Posts Tagged ‘Bank of America’
It just never ends.
So the Justice Department has sued S&P claiming that they issued knowingly-false ratings on various structured products that they knew were going to blow up.
There is one glaring problem - the supposed “injured party” is the issuer!
That’s right folks — the claim is apparently that Citibank (among others) created crap, asked S&P to rate it, they did, and then they bought their own crap and were injured by it.
But you see, in this fairy-tale land of the SEC, the creator of the crap didn’t know it was crap, even though in in the instant case that Citibank’s former risk officer testified under oath that in 2006 60% of their loans were defective — and 80% were defective in 2007.
This was the Chief Risk Officer and his assessment of whether the loans were “authentic” (as represented) or whether they were chock full of lies and material misrepresentations.
How can you sue when you knowingly buy something that your own people intentionally created in a bogus manner and which you thus knew was crap, irrespective of what someone else said? How could you rely on someone’s outside opinion when you know the facts and do not need to rely on opinions at all?
There’s no basis for this lawsuit. There are a crazy number of reasons that people should be sued and prosecuted, but this isn’t one of them. If I create rat poison and then having done so, eat it, it’s my own damn fault if I die as a consequence.
What was going on here is that BAC and Citibank (among others) were intentionally defrauding everyone in sight — including the regulators. By taking crap loans (which they owned) and packaging them into securities that they then bought a “AAA” label forthey were improving their capital ratios since the risk was made to magically disappear.
Citibank wasn’t a victim of anything — they were the protagonist and the entity committing the offense! The entity playing the games here was the bank itself, not the ratings agency. They knowingly took crap and packaged it, then bought the packaged crap they solicited the bogus ratings on for the purpose of improving their apparent capital and thus making the firm look stronger than it really was, and all of this was intended to (and did) result in bonuses for executives and stock price advances — until it blew up in their face.
Rather than prosecute the bad guys Eric Holder now chases after someone who went along because they were paid rather than busting the entity that orchestrated the entire mess in the first place.
This is yet another political farce intended to protect the guilty.
What we have experienced is that our web site orders have jumped 500 % causing our web site E commerce processing larger Deposits to BANK OF AMERICA ..Well, this through up a huge RED Flag with Bank of America . So they decided to hold the deposits for further review , meaning that the orders/payments that were coming in through the web ,( being paid by the customer and that were shipped out by American Spirit Arms ),the BANK was keeping (UNDER REVIEW )..as you could imagine this made me furious…
After countless hours on the phone with BANK OF AMERICA I finally got a Manager in the right department that told me the reason that the deposits were on hold for FURTHER REVIEW …
HER EXACT WORDS WERE … ..” WE BELIEVE YOU SHOULD NOT BE SELLING GUNS and PARTS ON THE INTERNET “
Fuck you Bank of America.
MOVE YOUR DAMN MONEY FOLKS AND TELL THEM WHY.
It’s not enough to sell hinky deals in the housing market, to play “head in sand” with Countrywide, to improperly foreclose (even on houses they don’t actually have a loan on!) and more. Now we have them deciding to effectively steal by conversion, even if only temporarily a lawful business’ funds that supports Constitutionally-guaranteed Rights.
Fuck that and fuck you Bank of America.
Oh, and if you happen to walk into a business that you can determine BANKS with BOA? Walk out and tell them why too. I’ve already done this locally several times after seeing a “Bank of America” sticker on their credit-card machine.
I will not give these jackasses any of my funds, even momentarily, if I can reasonably avoid doing so.
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It’s been a relatively decent year for financial stocks: they’ve had their best performance since 2003. It’s truly been a boom year, though, in investigations, lawsuits, fines, and settlements at the world’s biggest and most important banks. There are 28 banks on the FSB’s list of systemically important financial institutions, and as Felix writes, “pretty much the whole financial sector is still trading at less than book value”.
What follows is a list of notable accusations, admissions and settlements in 2012 alone. (It’s long, so just scroll down if you just want the links):
Bank of America: the US Justice Department is seeking $1 billion in fines for troubled loans sold to Fannie and Freddie; MBIA’s lawsuit against Countrywide, which was disastrously acquired by BofA, rolls on; BofA is one of five banks participating in the $25 billion national mortgage settlement. (Price to book: 0.56, here and throughout via Yahoo Finance)
Bank of China: the families of Israeli students killed in a 2008 terrorist attack are suing the BOC for $1 billion “intentionally and recklessly” handling money for terrorist groups.
Bank of New York Mellon: a subsidiary paid $210 million to settle claims it advised clients to invest in Bernie Madoff’s ponzi scheme; the DOJ continues to investigate possible overcharges for currency trades that it says generated $1.5 billion in revenue. (Price to book: 0.86)
BBVA: settled overdraft suit for $11.5 million. (Price to book: 0.83)
Citigroup: settled CDO lawsuit for $590 million; one of five banks participating in the $25 billionnational mortgage settlement; paid $158 million to settle charges it “defaulted the government into insuring” risky mortgages. (Price to book: 0.62)
Credit Suisse: sued by NY state for allegedly deceiving investor in the sale of MBS. (Price to book: 0.85)
HSBC: settled money laundering charges for $1.9 billion; set aside $1 billion for future settlements related to mis-selling loan insurance and interest rate hedges in the UK; Libor settlement still to be reached. (Price to book: 1.17)
ING: settled charges that it violated sanctions against Iran, Cuba, etc. for $619 million. (Price to book: 0.5)
JP Morgan Chase: being sued by NY state for MBS issued by Bear Stearns; class action lawsuitand criminal probe over failed derivatives trades in its Chief Investment Office; one of five banks participating in the $25 billion national mortgage settlement. (Price to book:0.87)
Mitsubishi UFJ: paid an $8.6 million fine for violating US sanctions on Iran, Sudan, Myanmar and Cuba. (Price to book: 0.54)
Morgan Stanley: fined $5 million for improper investment banking influence over research during Facebook’s IPO. (Price to book: 0.63)
Royal Bank of Scotland: $5.37 billion shareholder lawsuit related to 2008 rights issuance; set aside $650 million to cover claims it mis-sold payment protection products; also fined by the FSA for mis-sold interest rate hedges. (Price to book: 0.28)
Santander: fined by the FSA for mis-sold interest rate hedges. (Price to book: 0.77)
Société Générale: rogue trader Jerome Kerviel loses appeal his appeal 3-year sentence for trades that generated $6.5 billion in losses. (Price to book: 0.45)
Standard Chartered: $340 million fine paid to NY state department of financial services for allegedly hiding the identity of customers in transactions with Iran and drug cartels; $327 million paid to the Federal Reserve and US Treasury’s anti-money laundering unit.
State Street: fined $5 million for lack of CDO disclosure. (Price to book: 1.09)
Wells Fargo: Federal lawsuit over mortgage foreclosure practices ongoing; paid $175 million over mortgage bias claims; one of five banks participating in the $25 billion national mortgage settlement. (Price to book: 1.29)
Ben Walsh – Reuters
I’ll get the obvious out of the way first and then turn in future columns to the aspects of the Department of Justice’s (DOJ) civil suit against Bank of America (B of A)/Countrywide that are vital to understand but are more subtle. The obvious issue arises from the facts that the DOJ alleges that its investigation has found. The complaint and the DOJ press release state that elite financial criminals committed tens of thousands of “brazen” frauds targeting U.S. government funds. We are on the hook for all the resultant losses because Fannie and Freddie were systemically dangerous institutions (SDIs) that the Bush administration concluded had to have their creditors bailed out to prevent a far graver global systemic crisis.
The DOJ alleges that the fraud persisted for years, that senior officers were warned that the lending program they designed would cause endemic fraud, that the senior officers knew that B of A was selling billions of dollars of fraudulent loans to Fannie and Freddie by making false representations, that B of A’s senior leadership consciously covered up the information that the loans were commonly fraudulent, that the senior leadership created perverse bonus systems for their junior (non-professional employees with the expectation, desire, and actual knowledge that doing so led to the origination (and sale to Fannie and Freddie) of endemically fraudulent loans, and that even when Fannie and Freddie confronted B of A with its violations of its representations and warranties B of A refused to honor it contractual obligation to repurchase the fraudulent loans. DOJ alleges that the frauds persisted for years and continued after B of A purchased Countrywide. The obvious question (not asked by the AP, WSJ, and NYT articles about the lawsuit in the version on line last Wednesday night) is: why the DOJ has refused to bring a criminal prosecution of the senior officers who led this “brazen” fraud?
The only slightly less obvious question (again, not asked by any of the three articles) is: if the DOJ is going to bring only a civil complaint, why did it fail to include the culpable senior executives in that civil lawsuit? It does not appear that the reporters asked the DOJ either of these questions. Our top reporters are so used to DOJ abdicating its responsibility to prosecute elite frauds that they approach the newest example of elite impunity from criminal sanction as not worthy of discussion or even note. The obvious has become unfathomable to our elite media.
William K. Black – Capitalism Without Failure
The 2 Billion Dollar Loss By JP Morgan Is Just A Preview Of The Coming Collapse Of The Derivatives Market
When news broke of a 2 billion dollar trading loss by JP Morgan, much of the financial world was absolutely stunned. But the truth is that this is just the beginning. This is just a very small preview of what is going to happen when we see the collapse of the worldwide derivatives market. When most Americans think of Wall Street, they think of a bunch of stuffy bankers trading stocks and bonds. But over the past couple of decades it has evolved into much more than that. Today, Wall Street is the biggest casino in the entire world. When the “too big to fail” banks make good bets, they can make a lot of money. When they make bad bets, they can lose a lot of money, and that is exactly what just happened to JP Morgan. Their Chief Investment Office made a series of trades which turned out horribly, and it resulted in a loss of over 2 billion dollars over the past 40 days. But 2 billion dollars is small potatoes compared to the vast size of the global derivatives market. It has been estimated that the the notional value of all the derivatives in the world is somewhere between 600 trillion dollars and 1.5 quadrillion dollars. Nobody really knows the real amount, but when this derivatives bubble finally bursts there is not going to be nearly enough money on the entire planet to fix things.
Sadly, a lot of mainstream news reports are not even using the word “derivatives” when they discuss what just happened at JP Morgan. This morning I listened carefully as one reporter described the 2 billion dollar loss as simply a “bad bet”.
And perhaps that is easier for the American people to understand. JP Morgan made a series of really bad bets and during a conference call last night CEO Jamie Dimon admitted that the strategy was “flawed, complex, poorly reviewed, poorly executed and poorly monitored”.
The funny thing is that JP Morgan is considered to be much more “risk averse” than most other major Wall Street financial institutions are.
So if this kind of stuff is happening at JP Morgan, then what in the world is going on at some of these other places?
That is a really good question.
For those interested in the technical details of the 2 billion dollar loss, an article posted on CNBC described exactly how this loss happened….
The failed hedge likely involved a bet on the flattening of a credit derivative curve, part of the CDX family of investment grade credit indices, said two sources with knowledge of the industry, but not directly involved in the matter. JPMorgan was then caught by sharp moves at the long end of the bet, they said. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives.
In essence, JP Morgan made a series of bets which turned out very, very badly. This loss was so huge that it even caused members of Congress to take note. The following is from a statement that U.S. Senator Carl Levin issued a few hours after this news first broke….
“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”
Unfortunately, the losses from this trade may not be over yet. In fact, if things go very, very badly the losses could end up being much larger as a recent Zero Hedge article detailed….
Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.
And yes, the SEC has announced an “investigation” into this 2 billion dollar loss. But we all know that the SEC is basically useless. In recent years SEC employees have become known more for watching pornography in their Washington D.C. offices than for regulating Wall Street.
But what has become abundantly clear is that Wall Street is completely incapable of policing itself. This point was underscored in a recent commentary by Henry Blodget of Business Insider….
Wall Street can’t be trusted to manage—or even correctly assess—its own risks.
This is in part because, time and again, Wall Street has demonstrated that it doesn’t even KNOW what risks it is taking.
In short, Wall Street bankers are just a bunch of kids playing with dynamite.
There are two reasons for this, neither of which boil down to “stupidity.”
- The first reason is that the gambling instruments the banks now use are mind-bogglingly complicated. Warren Buffett once described derivatives as “weapons of mass destruction.” And those weapons have gotten a lot more complex in the past few years.
- The second reason is that Wall Street’s incentive structure is fundamentally flawed: Bankers get all of the upside for winning bets, and someone else—the government or shareholders—covers the downside.
The second reason is particularly insidious. The worst thing that can happen to a trader who blows a huge bet and demolishes his firm—literally the worst thing—is that he will get fired. Then he will immediately go get a job at a hedge fund and make more than he was making before he blew up the firm.
We never learned one of the basic lessons that we should have learned from the financial crisis of 2008.
Wall Street bankers take huge risks because the risk/reward ratio is all messed up.
If the bankers make huge bets and they win, then they win big.
If the bankers make huge bets and they lose, then the federal government uses taxpayer money to clean up the mess.
Under those kind of conditions, why not bet the farm?
Sadly, most Americans do not even know what derivatives are.
Most Americans have no idea that we are rapidly approaching a horrific derivatives crisis that is going to make 2008 look like a Sunday picnic.
According to the Comptroller of the Currency, the “too big to fail” banks have exposure to derivatives that is absolutely mind blowing. Just check out the following numbers from an official U.S. government report….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So a 2 billion dollar loss for JP Morgan is nothing compared to their total exposure of over 70 trillion dollars.
It is hard for the average person on the street to begin to comprehend how immense this derivatives bubble is.
So let’s not make too much out of this 2 billion dollar loss by JP Morgan.
This is just chicken feed.
This is just a preview of coming attractions.
Soon enough the real problems with derivatives will begin, and when that happens it will shake the entire global financial system to the core.
The recent implosion of MF Global has reignited the debate over Too Big to Fail (TBTF) and the adequacy of U.S. regulatory safeguards. It has also contributed to a broader decline in investor sentiment, many of whom believe the market structure does not afford them sufficient protection and fair competition. Many MF Global clients still have assets frozen and even if they ultimately recover the money, the short-term consequences can be devastating.
Historically, when firms fail to generate a profit or when one division damages the revenue stream of the whole firm the unprofitable assets are divested. Companies that can’t operate under the weight of their own size end up spinning off the parts that caused the pain. This is normal in the business cycle. The government has disrupted the business cycle of creative destruction by championing TBTF firms over a more competitive market.
The Final Four
Is concentrating this much risk the hands of so few banks good for the market?
At its root, TBTF is a triumph of lobbying over market structure. When Congress passed the No Child Left Behind Act in 2001, no one expected it would create a perfect safety net. Fast forward to 2011 and the legislation is intensely criticized for its design flaws and implementation. In short, the Act failed to live up to its lofty title. Too Big to Fail is a similar misnomer. TBTF is nothing but a marketing ploy masquerading as a market reality, a costly illusion expedited by bank lobbyists and political insiders. If anything was really too big to fail, there would be no need to label it as such because it would be self-evident. No firm was too big to fail, and no firm is too big to fail. The future will prove this out.
The official (and unofficial) recognition of TBTF firms has led to a number of unsavory and unsafe business practices. Businesses overvalued balance sheets, and engaged in questionable practices to grow even bigger and support non-profitable divisions. The Federal Reserve tacitly encouraged these maneuvers through its monetary policies. The end result was consolidation upstream and a loss of diversity in financial counterparties. In the end the Federal Reserve will be the only counterparty, backstopping one huge bank or an exchange that is partially owned by the banks. When 80% of a firm’s business comes from 20% of its clients the business is too dependent on too few counterparties. The financial industry has been consolidating for the last decade, and the systemic risk is larger than ever before.
As the market continues to trend towards a small number of large, homogenous counterparties we will see OTC and floor locals go out of business and mid-sized firms over-leverage and struggle. Clients without political connections have assets frozen and lost. Liquidity will suffer.
The decreased liquidity is notable already and the CME Group recently lowered margin requirements in an attempt to facilitate an improvement. This is the equivalent of a central bank lowering interest rates and will create more volatility in exchange for liquidity (but does not reduce risk). Similarly, much like the infamous liquidity trap, it will also face a point of diminishing returns.
We expect the consolidation upstream to continue as championed firms eat the client books of their smaller counterparts.
FMX Connect for ZeroHedge