Skip to comments.Obama Goes All Out For Dirty Banker Deal
Posted on 08/26/2011 9:10:00 AM PDT by Palter
A power play is underway in the foreclosure arena, according to the New York Times.
On the one side is Eric Schneiderman, the New York Attorney General, who is conducting his own investigation into the era of securitizations the practice of chopping up assets like mortgages and converting them into saleable securities that led up to the financial crisis of 2007-2008.
On the other side is the Obama administration, the banks, and all the other state attorneys general.
This second camp has cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes.
The idea behind this federally-guided settlement is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.
This is all about protecting the banks from future enforcement actions on both the civil and criminal sides. The plan is to provide year-after-year, repeat-offending banks like Bank of America with cost certainty, so that they know exactly how much theyll have to pay in fines (trust me, it will end up being a tiny fraction of what they made off the fraudulent practices) and will also get to know for sure that there are no more criminal investigations in the pipeline.
This deal will also submarine efforts by both defrauded investors in MBS and unfairly foreclosed-upon homeowners and borrowers to obtain any kind of relief in the civil court system. The AGs initially talked about $20 billion as a settlement number, money that would toward loan modifications and possibly counseling for homeowners, as Gretchen Morgenson reported the other day.
The banks, however, apparently balked at paying that sum, and no doubt it will end up being a lesser amount when the deal is finally done.
To give you an indication of how absurdly small a number even $20 billion is relative to the sums of money the banks made unloading worthless crap subprime assets on foreigners, pension funds and other unsuspecting suckers around the world, consider this: in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.
So this deal being cooked up is the ultimate Papal indulgence. By the time that $20 billion (if it even ends up being that high) gets divvied up between all the major players, the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup, will be safely reduced to a single painful but eminently survivable one-time line item for all the major perpetrators.
But Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks dont have a deal. They need the certainty of having all 50 states and the federal government on board, or else its not worth paying anybody off. To quote the immortal Tony Montana, How do I know youre the last cop Im gonna have to grease? They need all the dirty cops on board, or else the whole enterprise is FUBAR.
In addition to the global settlement, Schneiderman is also blocking an individual $8.5 billion settlement for Countrywide investors. He has sued to stop that deal, claiming it could compromise investors claims in exchange for a payment representing a fraction of the losses.
If Schneiderman thinks $8.5 billion is an insufficient, fractional payoff just for defrauded Countrywide investors, then you can imagine how bad a $20 billion settlement for the entire industry would be for the victims.
In that particular Countrywide settlement deal, it looks like Bank of New York Mellon, the New York Fed, Pimco and other players negotiated on behalf of defrauded investors. They told the Times they were happy with the deal, but investors outside the talks told Gretchen they werent happy with the settlement.
Schneiderman apparently listened to those voices instead of the Mellon-Fed-BofA crowd, which infuriated the insiders who struck the actual deal. In a remarkable quote given to the Times, Kathryn Wylde, the Fed board member who ostensibly represents the public, said the following about Schneiderman:
It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street love em or hate em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.
This, again, is coming not from a Bank of America attorney, but from the person on the Fed board who is supposedly representing the public!
This quote leads one to wonder just what Wylde would consider indefensible, given that stealing is pretty much the worst thing that a bank can do and these banks just finished the longest and most orgiastic campaign of stealing in the history of money. Is Wylde waiting for Goldman and Citi to blow up a skyscraper? Dump dioxin into an orphanage? Its really an incredible quote.
The banks are going to claim that all theyre guilty of is bad paperwork. But while the banks are indeed being investigated for "paperwork" offenses like mass tax evasion (by failing to pay fees associated with mortgage registrations and deed transfers) and mass perjury (a la the robo-signing practices), their real crime, the one Schneiderman is interested in, is even more serious.
The issue goes beyond fraudulent paperwork to an intentional, far-reaching theft scheme designed to take junk subprime loans and disguise them as AAA-rated investments. The banks lent money to corrupt companies like Countrywide, who made masses of bad loans and immediately sold them back to the banks.
The banks in turn hid the crappiness of these loans via certain poorly-understood nuances in the securitization process this is almost certainly where Schenidermans investigators are doing their digging before hawking the resultant securities as AAA-rated gold to fools in places like the Florida state pension fund.
They did this for years, systematically, working hand in hand in a wink-nudge arrangement with clearly criminal enterprises like Countrywide and New Century. The victims were millions of investors worldwide (like the pensioners who saw their funds drop in value) and hundreds of thousands of individual homeowners, who were often sold trick loans and hustled into foreclosure when unexpected rate hikes kicked in.
In a larger sense, even the (often irresponsible) people who simply bought more house than they could afford were victims of this scam. That's because in many of these cases, credit simply would not have been available to those people had the banks not first discovered a way to raise vast sums of money dumping crap loans on an unsuspecting market.
In other words: if Bank of America hadnt found a way to sell worthless subprime loans as AAA paper to the Chinese and the Scandavians in May, you can be sure that it wouldnt be going back to Countrywide in June to lend out more money for more subprime loans.
And Countrywide, in turn, wouldnt then have been sending masses of reps out into the ghettoes to offer juicy home loans to undocumented immigrants and refis to confused old ladies on social security.
This is as bad as white-collar crime gets. But to Wylde, it doesnt rise to the level of being indefensible. Until they do something worse than this, we apparently should support the banks, and make sure they dont have to pay more than a fraction of what they made off of this kind of crime.
What is most amazing about Wyldes quote is the clear implication that even a law enforcement official like Schneiderman should view it as his job to do everything we can to support Wall Street. That would be astonishing interpretation of what a prosecutor's duties are, were it not for the fact that 49 other Attorneys General apparently agree with her.
In Schneiderman we have at least one honest investigator who doesnt agree, which is to his great credit. But everyone else is on Wyldes side now. The Times story claims that HUD Secretary Shaun Donovan and various Justice Department officials have been leaning on the New York AG to cave, which tells you that reining in this last rogue cop is now an urgent priority for Barack Obama.
Why? My theory is that the Obama administration is trying to secure its 2012 campaign war chest with this settlement deal. If Barry can make this foreclosure thing go away for the banks, you can bet hell win the contributions battle against the Republicans next summer.
Which is good for him, I guess. But it seems to me that it might be time to wonder if is this the most disappointing president weve ever had.
This was a multi-player event. The Fed-Gov was the ring leader this grand raceteering scheme and no one will be charged or fined.
Wow!! This is Rolling Stone"!?
And O-blame-a got Buffet to cough up $5B to shore up BofA, too.
I think it safe to say the "Half-Black Plague" has lost the base.
Wretched affair. We need a clean sweep.
They should include Chris Dodd, Barney Frank, and the entire Clinton administration in the perp walk.
And the Lame Stream Media continue to try to paint Republicans as the party of big business. Indefensible.
If Barry can make this foreclosure thing go away for the banks, you can bet hell win the contributions.
Lawyer at work,anyone shocked?.
yet another reason I think we’ll see a third-party populist rerun the William Jennings Bryan campaign
it must be a done deal. This is why Buffet just obtained a super sweet deal for preferred stocks. Not common shares. He was able to extort the good stuff.
Buffett isn’t investing all of his own money into the $5 Billion purchase of B of A stock.
He is using Berkshite Hathaway money. That money is substantially Other People’s Money!!!
I want to know just exactly how Buffett is buying $5 BILLION worth of B of A stock.
At about $6 per share, that is 800 million shares or so.
Are there that many shares of B of A stock?
Are there 800 million shares available for purchase???
OR-——Is B of A issuing MORE stock to sell to get that $5 BILLION of funds into their coffers?
IF there are more shares being issued—that will severely DILUTE the dividends for all the prior shareholders....
Or am I missing something???? Some one help...
Proof that Obama is on the buddy system.thanks for info.
I think Buffett has purchased warrants rather than preferred shares but I could be wrong. The warrants provide him a fixed price at which to buy shares in the future. His billion dollar paper gain the last few days can only be via the leverage provided by the warrants.