Joe Nocera in the NYTimes reports that the “Bank of America’s Foreclosure Mess Won’t Disappear Quickly“:
… The bank’s central position is that, since it is so doggone obvious that the homeowners can’t pay their mortgages, the fact that the affidavits might not have complied with the law shouldn’t cause anyone to break into a sweat. At one point Mr. Noski actually said, “I think it’s a big issue because people are losing homes. It’s not a big issue” for the servicers. Glad he cleared that up.
__
The prospect of a second legal assault is more recent. Shortly before the earnings call, Bank of America received a letter from a lawyer representing eight powerful institutional investors, including BlackRock, Pimco and — most amazing of all — the New York Federal Reserve. The letter was a not-so-veiled threat to sue the bank unless it agrees to buy back billions of dollars worth of loans that are in securitized mortgage bonds the investors own.
__
Mainly, they are saying that Bank of America was servicing loans in these bonds that the bank knew violated the underwriting standards that the investors had been led to believe the bank was conforming to. What’s more, they said, the bank had never come clean about all the bad loans, as it was required to do. Therefore, say the investors, the bank has a contractual obligation to buy back the bad loans.
__
During the conference call, Mr. Moynihan and Mr. Noski made it clear that Bank of America was going to use hand-to-hand combat to fight back these claims. “We’re protecting the shareholders’ money,” Mr. Moynihan said. Mr. Noski questioned whether the investors even had the right to bring the case. “We continue to review and assess the letter and have a number of questions about its content including whether these investors actually have standing to bring these claims,” he said.
__
So there you have it. Having convinced millions of Americans to buy homes they couldn’t afford, Bank of America is now revving up its foreclosure efforts on these same homeowners. At the same time, having sold tens of thousands of these same terrible loans to investors, it is going to spend tens of millions of dollars on lawyers to keep from having to buy back their junky loans.
Martin
Well, thank God nobody was stupid enough to confuse capitalism with a moral system.
Jim Pharo
Kicking big shitpile down the road doesn’t make it go away.
These investor claims are the tip of the iceberg. The surviving banks are holding billions of dollars on their books of bad debt, but somehow convinced the Fed that they could just sort of ignore it (something like “it has no market value since the prices are so poor”). But ignoring it won’t make it go away. The strategy is likely something like “Hope we can just ignore these assets long enough so we can deal with it once our revenues rebound,” which would probably work if the revenues rebound.
But a double-dip would pretty much screw that particular pooch (amongst so many others, like job creation)…
mac
The media, wall street and hopefully the legal apparatus of the states will get on this mess.
I think many of those folks are hiding out hoping this will go away. I think and hope they have the same chance as a snowball in a blast furnace.
Maybe these folks were crooks maybe they were just stupid or uninformed, but never the less they made a mess and must pay for it.
eric
@Jim Pharo: the real irony: the big financial companies stood to gain the most if there was a new larger stimulus bill, but they are so wedded to the GOP this cycle that they effectively effed themselves. good work masters of the universe.
BR
You all saw Bill Black’s article on how he believes the FDIC should take over BofA and put them in receivership (and that he believes legally there’s grounds for massive fraud prosecution of the big banks)? This is the same Bill Black that the Obama campaign featured in the ten minute video on McCain’s Keating Five scandal. The thing I’ve wondered is why he was in touch with the Obama campaign but seemingly is on the outside of the Obama administration.
Montysano
I smell a bailout in the works.
And….. I would like to publicly state (are you listening, Sully?) that I recognize and appreciate the incredibly hard work that was required of the Galtian Overlords in order to achieve this level of fuckery.
Comrade Darkness
What’s more, they said, the bank had never come clean about all the bad loans, as it was required to do. Therefore, say the investors, the bank has a contractual obligation to buy back the bad loans.
About damn time someone did something.
eric
@Montysano: there aint no bailout that can get 60 senate votes in a new senate or even the current senate.
Omnes Omnibus
@Martin: That was drink-spittingly funny.
Comrade Javamanphil
Bank of America could not be more aptly named. U-S-A! U-S-A!
Comrade Darkness
@eric: I agree. The winds of sentiment have shifted considerably. I’d love to see them try, frankly. Another few weeks of mass media finally explaining to the people how very screwed up the banks have been all along and that coffin lid ain’t cracking open again.
WyldPirate
@Jim Pharo:
This is why I think someone–most probably Obama–will get a second bite at the apple. The banks still have a lot of room left to “screw the pooch” and the economy even further.
Montysano
@Comrade Darkness:
I hope that you and Eric are right.
But instead, what if we have “another few weeks of
the mass mediaFox News and Glenn Beck finally explaining” the necessity of a bailout in order to protect poor BOA from the predations of the Kenyan Usurper?Am I too cynical?
Culture of Truth
Hot Corp-On-Corp Action!!!
morzer
I see that BOA is once again proving itself to be a large, greedy snake that crushes its prey before devouring it whole in the name of vampire capitalism.
JPL
OT…Wahoo… Balloon Juice raised over 75,000.
Phoenician in a time of Romans
It would be swell if this could be delayed just a couple more weeks.
Imagine Obama saying to teh Republicans ‘Welcome to teh House, boys – and this is for you to solve”.
eric
@Montysano: I hope i am wrong: i would trade a bailout for the banks for some major stimulus spending…as much as the banks should be punished, that punishment would kill us right now. The only thing i would not give up is immunity from prosecution. We need govt spending on infrastructure and we need it so bad, I would be willing to help the Masters of the Universe. Now, I know that there is zero chance that Minority Leader DeMint would let either one of those things happen.
The Dangerman
OT: Speaking of shoes dropping, what the fuck is up with the Denver Broncos? Are they all getting foreclosed (ok, that was mildly forced)? I’m not sure the Raiders have a QB and they dropped 59 on them already in the 3rd? Will the Coach be fired before or after the game finishes?
BR
@eric:
I have a dumb idea on this, but maybe it’s a good one.
Lately, the Fed has been buying US Treasuries in its open-market operations each week. They’re buying on the order of say $10 billion in bonds per week. Separate from that, you all have been writing about the need to invest in infrastructure, and how that’s among the most stimulative things that we can spend on.
Why can’t the Fed simply announce that it will buy up state infrastructure bonds? I know that many states issue such bonds for their projects. And I’m sure if the Fed were buying states would be more likely to issue such bonds to build things like high-speed rail. The Fed would still be allowed to pick which bonds to purchase, and they could still announce them in advance.
This seems like a no-brainer win-win sort of solution. (Which usually tells me that either there’s some simple thing I’ve overlooked or there’s some stupid reason why they won’t do this.)
Linda Featheringill
@Montysano:
Amen.
I for one, welcome . . .
[bows low to hide smile]
Linda Featheringill
@JPL:
Hooray! Good job, everyone!
We rock! We do, we do! We rock! We do, we do!
jwb
@eric: Yup, all for the sake of saving a 3-4% rise in income tax rate.
b-psycho
@eric: You say that as if they sincerely give a fuck…
Omnes Omnibus
@Linda Featheringill: Yea us! Hopefully, it helps. I mentioned on the NFL thread that I have been seeing a lot of Feingold ads today.
Montysano
@BR:
Because, for the near future, the Fed will be buying nothing but the toxic trash that’s flooded the market, in hopes of preventing the whole thing from going belly up?
Remember, there is (depending on who you believe) $45T-$60T of derivative products securitized against these mortgages, and if the linked article is accurate, many of the owners of these securities are unhappy and ready to seek remedies.
Ross Hershberger
Well, the banks made this bed. Time for them to put on their Superman ‘jammies and climb in.
BR
@Montysano:
Actually, I’m not sure they will be. Is there evidence they’ll be buying MBS in QE2? I though they were just going to ramp up their POMO to a whole new level. That’d still provide the cash influx the banks want, but via US Treasuries.
All I figure is that instead of buying Federal bonds if they were to buy state bonds instead that would allow for states to spend on infrastructure projects, ones that don’t have to go through congressional approval and therefore are less likely to be politicized. (And there’s tons of infrastructure projects ready to go – just imagine all the high speed rail that could be built.)
WyldPirate
@Montysano:
This is why it is a blatant fucking lie that the banks have mostly “paid back” the cost of their bailout.
I also think this is why the fucking banksters should be criminally prosecuted–they knew they were selling horseshit and purposefully defrauded investors.
Perry Como
TARP 2, bitches!
Omnes Omnibus
@WyldPirate:
You and I don’t often find common ground, but I unequivocally agree with this.
That's Master of Accountancy to You, Pal
@BR: The Fed doesn’t have the same relationship with the states that it does with the US Treasury. When it buys Treasury bonds, it’s effectively the Treasury borrowing from itself and is an increase in the money supply.
If it’s the states borrowing from the Fed, which is what you are proposing, you get the increase in the money supply, but the states still owe that money to the Fed. Most states (all that I’m aware of, but I’ll go with ‘most’) have legal restrictions on how much borrowing they’re allowed to do. They can’t simply decide to issue more of them, as that counts as external debt.
The Federal government would have to offer to assume that debt from the states for the states to be legally able to do this. The Fed can’t do that on it’s own; that’s Congress’ job. Which means that it has the exact same problems that just spending more money at the federal level has.
mai naem
Yet another BJ threads with all kind of win. Been running across at least two a day recently.
I would seriously worry about not only Obama’s life but violence in general if Congress did pass a second bailout. Not saying it should stop Congress from doing it, but these teabaggers are N.U.T.S.
OT, I watched the roundtable on MTP today. Rick Santelli looks like a younger version of Antonin Scalia. Same snakelike smile and all.
scav
I live in hope. Fool that I am.
J
As Thanksgiving approaches, it behooves us to reflect on how uniquely blessed we Americans have been to live under the wisest and most benevolent ruling class there ever was or could be. I suggest that, in token of our gratitude, we hasten with humble hearts to bestow upon our betters any privileges, any wealth, any power that they don’t already enjoy (if there is anything left, and quickly before they take it for themselves). I know, that nothing that lies in our power could begin to justice to what we owe them, but this is the least we can do.
BR
@That’s Master of Accountancy to You, Pal:
Interesting. That makes sense.
It’s too bad they don’t find a way around that for the purpose of buying state infrastructure bonds…
jwb
@Perry Como: Hardly. The bankers have fucked themselves (and probably the rest of us as well) by backing the Goopers. Since the Goopers boxed themselves in by hooking themselves to the teatard express, which has pretty much guaranteed that there is now really no way that another bailout will pass. It has all the makings for a grand, if grisly, tragic finale, unfortunately with lots of collateral damage.
That's Master of Accountancy to You, Pal
@Omnes Omnibus: I sort of agree with both of you. To the extent that we can pin criminal liability on executives, I’m all for prosecution. Good luck with that, though. To start with, in securities law, criminal fraud does not include a number of things that might seem like fraud to the uninitiated. (Some of this is even defensible. There are real reasons why the common sense concept of fraud doesn’t work in a legal setting.)
The bigger problem is that, if you want to prosecute an individual, you have to establish that he has personal criminal liability. Just because an executive was running a company that engaged in criminal actions does not necessarily mean that they are liable. Sarbanes-Oxley makes the CEO and CFO personally liable for certain misrepresentations on their financial statements, but that’s not what’s alleged here.
In order to prosecute, the DoJ has to think that they can prove beyond a reasonable doubt that the executive was actually involved in making the decisions to commit the fraud. That’s an extremely high hurdle to clear. In many cases, I suspect that the top executives were not so involved; they may have had a pretty good idea that something fishy was going on, but they neither ordered it nor did they know any details of it. In most other cases, I doubt that there’s enough of a paper trail to be able to pin anything on them even if they were involved.
The Supreme Court dealt a severe blow to attempts to prosecute individuals when it struck down the doctrine of honest services fraud in the Jeff Skilling case. I have mixed emotions about that, because honest services fraud really was problematic, vague and worrisome. It’s demise, though, means that prosecutors have to explicitly link individuals to criminal acts in fraud cases. They can’t just be held to be criminally liable for not doing their jobs.
Ross Hershberger
The only winners in this will be the corporate lawyers. At this moment they’re licking their chops at the thought of decades of litigation over esoteric points of law. Endless delays, appeals, mistrials, etc. In the end these cases will be decided by a panel of citizen jurors who couldn’t manage to talk their way out of being there. And they’ll be asked to understand and base their decisions on baffling contracts that even the people who wrote them can’t understand. What hope has justice got?
scav
@Ross Hershberger: at this point, it’s a shovel ready project and I don’t often worry about the care and feeding of lawyers. But there are multiplier effects so yee-haw.
Martin
There can’t be another bailout. Finreg forbids it. If the feds have to intervene, they take the bank, restore the insured account holders, split the remaining assets among the bondholders, and tell management and shareholders to go fuck themselves.
Omnes Omnibus
@That’s Master of Accountancy to You, Pal: I agree that there is a high bar to clear, but I suspect that there are high ranking people within the banks who knew and approved what went on. I also suspect that some of these people were so arrogant that they did not even take the law into account when they took their actions. As a result, I suspect that there are people who left a clear paper trail establishing fraud. I want those people nailed.
I also think that, if approached with a traditional law enforcement strategy of getting the little fish to roll over and a lot of patience, the DOJ can get some VP scalps at least. You would not have to get many to have a salutary effect.
Martin
@That’s Master of Accountancy to You, Pal:
But with the robo-signing and notary issue, there seems to have been a deliberate effort to lie to the courts. Surely that rises to a criminal level. You can’t accidentally task people to sign documents you are legally obligated to sign.
Kyle
This is clearly the fault of ACORN and black people who control all decision-making at BofA. Give them a tax cut.
(/teatard government)
Perry Como
@That’s Master of Accountancy to You, Pal:
It’s almost like concerted interests are working to allow corporations to have all of the rights of people, but none of the responsibilities.
Huh.
Tom M
If BofA has to pay a bunch of money to Black Rock, 55% of what they pay will go to BofA.
WyldPirate
@Omnes Omnibus:
I think we agree on much more than we probably realize. Or at least we have positions on issues much closer than it seems at times.
I have–at the risk of making a huge understatement–a tendency to fly of the handle a bit in these sorts of forums. Part of it is frustration, part is disgust with the fucked up nature of our politicians and part is pure stress relief. ;)
WyldPirate
@Martin:
I would hope that this would be the “{hook” to nail the bastards in the banking and financing industry’s asses.
I realize what the “master of accountancy to you” says is true, but it is fundamentally wrong that it is true and that it is so difficult to prosecute these bastards hiding behind the LLC “avoiding criminal and civil (at least of much consequence) liability free card”.
That’s the thing I find so monstrous about the Citizens United v FEC decision. It wasn’t like the deck wasn’t stacked enough in faor of corporations as it was, but for fuck’s sake giving them “freedom of speech” rights of individuals while shielding them behind all of the LLC horseshit is a bit much.
Cat Lady
No accountability, no rule of law and no objective truth based on agreed upon facts. We’re entering the peak wingnut event horizon, and this won’t end well for everyone not named Koch and Bush.
I’m glad I had the 60’s and 70’s, B.R. (Before Reagan).
+ 3
Resident Firebagger
@BR:
I’ll take “campaign promises Obama was never going to keep” for $100, Alex…
Sleeping Dog
Eventually Congress and the ever compliant Obama will make the paperwork problem go away. After all if the rule of law is violated, then change the law. Anything for those banksters.
But the issue of fraud in the preparation and sale of the mortgage bonds won’t and there is a paper trail that shows culpability of the Wall St. banks.
What’s the over-under on whether Obama will be complicit in helping that go away, the Repugs surely will.
WyldPirate
@Sleeping Dog:
Obama has been on a roll ignoring rampant criminality when it comes to his predecessors and our Galtian Overlords. I see no reason why the zebra changes his stripes now.
Plus, he’s likely to get some bipartisan cooperation soon from the Repukes on this so it’s a win-win for him.
Martin
@Sleeping Dog: The paperwork problem is a state problem. Obama doesn’t have jurisdiction.
Tehanu
The Firesign Theatre just came out with the best explanation of the whole bankster thing I’ve heard yet. What’s the definition of a derivative? It’s a contract with Satan.
WyldPirate
@Martin:
Yeah, and leave it to the lawyers and judges to fuck things up….
Yeah, and the Florida legal system is functioning wonderfully:
(note:the following is from the Palm Beach Post via Naked Capitalism)
“Florida’s attorney general has no authority to investigate or discipline one of the state’s large foreclosure law firms, a Palm Beach County judge ruled Monday.
The five-page ruling from Circuit Judge Jack S. Cox was in response to a request from the Shapiro & Fishman law firm to quash an attorney general’s subpoena for information. The attorney general’s office announced in August it was investigating Shapiro & Fishman, which has offices in Boca Raton and Tampa, as well as two other large firms that represent lenders in foreclosure hearings.
Cox said the Florida Bar, not the attorney general’s office, is responsible for investigating allegations of misconduct, including complaints that foreclosure paperwork was doctored in order to rush cases through the courts.”
Fucking lovely…..greatest legal system in the world. USA! USA! we’re No. 1!
edited to fix blockquote.
Martin
@WyldPirate: The AG can’t investigate perjury? Every falsely notarized or signed document is a case of perjury, no?
WyldPirate
@Martin:
I’m not a lawyer and I admittedly skimmed the link so I could have missed the major point, but what I got out of it is that a florida judge ruled to quash the AGs investigation at the behest of one of the foreclosure mills because misconduct investigations were under the perview of the Florida Bar, not the AG.
Perhaps there is a workaround in what you suggest. I wouldn’t claim to know nor to I have the energy right now to try and figure it out. To me, it’s simply discouraging because the “game” is completely rigged in favor of the corporate behemoths v. the individual. On top of that, the powers that be–from the media to the Obama andministration–seem to be taking a “move along, nothing to see here” attitude with the foreclosure mills and the fraud being perpetrated.
Mnemosyne
@That’s Master of Accountancy to You, Pal:
This is the nightmare that’s been keeping me up at night: how many of these bad mortgages actually originated with Countrywide before they were purchased by BofA? If they originated with Countrywide and not BofA, what’s the chance that a judge somewhere will rule that BofA is not liable for any fraud that may have happened on Mozilo’s watch and anyone with a Countrywide mortgage is just plain fucked since the company doesn’t exist anymore?
sparky
yes, a potentially big deal issue, but since contrary to my prior prediction the relevant markets have not seized up, my guess now would be that there is already a deal of some sort in the works.
to me, the important thing to keep in mind here is that the debt, guarantees and default issues are the issues for Wall St.
no banker is going to care if people in foreclosuretown in Nevada or Florida can’t get a good title without fancy and expensive new title insurance–it will just be another expense of homeownership, like hurricane insurance in FL.
the debt, however, is an issue because, well, that’s money and future deals. the debt will simply be either implicitly or expressly guaranteed by the US of A. thus once again proving that the mass of Americans do live in a socialist utopia. unfortunately, they aren’t citizens.
edit since i am in moderation (yippiee!)–
y’all are wasting your breath hoping that someone other than perhaps some low-level idiots are ever going to be prosecuted for any of this stuff.
sparky
one other thing–the legal profession, such as it is, is self-regulating. this means that only the Bar or the Judiciary (depending on the state) has the power to discipline lawyers–a different matter than prosecuting them for criminal offenses.
not every mistake, whether intentional or not, in a document submitted to a court is perjury. for example, it might be necessary for the misstatement to be material, as this snippet from the United States Code (federal law) suggests:
18 U.S.C. s.1621
not to mention rather difficult (impossible?) to prove. in any event AFAIK there’s no evidence floating around to suggest that anyone at a directorship level suborned perjury.
the usual disclaimer applies to this as well: none of the above is meant as legal advice and should not be construed or understood as such.
Dr. Wu
The spectacle of the beast turning on itself will be more than entertaining. Fucking over homeowners falls into the long-honored practice of shearing the sheep–but fucking over the wealthy investors who are starting to realize that their MBS “assets” are unliquidatable because they’re built on a foundation of shit is an entirely different story.
Mnemosyne
@Dr. Wu:
Frankly, at this point probably the only thing that will get regulation moving is the banks realizing they’re getting screwed by each other and demanding that Congress put a stop to it.
Once they discover that they’re getting hosed by what the current regs allowed their competitors to do to them, you bet your sweet patootie they’re going to demand the government step in and save them from themselves.
Uloborus
@That’s Master of Accountancy to You, Pal:
This was basically what I understood. As much as the things that have happened look criminal, the financial mess did not actually involve laws being broken and there’s jack all that can be prosecuted.
But the other thing I understood was that shareholders can sue under much broader circumstances than the DOJ can prosecute. That was the shoe waiting to drop, and it looks like it’s dropping.
mclaren
@Jim Pharo:
Actually, ignoring it long enough will make it go away.
It’s called “extend and pretend,” and it works like this: the banks stretch out the foreclosure process, allowing them to carry the bad loans on their books. As long as the bad loans haven’t been written off, they’re technically still counted as good — and thus, the bad loans are carried as assets.
Meanwhile, the fed loans the banks money at essentially zero interest. The banks then charge 35% interest on that money to the customers they’re screwing with sky-high credit card rates. That’s mafia-loan-shark interest rates, especially in a deflationary economy like this. So the banks are making fantastic amounts of money on the spread between the effectively zero interest rates of the prime rate and the Joey-Bent-Nose loanshark interest rates banks charge on credit cards. Of course banks aren’t making loans, they’re hoarding cash, because they need to bulk up their reserves in anticipation for some of the bad loans they’re going to have to write off. Because they will have to write some of them off.
But the banks hope that if they can extend and pretend long enough, they’ll be able to pay down that colossal sh|tpile of debt to the point where the banks will be solvent again.
That’s their hope. Given the gigantic size of the bad debt that’s weighing the banks down, it’ll be a loooooooooooooooong long time before they banks can pay it down. So they extend and pretend and hope.
Unfortunately for the banks, their loans involved so much fraud that they won’t be able to extend and pretend. The SEC and the DOJ and all kinds of state local task forces will get medieval on their asses.
It’s another of those Catch-22s we’re stuck in now: if the DOJ and the state & local fraud taskforces don’t bust the banks for all their fraud, it destroys the rule of law and gives financial entities carte blanche to scam and steal and lie and our entire financial system basically breaks down. On the other hand, if the DOJ and the state & local fraud taskforces hold off on busting the banks for all those bad loans, the insolvent banks don’t have to admit they’re insolvent and we get a Japanese-style “lost decade.”
The Grand Panjandrum
If you still have money in an account with B of A you are enabling criminally fraudulent activity.
J Glenn Lowe
When laws can’t stop Banksters. There is only one thing left to do.
Die Banker Die – A Tribute to the Wall Street Banksters that suck the life from all of us and our economy just to get a nice Christmas Bonus – http://www.youtube.com/watch?v=YGFZ1Jj3ui8