Category Archives: Credit markets

Nevada Lawsuit Shows Bank of America’s Criminal Incompetence

It’s pretty remarkable that Mr. Market shrugged off the devastating implications of the amended lawsuit filed by the Nevada attorney general, Catherine Masto against various Bank of America entities. As we’ve stated before, litigation by attorney general is significant not merely due to the damages and remedies sought, but because it paves the way for private lawsuits.

And make no mistake about it, this filing is a doozy. It shows the Federal/state attorney general mortgage settlement effort to be a complete travesty. The claim describes, in considerable detail, how various Bank of America units engaged in misconduct in virtually every aspect of its residential mortgage business.

More Legal Woes for BofA: Homeowners Opposes $8.5 Billion Settlement; Different Trustee Sues Over Reps and Warranties

Bank of Americas’s stock beat a bit of a retreat today as its so called $8.5 billion settlement came under increased fire. Frankly, the number of objections filed prior to late afternoon yesterday and today meant it was dead in its current form. At best, it would take a two or three years and a bigger price tag for any deal to be concluded (although we are in the skeptics’ camp, particularly as far as the currently overly broad waiver of liability is concerned).

Nevertheless, the latest developments pound more nails into the coffin.

Memo to Ezra Klein: Doing Something Stupid Isn’t Smart

The Administration appears to be gearing up to try to Do Something on the housing and general economy front. Readers have no doubt wised up to the fact that Doing Something, Obama Administration version, generally consists (at best) of largely cosmetic measures accompanied by lots of handwaving. The latest sightings include yet another effort to push the 50 state attorney general settlement over the line by the phony deadline of Labor Day and more chatter among by members of the Democratic hackocracy in favor of an expanded Fannie/Freddie refi program as a way to fix the housing market. That idea appears to be moving front burner, since ~~Baghdad Bob~~ Ezra Klein has decided to weigh in.

FDIC Objects to $8.5 Billion BofA Settlement (Updated)

Ooh, this is getting to be fun. Now the FDIC has weighed in too.

Can’t wait to get my hands on the filing (any readers who can get it are encouraged to provide a link or send a pdf so I can upload it).

State Officials Starting to Question Securitization Fail, Whether States Should Tax RMBS

This letter (hat tip Daniel Pennell) by Virginia delegate Bob Marshall is another indicator that mortgage backed securitization issues are not going away any time soon. Notice that the questions are sophisticated and show familiarity with recent litigation.

And look at question 10. I’ve been wondering when cash strapped states might look to the apparent failure of mortgage securitizations to adhere to REMIC rules as a possible trigger for tax assessments.

How Chase Ruined Lives of People Who Paid Off Their Mortgages

Matt Taibbi, in giving a well deserved thrashing to the banking industry’s Tokyo Rose, aka New York Fed director Kathryn Wylde, said:

[S]tealing is pretty much the worst thing that a bank can do — and these banks just finished the longest and most orgiastic campaign of stealing in the history of money.

Once you read the allegations in the cases included in this post, I strongly suspect you will agree that the “ruining lives” in the headline is not an exaggeration. And as important, these two cases, with very similar fact sets, also suggest that these abuses are not mere “mistakes”. These are clearly well established practices that Chase can’t be bothered to clean up, since cleaning them up costs money and letting them continue is more profitable.

On the Buffett Purchase of BofA Preferred

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).

Bombshell Admission of Failed Securitization Process in American Home Mortgage Servicing/LPS Lawsuit

Wow, Jones Day just created a huge mess for its client and banks generally if anyone is alert enough to act on it.

The lawsuit in question is American Home Mortgage Servicing Inc. v Lender Processing Services. It hasn’t gotten all that much attention (unless you are on the LPS deathwatch beat) because to most, it looks like yet another beauty contest between Cinderella’s two ugly sisters.

Auerback/Parenteau: Jackson Hole will be a Black Hole for Those Hoping for QE3

By Marshall Auerback, a portfolio strategist, hedge fund manager, and Roosevelt Institute Fellow, and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute. Cross posted from New Economic Perspectives

Those leading the charge for “fiscal consolidation” now seem positively shocked by the violent gyrations in the stock market, as expectations rapidly seem to be shifting toward an “L” shaped recovery or worse – a possible global recession. To those of us on this blog who have consistently downplayed the prospects of global recovery in the midst of widespread private sector AND public sector retrenchment, none of this sadly comes as a surprise. We are, as Bill Mitchell noted recently, experiencing a “self-inflicted catastrophe”, largely because of dangerously destructive myths in regard to the efficacy (or lack of it) in regard to fiscal policy. But in spite of the shrill rhetoric of the fiscal austerian brigades, the markets are beginning to intuit that a nation cannot have a fiscal contraction expansion when all other spending is flat or going backwards and yet that remains the general trajectory of policy.

More on the Opacity of Bank of America’s Financial Statements

Yesterday, I made a basic point about the financial statements of banks and other financial firms, citing Steve Waldman, who said it better than I could:

Bank capital cannot be measured. Think about that until you really get it. “Large complex financial institutions” report leverage ratios and “tier one” capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish “well capitalized” from insolvent banks, even in good times, and regardless of their formal statements.

The illustration of Steve’s point was that investors freaked out on Monday about an estimate that Bank of America might need to raise $40 to $50 billion in equity. The idea that the market would be surprised (as in not know that and simultaneously regard that figure as plausible) says a great deal about how little confidence investors have in their knowledge of big financial firms.

Should Banks Be Public Utilities?

We discuss what the role of banks should be, given how much government support they have, on Real News Network. Enjoy!

Why is Bank of America’s Stock Cratering Yet Again? It’s the Extend and Pretend Endgame

Yesterday, the S&P 500 ended flat, yet Bank of America continued its truly impressive implosion, with its stock tanking 7.89%. It is now trading at a market cap of $65 billion, versus a book value of common equity of roughly $215 billion.

Market commentators were having so much fun discussing the meltdown that FT Alphaville even dedicated a post to the “The Bank of America Explanation Game.” This was its tally, and the post includes an explanation for each:

Satyajit Das on the Botox Economy

As much as I like Satyajit Das’ books (his new offering, Extreme Money, is just out and was reviewed favorably in the Financial Times), I wish he’d get on TV more often. His being in Sydney puts him at a bit of a disadvantage.

This clip is amusing.