“Welcome Speculators, Please Press Your Bets”

Well now Moody’s has gone and done it.

They just hit BAC, C and WFC with downgrades, saying that the government is “more likely” to allow a large bank to fail if they get in trouble.

This belies the truth, which is that the government doesn’t have the capacity to bail out a trillion-dollar boondoggle any more.  There’s no way to get another TARP through Congress and there’s no back-door way to fund it either.

So Moody’s is correct, in a round-about sort of fashion.  Let’s not conflate desire with capacity, eh?

The entire banking sector took an instant dive on that, with BAC now down more than 5% and Wells, which was up, back to even.

Bank of America’s insular, CEO-blowing board needs to do some firing in the executive suite.  May I suggest a Howitzer for the means of that “firing”?

Frankly I’m not sure it matters at this point.  Countrywide was a monstrous mistake, and a very expensive one on top of it. Tangelo should have been peeled in 2008 if not before rather than riding off into the sunset with a civil penalty that Bank of America paid a huge chunk of. Nobody seems to care much about the fact that all of these banks have been implicated in various schemes and frauds related to foreclosures – not that this is new, of course, in that they did the same thing on the way up with appraisals and similar, blacklisting honest appraisers and essentially demanding overvaluations to “support” their reckless lending.

Now let’s add to that: Nevada is apparently preparing to criminally charge some of these institutions.  That’s not sue, it’s prosecute.  We don’t yet know who the targets are but this will mark the first actual criminal indictments of note should they actually appear.  For my part I’m not going to believe it until I see it, considering how overdue such an action is in the context of anything even lightly-related to the concept of “justice.”

Are we finally going to “Stop the looting and start prosecuting”?  Hope springs eternal.

Here’s the rub, when you get down to it:  Every one of these institutions should have been a zero in 2008 and the executives should have been brought up on indictments.  As such the alleged “value” in these firms is nothing more than government support for the same sort of business model as Full Tilt Poker is accused of – that is, claiming value in assets that does not in fact exist, relying on the belief that everyone will not show up and demand their money at the same time.  Proof of this is readily available every day in the market in that these firms are selling at a fraction of their claimed book value; if there was anyone who believed that the accounting was honest they’d instantly buy the firm in question as that would be fastest and most-certain money ever made in M&A.

That it hasn’t happened is all the proof you need that the accounting is absolute and utter crap.

Oh Mr. Buffett?  How’s your position in BAC working out?

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