Is Dick Bove’s put-foot-in-mouth-and-chew exercise yesterday proof of the eagerness of the banking industry to push back against any and all interference in their ability to milk the public, or merely that Bove is a great negative indicator (one of his most famous calls was to buy Citi in early March 2008. You’d have lost more than 3/4 of your money if you’d followed his advice.)
News that New York attorney general Eric Schneiderman has opened an investigation into the mortgage activities of Goldman, Morgan Stanley, and Bank of America sent Bove into a tizzy. Despite ample evidence of bank malfeasance (forgeries, fabricated documents, foreclosing on the wrong people, inability to find notes, force place insurance, and the report that the US Trustee, an arm of the Department of Justice, has found widespread, significant overcharges) Bove insists their right to prey on the public must be preserved…..because it will hurt lending.
I’m not making this up. From Forbes:
Bove calls Schneiderman’s a “witch hunt” and says the efforts are more likely a way for the AG to “make a name for himself.”
“Only in New York does the attorney general’s office go after the state’s strongest industry. In Texas, you don’t have the attorney general going after the oil industry. In Michigan you don’t have the attorney general going after the auto industry and in Florida you don’t have the AG’s office going after the tourist industry.
It takes a certain perverse skill to say so many wrong things in a short space. The TBTF banks are in no way private companies. They are so heavily subsidized as to be welfare departments for the rentier classes. And it’s idiotic to use cash generation as an excuse to refuse to pursue law-breakers. By that standard, Bove wants there to be no enforcement at all, since drug dealing and prostitution are also highly profitable enterprises and the core of some local economies, like the southern border of the US.
Bove also compared Schneiderman to Eliot Spitzer and Andrew Cuomo. Aside from both being former New York AGs, Spitzer and Cuomo have little in common. Spitzer was famously aggressive, while Cuomo was almost entirely absent during the first two years of his term, then bestirred himself to launch a few cases prior to his gubernatorial bid. We don’t know yet what kind of AG Schneiderman will be; in fact, he made troublingly conciliatory remarks in his early days in office. But the fact that Bove suggests that Cuomo was some sort of tough enforcer calls his knowledge into serious question.
These remarks should seal any doubts about Bove’s expertise:
“There are over 10,000 suits filed against JPMorgan Chase and they are supposed to be the good guys. If you assume Bank of America and Wells Fargo are facing something similar then there are 30,000 to 35,000 suits out there against these banks,” he says.
That hurts everyone, he says. “The ability for banks to function becomes cumbersome and in turn they have provided no assistance to the economy since 2008 by not lending,” he says.
Bove has just told us he knows nothing about the mortgage business. The number of lawsuits is large because the overwhelming majority are borrowers fighting foreclosures. The cost of those actions comes out of the hides of investors in mortgage securitizations, not out of the banks. And there is no evidence of scarcity of mortgage credit, since mortgage rates are close to record lows. Banks themselves say the issue is demand, not the availability of credit. Now that credit is virtually all on the government dime and the government has tightened lending standards, and pretty much everyone (except apparently Bove) thinks that’s a good thing, since a quite a few people got loans in the bubble years who weren’t credit-worthy.
And Bove has the real problem backwards. The private mortgage securitization market is dead precisely because the banks have refused to clean up their bad practices. Many investors would like to sue but are afraid to because they depend on Wall Street for transcation flow. They’d applaud a state AG taking up their issues for them. And that in turn would eventually bring private investors back to the market. But Bove apparently would prefer to keep his big meal tickets on the government drip feed.
In addition, the author of the post, Halah Touryalai, is as incompetent as Bove. Get a load of this:
Schneiderman is bringing the investigation independent of a separate mortgage investigation that was launched by the 50 state attorneys general against big banks.
This is factually incorrect. As we have discussed at considerable length, and if Touryalai could easily ascertain if she could be bothered to do minimal homework, there has been no investigation by the 50 state AG effort (Tom Miller’s one effort to claim otherwise has been disputed by his fellow AGs, so he has wisely gone silent). She also inaccurately claims the AG effort is moving to a settlement, when there was no deal to be made (the banks wanted a broad waiver of liability, which a considerable number of AGs were unwilling to grant).
This also discredits Touryalai:
Of course, the other major mortgage securitization battle that’s been ongoing is the one between Bank of America and major players like PIMCO, BlackRock Financial, the New York Federal Reserve Bank, Metlife and others. The group argues that BofA has to buy back soured mortgages bonds because they were sold with false representations about their quality. In its last quarterly filing, BofA said that the investor group now represents $177.1 billion in bonds.
Sports fans, that is no “battle”, that was a bluff that failed. If Touryalai could be bothered to do the most basic research, she’d know that an attorney at a boutique but well regarded litigator put a big PR push to make a mere letter (letter, not a lawsuit) sound like real artillery. We and other bank beat watchers like Chris Whalen said this gambit would go all of nowhere, and it has. The letter, sent in October, has not been followed up with any litigation or even threats in public after Bank of America sent a tart smackdown. Moreover, even if the case had moved forward, we estimated it to be worth at most $1 billion.
So you have a noisy industry mouthpiece leading a writer who likes taking sensationalistic dictation. I suppose that passes for journalism at Forbes.