. I had a hard time believing it but it sounds plausible now. I do wonder though whether this reflects on his investing abilities/judgements or if this is just a red herring. No matter, I guess, there is no doubt that these guys are no more infallible than the rest of us, just as there is no doubt that I have zero expertise to be able to judge the merits of this investment.

  14. Fred Ganny

    Organize a nationwide boycott and divestment from B of A, Sustained action. Try to drive them under.

  15. surf

    I’m gonna be very honest. I was a huge naked capitalism fan until now.

    You guys are clearly wrong and won’t own up to it. The buffet investment is clearly an act of symbolism and any rookie investor knows it.

    Everyone knows if BAC is as short on capital as NC claims then even teh preferreds get wiped out. $5 bill wont help nothing if the situation is as bad as you gusy claim.

    More evidence is provided that you guys are wrong from the fact that the interest is only 6%, whereas if the situation were desperate buffet would have demanded 10% as he did from GE, HOG and more importantly GS. Yet he only got 6% which is lower than the current PS rate.

    Your whole “see I told you they need capital” argument is becoming the laughing stock because you said they need at least 50 bill, but this is only 5 bill. So why didnt they get the other 45.

    Seriously, I posted questions yesterday that never got answered and I was seriously looking for answers.

    You guys are quickly losing credibility and clearly trying to save face. You should just own up to it and admit your mistake, it would help your cred. Right now it just looks like you are grabbing at straws.

    I’ll pose the question I did yesterday and bet nobody at NC will answer. What banks specifically in France and Germany have exposure to the PIGS and by how much? I know the exposure from the top 5 in both france and germany, but I am willing to bet you guys can’t lay it out for me. Let’s see who actually responds with numbers? The info is there, I just want to see who has the balls to say the real figures.

    1. Crazy Horse

      Just guessing here, but you don’t suppose Buffet has a handshake deal with Obummer for the other 45 billion in zero interest loans? A little support on the campaign trail here and there, shake out the mattress in Kansas, and voila— Obummer’s billion dollar campaign golden cup is already overflowing.

    2. ReaderOfTeaLeaves

      I don’t have the link handy, but if you google FT + interactive + Eu banks, the Ft has done some terrific work with data sets that allow you to manipulate the Eu bank data. That’s probably the quickest, simplest place to start.

      As for BoA – between robosigning, fraudulent foreclosures, offshoring to tax havens, CDO and CDS dark clouds, and probable charges from violating chain of possession for trusts, their biz model appears to be sinking into shark infested waters. I don’t think my comment qualifies me as a Tea Partier, nor as a loser. Any interested onlookers would probably conclude that the big banks –as well as the CDS’s– have become too complex to function adequately.

    3. Nathanael

      I have three words for you if you think Buffett’s preferred will get wiped out: Delaware Bankruptcy Court.

      Have you followed Groklaw?

      I realize that national banks have other, weirder insolvency regimes, but they seem to be even more corrupt than Delaware Bankruptcy Court.

      I have no doubt that Buffett has assurances from the correct regulators that he will get preferential treatment in an insolvency.

    4. Nathanael

      Oh, one of the dirty little secrets of banks: they can function indefinitely without capital.

      There’s no actual reason you need capital to run a bank.

      Banks only get caught without capital when they get caught being illiquid. But the Federal Reserve lends money to prevent banks from being found illiquid. As long as the Fed is willing to pour money into insolvent institutions, they can keep going forever.

      If it isn’t willing to pour money in, all you do is fake your accounting (remember, you’re a bank, you can create money just by changing entries in your computer) and you’re still golden. Until you get caught.

      Remember, if every single depositor pulled their money from Bank of America tonight… it would just borrow from the Fed to make up the difference, or claim fictional profits and enter them in the computers.

      Its liabilities could be far greater than its assets — insolvency, zero capital — but why should it care? As long as it can borrow more from the Fed, or fabricate money through accounting fraud, it can keep going indefinitely.

      The only reasons it would care are (1) regulators going after it to shut it down, or (2) public reputation resulting in people refusing to do business with it (which is a spiral which eventually leaves the bank a skeleton, but as long as the Fed will still lend it money, it keeps going).

  16. mezurak

    Yeah Ole Buffet looks like a genius, at least until everyone finds out the 5 Bil actually came from Ben’s Backdoor Bailout Fund. Hell, they lost 6 billion in Iraq. Just up and disappeared. 5 Billion laundered to Warren should be a piece of cake.

  17. surf

    Crazy horse, just checked back. LOL! Obummer, overhere we call him 0zer0 LMAO! Im non partisan though, I tend to think a politician will say anything anywhere anytime to get himself elected.

    But no, generally, I tend to think that while the situation at BAC is not ideal, that they can easily out earn the mortgage mess. I believe this because:
    1. the writedowns will not be forced in any one period
    2. lawsuits take time, again not a one period writeoff, and also any experienced attorney knows that you dont bankrupt the company you are suing. see PPG in the asbestos lawsuits way way back when. A more likely scenario is that even if a lwsuit would BK the company that the plantiff would agree to a payout over the years and not a lump sum in order to avoid a BK. Therefore the Putback BK scenario IMHO is out of the question.
    3. FASB has relaxed mark to market, it doesn’t really matter what Yves “thinks” the rules should be, they are what they are, and that is “relaxed” and should be accounted for as such. I can point to 4 other US banks where this is occuring, yet YVES insists on pointing out BAC…. OK we Get it Banks are messed up.
    4. I know a lot has been said about Germany’s growth being slow, but the reality is that in general that “may” be better for the EU in general, Why? Germany’s economy is dominated by exports, to who you ask? Other members of the EU and surrounding countries. So while everyone else sees a slowing in growth in Germany as bad, I see it as the periphery nations cutting spending (which is exactly what bond holders are asking them to do). So short term growth in Germany will be hindered, but long term health is there. We cannot penalize German banks for holdings in PIGS, when the PIGS cut spending on German goods (which results in decreased output from germany) to stave from default. Think about it, that is why german growth is down, simply because Exports are weak to PIGS nations (yet that is what everyone is asking PIGS to do). If anything slow German export growth should be seen as a positive.
    5. How low can housing go? I don’t know, but I do know this. Starting the end of this year we have 10k troops returning from the afgain. war which I would suspect would increase the demand for housing. I also expect additional 33k troops to return in 2012, so I think at some level returning troops may offer a sort of buoy if not impetus to buy housing. Granted this theory may be wrong, but I doubt it if there are this many troops returning. Remember troops collect a lot of very hard earned money overseas and basically are able to store it in banks for more fun times. Housing is a likely purchase on their list. I’m not saying it will recover the entire housing market, but I do think it is enough to set a bottom (meaning not a lot left to writedown).

    6. IF BAC were really in trouble, Buffet would have demanded a higher yield. Like it or not you can’t really argue with this statement. His past performance with GS, GE, HOG, is enough. All three he demanded 10%, yet BAC he only demanded 6%. My theory is that he probably asked for higher and that BAC said no way because it would make BAC look weak, 6% from my perspective is a healthy return for Buffet and also restores confidence that a big investor is willing to get in with only “okay”: returns. Granted he has the warrants, but they are only worth money if Buffet is right, not if he is wrong. So while Yves and Blodget can claim it is dilution, it is only really dilution if Buffet is right. This is why NC and Yves are seeming to grab at straws now, because they both know they don’t command the respect that Buffet does, and rightfully so. I have nothing against Blodget, but i do know people that lost 100s of Ks on his work and he has never apologized for being the piece of scum he is. It takes a lot for a human (like blodget) to go out there and tell people to invest their savings into stuff that you yourself don’t believe in, and that is what H blodget did. He could careless and to see him in the biz again makes me sick, but oh well. That is for the SEC to work out.
    7. Yves assigns a lot of unproved values to a lot of writedowns. His writedowns “may” end up being correct, but the reality is that he is not citing evidence for why the writedowns will happen other than his own experience. Cite an example of why x leads to y which leads to z.
    8. Gov basically forced the ML merger (maybe not the CW one), granted it is not in writing, but the reality is when you have paulson and bernake telling you to buy xyz trashola company or else we are doomed, that is a big deal. Anyone who knows jackcrap about the ML merger knows that they carried a lot of the crap over too, its not just CW. The only real reason BAC doesn’t say it was ML’s crap mortgages is so they can keep the brand name what it is. Do you DD on this and read MLs 10-ks and you will see how much trash they really brought over. Its not isolated to CW, the problem is with both co’s mortgages. But back to the main point, if both ML and CW mortgages are the problem then gov is more than likely to step in, especially since gov cooked up the scheme to get ML and BAC together. Is TARP still technically open? I have lawyer friends that say it is….
    9. If the situation is really a 45 billion dollar hole, why did the FED allows them to pay back mmmmmmm….. $45 billion? Ok, so let me get this straight, Yves with all his insight, knows more than the FED does. And the FED, yes the FED (like it or not) is the one that saved the banking system. Yet, now they are incapable of making an analysis as to BAC’s liabilities? Granted the Bsterns problem was missed but the reality is that we live in amuch more risk adverse world than prior to that…
    10. The argument that BAC cant meet the BASEL accord. LMAO! This is the weakest and most lamest excuse I have ever heard in my freaking life. Right…. like we would BK our 2nd largest bank because they did not meet some international standard that we basically developed. What a laughable joke, ever heard of WW1 or WW2? Probably not? But those wars were fought and won with American blood. We wont BK a company to meet an international standard, as evidence I would ask Yves to provide an example where an IA BK’s a company in the U.S.? I t hasn’t happened and won’t happen, the more likely scenario is that the rules get relaxed.
    11. Trading profits are down? Maybe so, this quarter, but the next and the next? Who knows it is unpredictable.
    12. Yves scenario is worst case in all areas, but if it is not worst case, as is evidenced from his back peddling today then BAC is actually not in that bad of shape and can earn themselves out of the mess. Which does what? Oh yeah, it leaves right back where we were at the start of the year, with everyone expecting 2011 to suck.

  18. Surf

    Yves, this is a direct question to you. Do you have evidence that you predicted the financial collapse in 2008? Where did you work, what company’s were you covering, give us some evidence of your experience in this matter…What were you r price targets on company’s at the time or analysis.

    I directly challenge you to openly and honestly answer this question….. thanks

    Surfer

    1. Hugh

      I hate to break it to you but there’s nothing arcane or difficult in seeing what happened and what is going to happen. I remember discussing in late 2005 the housing bubble. It was in passing and I wasn’t even looking at economic issues at the time. The topic would come up from time to time and the question wasn’t if it would blow up but when and how big the blow up would be. We all thought it would be pretty bad. Some thought it would go splat in 2006. I thought it would go in the first part of 2007. It went kerblooey in August 2007. My first forays into economic matters was looking at gasoline price fixing and later oil speculation. In the late summer of 2007, looking at what was happening in oil prices I started talking about the possibility of recession. The NBER a year later fixed the start of the recession at December 2007. By this time, many of us were turning our attention much more closely to economics. Throughout most of 2008 we conducted a deathwatch on the financial sector. By August-September 2008, we were at the point of wondering if the next shoe to fall would be the one to bring the whole edifice down. And of course the collapse of Lehman on September 15, 2008 did bring it all down. It’s just that the Fed and the TARP propped the rotting corpse up again.

      The we I am referring to was a mixed bag of bloggers and commenters and only a few of us had any background in either finance or economics. You make it sound like a person had to have deep knowledge, credentials, and experience to see any of this. And that simply isn’t true. The real question is why so many profess not to have seen it and argue that no one could have known.

      1. ReaderOfTeaLeaves

        I’ve never met Hugh, but have read his exceptionally perceptive, incisive comments since about 2006. I recall as he does; a number of us with zero background in finance saw the housing bubble back in 2006-07 and were commenting back then.

        Anyone who didn’t see it was closing their eyes.
        Several very successful realtors I know saw it coming; they were dealing with demographic, housing, and economic data. The people who couldn’t face the end of the profligate lending couldn’t hear it.

        It reminded me of my younger child, who when told by Big Sister that Santa Claus was only pretend staunchly refused to believe her and insisted she was just being mean. People are often incapable of grappling with the obvious, until they are psychologically ready.

        Don’t blame Yves for suggesting that Santa may not be entirely real.

    2. Crazy Horse

      Surf, Nouriel Roubini and Gail Tyberg over at The Oil Drum both predicted the 2008 financial meltdown, based upon entirely different and incompatible theories. Successful prediction of a one-time event adds creditability but is by no means a proof that the theory was right. And correlation does not equal causation.

      So I don’t know exactly know where your increasingly shrill attacks on Yves are coming from? Sounds like you are about to use the fraud word. Chill out! If that is a battle you want to engage in , come back tomorrow with your pen loaded with real data.

      1. maximilien

        Bill Bonner of Dailyreckoning.com predicted the housing crash explicitly in the early pages of his 2004(?) book “Empire of Debt”. Recommmended reading.

    3. Yves Smith Post author

      You can go look at my posts for Christsakes, I have one of the clearest records on this. I’m not spoon feeding a troll. I said the great credit contraction had started as of July 2007, called out the Bernanke “subprime is contained” called the MLEC not happening, the implosion of the bond insurers, Lehman being insolvent, and oil being a bubble in early 2008. I shorted oil at over $140.

      I went short the market in mid 2007, was short through 2008 and my performance in those years would put me in the top 1% of money managers. And that’s in a IRA, when you are hugely constrained in what you can do, particularly on the short side.

    1. Psychoanalystus

      And, if there are any more readers holding accounts with Bank of America, it’s time to cash out! Kick ‘em while they’re down, dammit!

  19. frank

    Yves,
    Your analysis is spot on. You do not need to defend yourself. The ticker tape values BofA everyday. Everyone’s know the book value for all the banks is mythical.

    Continue to speak the truth.

    Once the public see that BofA stands naked they will also see that the overstated assets and understated liabilities also belong to Buffets’ Wells Fargo and US Bank.

    As Warren said, “when the tide goes out we will see who is wearing swimsuits and who isn’t.”

    I have no interest in seeing an 80 years old privates, but he knows at the end of the day they are too big to fail and will get bailed out again.

  20. Hugh

    It is fairly amazing that 4 years out from the housing bubble blowup and 3 years out from the meltdown people are still trying to put the best interpretation possible on the Buffett/BAC deal. I mean does reality never impinge? The banks have been insolvent all that time. Not some. All. The essence of extend and pretend is simply in the absence of any official acknowledgement of their insolvency they are being allowed to continue their looting. Ostensibly the plan is for them to loot their way back to solvency. But this far out from the initial shocks, it is pretty clear that this isn’t going to happen. The problems from 2007-2008 are still unresolved. Efforts at a liability bath even in a political and judicial system as corrupt as ours have largely failed or are failing. The stock and commodity bubbles are showing real cracks in the bear market volatility we are seeing. Europe is coming undone. China is a lot shakier than most think with its multiple bubbles and capacity overhang.

    Buffett’s bet is not that BAC is salvageable but that it is too big to fail, and that Bernanke and Obama will not allow it to fail. That is BoA has been dead for years. It’s a zombie but one which the PTB are still committed to keep from oblivion.

    Again from the kleptocratic perspective, none of this is about fixing anything. It is all about keeping the looting going as long as possible. Buffett loots BAC but in return BAC gets to continue looting the rest of us. That is the essence of their calculations, that no matter what else happens they will always have us to loot.

    1. Crazy Horse

      Politics is the activity of buying and selling favors. So BAC did a favor for Timmy and Obummer by absorbing the worthless load of crap called Countrywide and removing that wart from the public eye? Time to call in the favor and have Buffet come riding to the rescue with 5 billion in front money and a key to the treasury if more is needed?

      In political science as in real science, the best theory is the one that applies Occam’s Razor to the facts.

        1. Rex

          “What favor, please specify? Thanks,”

          Vanilla. Oops, wait, I think I read your post too fast.

          Try re-reading the post you are replying to. Hint – there are two favors mentioned; one done by BAC (a while ago) and one done for BAC (just recently).

    2. maximilien

      No, Hugh, so it ain’t so! The venerable Buffett has joined in the generalized looting? Another idol fallen? Who then is left for us to worship? Lady Ga-Ga?

      1. Typing Monkey

        Again, Buffett is risking his own money to make a bet. So what? You too could have used your money to have made a similar bet (albeit on less favourable terms). So could have mutual funds, pension funds, insurance companies, and anybody else who had some cash on hand.

        Should Buffett declare that from now on, he will only buy shares outside of financial panics, or only buy shares of companies that aren’t expected to benefit from government largesse?

  21. scott

    Wow. I didn’t know that defending the banks to the death was such a priority for some people here. In a way, I’d be more reassured if the defenders actually were shills or sock-puppets, because they’d be acting out of narrow self-interest rather than genuine conviction. The original post was a simple point – if BofA didn’t need capital and has been screaming they don’t for the last few weeks, asserting that their perceived problems are all in our tiny little minds, what does it say that they turn on a dime and take 5 billion from Buffett on terms that for him are heads I win, tails you lose? Christ, it’s not rocket science – their actions belie their assertions and call into question how serious their situation really is.

  22. Richard Simon

    Dont know about that. old fart has made money time and time again. The only big mistake I seen him make is COP at the height of oil boom in 2008. But i have read all the comments here and I tend to see a lot of holes being punctured in yves cred here. The bit about germany in the last comment is dead on, like it or not that guy knows his shit about eu economics, no argument here. I can see where yves may be right on writedown, but that seems to be an extreme extreme case. Not the likely one. I also agree that blodget is tryinbg to rear is pathetic ass back into the game as a “back analyst/media person” but reality is he is trying to be an analyst again. Hblodget, well, we all knbow hes a scammer and guess what his 1st call in years and he is dead wrong again, not only that it is buffet making him look like the bafoon he is. What a joke man.

  23. surf

    Scott, I argued its a symbol, if your so right and they are desperate for capital as you so “proclaim” why would a measly 5 bill help them. I bet you dont have the balls to answer with a mathematical answer cus you got none, chump! LMAO!

    1. tawal

      Surf, it won’t. If uncle W wanted to show commitment he needed to double to 10. as it is just a tax write-off now. BAC is T O A S T!

    2. Jackrabbit

      If they only wanted a powerful symbol, they could’ve issued a press release saying that they turned down a $5b investment offer from Buffett (wow!).

      And, if they are really healthy then don’t they fail their fiduciary obligation by paying a hefty price for an _unnecessary_ *symbolic* investment?

    3. Rex

      “I bet you dont have the balls to answer with a mathematical answer cus you got none, chump! LMAO!”

      Ok, here’s a question for you… Why do you continue to post in such an annoyingly obnoxious manner, when you seem to have so very little to say except that everyone is wrong?

      Are you a teenager, or do you just sound like one?

  24. Get Shorty

    There are obvious headwinds for this sector and this company and they have been ongoing since 2007+ but they will be solved over time and burn off, creating incrementally better earnings and earnings multiples, in my view. This is particularly true for financials vs. other sectors. While a distraction, the sudden fear in the public securities over the past several weeks is detached from the realities of everyday business activities.

    Also, the mandates of financial and regulatory accounting and reporting are inconsistent with the vast majority of posts I have been reading. The aggressive and negative commentary, theories, and speculation on how things will transpire in this scenario really have little to no precedent. The Buffet investment is a symbolic bridge and carries modest dilution for the company and over time likely brings additional tangible and intangible positives. I don’t subscribe to his views on taxes but I do respect his business acumen.

    On other topics, outlier AGs like NY want to win settlements (~ Marsh, AIG, etc) vs. actually go the distance with cases laden with uncertainty and holes. The disgraced Spitzer era highlights this, given the fact that many of his cases were later proved to be bogus. The complexities of the CFC entity and the fact that everyone is looking to BAC to recover something from legacy mortgage originations pre circa 2008 will, in my view, have a manageable tail. It’s tobacco risk financial-style and the stakes are high, particularly for those that wouldn’t be recovering a plug nickel had BAC not acquired this company in 2008.

    At current levels on this stock, there is meaningful and superior upside to getting/remaining long vs. getting/remaining short, in my view. Properly managed, the core assets and franchise of this company should overcome any reasonable obstacles even if it is not in a smooth and headline risk-free process in the current market.

    1. Hugh

      It sounds like you have moved on from drinking the koolaid to mainlining it. Where have you been the last 35 years? We live in a kleptocracy with enormous wealth inequality. What part of this do you have trouble understanding? In a comment above, I outlined how many of us saw all of this: the housing bubble, the meltdown, the oil spikes, the recession, as well as the failure of the stimulus, the ephemeral nature of the “recovery”, the recurrent shocks of late stage kleptocracy. We have discussed at length the great transfers of wealth from the middle class to the rich, the massive frauds, the corruption of government. And here you blow in like some PR flack on the Titanic talking to us about “headwinds” but not to worry it will all resolve itself over time. Of course, to paraphrase, over time we are all dead.

      I always marvel at the chutzpah of people like you who tell those of us who have gotten so much of what has happened right that we, and not you, are the ones “detached” from reality.

      1. ReaderOfTeaLeaves

        One of the benefits of reading history, including historical news reports, is to see how virulently defenders of the status quo become as systems begin to implode.

        There are background factors that make the BoA model problematic.
        One of those is that, as the post points out, BoA’s public statements are completely at odds with it’s conduct.

        If money was no problem, why work the deal with Buffet?

      2. Get Shorty

        In your response to my comment and your other posts, it is quite clear you are very narrow minded and uninformed. You are drinking the kool aid but you are too pompous to even realize it. I know your type and I have no bid. I feel sorry for you.

        It’s possible we live in a kleptocracy at any given fleeting moment but, guess what, I disagree. Far from PR flack as you suggest, I am looking at this situation rationally and not trying to interject my inflammatory political and social views. Poor and reckless policy and a large dose of irresponsibility on the part of many, including the so-called middle class, have hurt the economy, however America is unlike any other country, including Japan, which has material structural disadvantages by comparison, Japanese banks included. As I indicated earlier, the Buffet dilution is modest, and his participation should bring various positives to the company over the next 12+ months but this is not a Solomon. The company needs to knock down the fires, including renegade AGs that want the ongoing litigation party to benefit their own selfish and reckless agendas.

        Per your statements around your uncanny accuracy on all things economic, it’s obvious you have a very high impression of yourself, so carry on and feel free to maintain your bets against America as well as the Bank of America.

      1. monday1929

        Yes, its got the mindless banality, the soothing product of groupthink, the stench of the head up ones ass……

        It DOES read like a parody.
        While we who were so right will be very wrong in the near future, those who were so wrong continue not to even recognize that the Game HAS changed.

        1. Get Shorty

          Put down the joint, leave the crack pipe on the desk, and step away from the keyboard, dial 911 and beg to be admitted to bellevue

    2. Sid Finster

      How many years have Japanese banks been saying that everything is likely to turn around soon?

  25. Typing Monkey

    “then does a sweetheart deal to build confidence”

    This is *not* a sweetheart deal. Buffett is risking about 10% of his cash (which he believes is going to be inflated away anyway, and which generates no revenue if invested in treasurys at the moment). In return, he gets a very high interest rate with lots of upside. BAC is stuck paying this, because so few people have that much capital to throw into the company, and those that have such means do not want to put it there.

    From my perspective, the market was pricing BAC’s short term demise as a certainty, whereas its demise should be viewed more as a medium term probability. If I were Buffett and got those terms, this deal would seem to be “a good bet” (ie a good speculation)…

    Incidentally, all those people (including John Hempton at Bronte, who I consider exceptionally astute) who believe that the government will bail out the banks again are going the other way in assigning a certainty to something which is likely at very best a probability. There is absolutely no political will to throw money at banks anymore. The government may try to do it subtly (ie, via Fed-induced steep yield curves, which no longer exist), but I doubt any Congressman will give (or defend the decision to give) a blank cheque to a bank before election day. (Although I suppose the gov’t could possibly persuade some sovereign wealth funds somewhere to put in the required cash instead)

    The public wants to see blood, and at least one major bank will have to be sacrificed to the mob should another emergency take place.

    JMO. of course.

    1. Nathanael

      “From my perspective, the market was pricing BAC’s short term demise as a certainty, whereas its demise should be viewed more as a medium term probability. If I were Buffett and got those terms, this deal would seem to be “a good bet” (ie a good speculation)…”

      Ka-ching. That’s exactly my analysis. Buffett has cultivated this reputation as a long-term investor, but if you actually look at his record he’s happy to make medium-term speculations.

      For him to profit, BoA doesn’t even need to survive. It just has to survive long enough to collect a few years of interest, and leave enough corpse pickings for him to recover most of his principal. That seems fairly likely.

  26. Hugh

    Again can we have some reality here? This isn’t some $5 bet Buffett is laying down in an office pool. It’s $5 billion. So he’s only putting out this kind of money because, from his perspective, it is as close to a dead cert as he can get. His bet is not about the efficacy of BAC’s business model. It’s about BAC being TBTF. I mean if BAC can earn its way out of its current predicament (doubtful) then for Buffett that’s fine and good. But that’s not why he’s laying out $5 billion. He’s doing that because of the implicit financial guarantee of TBTF. And even there he has positioned himself in the safest and most senior position possible.

    As for inflation, that’s for little people who have to buy groceries and gas. There is no inflation at the level Buffett moves at.

    1. Typing Monkey

      And even there he has positioned himself in the safest and most senior position possible.

      Of course he is!! He has the upper hand in a negotiation, and he’s trying to maximize his ability to profit from it–what the hell else is he supposed to do??????

    2. Yves Smith Post author

      No, senior would be debt. Secured debt. All the derivative counterparties come WAY ahead of him.

      He isn’t saying BAC is TBTF, he is betting there is no Dodd Frank resolution. A DF resolution would permit a cramdown even into the debt holders, wiping out common and preferred.

      1. Hugh

        I should have said safer, not safest, but I would think that the failure of a Dodd-Frank resolution for an institution like BAC is the very definition of TBTF. Is a Dodd-Frank resolution even workable? Isn’t it really like trying to defuse dynamite after it has exploded? The only two pathways for a BAC resolution look to be either Lehman or AIG. Neither of these look politically viable at the moment but if push came to shove I think the government would go the AIG route, which would not help Buffett. So I agree that Buffett is betting there won’t be a resolution, but because of BAC’s TBTF nature, the government will continue to find alternative ways of keeping this zombie going. I think he’s wrong.

  27. Antipodeus

    Yves, thanks for all your great work over the last few years. I’ve read through all of the above comments. Unlike ‘some people’ here, I am less than convinced that BofA is indeed TBTF. And I can well understand why they may be pushing back so hard against the NYAG, obviously calling in as many favours as possible. Because the consequences for all of the TBTF banks of any rigorous investigation/solution to the whole mortgage securitisation/fraudclosure swamp are potentially IMMENSE.

    But what no-one seems to have raised, Yves, is the likely repercussions of a BofA collapse on OTHER banks … such as, oh, WELLS FARGO?

  28. madtom

    I want to add my vote of thanks here, Yves.

    It was the financial blogs (even long before yours appeared), combined with other news, that let (or forced) me to sell my last big (big for this little guy) US asset and move the money offshore and out of dollars at about the right time. The sale was in mid-2005, after a few months of preparation. Years later, I found this to be the exact time that a NYT graph identified as the peak of the housing price bubble.

    For years before then, I had been reading responses in the blogs from career professionals, crying about how they were forced to be dishonest or lose their jobs to younger men, who produced bigger profits by going with the flow.

    It was in such comments that I learned about the “Friends of Angelo” list, when a man complained that his evaluation of a development rated it as maybe 15% completed, and his report was handed back to him so he could correct it to 80% completed, because the borrower’s name was on that key list.

    There were many similar (pre-2005) comments from people who were forced to approve mortgages they never would have in earlier years.

    So I’m amazed by all the argument about which later date was the exact moment, and when people (and experts) should have seen it coming. I started to worry when the real y2k disaster went almost unrecognized and continued to occupy the highest office for several years of increasing awfulness.

    When I sold out, I had already seen Enron happen. Okay, frauds happen. Kenny Boy was no friend of the y2k disaster, oh, no. Never heard of him. But aside from that instant pr response, I was stunned by the extent of the collusion between a major accounting firm, obvious fraudsters, and regulatory agencies, and the to-me amazingly weak prosecutorial even when no more coverup was possible.

    Does nobody remember how the Federal Energy Regulatory Commission disowned any regulatory authority over the interstate games that Enron played that cost California billions? Okay, it was a Bush-appointed agency, but that verified what I already feared about the corruption of the entire system.

    I had already felt the pain of the corruption, when the SEC ignored naked shorting that badly weakened a micro-biotech with an excellent product, and cost me a lot of money (a lot for me).

    Of course the naked shorting was only a preliminary part of the game, which finally involved the FDA setting up a special program to help such companies with their critical clinical trials. This company was one of their featured efforts, and the final and very expensive trial was designed entirely with the help and approval of the FDA.

    Then final approval was not granted – not because the drug didn’t perform well (it did) and not because it had bad side effects (it didn’t), but because the clinical trial had not included a “real” placebo control group that received a sham treatment, but instead used for comparison the current gold standard for treatment of diabetic foot ulcers (the target malady).

    Never mind that the trial could not possibly have withheld the recognized treatment from anyone with a diabetes-related foot ulcer, for ethical reasons. Never mind that the FDA itself helped design and had already signed off on the protocol. Not approved for procedural reasons, and BK, and too bad for diabetics and anyone else who would do better with a topically effective drug instead of taking something internally. Corrupt? Well, blunders happen. But the pattern of regulatory behavior was becoming clear.

    So it was out of Wall Street for me, a little guy who grew up in better regulated times and clearly didn’t understand the modern rules.

    Add to this the airport experience, like being yelled at by a very military-looking TSA guy as if I were a rookie draftee, and the increasing uniform-worship and tightening of the laws on individuals but not corporations that was so visible even pre-2005.

    Add to that the obvious-from-the-start campaign of lies about Iraq, and the ludicrous estimates of how little the adventure would cost, etc, etc.

    How much evidence did it take to establish the corruption of the entire power structure? It was clear then and clear now that the whole house needs cleaning, not just a few executive toilets.

    So pardon my bitter smile when “experts” challenge others on how early they recognized the financial problem and predicted trouble.

    I quite agree with an earlier poster: just knowing that *something* bad will happen is easy. Timing is the hard thing. Maybe I was too hasty in 2005? But my record is written in my actions, and in the fact that I walked away whole. Better early than never.

  29. solo

    The thrill is gone: BoA will prove to be the Waterloo for Buffett’s reputation as seer. Time to retire. (Perhaps join Easy Al Greenspan at the Home for Redundant Prophets.)

  30. The End

    These chat rooms catering to pessimistic, arrogant, deceptive and angry short-sellers are amusing.

Comments are closed.