Blog on the Run: Reloaded

Wednesday, December 5, 2012 7:29 pm

Brian Moynihan can say only one thing to keep himself out of prison, and it’s a lie.

This one’s for my friends and family in Charlotte.

Brian Moynihan is the CEO of Bank of America. Last May, unbeknownst to most of us, he was deposed by lawyers for insurance companies suing Bank of America and Countrywide, the “mortgage” company that BofA acquired. The insurance companies lost a metric shit-ton of money because Countrywide spent years originating a boatload of mortgages to anyone with a pulse, mortgages that were doomed to fail, and then packaged and sold them as AAA-grade bonds, which were even more attractive investments at the time because MBIA and other prominent companies had insured them.

When BofA acquired Countrywide, for no small amount of money despite the company’s obvious worthlessness at that point, Moynihan famously promised to make good on all his company’s new acquisition’s misdeeds, a promise that, if kept, could render BofA so much more insolvent that even the government wouldn’t be able to ignore it any longer. And I haven’t kept close track, so this may all be over and done with, but Moynihan also may have legal problems with BofA stockholders who have claimed they weren’t fully informed of  Countrywide’s problems at the time of the acquisition, as securities law requires.

Anyway, this little Q&A between MBIA lawyers and Moynihan  runs on to 223 pages, and if we are to take its protagonist at his word — a dangerous thing to do, as we shall see in a moment — then he not only has no business serving as the CEO of anything more important than watching moss grow, he also desperately needs full-time dementia care. (And having had friends and relatives with Alizheimer’s, I don’t throw that metaphor out  lightly.)

Moynihan essentially had three choices in answering these questions. He could tell the truth and, in all likelihood, admit under oath to securities fraud, conspiracy and a host of other crimes. Or he could lie and say these things did not happen on his watch when they manifestly did, and face perjury charges. Or he could say he didn’t recall. (I suppose he had a fourth possibility, taking the Fifth Amendment, but a quick scan suggests he either didn’t do that or else did it very obliquely.)

Well, to absolutely no one’s surprise, Brian the Job Creator chose Door No. 3. At the moment, if you Google the phrase “great amnesiacs of history” in quotes, you get no hits. I suspect that’s about to change, as Matt Taibbi of Rolling Stone comments:

If you’re a court junkie, or have the misfortune (as some of us poor reporters do) of being forced professionally to spend a lot of time reading legal documents, the just-released Moynihan deposition in MBIA v. Bank of America, Countrywide, and a Buttload of Other Shameless Mortgage Fraudsters will go down as one of the great Nixonian-stonewalling efforts ever, and one of the more entertaining reads of the year.

In this long-awaited interrogation – Bank of America has been fighting to keep Moynihan from being deposed in this case for some time – Moynihan does a full Star Trek special, boldly going where no deponent has ever gone before, breaking out the “I don’t recall” line more often and perhaps more ridiculously than was previously thought possible. Moynihan seems to remember his own name, and perhaps his current job title, but beyond that, he’ll have to get back to you. …

Taibbi’s account alone is both hilarious and outrageous. Now that the semester is over, I can’t wait to read the actual deposition. (Hey, it’s how I roll.)

In the deposition, attorney Peter Calamari of Quinn Emmanuel, representing MBIA, attempts to ask Moynihan a series of questions about what exactly Bank of America knew about Countrywide’s operations at various points in time.

Early on, he asks Moynihan if he remembers the B of A audit committee discussing Countrywide. Moynihan says he “doesn’t recall any specific discussion of it.”

He’s asked again: In the broadest conceivable sense, do you recall ever attending an audit committee meeting where the word Countrywide or any aspect of the Countrywide transaction was ever discussed? Moynihan: I don’t recall.

Calamari counters: It’s a multi-billion dollar acquisition, was it not?

Moynihan: Yes, it was.

[Q:] Well, isn’t that the kind of thing you would talk about?

Moynihan: not necessarily . . .

This goes on and on for a while, with the Bank of America CEO continually insisting he doesn’t remember ever talking about Countrywide at these meetings, that you’d have to “get the minutes.” Incredulous, Calamari, a little sarcastically, finally asks Moynihan if he would say he has a good memory.

“I would – I could remember things, yes,” Moynihan deadpans. “I have a good memory.”

Calamari presses on, eventually asking him about the state of Countrywide when Moynihan became the CEO, leading to the following remarkable exchange, in which the CEO of one of the biggest companies in the world claims not to know anything about the most significant acquisition in the bank’s history (emphasis mine):

Q: By January 1st, 2010, when you became the CEO of Bank Of America, CFC – and  I’m using the initials CFC, Countrywide Financial Corporation – itself was no longer engaged in any revenue-producing activities; is that right?

Moynihan: I wouldn’t be the best person to ask about that because I don’t know.

There are no sound effects in the transcript, but you can almost hear an audible gasp at this response. Calamari presses Moynihan on his answer.

“Sir,” he says, “you were CEO of Bank Of America in January, 2010, but you don’t know what Countrywide Financial Corporation was doing at that time?”

In an impressive display of balls, Moynihan essentially replies that Bank of America is a big company, and it’s unrealistic to ask the CEO to know about all of its parts, even the ones that are multi-billion-dollar suckholes about which the firm has been engaged in nearly constant litigation from the moment it acquired the company.

“We have several thousand legal entities,” is how Moynihan puts it. “Exactly what subsidiary took place [sic] is not what you do as the CEO. That is [sic] other people’s jobs to make sure.”

The exasperated MBIA lawyer tries again: If it’s true that Moynihan somehow managed to not know anything about the bank’s most important and most problematic subsidiary when he became CEO, well, did he ever make an effort to correct that ignorance?  “Do you ever come to learn what CFC was doing?” is how the question is posed.

“I’m not sure that I recall exactly what CFC was doing versus other parts,” Moynihan sagely concludes.

The deposition rolls on like this for 223 agonizing pages. The entire time, the Bank of America CEO presents himself as a Being There-esque cipher who was placed in charge of a Too-Big-To-Fail global banking giant by some kind of historical accident beyond his control, and appears to know little to nothing at all about the business he is running.

In the end, Moynihan even doubles back on his “we’ll pay for the things Countrywide did” quote. Asked if he said that to a Bloomberg reporter, Moynihan says he doesn’t remember that either, though he guesses the reporter got it right.

Well, he’s asked, assuming he did say it, does the quote accurately reflect Moynihan’s opinion?

“It is what it is,” Moynihan says philosophically.

There’s nothing surprising about any of this – it’s natural that a Bank of America executive would do everything he could to deny responsibility for Countrywide’s messes. But that doesn’t mean it’s not funny. By about the thirtieth “I don’t recall,” I was laughing out loud.

It’s also more than a little infuriating. In the pre-crash years, Countrywide was the biggest, loudest, most obvious fraud in a marketplace full of them …

One of the biggest indictments you can level against U.S. news media is that U.S. financiers were engaging in this level of world-historical theft, fraud and conspiracy right out in the open for a decade and more, and yet no one of consequence has done any hard time for it.

If we are to take Moynihan at his word, the only way you could have been more delusional and out of touch than he was to have believed on election night that Mitt Romney was going to win big. But as the deposition makes clear, taking Brian Moynihan at his word  would make a box of rocks look like a Davidson valedictorian.

Thursday, March 1, 2012 2:30 am

The vampire squid and the hurricane

Filed under: Evil,I want my money back. — Lex Alexander @ 2:30 am
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Matt Taibbi, who normally writes for Rolling Stone, daytripped over to the new fthebanks.org site today to announce:

There are two things every American needs to know about Bank of America.

The first is that it’s corrupt. This bank has systematically defrauded almost everyone with whom it has a significant business relationship, cheating investors, insurers, homeowners, shareholders, depositors, and the state. It is a giant, raging hurricane of theft and fraud, spinning its way through America and leaving a massive trail of wiped-out retirees and foreclosed-upon families in its wake.

The second is that all of us, as taxpayers, are keeping that hurricane raging. Bank of America is not just a private company that systematically steals from American citizens: it’s a de facto ward of the state that depends heavily upon public support to stay in business. In fact, without the continued generosity of us taxpayers, and the extraordinary indulgence of our regulators and elected officials, this company long ago would have been swallowed up by scandal, mismanagement, prosecution and litigation, and gone out of business. It would have been liquidated and its component parts sold off, perhaps into a series of smaller regional businesses that would have more respect for the law, and be more responsive to their customers.

But Bank of America hasn’t gone out of business, for the simple reason that our government has decided to make it the poster child for the “Too Big To Fail” concept. Because it is considered a “systemically important institution” whose collapse would have a major, Lehman-Brothers-style impact on the economy, two consecutive presidential administrations have taken extraordinary measures to keep Bank of America in business, despite a staggering recent legacy of corruption schemes, many of which were simply overlooked by regulators.

This is why the question of whether or not Bank of America should remain on public life support is so critical to all Americans, and not just those millions who have the misfortune to be customers of the bank, or own shares in the firm, or hold mortgages serviced by the company. This gigantic financial institution is the ultimate symbol of a new kind of corruption at the highest levels of American society: a tendency to marry the near-limitless power of the federal government with increasingly concentrated, increasingly unaccountable private financial interests.

The inevitable result of that new form of corruption is this bank, whose continued, state-supported existence should naturally outrage all Americans, be they conservative or progressive.

My position on this is to kill ‘em all and let God the FDIC sort ‘em out, because by any honest accounting standard not a damn one of our big banks, with the possible exception of JPM, is solvent and they’re all a clear and present danger to the country’s economic well-being. And BAC is a serial felon besides. Lord, if we’ve got to have a death penalty, let’s start using it on TBTF banks.

(h/t: Jill)

Wednesday, October 19, 2011 8:36 pm

I’m old enough to remember when they wanted to be the best bank in the neighborhood

Filed under: Evil,I want my money back. — Lex Alexander @ 8:36 pm
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Now, they just want to crap all over everything. Bank of America, getting ready to screw you again, even harder:

Bank of America, hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”

Yeah, we should, but bankster politicians of both parties (Mel Watt, I’m lookin’ at you) have put the kibosh on that.

So, how bad is this? Yves Smith at Naked Capitalism offers some perspective:

The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.

This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

I invented the #LWS (LiquidateWallStreet) hashtag on Twitter yesterday as a goof. Less than 24 hours later, we’ve officially arrived at the point at which an American taxpayer could burn down a Bank of America facility and plausibly claim self-defense.

(h/t: Fec)

Wednesday, August 24, 2011 8:17 pm

What happens when you don’t let too-big-to-fail banks fail

Filed under: I want my money back. — Lex Alexander @ 8:17 pm
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Barry Ritholtz explains:

Consider what was actually done in 2008-09, and you will understand why none of the underlying problems have been repaired:

• Bank holdings: Remain stuffed with declining assets, primarily in Housing and Derivative holdings. Another leg down in Housing could be nearly fatal.

• Transparency: Balance sheets are unnecessarily Opaque; Eliminating Fair value accounting via FASB 157 did not fix balance sheet problems, but instead allowed banks to hide them.

• Capitalization:  Remains too thin; leverage should be mandated back to the pre-2005 rule change of no more than 12 to 1; As we have learned, management does not keep adequate capital unless mandated to do so (sufficient capital reserves cuts into profits);

• Misaligned Incentives: Compensation and bonus schemes were not significantly changed after bailouts, except during loan repayments. Thus, management and traders still have the same upside to roll the dice, but do not have the downside risks, which remains on shareholders and taxpayers.

Ritholtz believes there’s good reason to think that the only way some of our biggest banks — Citi and Bank of America, particularly — will survive another housing downtown is with another government bailout. (And the news has not been good lately on the housing front.)

Whoopee. May I see the hands of everyone in the room who cares what the hell happens to Bank of America and Citi?

*crickets*

OK, then. What should we do? Well, Ritholtz helpfully imagines what things might look like today if we had done the right thing a couple of years ago:

Let’s use a counter-factual, a simple thought experiment of what would have been had we gone Swedish on banks like Citi and B of A, placing them into a prepackaged reorganization (that’s a polite phrase for “bankruptcy”).

The easy stuff: Senior management all gets fired. More than just the CEO — nearly the entire top floor at the bank, including the Board of Directors, gets canned. Equity shareholders get wiped out. Whatever is left over after all is said and done goes to the bondholders, typically, at about 25-50 cents on the dollar. (Note that in Sweden, bondholders got 100 cents on the Kroner, but that currency was significantly devalued — so the bondholders were not made whole, they lost between 50-75%).

Temporary nationalization is the play: Uncle Sam provides debtor-in-possession financing to keep operating. All of the bad holdings, mortgages, derivatives and other liabilities are pulled out, and auctioned off. This includes the REOs, the CDS/CDO book, defaulted mortgage obligations. Remember, there is no such thing as toxic assets, only toxic prices. At some valuation, these are worthwhile investments — just not 100 cents on the dollar. Let healthy buyers pay 15-30 cents.And anything that is worthless is written down to zero.

We recapitalize the parent bank, and spin off each division: IPO Merrill Lynch for $20 billion, spin out a clean  Countrywide at $8 billion, sell of all of the non depository bank pieces. What you have left over is a well capitalized bank, owned by Taxpayers, with well capitalized former divisions as stand-alone companies. All of the above have transparent balance sheets (No FASB 157 required to hide the garbage investments). Eventually, everything is spun out back to the public markets. Uncle Sam is repaid, and what is left over goes to the bondholders.

This would have created a transparent, unleveraged, adequately capitalized banking system that would be contributing to, rather than detracting from, the US economy.

But all that was a missed opportunity — for W and O alike. What we have today instead is an over concentrated set of banking behemoths, barely off life support. Many of these remain mortally wounded by the holdings — holdings that they would have to shed through a healthy reorg.

The recent downturn in the banking sector? I suspect it amounts to nothing more than a credible bet that these banks are not in any condition to withstand the next recession. (No, it was not Henry Blodget’s Fault). A rise in unemployment and another next leg down in Housing could very well be fatal.

If the banks come crawling back to Uncle Sam for another bailout, it will be proof that “rescuing” failing financial institutions that blow themselves up is the exact wrong strategy.

Real Capitalists know failure is part of the process. I suspect we may have another chance at a banking reorg. Let’s hope we do it correctly this time . . .

I have friends at Bank of America. I do not wish the company as a whole ill, although I choose not to do business with it because of the behavior of its officers and directors. That said, the bank is insolvent and needs to be treated as such. Regulatory capture so far has prevented the government from doing what needs to be done. How much more pain will taxpayers, bank employees outside the C-suite and the American economy in general have to suffer before the right people finally do the right thing?

Quite a lot, I suspect.

Friday, August 12, 2011 8:23 pm

The Panthers might need a new name for their stadium …

Filed under: I want my money back. — Lex Alexander @ 8:23 pm
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… because financial blogger Yves Smith thinks that there’s a fairly serious question as to how much longer Bank of America (BAC) might be with us:

Bank of America’s situation is a lot like that of the borrower who has a looming obligation he can’t meet. But unlike having a well identified big debt to pay down the road, the financial behemoth faces large but uncertain in size payments in the future thanks to pending and growing lawsuits to recover alleged damages resulting from the misdeeds of its acquisition, Countrywide. The current wave of litigation that has investors rattled results from Countrywide telling investors that the loans they were packing into securities were much better than they really were.

The Charlotte bank tried to put most of that problem behind it by entering into a settlement for $8.5 billion, which if they can pull it off, will be the bargain of the century. But that deal is being challenged on multiple fronts, including by New York state attorney general Eric Schneiderman. It looks like that pact either will not go through or will be renegotiated substantially and cost Bank of America a good deal more.

Another blow landed Monday when it was sued by AIG for $10 billion, for the same sort of liability it was seeking to discharge in the settlement. If one investor thinks it is owed $10 billion on $28 billion of mortgages, or 35%, when the old settlement deal for $8.5 billion was for only about 3.5% of the total amount of bonds, that alone shows how much more Bank of America might have to shell out.

And that’s only one risk Bank of America faces. The meteor-hitting-the-financial-system sort of lawsuit, which no one has dared to launch, would attack originators and packagers like Countrywide for failing to transfer mortgages properly to the mortgages securities in the first place, in violation of their own contract. This astonishing and apparently widespread “securitization fail” is leading to more and more underwater homeowners successfully challenging foreclosures in court. And it is also leading to banks undermining the rule of law. The robosigning scandal of last fall is only the tip of the iceberg. Both Schneiderman and Delaware’s attorney general Beau Biden are investigating conduct by mortgage securitizers on a broad basis.

This brings to mind another thought I saw somewhere today but cannot remember where: Even if you grant that a bank (or other corporation) is Too Big to Fail, the shareholders could still be wiped out and the responsible executives could all be fired. And in BAC’s case, they should be.

 

Wednesday, July 6, 2011 8:00 pm

BAC: Dead bank walking, feeding on the brains of the living

Filed under: I want my money back. — Lex Alexander @ 8:00 pm
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I don’t know who Abigail Field is other than a “contributor” (which I presume means freelancer) for Fortune.com, but, boy howdy, did she find out something interesting about Bank of America’s Countrywide holdings:

Last November, a decision in a New Jersey bankruptcy case brought to light the testimony of Linda DeMartini, operational team leader for the litigation management department for Bank of America, which intended to prove the bank had the right to foreclose on a debtor’s mortgage. Instead, her testimony was key to the judge’s ruling that Bank of America (BAC) couldn’t foreclose, and along the way DeMartini made two statements that called into question the securitization of Countrywide loans. She testified that Countrywide didn’t deliver the notes to the securitization trustee, and that Countrywide notes weren’t endorsed except on a case-by-case basis generally long after securitization ostensibly occurred. Both steps are required, in one form or another, under all securitization contracts. …

To check DeMartini’s testimony, Fortune examined the foreclosures filed in two New York counties (Westchester and the Bronx) between 2006 and 2010. There were 130 cases where the Bank of New York (BK) was foreclosing on behalf of a Countrywide mortgage-backed security. In 104 of those cases, the loan was originally made by Countrywide; the other 26 were made by other banks and sold to Countrywide for securitization.

None of the 104 Countrywide loans were endorsed by Countrywide – they included only the original borrower’s signature. Two-thirds of the loans made by other banks also lacked bank endorsements. The other third were endorsed either directly on the note or on an allonge, or a rider, accompanying the note.

The lack of Countrywide endorsements, combined with the bank’s representation to the court that these documents are accurate copies of the original notes, calls into question the securitization of these loans, as well as Bank of New York’s right, as trustee, to foreclose on them. These notes ostensibly belong to over 100 different Countrywide securities and worse, they were originally made as long ago as 2002. If the lack of endorsement on these notes is typical — and 104 out of 104 suggests it is — the problem occurs across Countrywide securities and for loans that pre-date the peak-bubble mortgage frenzy.

The lack of Countrywide endorsements also corroborates DeMartini, who said that in her 10 years at Countrywide she had never seen a note with an endorsement, and that as foreclosures had been increasingly litigated, she had been handling the original notes, not just the copies scanned into the bank’s database.

Bank of America has argued that, really, everything was just fine. Only now comes word that it will be taking a settlement … and quite a nifty one at that:

BofA will pay $8.5 billion to a group of institutional investors to settle claims that the bank violated the representations and warranties when they sold the RMBS [residential mortgage-backed securities -- Lex]. They will additionally, according to their press release, “record an additional $5.5 billion provision to its representations and warranties liability for both Government-Sponsored Enterprises (GSE) and non-GSE exposures in the second quarter of 2011.” So that’s a total of $14 billion.

What’s most interesting here is that Bank of America makes this settlement with the trustee for the trusts, the Bank of New York Mellon. And they’re claiming that this will resolve almost all of their Countrywide-issued RMBS, which had an original unpaid principal balance of $424 billion. …

If this holds, and all $424 billion is settled, that would represent 2-3 cents on the dollar. It would be a pretty raw deal for the investors, considering that Countrywide has been accused of not following procedures of conveying assets to the trusts, creating “non-mortgage backed securities.” Yves Smith has argued that these cases are incredibly hard to prove in court, but even she expected a settlement avoiding trial to cost in the range of 10-15 cents on the dollar. It seems like the bank is trying to sucker the public into believing that they are making a major concession with a giant settlement, when they would be wrapping up a lot of their legacy exposure relatively cheaply.

The aforementioned Yves Smith, who has covered this story as closely as anyone, says this sucks:

The so-called Bank of America settlement, in which the Charlotte bank is set to pay $8.5 billion (plus some additional expenses) to settle representation and warranty liability on 530 mortgage trusts representing $424 billion of par value, is being hailed as a possible template for other mortgage issuers and servicers.

I sure hope not, because some of the things I see in this deal look plenty troubling. …

The investors had to overcome procedural issues even to be able to litigate. And MBIA, which is suing over similar issues but didn’t have the procedural impediments, is three years into litigation with Countrywide and is not very far along. This sort of case is a war of attrition and as a result, as we have indicated, even if the facts are lousy, there is reason to think that an eventual settlement would not be all that large even relative to the value of loans being disputed (the investors need to prove not only that the reps and warranties occurred, but that they led to losses. A lot of defaults, particularly post the subprime resets, are due to job losses and reductions in income. They can’t be blamed on failing to live up to the reps and warranties).

So with all these considerations arguing for fighting a few more rounds, and BofA in the past taking a very aggressive posture on disputing these cases, why would it settle? …

Put it simply: BofA can judge what its risks are VASTLY better than the investors. There are a lot of reasons why it would make sense for BofA not to settle now. Yet it was all over this like a cheap suit. That says it must regard this settlement as a real bargain.

I understand that when all the legal, definitional and procedural nuances are threaded, BAC’s actual liability on the Countrywide acquisition would not have been $424 billion. But it still would have been a helluva lot — keep in mind that title chain was flawed in 104 out of 104 randomly selected cases of securitized mortgages examined by Fortune. It’s not impossible that the liability would dwarf the company’s market capitalization (a shade under $110B as I write), which would mean, in a world where the rule of law obtained, the death of the company.

That is not, of course, the world we live in.

Tuesday, December 7, 2010 8:19 pm

That ancient groaning sound you hear …

… may be the jaws of hell opening beneath Bank of America. Via Zero Hedge, Moody’s opines:

We believe the case will lead to increased litigation, higher servicing costs, and more foreclosure delays. This will pressure BofA’s earnings. Increased foreclosure timelines and costs associated with potentially defective loans will also increase losses for Countrywide-sponsored RMBS. This is negative for both BofA and Countrywide-sponsored RMBS [residential mortgage-backed securities -- Lex].

Moody’s is being too cute by half. The “defects” in these loans were common in the loans of many, many other lenders as well. BAC may be first, but they will be far from last.

It would be only human to indulge in a bit of sangfroid over the failure of a too-big-to-fail bank, one that has propped itself up with tax money while gobbling some of that same money down in the form of bonuses. And I, for one, won’t shed a tear if bank executives face, as the lawyers say, significant exposure, civil and/or criminal, though I’ll believe it when it happens.

The problem, of course, is that the failure of an institution as big as BAC, particularly one whose failure was not structured in disciplined, orderly fashion as should have happened the moment the bank’s insolvency became apparent, is going to have all sorts of consequences, and you can best believe that the direst of those will be directed at those of us least able to protect ourselves.

 

 

Monday, September 6, 2010 7:47 pm

Oh, please, oh, please …

Filed under: Hold! Them! Accountable!,I want my country back. — Lex Alexander @ 7:47 pm
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Could Bank of America executives finally, finally be in the path of the kharma bus? It seems almost too much to hope for …

A federal judge yesterday allowed Ohio pension systems to proceed with their legal claims that Bank of America paid billions of dollars in bonuses to executives of a firm it was absorbing without informing shareholders, Ohio Attorney General Richard Cordray said.

U.S. District Judge P. Kevin Castel denied motions by Bank of America and Merrill Lynch, which the banking giant acquired in September 2008 amid the financial crisis, to dismiss the state’s lawsuit against the companies and their executives.

Ohio’s pension funds claim that the companies committed securities fraud and issued false proxy statements by issuing $5.8 billion in accelerated year-end bonuses to executives and employees and failed to disclose that information to shareholders before they agreed to allow the companies to merge.

Specifically, the court indicated that the following claims could proceed:

  • Securities fraud claims against Bank of America, Merrill Lynch and their respective CEOs, Ken Lewis and John Thain, for alleged misstatements related to the failure to disclose the agreement to pay up to $5.8 billion in discretionary bonuses, and against Ken Lewis and Bank of America for alleged omissions related to the bonus arrangement.
  • False proxy statement claims against Ken Lewis, John Thain, Bank of America, Merrill Lynch and certain Bank of America directors about the bonus arrangement.
  • False proxy statement claims against all defendants arising out of their failure to disclose Merrill’s fourth quarter 2008 losses.
  • Liability claims against certain officers and directors for issues under their control.
  • Claims relating to false offering statements that misstated or omitted Merrill’s bonus payments.

The district court dismissed certain securities fraud claims, including claims relating to the failure to disclose Merrill Lynch’s fourth quarter 2008 losses.

Cordray said he was very pleased with the ruling and that the language upholding the false proxy statement claims is particularly helpful. “In the order, Judge Castel held that liability under the false proxy statement claims in this case could be imposed if negligence is shown. He squarely rejected the defendants’ position that the lead plaintiffs must make a more stringent showing of ‘scienter’ — knowing or reckless intent to deceive or defraud. We are looking forward to developing evidence against the defendants under this negligence standard,” Cordray stated.

I, meanwhile, am looking forward, perhaps in vain, to the stripping of billions in assets from BoA officers and directors, followed, perhaps, by indictments. Hey, a guy can dream.

Friday, May 14, 2010 11:07 pm

Good news, bad news

Filed under: I want my money back. — Lex Alexander @ 11:07 pm
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Sunday, February 7, 2010 12:27 am

Odds and ends for 2/6

New York’s attorney general comes down hard on Ken Lewis and Joseph Price in a civil lawsuit, alleging that the Bank of America CEO and CFO misled not only the bank’s shareholders but also their own board, the company’s lawyers and the public as to the amount of water Merrill Lynch was taking on when BAC acquired it — an amount sufficient to have taken BAC down too without a taxpayer bailout. While we wonder why Lewis and Price remain unindicted comes news that Lewis’s attorneys intend to call Hank Paulson and Ben Bernanke to testify in his defense. If my 401k and kids’ college funds weren’t so devastated, I’d be buying popcorn.

The United States attorney general comes down hard on Mitch “WATB” McConnell and other Republicans who think there’s any sort of basis in fact or law for trying the Underpants Bomber anywhere but U.S. District Court. Read the whole thing; it is full of Win.

If he legally changed his name to “Enormous Genitals,”* do you think it would help?: Pakistani career diplomat Akbar Zeb has been rejected by Saudi Arabia as ambassador to that country because his name translates into Arabic as “biggest d**k.” You laugh, but the United Arab Emirates rejected him earlier for the same reason. (h/t: Fred)

*Movie reference:

UPDATE: Fred says we missed a chance by not including this, and I agree:

Shredding the Constitution. Again: The U.S. government was surveilling an American citizen, Anwar al-Awlaki, for months and months and never came up with any basis for indicting him. And yet, somehow, he ends up on an assassination list, in apparent violation of at least three different amendments to the Constitution. Someone want to explain to me how this works?

Fritz Kraemer: the biggest warmonger you’ve never heard of.

How good are you at assessing risk — in particular the risk that what you think about a particular subject might be wrong? You can take a test here to find out. The higher your score (perfect is 100), the more willing you are to consider the possibility that what you think you know is actually wrong. I scored 93, which probably comes as a surprise to everyone who considers me dogmatic. It doesn’t surprise me for two reasons: 1) In 25 years of journalism, you learn to do your homework. So on stuff that I was confident I was right on, I was confident for a reason, and I didn’t hedge my bets, so to speak, during the test. 2) In 25 years of journalism, you also learn not to lean too hard on stuff of which you’re not confident, because the consequences can be much worse than just getting a fact wrong. They can include getting fired and sued. So on questions where I wasn’t certain, particularly those containing multiple factual assertions, I usually chose the “just have no freakin’ idea” option and didn’t feel any shame about doing it.

Tom Tancredo thinks we need a “civic literacy test” that people must pass to be able to vote. So Eli says, OK, fine, let’s get some answers to these questions.

Obama’s ugly budget would look even uglier if Fannie Mae and Freddie Mac liabilities — which, since Christmas Eve, have been potentially unlimited — had been on budget. But, in a trick Bloomberg calls “worthy of Enron,” they were left off.

Multiple personalities; or, IOKIYAR: Rep. Pete Hoekstra, who went all “Pulp Fiction” on Nancy Pelosi months ago for accusing the CIA of lying to Congress, is accusing the CIA of lying to Congress.

What is the Obama Justice Department hiding, and why are Senate Democrats helping them?: Dawn Johnsen’s nomination to head Justice’s Office of Legal Counsel should have been approved months ago; instead, it’s “hung up.” Again. For reasons that make sense only if you believe that Obama doesn’t really want her but also doesn’t want to take the PR hit for pulling her nomination. Memo: Dumping all over your friends is a real good way to get your base fired up to turn out in a challenging midterm election. Not.

How Republicans are trying to recruit more women: “Women sometimes need a little more handholding, or they need their friends to help them make a decision,” Republican National Committee co-chair Jan Larimer said. Ooooo-kay.

Given how often someone tries to repeal important parts of the Bill of Rights, I’m not entirely certain that such Senate traditions as filibusters and the hold should end. But I think we can safely say that when one senator — in this case, Richard Shelby of Alabama, whom no one will ever accuse of sentience — can put at least 70 presidential nominations on hold just because he’s not getting the pork he wants, it really is time to rethink some things. It’s also worth remembering that 1) the pork Shelby is seeking is 10x as much as Ben Nelson got for signing on to the health-care reform bill and 2) Shelby tried to kill GM and Chrystler bailouts because foreign auto makers have plants in his state. This isn’t about the good of the nation; this is about Shelby doing things because he can. But the national media appear to agree that IOKIYAR.

In light of the impending Super Bowl, a few words on the football players about whom almost nothing good is ever said. One reason I like Dan Dierdorff as a football announcer is that, having been an O-lineman, he’s conscious of what they do and how often it makes a big, big difference that most announcers never even pick up on.

Republicans can’t work with Democrats because they want Obama impeached, believe he’s a socialist, think he was born outside the U.S. and therefore is ineligible to be president, aren’t sure if he wants the terrorists to win, think it’s at least possible ACORN stole the 2008 election, consider Sarah Palin more qualified to be president than Obama, don’t want sex education taught in public schools and do want Biblical creationism taught in public schools. But the media think our biggest political problem is that Democrats aren’t sufficiently bipartisan. Sigh.

I’m beginning to understand why Tennessee fans hate Lane Kiffin: He has secured a verbal commitment from a quarterback who’s currently in seventh grade.

Former HP CEO and current Senate candidate Carly Fiorina has unleashed sheer madness in the form of a campaign ad that runs for 3.5 minutes and includes everything from a totally bass-ackwards metaphor to some poor schlub crawling on all fours in a sheep suit. I know it’s California, but still:

One of Jason Linkins’ commenters tips us to the artistic inspiration for the ad:

I want to see this movie. The California election, not so much.

Friday, January 22, 2010 8:21 pm

Odds and ends for 1/22

Double dip: There were 482,000 new unemployment claims for the week ending 1/16, which was 36,000 more than the previous week and 42,000 more than expected. Worse, new emergency unemployment claims, for those who’ve exhausted regular benefits, were up 652,364 to 5,654,544. If this is a green shoot, it’s the kind of green you see when things are rotting.

Theft of a lifetime: The chief strategist for a major international bank accuses the U.S. and U.K. central banks of conspiring to steal wealth from their respective countries’ middle classes. It’s actually a little more complicated than that, but only a little.

Risky business: President Obama has proposed ending proprietary trading by bank holding companies to reduce the level of risk in the market and, therefore, the risk that taxpayers will have to bail out more banks, something Paul Volcker supports. Banks have protested that this is unnecessary on the grounds that prop trading really isn’t a big part of their business (Goldman Sachs puts its prop-trade revenue at 10% of the total). However, observes Zero Hedge with a nice little chart, “the market begs to differ.” Goldman’s own analysis suggests that while prop trading accounts for perhaps 10% of Bank of America’s revenues, because of prop trading’s high margins it accounts for up to 45% of BAC’s earnings. If that’s true, BAC stock, which is supposed to double in price by the end of 2011, could fall 50% instead.

Related: Real conservatives like Obama’s proposal. American “conservatives,” however, not so much.

So, will Goldman Sachs stop being a bank holding company so that it can continue its proprietary trading?: Probably, although it’s kind of in a pickle because currently it has almost 21 billion reasons not to.

Best health-care reform political analysis. Ever: I don’t think it’s correct on the substance, but whether it is or not, I just love the pretty words: “The only path to national health care reform is to pass the Senate bill. Unless Nancy Pelosi and the House leadership can herd three distinct groups of cats — the Blue Dogs, the Stupak coat-hanger crowd and the progressives — HCR is going down in flames, quite possibly for another generation. This is where we’re at. It sucks. It also blows, a seemingly self-canceling phenomenon that is only witnessed in the rarest, most [rear-end]-tasting conditions. And we are witnessing such conditions this very day — a perfect storm of sucking and blowing. That said, if passing the Senate bill verbatim is a once-in-a-lifetime Suckicane meeting a Category 5 Blowphoon head-on, then NOT PASSING ANYTHING AT ALL takes us into the Bruckheimer-Emmerich territory of summer blockbuster-class suckstinction-level blowvents.”

Quote of the day, from Matt Taibbi, on the prop-trading restrictions: “Obviously this is good news, but what I find irritating about it is that the government only starts listening to its voters once the more corrupt option turns out to be untenable.” Yo, Matt, that ain’t true only about banking, either.

The New York Fed and AIG: A timeline, by Bloomberg. Nice.

People thought Rupert Murdoch wouldn’t ruin the Wall Street Journal. People were wrong, although the author concedes the problem is a bit more nuanced than he first claimed.

So if Glenn Beck isn’t talking about going after progressives through the political process, then what’s he talking about? Because when you say you’re going after your political opponents like the Israelis went after Eichmann, you probably know your audience understands that what awaited Eichmann was a gallows.

Barney Frank may actually have a good idea: Blowing up Fannie Mae and Freddie Mac and creating a new system of housing finance. F&F didn’t cause as much of the current housing-bubble crisis as most of their critics claim, but they did contribute, oh, yes, they did.

And they say this like it’s a bad thing: ABC thinks there may not be enough votes in Congress to reconfirm Ben Bernanke. Let’s hope they’re right. Bernanke is a big reason we’re in as much trouble as we are right now.

They’re the Christian Taliban, they’re stone (no pun intended) killers, and they’re based in Newark: Yeah, that’s right: Read about the connections between the PrayforNewark social-action group, the bill in Uganda to execute gays, and the Dominionist movement in the U.S. These are scary people.

If this had been my daughter, the lawsuit would’ve been filed before the sun went down: TSA employee plants bag of white powder in college student’s carry-on luggage. Plenty of witnesses — who were afraid to speak up. Excellent! Just what you want when you’re trying to prevent terrorism — people who see something hinky but are afraid to speak up for fear of being arrested!

Apparently they can use lasers to zap away fat!: Which sounds cool, and I am so on board (assuming I can find the money) … just as soon as they figure out where the fat goes.

Tuesday, January 12, 2010 8:49 pm

Odds and ends for 1/12

War crime: An independent Dutch commission finds that the 2003 invasion of Iraq, and therefore the Netherlands’ support of same, “had no sound mandate in international law.” Somewhere, Dick Cheney’s shriveled testicles shrivel a little more.

The SEC mans up. Oops, no, wait, not really: The Securities & Exchange Commission asks the court for permission to file additional charges against Bank of America for failing to disclose Merrill Lynch losses to BofA shareholders before a takeover vote. And yet it also says no individual(s) can be held legally responsible for the royal hosing those shareholders received. All the deceit and fraud somehow just … happened, I guess. Yet one more reason why corporations, legally speaking, shouldn’t be people.

Pecora for the new millennium: A list of questions the banksters should be asked tomorrow by the Financial Crisis Inquiry Commission (also called the “New Pecora Commission,” after the panel that looked into the causes of the Depression), but almost certainly won’t be.

New Jersey legislature approves medical marijuana, and the gov says he’ll sign the bill within the week. The effects on “Jersey Shore” remain to be seen.

And speaking of “Jersey Shore,” watch out, “Jersey Shore,” there’s a new drinking game in town: Fox News hires Sarah Palin.

Anything that annoys the Financial Services Roundtable is probably a good idea: Obama considers taxing banks that got TARP money. It should happen … which means I’ll believe it when I see it.

“I am not a hero.”: The hell she says. Miep Gies, the Dutch woman who helped hide Anne Frank’s family and other Jews from the Nazis and later preserved Anne’s diary, is dead at 100.

He was not necessarily a hero, but he was one bad dude: Old-time Coney Island strongman Joe Rollino, who celebrated his 103rd birthday by bending a quarter with his teeth, is dead at 104. But only because he got hit by a minivan.

To see, or not to see: The Supreme Court supposedly will decide tomorrow whether to allow 1) closed-circuit broadcasting of the trial of Perry v. Schwarzenegger (the gay-marriage lawsuit) in other courthouses in California and/or 2) allow video to be posted to YouTube. Here’s some factual and legal background (more here); both writers think the Supremes, who don’t want their own proceedings broadcast, see this as a slippery slope. I bet they’re right.

Quote of the day, from commenter mjvpi at Firedoglake: “Health care reform is giving me Tourette’s syndrome.”

Another quote of the day, from washunate at The Seminal: “… the past three decades have witnessed the slow and steady transfer of the wealth generated by labor’s productivity into the hands of a few select families of already great wealth. If anything can capture an image of the consequences of the Reagan-Bush era, it’s gotta be 225 million Americans in 1979 buying more vehicles than 308 million Americans in 2009.” Yup. In absolute numbers, almost 33% more. Heckuva job, Georgie.

Wednesday, December 9, 2009 11:33 pm

Odds and ends for 12/9

The seat’s hot and he ain’t even in it yet: Bank of America’s chief risk officer, Greg Curl, considered a leading candidate to succeed Ken Lewis as CEO, is under investigation by the New York attorney general for his role in what BofA shareholders were and weren’t told about the bank’s acquisition of Merrill Lynch.

Your incompetence. Let me show you it: Former Fed Chairman Paul Volcker calls for the return of Glass-Steagall and tells the Wall Street Journal’s Future of Finance Initiative, a group of financiers and policy makers, “Your response [to the economic crisis], I can only say, is inadequate. You have not come anywhere close.”

Quote of the day, also from Volcker at this session: “I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.” For good measure, he said the best financial innovation of the past 25 years was the ATM. (Which actually was introduced earlier … but, hey, forget it, he’s rolling.)

Bonus quote of the day, from Gavin M. at Sadly, No!, characterizing hinky academic Stanley Fish: ” …oleoresinous of eye, exuding cheap 1970s tenure …”

Congressman Alan Grayson to Fed Chair Ben Bernanke: Dude, you’re screwing the taxpayers directly AND committing tax fraud!

Oh, snap!: Dick Cheney (laughably) claims trying terrorism suspects in New York will generate more terrorism and calls it treason, so Alan Grayson tells him to “STFU.” This will give Official Washington another case of the vapors, but when Cheney himself once told a senator on the Senate floor to “go [have sex with] yourself,” he really has no room to whine and neither does anyone else.

Crying poor: AIG’s general counsel is leaving because she can’t make it on $500,000 a year. Given her track record of driving companies into ditches, I’m sure she’ll be snapped up in no time. And, yes, I’m being snarky — twelve digits’ worth of my tax money going into AIG in one year entitles me — but, no, I’m not being snarky about her getting snapped up in no time.

“Extreme victimisation,” but not in the way he thinks: Britain slaps a 50% tax on bankers’ bonuses. Will the U.S. follow suit?

Memo to Howard Kurtz: There’s a reason we call you Howie the Putz. And you’re soaking in it.

Well, yeah, if, by “socialism,” he means “a scary word that conservative wankers scream to try to scare people”: Charles Krauthammer calls environmentalism “the new socialism.”

Well, the federal government can just rock *me* to sleep tonight: The TSA posts some of its most sensitive security information on the Internet. But let’s talk about White House party crashers. Or Tiger Woods.

Sauce for the goose other gander: Paul Wolfowitz lost his job for trying to line up a job for his girlfriend. Will Max Baucus?

Zero tolerance for zero tolerance: Confronted with indisputable evidence of an on-screen error, Fox News decides to abandon its zero-tolerance policy for on-screen errors.

Sarah Palin, Woman of the Year?: Pollak says it could happen.

Thursday, November 19, 2009 9:47 pm

Odds and ends for 11/19

Good news, bad news: The good news: The S&P 500 is sitting on a ton of cash. The bad news: The cash came from being overleveraged and from failure to invest in existing business and/or growth, which will lead to bad future news on both revenues and employment.

It’s OK if you’re a Republican: The Obama White House gets criticized for attempting to manage the news cycle … by Karl Rove.

Shorter Peter Wehner: Sarah Palin hasn’t an idea in her head, but just because she’s both stupid and a whiner is no reason to criticize her. (No, I’m not making this up. Even better: I’m linking to Commentary.)

Why competence matters: New Orleans flooded after Hurricane Katrina because the Army Corps of Engineers messed up, a federal judge rules. Cue the lawsuits, and this is one case in which I don’t want to hear any whining about tort reform.

If you want to make an omelette heal a soccer player, you have to break a few eggs birth a few horses: This is the kind of alternative medical treatment for which I might well look for an alternative … any alternative. (h/t: friend and former co-worker Christie on Facebook)

Texas declares war on marriage: Does mathematics’ reflexive property of equality (a = a) apply to Texas family law? If so, then in banning gay marriage, the state might have outsmarted itself and banned all marriage when it added this phrase to its constitution: “This state or a political subdivision of this state may not create or recognize any legal status identical or similar to marriage.” And one of the legal statuses identical to marriage is, well, marriage. At least, so says the Democratic candidate for attorney general.

If you’re going to hire a hack, at least hire a talented hack: President Obama has named former Bush White House spokesbot Dana Perino to the Broadcasting Board of Governors, which oversees civilian U.S. government broadcasts. I’m trying to decide whether to be outraged or to conclude that it’s a good idea to have a propagandist in charge of propaganda. Or to conclude that it’s a good idea to have a propagandist in charge of propaganda but wish for a GOOD propagandist rather than Perino.

North Carolina’s Mel Watt is on the side of the demons in the audit-the-Fed debate. Those of you in the 12th District, which includes many of us right here in fair Greensboro, need to get in his face about this. Whether you’re in NC-12 or elsewhere, you can petition the appropriate committee leaders here. More background here.

Because Goldman Sachs didn’t have enough people qualifying for big, taxpayer-financed bonuses already: The vampire squid is promoting 272 people to managing director.

Sen. Thad Cochran, R-Banksters. (Bonus: background info on how U.S. credit card fees paid by merchants and passed on to consumers, are some of the world’s highest.) Memo to the Democrats, which will cost them far less than the advice they get from professional consultants: When your political opponent starts gouging the public, during the holidays, in the middle of a recession — when he basically hands you a chair and says “Hit me over the head with this!” — if you want to win elections, you hit him over the head with it. (Key phrase there being, “If you want to win elections …”)

“Nothing bespeaks personal character like the volatile use of violence on your opponents”: Chuck Norris confesses that anger-management issues rule out a political career for him. Hey, the first step is admitting you have a problem.

Why does Glenn Beck hate America? No, really.

Remember: Conservativism cannot fail, it can only be failed: Bonus fun: Fairness and Accuracy in Reporting is a “registered hate group.” Where do you register as a hate group? How much does it cost? How often does the magazine come? Do you get movie passes?

And, finally …

Today’s Quote of the Day, on how conservatives are blaming all electoral ills, including legitimate Republican losses, on ACORN, from Hullabaloo commenter “Pseudonymous in NC” (and, no, that’s not me; I only wish I had thought of this): “For wingnuts, ‘ACORN’ rhymes with ‘trigger’. That’s what this poll tells you.”

 

Wednesday, November 18, 2009 8:27 pm

Odds and ends for 11/18

The Securities and Exchange Commission: Not so secure. Oy.

Recovery.gov needs to recover: Some of the government Web site’s job-creation/recovery stats are wrong, including attributing job creation to a nonexistent congressional district, and the Democratic chairman of the House Appropriations Committee, David Obey, is not happy about it. That said, for the first time in the history of ginormous emergency government spending initiatives, there’s a boatload of data online that anyone can access and analyze.

Biting the moose that feeds, etc.,: Sarah Palin hates the media. This isn’t just a fact. This isn’t just an insight one can glean from her new book. This is largely what the book is ALL ABOUT. However, Sarah Palin is getting, by some reports, up to $7 million to write, publish and promote her book, all of which are media-related practices. To paraphrase “Calvin and Hobbes,” cognitive dissonance goes CLANK. Too bad Sarah Palin is talking too much to hear it.

Dead Bank Walking: More legal problems for Bank of America.

And Republicans wonder why people call them racist: Sen. David “Diapers” Vitter, R-La., says he doesn’t know whether Loving v. Virginia, the 1967 Supreme Court case striking down bans on interracial marriage, was properly decided. (Yes, I know that, hypothetically, one could argue that the case was wrongly decided but that there were other legal/constitutional routes to the same desireable conclusion. But that doesn’t appear to be what Vitter’s doing here.)

Thursday, October 1, 2009 11:26 pm

Ken Lewis: Hasta la vista, baby

Bank of America CEO Ken Lewis is retiring. Or “retiring.” Take your pick.

It is a measure of the debasement of American journalism that the man can be due $53 million in retirement payouts and CNN can say he “doesn’t have a golden parachute” (it relies on the bank’s own, very attenuated definition of the term).

Questions of criminality aside for the moment, Lewis was a lousy fiduciary, by any measure at all and by the only one that matters. “Lewis took a bank in good shape into the credit crunch – and steered it into a position of needing a $45bn bailout,” England’s Guardian writes. And even CNN acknowledges that “people who bought the stock when he took the reins in 2001 are underwater on their investments.”

Lewis will now have both means and leisure with which to prepare his defense. We can only hope that that defense will include rolling over on then-Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke for their roles in forcing the BofA takeover of Merrill Lynch on undisclosed terms that royally screwed the bank’s stockholders. But because we live in an Era of Diminished Expectations, I confess I’d be deliriously happy even if all that were to happen was that Lewis and a few members of his board and BofA’s lawyers spent even a few years in Club Fed.

Tuesday, September 29, 2009 6:29 am

And speaking of BofA …

… televangelist Jim Bakker got 45 years in federal prison* for personally stealing $3.7 million, which is less than 1/1000th of what appears to have been stolen from investors in the BofA/Merrill buyout.

*The sentence later was reduced by a federal appeals court because the sentencing judge had the unmitigated gall to suggest that some real Christians might be upset at the notion of theft by a fake one. I’m sure there’s a basis in case law for a ruling like that, but if there is I ain’t ever come across it.

Not bad work if you can get it

Filed under: Weird — Lex Alexander @ 6:27 am
Tags: , ,

I admit it: I know next to nothing about economics and finance. So I have a couple of questions about a new round of debt being offered by Developers Diversified Realty, which owns a lot of commercial real estate … which, you may have heard, ain’t doing so hot.

First, when your aforementioned primary assets ain’t doing so hot, why would you pay a bank $5 million-plus in underwriting fees to refinance what you owe it, on which you’re currently paying 1.5%, for debt on which you’ll be paying 9.625%?

Second, is that even legal?

Third, even if there’s a good reason for it and it’s legal, why would your stockholders not want your head on a stick?

Fourth, even given the benefit to Bank of America/Merrill Lynch, why are they taking $5 million in fees on this rather than the customary 3%, which would be more like $9 million? Particularly when BofA soon may need quite a bit of cash just to pay the lawyers?

Tuesday, September 22, 2009 8:15 pm

When government doesn’t govern

Susan Antilla at Bloomberg has some suggestions about what we might do with the Securities & Exchange Commission, inasmuch as it is utterly failing to do its job, i.e., protect the interests of investors:

  • Shoot it like a horse with a broken leg. Problem is, to extend the metaphor, any new colts/fillies sired to replace it likely would have the same orthopedic problem. “There is a reason it is the way it is,” Antilla quotes Barbara Roper, director of investor protection at Consumer Federation of America and a member of the SEC’s Investor Advisory Committee, as saying, “and it’s because of the deference that Congress and various administrations have to the financial services industry.”
  • Move the enforcement division to where most other government enforcement is housed: the Justice Department. As Karl Rove and Alberto Gonzalez have shown us, it wouldn’t be completely immune from political pressure there, but it would be better protected there than it is now.
  • Appoint commissioners from the investment community, not the broker/dealer community. But again, you run into “the deference that Congress and various administrations have to the financial services industry.” Even if a president were bold enough to appoint them, the Senate would never confirm them.

And the deference goes even further:

In 2006, the SEC’s Office of Compliance Inspections and Examinations actually set up a hotline for firms that were feeling put out about being investigated. Amazingly, the hotline offers regulated firms “senior-level attorneys” to help resolve complaints.

The investing public, in the meantime, is relegated to filling out an online form when it has a complaint. An improved SEC might consider giving investors access to the top people and letting the brokerage firms sit there and fume if they don’t like the way they’re being treated.

Yeah, that’s gonna happen, particularly after our supposedly non-activist Supreme Court overrules 100 years of legislative precedent and lets corporations make unlimited political contributions.

There is one bright side: Current SEC chairwoman Mary Schapiro, in addition to being at best inept, may have a potentially fatal conflict-of-interest problem:

[Schapiro] was in charge of the self-regulators at the Financial Industry Regulatory Authority when the organization was staunchly defending the greatest gift ever to the brokerage industry: mandatory arbitration of investor disputes.

It’s worth noting that Finra is a defendant in three lawsuits dating from Schapiro’s tenure. One of them, by Standard Investment Chartered Inc., names Schapiro as a defendant and seeks to make unredacted versions of certain documents public. Those might wind up embarrassing the woman in charge of the SEC if they show that she misled brokerage firm members about the “special member payments” they got when Finra was formed in 2007.

You probably haven’t heard the last on this one: On Sept. 11, Standard and Finra heard from the court that the case had been assigned to Jed Rakoff.

Who, you ask, is Jed Rakoff?

I’m glad you asked. This is Jed Rakoff:

A federal judge on Monday rejected a $33 million settlement between the Securities and Exchange Commission and the Bank of America and accused the regulators of falling down on the job.

Manhattan Federal Judge Jed Rakoff said the proposed settlement – over bonuses paid to Merrill Lynch executives just before the bank took over Merrill – was little more than a sham to “provide the SEC with the facade of enforcement and the management of the bank with a quick resolution to an embarrassing inquiry.”

“The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million … in order to ‘better assess the quality and performance of management’ is absurd,” the judge wrote in a scathing ruling.

The SEC sued Bank of America on Aug. 3, claiming bank bosses lied to shareholders when they asked for permission to buy the nearly bankrupt Merrill Lynch for $50 billion.

The SEC charged Bank of America signed off on a plan to pay up to $5.8 billion in bonuses to the executives who ran Merrill Lynch to the brink.

In statements to shareholders, Bank of America said it had not agreed to such bonuses.

The same day the SEC sued, regulators agreed to a settlement with Bank of America and the $33 million fine.

The SEC claimed such a fine would actually help shareholders – alerting them that bad decisions had been made and enabling them to better assess the quality of bank management.

Rakoff called the SEC’s logic “absurd” and told both sides to be ready for trial by Feb. 1, 2010.

Quoting Oscar Wilde – who once said a cynic is someone “who knows the price of everything and the value of nothing” – the judge said the settlement suggested a “cynical relationship” between the bank and the SEC.

“The SEC gets to claim that it is exposing wrongdoing on the part of Bank of America in a high-profile merger; the bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators,” the judge wrote.

He added that “all this is done at the expense, not only of the shareholders, but also of the truth.”

If I were Mary S., and I’m glad I’m not, I’d be shipping resumes.

Wednesday, September 16, 2009 10:42 pm

Dang. If I’d known the service was this good, I’d’ve ordered a pony, too.

Filed under: I want my money back. — Lex Alexander @ 10:42 pm
Tags: , , , ,

I suggested a couple of weeks ago that it might be a real good idea if Bank of America execs and/or the company’s lawyers were held responsible as individuals over how much info they withheld from BoA shareholders about what the Merrill Lynch takeover was going to do to their investments.

Wow. Someone listened:

The New York Attorney General’s office is preparing charges against several high-ranking Bank of America executives over the bank’s alleged failure to disclose details about its acquisition of Merrill Lynch, according to a person familiar with the investigation.

Attorney General Andrew Cuomo’s office is likely to file civil charges against the executives over their role in failing to alert shareholders to mounting losses as well as accelerated bonus payments at Merrill, said the person, who requested anonymity …

Honestly, I’m a layman and neither a banker nor a lawyer, but it’ s hard for me to see how there isn’t a basis for criminal charges as well. Therefore, I choose, for now, to comfort myself with the notion that civil charges are a necessary first step toward that outcome. Would the real lawyers please give me 30 or so minutes to enjoy this idea before you pour cold water on it in the comments? Many thanks.

UPDATE: Uh-oh, kids, grab your popcorn — it’s subpoena time! Let’s settle in for a snug, cozy period of embarrassing revelations and/or Fifth-taking, shall we? And let us, at least for now, maintain the tiny hope that the people who end up getting socked for this aren’t the investors.

Thursday, August 27, 2009 8:16 pm

Not just a fine. Time.

Tyler Durden of Zero Hedge on Bank of America’s legal problems — and, possibly, BofA’s lawyers’ legal problems — regarding what it told (or didn’t tell) its shareholders about the Merrill Lynch takeover:

The bottom line is that either Bank of America’s executive committee, or as the [Securities and Exchange Commission] claims, the lawyers advising it

… whom Durden identifies as the firm of Wachtell Lipton in general and partner Ed Herlihy in particular …

were responsible for one of the most blatant public filing misrepresentations in history. A $33 million slap on the wrist which comes out of BAC’s troubled investors and, by [extension], taxpayers, is a ludicrous way to “punish” those responsible. The Attorney General must see through the smoke and mirrors of this scam and has to seek criminal punishment for whoever ends up being the responsible party in this “hot potato” blame game.

Word. If we’re going to have long-term economic stability, we need to unrig the rigged game that investing has become, particularly when taxpayer dollars are involved. And the best way to do that is by packing the riggers off to prison, rather than looking the other way, as the SEC usually does, when huge crimes are committed.

Karl Denninger identifies another likely case (h/t: baum):

I [ran a search for] the highest-volume stocks with prices over ten cents (to exclude the little penny pumper stocks on the OTC market.)

Well gee, let’s add this up!

That would be about 2.126 billion shares in total for these four stocks, two of which (Fannie and Freddie) are so far underwater in their equity value (to the government no less!) that there is no chance they’re worth anything, yet they remain listed, and the other two are zombie banks with Citibank existing only because of $300 billion in asset guarantees by The Fed and Treasury (which, incidentally, is under investigation, and that assumes that the $300 billion is all there is. There is persistent chatter that the real amount of “back door support” that Citibank (C) has is closer to a cool trillion dollars, although I’ve never been able to get anyone to speak on the record in that regard.)

But I digress.

Here is the NYSE Volume for Tuesday – for all shares, right off NYSE Euronext’s page:

So let me see if I get this right. 2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.

These four stocks represented thirty seven percent of all shares traded Tuesday. …

If there was ever an argument to be made for the NYSE having turned into a gigantic “hot potato” parlor game, this is it – in your face in an impossible-to-explain-away fashion.

NYSE Euronext, of course, derives a fee from each share traded, so they have to love this sort of thing. The ordinary investor who has a brain sees it as an amusing sideshow, but the unfortunate fool who gets sucked into the maelstrom is going to get destroyed when the computers move on to some other issue and the price collapses as there is no authentic bid out there for any of this crap.

Beware. This is the sort of cheap parlor game that our capital markets have turned into as a direct and proximate result of our so-called “regulators” turning a willful blind eye while supposed “improvements” in liquidity and “customer access” are put in place by those who have one singular purpose in mind – find a way to steal a fraction of a penny at a time by playing “hot potato” with a handful of issues (sometimes starting a nice juicy rumor to go with it, aka the one last week about BAC allegedly being taken out by Goldman just to prime the pump a bit!) hoping that you will be the bagholder upon whom they can unload.

I certainly hope the companies that manage my (now significantly depleted) retirement and college savings know what the hell’s going on and are acting accordingly.

And this, too, has to be a crime, yet the government does nothing about it.

And on a philosophical level, how can anyone possibly call this anything approaching a free market?

And if no one can, then why aren’t the advocates of free markets screaming bloody murder about this? Is it because they don’t get it? Is it because they’re hypocrites? Or is it because they think they’ve got an edge in this rigged game, that when the music stops they won’t be “the bagholder upon whom they can unload”?

They need to stop kidding themselves. There is nowhere near enough room to keep every free-market advocate in this country, myself included, safe from exposure.

Wednesday, May 20, 2009 8:16 pm

“Where are the damn cops?”

Filed under: Subpoenamania! — Lex Alexander @ 8:16 pm
Tags: , ,

Insider trading in Bank of America stock? Karl Denninger thinks so.

(h/t: baum)

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