Michael Olenick: Bank of America All In – Calling Moynihan’s Bluff to Bankrupt Countrywide

Yves here. As the headline indicates, the steps taken Bank of America that Michael Olenick describes in this article call into question the idea that Bank of America can shield itself by putting Countrywide into bankruptcy. Note that, some litigants, particularly AIG in its petition in opposition of the proposed $8.5 billion settlement of putback liability on 530 Countrywide trusts, made a persuasive case that Bank of America has operated Countrywide in such a way post acquisition so that it is no longer bankruptcy remote from BofA (that is, you can’t BK Countrywide and deny Countrywide creditors access to BofA assets).

Nevertheless, as attorney and former monoline executive Tom Adams noted by e-mail, the reason Bank of America might want the servicing at BofA rather than Countrywide if Countrywide is put into bankruptcy is probably to avoid a servicing termination event. If the servicer is bankrupt, the trustee or investors could, in theory, terminate them as servicer. This is really only theory, because almost no one (other than BofA) would want to be servicer for these loans, so it would be hard to see it as a driver of the changes Olenick describes.

An interesting related issue is that BofA, like other servicers in this new world of costly and lengthy foreclosures, is at risk of over advancing on mortgages. Servicers advance principal and interest even after a borrower has defaulted and reimburse themselves when the foreclosed property is sold. In theory, they can stop when a loan is clearly irrecoverable. In practice, historically many servicers have kept advancing up to the full principal balance of the loan. With loss severities rising and more borrowers fighting foreclosures, they can incur more costs than the house is worth, but on average, they still recover their advances. But with foreclosure timelines attenuating, legal costs escalating, and foreclosures grinding to a halt in states like Nevada, New York, and New Jersey, where they are now real sanctions for filing questionable foreclosure documentation, servicers face increasing doubts about their ability to recover advances from the proceeds of home sales. I hope the FDIC is watchful enough not to allow deposits to be used to fund servicer advances.

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

Bank of America’s subsidiary BAC Home Loans has filed foreclosures in FL under 286 slightly different names. For example, in the 28 Florida counties that I track, “BAC Home Loans Servicing” has 6,089 filings, “BAC Home Loans Servicing LP, FKA Countrywide Home Loans Servicing LP” has 5,657 filings, “BAC Home Loans” has 3,050 filings, and “BAC Home” has 2008 filings. Altogether there are 21,913 filings.

Bank of America has filed under 283 different names. Most are variations one would expect but some pop out: “Bank of America NA, SBM Countrywide Bank FSB” has 85 filings. Altogether there are 44,504 filings with some derivation of the name Bank of America.

Robo-signing slowed down BAC filings, like it did all filings, though as the leaves fell from the trees in the northern states, so did the filings in the name of BAC Home Loans. I track 359 filings in June, 2011; 321 filings in July, 28 filings in August, nine filings in September, and twelve filings total in the fourth quarter.

But Bank of America didn’t stop filing; they actually increased their volume. In June, 2011 Bank of America filed 178 foreclosures; 169 in July, 362 in August, 471 in September, 579 in October, 452 in November, and 76 in this first week of December.

I spent Monday with Sean O’Toole, CEO of ForeclosureRadar.com. Sean tracks foreclosures in several Western states: his data is impeccable. We saw the same trend in CA foreclosure filings. That is, filings as BAC Home Loans ratcheted down dramatically while filings as Bank of America surged. Whereas overall Florida filings were up slightly, overall CA filings had an even sharper uptick, though as Bank of America, not BAC Home Loans.

Just to repeat: in the two state’s arguably most hard-hit by the foreclosure crisis foreclosure filings by the subsidiary set up to handle Countrywide loan servicing, BAC Home Loans, trended down to negligible levels while filings as Bank of America, the FDIC insured bank, took their place.

On Tuesday, Dec. 6th, Brian Moniyhan was asked by Reuters about the possibility of putting Countrywide into bankruptcy and replied “We always have options but .. we’ve got to move through this in a way that doesn’t disrupt the company,” Moniyhan replied, implying — though arguably in the obtuse way that lawyers do — bankrupting his Countrywide division remains an option.

Since foreclosures must be filed under the name of the party that can enforce the obligation — there’s an out-of-scope raging debate whether that means the servicer, trust, or both — it’s fair to conclude that Bank of America made a cognizant decision in the third quarter to fuse the Countrywide junk pile with the insured central bank. I’m not a corporate bankruptcy lawyer but it looks extremely unlikely, in the context of the changes to these foreclosure filings, that Bank of America retains the option to bankrupt Countrywide without affecting the insured bank.

The changes to Countrywide come at the same time that Bank of America has been pushing regulators to transfer the $75 trillion of derivatives it inherited through the acquisition of Merrill Lynch into the insured bank. They’ve already transferred most of that junk pile, though it is not clear whether regulators will force them to roll-back part or all of the transfers.

BOA has set aside $16.3 billion for “put-back” liability claims; the ability of investors to force a bank to repurchase failed mortgage-related securities. This liability usually stems from material misrepresentations in Pooling & Servicing Agreements (PSAs), the contracts governing the process that allow banks to sell pieces of bundled mortgage to third parties. That sounds like a lot of money except that AIG has already sued BOA for $10 billion on the grounds that the bank, or agents of the bank, essentially lied to the insurance company enticing it to write a type of non-regulated default insurance called a Credit Default Swap (CDS), against mortgage securities they knew were filled with lousy loans.

In addition to the $10 billion AIG lawsuit, the Federal Housing Finance Agency (FHFA), which effectively controls Fannie Mae and Freddie Mac, has also sued the parent bank for $6 billion in put-back liability, sued BOA-owned Merrill Lynch for $24.8 billion, and sued Countrywide for $26.6 billion.

Granted, the securities BOA would have to repurchase aren’t worthless; there are still some people paying even the lousiest loans back. But thanks to the failure of the GSEs to disclose loan-level information, an abject lack of opacity into the CDS contracts, and mark-to-model accounting that leaves investors blind we don’t really know what any of these instruments are worth. But it’s probably fair to say that the $16.6 billion will come nowhere close to covering the liabilities of just those lawsuits, much less the dozens of others either being drafted or in progress against the bank on various fraud liabilities.

In summary, evidence suggests BOA has transferred Countrywide to the parent bank, and that — because of the Countrywide and Merrill liabilities — they’re effectively bankrupt. They tried to keep the party going but eventually even Bernie needs to be buried.

In November, 2010, Moynihan famously promised investors “day-to-day, hand-to-hand combat” against put-back liability claims. Now, a year later, it’s clear that the combat isn’t going so well. Bank of America lays beaten and bruised; their own underwriters would be crazy to make a loan to themselves if they were objectively evaluating the risks. During the 2011 combat Moynihan himself has been personally flipping thousands of shares he acquires for nothing each month, even as the banks stock price keeps plunging, according to SEC filings.

By bringing Countrywide, along with the Merrill junk pile, back into the fold it appears BOA is holding itself hostage. I’m just guessing but their ransom demand is probably the only “business” they’re good at anymore: demanding bailouts. Whether it’s a direct or indirect bailout, from the Treasury, the Federal Reserve, their regulators, and/or their counterparties, the modern-day equivalent of Reagan’s Cadillac driving welfare queens are anteing up to demand a Bugatti.

It’s not clear whether the FDIC has the Cajones to seize this perennial basket case, or whether we’ll see a return of hypocritical Too Big To Fail policies where personal responsibility is only for, in the words of the late Leona Helmsley, the little people. Contractors, plumbers, electricians, and other middle-class workers lose their homes, their credit, and their money when they make bad decisions; Bank of America basks in billions. Bailouts and bonuses for bungling one’s bank .. for the public good, of course.

It would benefit mortgage borrowers if a vulture firm had the opportunity to buy BOA’s mortgage loans for a few cents on the dollar, because there would be lots of room to reduce principal and still make a profit on the loans. Even better, regulators could allow people to purchase their own home loans out of the pools, from a bankrupt Bank of America, at the price the discount the loans are selling for at open, non-government supported auction after a slight administrative fee.

Forced liquidation of the notes, at rock-bottom prices, would organically allow the market to reduce principal and begin to put a floor in the housing market. Everybody, including and especially Bank of America, says that’s what’s needed as a long-term fix to the housing mess. Of course, BOA would presumably rather see that happen through government subsidized foreclosures rather than the unsubsidized liquidation of their bank.

Disclosure: I covered my own short position in BAC several weeks ago, before I’d confirmed the trend to file as BAC was also in-place in CA. I will not take a new position in BAC until this article is published. Even then, I’m not sure whether it’s safe to bet against government intervention on the part of the American aristocracy. I also have long-term call contracts on AIG, because I believe their claim against BOA is meritorious and I’m hoping they’ll file similar claims against others.

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  1. psychohistorian

    Michael Olenick said:
    “Bank of America’s subsidiary BAC Home Loans has filed foreclosures in FL under 286 slightly different names.”

    Will someone please explain what good this might be for whom? Is this hiding the bodies or some legal sleight of hand that us little people aren’t suppose to understand? Sounds like instead of Too Big To Fail we have Too Criminal To Prosecute as well.

    Thanks for the posting Michael and while I appreciate your investment disclosure I can’t imagine playing in the fetid pool of finance at this juncture….good luck casting the entrails of the finance owl.

    1. LucyLulu

      I think I may be missing something, this isn’t quite making sense. I’m trying to figure out what Moynihan’s motivation would be to want to transfer Countrywide crap to the parent bank, rather than leaving it segregated and thus more easily dischargable in bankruptcy. Surely he has top legal advice and is financially astute.

      As mentioned, in at least some states, foreclosures are filed in names of servicers. I don’t know about FL and CA (one judicial, one non-judicial). Is it possible that only the servicing business is being relocated to BOA? If they moved the servicing contracts only, how would that affect putback liability on the (loan) depositors?

      It’s hard to see how any of these servicers are staying in the black given the number of delinquent mortgages still waiting to work through the pipeline. But who knows, maybe that’s all being fronted by the Fed too, to be made public in GFC Fed release #945.

      1. LucyLulu

        Sorry, above was meant as reply to general thread, not to you personally, psychohistorian. Must have hit the wrong button.

      2. Yves Smith Post author

        FWIW, this is the servicing, not the loans. The loans were securitized.

        The post argues that this is a tacit admission that BofA can’t BK only Countrywide. The AIG filing we pointed to argues that longer form. They tried stripping the sub of assets, which is a no-no, and didn’t operate it like an arm’s length operation.

        1. steelhead23

          I’m a bit sophomoric on finance – and understanding BAC’s motivations requires post-doc seminar type understanding. Isn’t the contract in dispute the PSA? Doesn’t the PSA define the obligations of the trustee, not the servicer? That is, it would seem that a servicer is, or should be, remote to the trust. Are you suggesting that BAC is both the trustee in many CDOs (or have become the trustee following purchase of Countrywide) and the servicer? This is all so messy, it would require a book length article to begin to understand why BAC made the fateful error.

          BTW – the bottom line appears to be that BAC has placed a gun to the temple of its depository institution and is basically telling Uncle Sam – bail us out or our creditors will devour our assets and the FDIC will be forced to pay ALL depositors. This is extortion – and the author is not too sure it won’t work. Folks, the obvious point is this. This is not going to stop until and unless personal liability, including criminal prosecutions, make the risk very real and very personal.

          1. Yves Smith Post author

            No, PSA = “Pooling and Servicing Agreement”. It also defines the duties of the servicer.

          2. LucyLulu

            The trustee and the servicer would not be the same. The PSA spells out the obligations of all parties. My understanding is that the liability burden of concern in this article is that of the depositor, the entity that transferred the mortgage loan assets to the trust, or possibly an earlier party in the chain of title that provided the reps and warranties on the loans. He is citing the potential putback liability banks are facing, which is not a liability the trustee incurs. Yves has pointed out in earlier posts, however, that trustees could be held liable (AFAIK, no suits making this claim have been decided, Schneiderman is asserting it in his intervention in the BNYMellon-BAC $8.5B settlement) for annual certification statements to investors (certificate holders) of the trust claiming the possession of documentation they don’t actually have, e.g. valid assignments of mortgage loans to the trust.

            Mr. Olenick mentions finding filings of “Bank of America NA, SBM Countrywide Bank FSB”, SBM meaning “successor by merger”, but there are only 85 of 44,000+ filings, and could well be mistaken (or claimed to be) notation. also outlines the trend in names of foreclosure entities from subsidiaries to the parent bank and if I understand correctly, is using this to state the parent bank is absorbing the mortgage companies. I’m no financial expert either, far from it, but one area I do understand well is the mortgage securitization process and its role in the financial industry over the last couple of decades. I still find the article a bit obscure. Even though servicing contracts are subject to termination by a third party (trustee), does the transfer of servicing agreements from one company to another constitute “asset stripping”? Is that the piece I am missing?

  2. ambrit

    Being an erstwhile plumber, I can attest that “contractors, Plumbers, electricians and other middle class workers” are indeed losing their homes. (We were fortunate enough to pay off our home several years ago.) One unintended consequence of this devaluation of assets is that small contractors and sub contractors who would have had their house equity to draw on for working capital are now unable to finance operations short term this way. Any good figures on small business shake out this way? Small business operation has always been a ‘carrot and stick’ affair. Unfortunately, the stick has become a log.

  3. Miguel

    Long time reader, first time commenter, but I think I owe it to my beloved Yves and her readers to explain that all this fancy detective work has discovered something that’s not at all a secret.

    Federally-chartered banks — the ones with the word “national” in their names, either embedded, e.g. “Fred’s National Bank” or appended as in “National Association” or “N.A.” — are subject to federal regulations and are immune from certain state regs. It used to be that national banks’ mortgage subs enjoyed the same immunities, but Dodd-Frank ended that effective July 1, 2011. In response, BAC and many other bank-holding companies moved their servicing operations into the national banks, some by assignment and others (such as BAC) by merger. Specifically, at BAC they merged the ex-Countrywide servicing company into its parent company, Bank of America, National Association, effective July 1. This is, of course, a matter of public record.

    So it’s right that that piece of Countrywide can no longer be bankrupted, and if you read the BONYM settlement you’ll see that certificate holders view the servicing liabilities as non-trivial. But the potentially crushing liabilities — to certificate holders under the securities laws and similar theories, and to trustees and other loan-buyers on reps and warrants — are in other ex-Countrywide companies that have not been merged into the bank.

    BAC has tried pretty hard to maintain the separateness of those companies, and the adequacy of its efforts will ultimately be litigated someplace. That’s true whether or not BAC puts those units into bankruptcy. There’s no reason to doubt the conclusion of BONYM’s experts that those companies’ assets are insufficient to pay their liabilities. So when those assets are exhausted, bankruptcy or no, the courts will have to decide whether BAC and/or Bank of America, National Association will have to pay those companies’ remaining debts. It’s very interesting and will be very hard-fought, and it’s not a slam dunk for either side.

    1. Michael Olenick

      I think the link in voislav’s comment, below, sums up best what’s going on.

      If Dodd-Frank were the impetus behind the name change, then BOA might have mentioned that a change in the law makes a Countrywide-only BK much trickier, if not impossible. Instead, as early as two days ago they were still strongly implying it’s an option. Granted, they can litigate the question for years, but I don’t think time is on their side.

      On the name derivations, that’s over several years; there were many (many, many) derivations from before this summer.

  4. jake chase

    I find it difficult to understand why BA still has any depositors. It probably needs to stay out of bankruptcy to retain access to the Fed spigot. My guess is that the servicing business is just pumping Fed money through to the trust beneficiaries, while the mortgages go into default. Perhaps nobody is paying on these securitized mortgages except Bernanke?

  5. jest

    So if, or when, BofA goes belly up, to whom go the spoils?

    Does this not mean that JPM’s market share goes from enormous to ginormous?

    Or in the nightmare scenario, GS buys the accounts and raids them MF Global-style?

  6. indio007

    Since finding out that BoA’s derivatives liabilities will be paid out before depositors in any BoA bankruptcy, I’ve been telling everyone within earshot to get out of BoA.

    Anyone with deposits in BoA is going to get MF Globaled.

      1. LucyLulu

        Nope. Blew my mind, too. AND…… the courts ruled last January that the FDIC is backstopped by the US treasury, i.e. it can’t claim it’s run out of money and not make good on its obligations, the taxpayers must pick up the slack. Bailouts can now be legally enforced upon any reluctant peasants.

    1. Tswkr

      The assignments out of MERS and into the party filing the foreclosure occur at roughly the same time, or after, the Lis pendens filing.

  7. bmeisen

    “…BOA has been pushing regulators to transfer the $75 trillion of derivatives …”

    I know these guys are megalomaniacal but that’s a typo. Right?

    1. Michael Olenick


      Unfortunately .. no. Here’s a link to a recent Bloomberg article, though the underlying data comes from the OCC: http://bloom.bg/nzXv17

      The GDP of the world is apparently $62 trillion (admission – that figure comes from Wikipedia but for a comment that seems OK). Maybe they’ll try arguing that as a percentage of the World GDP it’s not so bad, then change their name to Bank of The World.

      Trillion .. the new Billion.

      1. bmeisen

        Thanks for the link.

        BOA holds $75 trillion in derivatives contracts, or about 115% of world GDP using wikipedia’s figure. What are these contracts and what kind of a claim do they have on the $1.1 tillion in deposits at BOA?

        Back to Wikipedia …

        1. bmeisen

          Recalling Partnoy’s presentation about Citi’s balance sheet a few years ago – beginning to catch up. Many if not all OTC derivative contracts don’t impact the bottom line because GAAP and associated regulatory frameworks ignore them. Their relevance emerges when it’s too late.

          A large part of the 75 tillion is exchange rate related and probably not too dangerous. The CDS element might be substantial but as long as the US taxpayer is poorly represented it should be safe.

  8. David Fiderer

    Thanks, Mr. Oelick for your extremely important reporting and analysis.

    It’s a refreshing antidote to the virtual news blackout in many mainstream outlets, where foreclosure fraud is characterized as “paperwork problems” or “negligence.”

  9. Anon

    BofA, thy name is legion. Truly, there are many of you.

    (286 is the new number of the Beast. Who knew? 287, of course, is his neighbor.)

  10. Javagold

    BAC must have changed the name on their correspondances to us atleast 5 times !!…..plus out of the blue they just changed our account number , which i tried getting an answer why , but no one would say …..They are CRIMINALS

    1. Lambert Strether

      That’s an interesting data point. If I were wearing my tinfoil hat, and inclined to guess, to my simple mind this looks like BoA swapped in a new database in such a way that relations to the old database were borked. Of course, I can’t imagine why they’d want to cover their tracks that way *** cough *** MERS *** cough ***.

  11. Pearl

    Here are some non-scientific, non-official data from Georgia’s Superior Court State database, the GSCCCA. The following data support Michael’s observation that, in general, BAC Home Loan Servicing foreclosure filings have been trending downward in 2011, while Bank of America N.A. filings are trending upward.

    Note: Georgia is a non-judicial state with its own idiosyncratic and nuanced recording laws and statutes. For example, an actual Deed of Foreclosure can be filed up to 90 days after the date upon which the property was auctioned off. “Assignments of Mortgage” can be filed up to and including the actual date of auction, and are sometimes filed concurrently with the foreclosure deed (!) Lately, however, Assignments of Mortgage are fabricated (oops. I mean “prepared”) by document mills and filed electronically just prior to the cut-off date for the mandatory 4-week advertising/publication period that precedes the foreclosure sale.)

    Foreclosure sales in the state of Georgia are conducted on the first Tuesday of each month from the court house steps of each county.

    While most of Georgia’s Land Records are indexed on the GSCCCA website, a few of Georgia’s counties’ Land Records are only indexed on local databases. In general, however, I have found the GSCCCA to be a fairly accurate representation of what is being filed throughout the state. (The GSCCCA has been known to get back-logged by several weeks in some counties–so it is not reliable for any up-to-the-minute information.)

    I filtered my search for ALL COUNTIES, GRANTEE, DEED OF FORECLOSURE, “BANK OF AMERICA,” and then I repeated the same searches for “BAC HOME LOAN.” (I was hoping to pick up the bulk of the variations in the names by filtering with these spellings.) I searched each month of 2011 individually and I only counted the variations that were very obviously the same entity. Therefore, because I had to exercise my own judgement in determining which documents to include in my “count,” these numbers are not precise or fool-proof–but probably fairly representative of the actual numbers.

    (A reminder–In Georgia, Deeds of Foreclosure can be filed up to 90 days after the foreclosure sale/auction date–so the Deeds of Foreclosure from September and months prior are probably very reliable, and most of October’s Deeds of Foreclosure are probably already filed and indexed, as well. However, many of November’s Deeds of Foreclosure are probably not filed and/or indexed, and, in all likelihood, only a handful of December’s Deeds of Foreclosure have been filed and indexed.)

    The search for “BAC Home Loan…” resulted in the following:
    January : 90, February: 109, March: 210, April: 402, May: 825, June: 727, July: 567, August: 761, September: 354, October: 107, November: 93, and (meaninglessly) December: 12.

    The search for “Bank of America…” resulted in the following:
    January: 70, February: 65, March: 100, April: 123, May: 149, June: 178, July: 320, August: 990, September: 998, October: 880, November: 658, and (meaninglessly) December: 49.

    Consistent with Michael’s observation–BAC Home Loans Servicing filings seem to be trending down since August while Bank of America N.A. seems to be trending up.

    (August, not July, because, unlike our “judicial” neighbor to the south, Georgia homeowners do not have the advantage of a foreclosure action being “filed” prior to the actual foreclosure sale. I had to count actual Deeds of Foreclosure that had already been filed–so Georgia’s numbers will lag behind Florida’s numbers.)

    But, supportive of Michael’s research, is that in each month from January through July, BAC Home Loan Servicing LP filed significantly more Deeds of Foreclosure than Bank of America N.A. filed. Since August, however, that has reversed, and Bank of America N.A. has filed significantly more deeds of Foreclosure than BAC Home Loans Servicing LP. (In the state of Georgia.)

    By the way, BAC Home Loans Servicing, LP filed this Certificate of Withdrawal with the Georgia Secretary of State on July 13, 2011:


    Here is its status as of today per the Georgia secretary of State’s website:


    Most importantly of all, however is the following:

    Michael–can I get any nerdpoints/trophies for this from Findthefraud.com? Maybe just a few extra credit points? “Peachpoints,” perhaps? :-)

    1. Michael Olenick

      Pearl — when I finally finish it I’ll boost you to the top! Right now I’m trying to enter all the various servicer names robo’s have recorded under. I’m up to 126 names and feel like I haven’t found 1/100th of them. I mean, seriously .. forgot about mortgage companies with names like “Imperial Lending” (well chosen name), Mortgageit (but it was the borrowers tricking the banks into lending), and Trust One Mortgage. Trust … not.

  12. Ray Phenicie

    “By bringing Countrywide, along with the Merrill junk pile, back into the fold it appears BOA is holding itself hostage. I’m just guessing but their ransom demand is probably the only “business” they’re good at anymore: demanding bailouts. Whether it’s a direct or indirect bailout, from the Treasury, the Federal Reserve, their regulators, and/or their counterparties, the modern-day equivalent of Reagan’s Cadillac driving welfare queens are anteing up to demand a Bugatti.”

    Shall we contact Nancy R. and Margaret Thatcher and hold a seance to see what he thinks of BofA getting another bailout-as they are likely to do?

    I find Mr. Obama blameworthy on this as he brought forward the last administration’s assessment that we had to just write a blank check to the Too Big to Junk Bankers. Now Brian Moynihan is junkyard dog. Woof!

    But then Congress is also very blameworthy on this as they are the prostitutes the bank buys off every two years. Kissy kootchee koo

    But we sit here and blog

  13. Fraud Guy

    “It would benefit mortgage borrowers if a vulture firm had the opportunity to buy BOA’s mortgage loans for a few cents on the dollar, because there would be lots of room to reduce principal and still make a profit on the loans.”

    Of course, if they act like Iceland’s vulture firms, they will act to change the law so that they can collect 100% on the dollar, or more. Be careful what you wish for.

  14. level8000

    I hear these big numbers, BAC being sued for $10B, ML for $26B, CFC for $25B. The authors usually assume that the agrieved party has an outstanding case and will get the full amount.

    I’d like to see some historical reference on this assumption. Don’t these things usually end up at some small fraction of where they started, like 10%, or 5%, or even 1% in some cases. (I guess in some cases the defendant (BAC) prevails) I’d like to hear a perspective on what the realistic loss potential for BofA is.

    On another note. I saw the filing in the early summer when BAC absorbed the CFC servicing arm. I think it was on June 30th and I have been wondering since then why they did that. I thought it was some end-of-quarter formality. Miguel explained it above – it was Dodd Frank. Now it makes some sense.

    A lot of people complain about what BAC is doing or has done, but it seems to me they are doing exactly what the law or the regulators will allow. Moving the derivative exposure was encouraged by the FED, but not the FDIC. I’m in the camp that believes the rules were changed in the 90s that allowed what has happened to occur. Maybe it even facilitated it. There have been few criminal prosecutions because very few laws were broken. Civil cases can be won for reckless and irresponsible behavior and that is what a lot of it was – but criminal behavior it was not.

    Today’s situation is similar. BAC is doing what they are allowed to do. It is naive to think they aren’t highly regulated. They always were – it was the regulation of CFC and ML that was lacking and now that they are part of a bank they are highly regulated as well.

    I’m also in the camp that thinks BAC actually has saved taxpayers money. BAC had a profit motive in mind when they bought CFC and ML, so there was no altruism involved. But, if they hadn’t done those deals the taxpayer bill for the failure of one or both of those companies would have been tremendous. Don’t even think about the number of jobs that would have been lost. BAC paid back the money that they were loaned – with interest – in less than 18 months. Their bailout was a temporary expense and then a profit generating transaction for the taxpayer. If BAC management had properly understood what they were getting into and declined to get involved the impact to the economy would have been substantial and there would have been real government losses to sort it out.

  15. Michael

    At the bottom of the article it states
    “Forced liquidation of the notes, at rock-bottom prices, would organically allow the market to reduce principal and begin to put a floor in the housing market. Everybody, including and especially Bank of America, says that’s what’s needed as a long-term fix to the housing mess.”

    The problem with this idea in the eyes of the TBTF bankers is that it would show that the emperor had no clothes, i.e. that the value of the MBS holdings at all the TBTF banks like JPM, Citi, and Wells Fargo are vastly overstated on their books. Everyone in the TBTF complex – the FED, US Treasury, President Obama, and all the banksters would move heaven and earth to keep that from happening

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