Bill Black And L. Randall Wray Demand Bank Of America Finally Open It Books

William Black ratchets his campaign for putting an allegely insolvent Bank of America into conservatorship by several notches, following up on Jonathan Weil's argument presented a few days ago that there is massive "book cooking" by Moynahan's henchmen, and that it is about time that BofA truly opens it books for all to evaluate just how undercapitalized the mega bank truly is.

Let's Set the Record Straight on Bank of America: Open the Books!, by William Black and L. Randall Wray, as published in the Huffington Post (part 1 and 2)

While we welcome Bank of America's response to our two-part essay, "Foreclose on the Foreclosure Fraudsters,"
it does not actually respond to any of the facts or analytical points
we made. Indeed, it does not engage the issues we raised. Bank of
America's response contains some useful data on foreclosures that
supports points we have made in prior articles, but overwhelmingly it is
a plea for sympathy; Bank of America says it is beset by deadbeat
borrowers and it is distressed that it is criticized when it forecloses
on their homes. Bank of America portrays itself as the victim of an
ungrateful public.

Bank of America Should be Placed in Receivership NOW

We argued that the FDIC should place Bank of America in receivership
and the federal banking agencies should impose a moratorium on
foreclosures until the mortgage servicers correct their systems, which
currently often rely on massive fraud and perjury. There can be no
assurance that foreclosures are lawful until the banks actually find the
mortgage "wet ink" notes signed by debtors to prove they are the true
beneficial owner of the mortgage debts, which is required to seize
property. We also called on the banks to identify and compensate
homeowners who were fraudulently induced to borrow by the lenders and
their agents through a number of fraudulent practices variously marketed
by lenders as "no doc", liar, and NINJA loans (all subspecies of what
the industry aptly called "liar's" loans).

We showed that outside studies by a wide range of parties showed massive fraud by the bank.

The demands by investors that Bank of America repurchase loans and
securities sold under false "reps and warranties" may cause exceptional
losses if those making the demands document the broader fraud by the
lenders. The article
"Bank of America Resists Rebuying Bad Loans" shows that Bank of
America's potential loss exposure to Fannie and Freddie is staggering:
"[Bank of America] said it sold $1.2 trillion in loans to the
government-controlled housing giants from 2004 to 2008 and has thus far
received $18 billion in repurchase claims on those loans."

The company is fighting the groups that are demanding that it repurchase the toxic mortgages. Its CEO, Brian Moynihan counters their claims with the following analogy:

Such investors are like "people who come back and say,
'I bought a Chevy Vega, but I want it to be a Mercedes with a
12-cylinder [engine],'" Mr. Moynihan said in October. "We're not putting
up with that."

One-third of its subprime business is in default and Mr. Moynihan
thinks Countrywide was selling Vegas? If one third of Vegas crashed and
burned within three years of being purchased the metaphor might be apt
and completely incriminating. We argued that putting Bank of America
into receivership is the proper remedy for its substantial violations of
the law and for its continuing reliance on unsafe and unsound
practices. Outside reviews have documented the most extensive and
financially harmful violations of law and unsafe banking practices and
conditions in history.

As argued in a recent article by Jonathon Weil, the bank is nearing a
"tipping point" as markets recognize it is "cooking the books," vastly
overstating the value of its assets as it refuses to recognize the true
scale of losses on its purchase of Countrywide. Ironically, it still
carries on its books $4.4 billion of fictional "goodwill" value created
by overpaying for Countrywide (a notorious control fraud), as well as
$142 billion of home equity loans that are worth far less. A more honest
accounting of "good will" and of the value of home equity loans would
take a big bite out of Bank of America's market capitalization ($116
billion), which has lost 41 percent
of its value since April 15. The markets are moving ever closer to
shutting down the institution, but Moynihan is not "putting up with" the
demand by investors for Bank of America to come clean on its fraudulent
practices.

Ms. Mairone's Response Verifies Our Claims

Rebecca Mairone replied on behalf of Bank of America to our two-part
post. Step back for a moment and consider the context of Bank of
America's response. We cite evidence that the bank has committed
massive fraud, explain that this provides a legal basis for placing it
in receivership, and call on the FDIC to do so. Bank of America chooses
to respond publicly, but its response never contests its massive fraud
or our demonstration that there is a legal basis for placing it in
receivership.

Instead, Bank of America complains that we "do nothing to illuminate
the challenges [BofA's home mortgagees] face." This is not our task;
nevertheless, the claim is incorrect. We illuminate the problems posed
by the fact that nonprime borrowers were frequently victims of mortgage
fraud perpetrated by lenders as well as many other operatives in the
unprecedented criminal lending and securities fraud of the past decade.
This problem is typically ignored -- at least by the financial sector
and the mainstream media -- so we did "illuminate" the problem and the
cause of action borrowers could bring for "fraud in the inducement."

We showed that the fraudulent senior officers that controlled home
mortgage lenders created "liars," and NINJA loan programs designed to
induce millions of Americans to take out loans they could not afford to
repay. The endemic underlying fraud in the origination and sale of
nonprime loans is critical to understanding why loan defaults are
massive, why borrowers were typically the victims of the fraud and lost
their meager savings due to the frauds, why loan modifications typically
fail, and why foreclosure fraud has been so common. The endemic fraud
also hyper-inflated the bubble and helped cause the economic crisis and
severe loss of employment. Over a million Bank of America borrowers
face these "challenges" that we "illuminated."

Bank of America's response is guilty of what it criticizes; it
ignores the fraud by nonprime lenders and sellers, particularly Bank of
America's frauds in both capacities. It does not seek to "illuminate"
the frauds or the problems that arise from endemic mortgage fraud. We
did not invent the "epidemic" of mortgage fraud. The FBI began
testifying about that in 2004. The FBI predicted that it would cause a
"crisis" if it were not stopped -- and no one claims it was stopped.
The mortgage industry's own fraud experts opined publicly in 2006 that
the type of loans that Countrywide decided to elevate to its favored
product was an "open invitation to fraudsters" and fully deserved the
phrase that the lenders used to describe the product: "liars' loans".
(Bank of America chose to purchase Countrywide at a time when it was
notorious for the awful quality of its mortgage loans.) It is the
lenders and their agents, the loan brokers, that directed the lies in
these liar's loans and appraisals and it was the lenders that made
fraudulent "reps and warranties" in order to sell the fraudulent loans
on to others in the form of securities. Economists and white-collar
criminologists share a belief in "revealed preferences." The senior
officers that control lenders provide an "open invitation to fraudsters"
in the midst of an "epidemic" of fraud because they intend to profit
from those frauds.

Instead of contesting its issuance and sale of massive numbers of
fraudulent loans, Bank of America writes to provide data on
delinquencies and foreclosures in support of its claim that it is the
victim of Countrywide's deadbeat borrowers who it tries in vain to help.
Bank of America's data, however, add support for the evidence of
widespread mortgage fraud, particularly by Countrywide. Accounting
control frauds maximize their (fictional) reported income by lending
routinely to those who cannot afford to repay their loans. It is this
aspect of the fraud scheme that is most counter-intuitive to those that
do not study fraud, but to criminologists it provides the most
distinctive markers of fraud. The senior officers that control
fraudulent lenders maximize the bank's reported short-term income, in
order to maximize their compensation, by growing extremely rapidly
through making loans at a premium yield. This strategy creates a "sure
thing" (Akerlof & Romer 1993). The lender is sure to report record
(fictional) profits in the short term and suffer enormous (real) losses
in the longer term.

The Evidence Supports Our Claims of Fraud

If we are correct that Countrywide operated as a fraud we would expect to find the following:

1. disproportionately large rates of loan delinquencies and defaults
2. huge losses upon default, and
3. fraudulent representations and appraisals.

We would also predict widespread fraud in the "reps and warranties"
that Countrywide and Bank of America provided to purchasers of nonprime
loans originated by Countrywide. As we emphasized in our initial posts,
a wide range of financial entities have confirmed the widespread fraud
in the reps and warranties. This is why Bank of America is being sued.
The data they provided in its response to our blogs supports the first
three predictions.

First, Bank of America admits to a 14 percent delinquency rate on its
mortgages. That percentage is roughly seven times greater than the
normal delinquency rate for prime loans. It is roughly three times the
traditional rule of thumb for a fatal delinquency rate (5 percent) for a
home lender. Losses upon default during this crisis are dramatically
greater than the historic percentages, and loss reserves were at
historic lows, so the traditional rule of thumb for fatal losses is
unduly optimistic in this crisis.

Second, Bank of America's response states that Countrywide-originated
loans have caused 85 percent of total delinquencies. Bank of America
was a massive mortgage lender before it acquired Countrywide, so taken
together these data suggest that the delinquency/foreclosure rate for
Countrywide-originated mortgages must have been well over 20 percent --
over ten times the normal delinquency rate and four times the
traditional rule of thumb for fatal losses. These exceptionally large
rates of horrible loans, defaulting so quickly after origination, are a
powerful indicator that Countrywide was engaged in accounting control
fraud. Unfortunately, lenders that specialized in making nonprime loans
were typically fraudulent. The result was a massive bubble and economic
crisis.

Our conclusions are well-supported by many other analyses, many of which were conducted long ago. For example, Reuters reported in January 2008 that one-third of Countrywide's subprime mortgages were already delinquent:

(Reuters) - Countrywide Financial Corp CFC.N, the
largest U.S. mortgage lender, on Tuesday said more than one in three
subprime mortgages were delinquent at year-end in the $1.48 billion
portfolio of home loans it services.

Countrywide said borrowers were delinquent on 33.64 percent of
subprime loans it serviced as of December 31, up from 29.08 percent in
September.

Foreclosures are now vastly more common and the losses lenders suffer
upon foreclosure, particularly for nonprime loans, are catastrophic.
For example, Bloomberg reported at the end of 2009 that foreclosures result in losses amounting to nearly three-fourths of the value of the loan:

For subprime loans, losses averaged 73 percent for a
foreclosure compared with 59 percent for a short sale, Amherst
[Securities Group LP] reported.

Third, Bank of America's data indicate another form of deceit that is
a typical consequence of accounting control fraud. Bank of America has
delayed foreclosing, sometimes for years, on large numbers of loans
that have no realistic chance of being brought current, even with the
loan modifications it offered. This behavior would be irrational for an
honest lender, for it would increase ultimate losses, but is a typical
strategy for a lender controlled by fraudulent senior officers because
it greatly delays loss recognition and allows them to extend their
looting of the bank for years through bonuses paid on the basis of
fictional reported "profits" after the bank has (in economic substance)
failed. Bank of America's response to us admit that, of their 1.3
million customers who are more than 60-days delinquent, 195,000 have not
made a payment in two years. Of those loans which have not received a
payment in two years, 56,000 are already vacant.

For the foreclosure sales in the period from Jul-Sep, 2010:

• 80 percent of borrowers had not made a mortgage payment for more than one year
• Average of 560 days in delinquent status (approximately 18 months)
• 33 percent of properties were vacant

The traditional rule of thumb is that a home loses 1.5 percent of its
value each month it is delinquent but not foreclosed and sold. Those
losses are far greater when the property is vacant. The loss of value
is not limited to the particular home; all homes in the neighborhood are
harmed when homes are left vacant for long periods. Bank of America
does not address this issue, but the time from foreclosure to sale has
also grown dramatically, which means that the length of time that
foreclosed homes remain vacant prior to sale has grown substantially.
The industry calls this huge number of homes, which are not producing
income to the lenders because of the extraordinary growth in
delinquencies and the delay in sales even after foreclosure, the "shadow
inventory." Note that none of the government foreclosure relief
programs mandated that Bank of America sit on these delinquent assets
for an average of 18 months and allow them to be wasting assets.

The bank's response primarily criticizes its borrowers as deadbeats,
yet the data it provides support points we have made in our prior posts,
including Bill Black's posts about the banks working with the Chamber
of Commerce and Chairman Bernanke to extort the Financial Accounting
Standards Board (FASB) in order to destroy the integrity of the
accounting rules requiring banks to recognize losses on their bad loans.
We have explained why the fraudulent officers controlling many lenders
followed a strategy of making bad loans at premium yields in order to
maximize (fictional) accounting income and their bonuses. This dynamic
drove the current crisis. These frauds hyper-inflated the housing bubble
and caused trillions of dollars of losses.

The extortion of FASB was successful; Bank of America was one of the
leaders of that extortion. It changed the accounting rules so that banks
could often avoid recognizing losses on these fraudulent loans, until
they actually sold the home taken back through foreclosure. This
dishonorable accounting fiction creates perverse incentives for banks to
do exactly what Bank of America has done -- let bad assets waste away and make already severe losses catastrophic.

We have explained in prior posts and interviews that there are two foreclosure-related crises. Our first two-part
post called on the U.S. to begin "foreclosing on the foreclosure
fraudsters." We concentrated on how the underlying epidemic of mortgage
fraud by lenders inevitably produced endemic foreclosure fraud. We wrote
to urge government policymakers to get Bank of America and other
lenders and servicers to clean up the massive fraud. We obviously
cannot rely solely on Bank of America assessing its own culpability.

Note also that while we have supported a moratorium on foreclosures,
this is only to stop the foreclosure frauds -- the illegal seizure of
homes by fraudulent means. We do not suppose that financial institutions
can afford to maintain toxic assets on their books. The experience of
the thrift crisis of the 1980s demonstrates the inherent problems
created by forbearance in the case of institutions that are run as
control frauds. All of the incentives of a control fraud bank are
worsened with forbearance. Our posts on the Prompt Corrective Action
(PCA) law (which mandates that the regulators place insolvent banks in
receivership) have focused on the banks' failure to foreclose as a
deliberate strategy to avoid recognizing their massive losses in order
to escape receivership and to allow their managers to further loot the
banks through huge bonuses based on fictional income (which ignores real
losses). We have previously noted the massive rise in the "shadow inventory" of loans that have received no payments for years, yet have not led to foreclosure:

As of September, banks owned nearly a million homes, up 21
percent from a year earlier. That alone would take 17 months to unload
at the most recent pace of sales, and doesn't include the 5.2 million
homes still in the foreclosure process or those whose owners have
already missed at least two payments.

Bank of America's response admits how massive its contribution to the
shadow inventory has been. Mairone implies that the bank delays its
foreclosures for years out of a desire to help homeowners, but common
sense, and their own data show that the explanation that makes most
sense is that the bank is hiding losses and maximizing the senior
officers' bonuses by postponing the day that the bank is finally put
into receivership.

We did not call for a long-term foreclosure moratorium. Our proposal
created an incentive for honest lenders to clean up their act quickly
by eliminating foreclosure fraud. We will devote a future post to our
proposals for dealing with the millions of homes that the fraudulent
lenders induced borrowers to purchase even though they could not afford
to repay the loans.

Bank of America's data add to our argument that hundreds of thousands
of its customers were induced by their lenders to purchase homes they
could not afford. The overwhelming bulk of the lender fraud at Bank of
America probably did come from Countrywide, which was already infamous
for its toxic loans at the time that Bank of America chose to acquire it
(and also most of Countrywide's managers who had perpetrated the
frauds). The data also support our position that fraudulent lenders are
delaying foreclosures and the sales of foreclosed homes primarily in
order to delay enormous loss recognition.

The fraud scheme inherently strips homeowners of their life savings
and finally their homes. It is inevitable that the homeowners would
become delinquent; that was the inherent consequence of inducing those
who could not repay their loans to borrow large sums and purchase homes
at grossly inflated prices supported by fraudulent inflated appraisals.
This was not an accident, but rather the product of those who designed
the "exploding rate" mortgages. Those mortgages' initial "teaser rates"
induce unsophisticated borrowers to purchase homes whose values were
inflated by appraisal fraud (which is generated by the lenders and their
agents) and those initial teaser rates delay the inevitable defaults
(allowing the banks' senior managers to obtain massive bonuses for many
years based on the fictional income). Soon after the bubble stalls,
however, the interest rate the purchasers must pay explodes and the
inevitable wave of defaults strikes. Delinquency, default, foreclosure,
and the destruction of entire neighborhoods are the four horsemen that
always ride together to wreak havoc in the wake of epidemics of mortgage
fraud by lenders.

Out of these millions of fraudulent mortgages, Bank of America claims
to have modified 700,000; of these, 85,000 are under HAMP. Still, the
Treasury says that the bank has another 375,000 mortgages that already
meet HAMP terms. In other words, Bank of America has been shockingly
negligent in its efforts to modify mortgages. The Treasury reports that
the bank's performance is far worse than that of the other large banks.
Alternatively, Treasury could be wrong about the mortgages; Bank of
America may be refusing to modify mortgages for homeowners who appear to
qualify for the HAMP terms because it knows the data Treasury relied
upon is false. Their unusually low rate of HAMP modifications could be
the result of the extraordinarily high rate of mortgage fraud at
Countrywide.

Bank of America has admitted that HAMP's "implicit" purpose is to
help the banks that made the fraudulent loans -- not the borrowers. That
goal was the same goal underlying the decision to extort FASB to
gimmick the accounting rules -- delaying loss recognition. For example,
as reported by Jon Prior

BofA Merrill Lynch analysts said critics of the
program aren't yet vindicated on their calls that HAMP is a failure.
"While the increased re-default rates will provide more 'fodder to those
in the camp' that regards HAMP as a failure, we do not think the story
is so simple," according to the report. The analysts said the revised
re-default rates are in line with what they expected. While the
"explicit goal" of HAMP to help 3m to 4m homeowners "appears
unattainable at this point," its "implicit goal" to stall the
foreclosure process and provide some order to the flow of properties
into REO status has been achieved, according to the report. "In our
view, the implicit goal has been one of the key reasons for the
stabilization in home prices," according to the BofA Merrill Lynch
report.

HAMP's parallel goal is funneling more money to the banks that
induced the fraudulent loans. Data indicate that neither the HAMP
modifications nor those undertaken independently by the banks actually
benefit homeowners. Most debtors eventually default even on the modified
mortgage and end up in foreclosure. Further, many reports indicate that
banks encourage homeowners to miss payments so that they can qualify
for HAMP, then use the delinquencies as an excuse to evict homeowners.
Most importantly, as we reported, half of all homeowners are already
underwater in their mortgages, or nearly so. Bank of America
representative Rebecca Mairone does not report how many of these
mortgages undergoing mods are underwater, but given the massive lender
fraud that included overvaluation during the property appraisal process
(in other words, even before property values fell these mortgages were
probably underwater), it is likely that most are. Since the modification
merely lowers the monthly payment but leaves the balance unchanged, the
homeowners remain underwater. What this means is that homeowners are
left with a terrible investment, paying a mortgage that is far larger
than the value of the home. Because most modifications will lead to
eventual default, all they do is to allow the bank to squeeze more life
savings out of the homeowner before taking the home. Bank of America
wants to be congratulated for such activity.

Meanwhile, Bank of America expects to receive billions of dollars for
its participation in HAMP. The top three banks (JPMorgan Chase and
Wells Fargo being the others) will share $17 billion because HAMP pays
servicers, investors and lenders for restructuring. These top 3 banks
service $5.4 trillion in mortgages, or half of all outstanding home
mortgage loans. Yet, as Phyllis Caldwell, Treasury's housing rescue
chief has testified, there is no proof that these banks have any legal
title to the loans they are modifying and foreclosing. In Bank of
America representative Rebecca Mairone's response to us, she does not
respond to, let alone contest, the fact that her bank, as well as other
banks, has been illegally foreclosing on properties -- illegally
removing people from their homes. Instead, she lists characteristics of
those homeowners on which Bank of America might be illegally
foreclosing: they are unemployed, they have not made payments in many
months, a third no longer occupy their homes, and so on. It is
interesting that she completely ignores all the important issues at hand
with respect to the "deadbeat" homeowners. How many of these homeowners
were illegally removed from their homes so that they became vacant?

Does Bank of America hold the "wet ink" notes on any of these homes,
as required by 45 states? How many of these homeowners were unemployed
or otherwise financially distressed when the loans were originally made?
How many of the mortgages were fraudulent from the very beginning: low
docs, no docs, liar loans, NINJA's (all specialties of Countrywide)?
Without addressing these questions, Bank of America cannot claim to have
demonstrated that the foreclosures were appropriate, no matter how many
years borrowers might have been delinquent.

Unfortunately, the non-response to the crises caused by Bank of
America's frauds exemplifies their response to our reporting. It does
not engage the points we made. It is a pure PR exercise. Bank of
America also wants praise for having "stepped up" to purchase
Countrywide, and asserts that if it had not done so, the "failure of
[Countrywide] would have been devastating to the economy, the markets,
and millions of homeowners." We have explained why this was not true of
Countrywide or Bank of America. Receiverships of fraudulent banks
preserve, not destroy, assets. Countrywide and its fellow fraudulent
lenders and sellers of toxic mortgages "devastat[ed] the economy, the
markets, and millions of homeowners," as Citicorp's response put it. A
receiver would have fired Countrywide's fraudulent senior leaders. Bank
of America, by contrast, put them in leadership roles in major
operations, including foreclosures, where they could commit continuing
frauds.

Bank of America did not purchase Countrywide for the good of the
public. It purchased a notorious lender to feed the ego of their CEO,
who wanted to run the biggest bank in America rather than the best bank
in America. They certainly knew at the time of the purchase that is was
buying an institution whose business model was based on fraud, and it
had to have known that a substantial portion of Countrywide's assets
were toxic and fraudulent (since Bank of America's own balance sheet
contained similar assets and it could reasonably expect that
Countrywide's own standards were even worse). The response does not
contest the depth of the bank's insolvency problems should it be
required to recognize its liability for losses caused by its frauds.

Here is how current CEO explained the decision to acquire Countrywide:

The Countrywide acquisition has positioned the bank in the
mortgage business on a scale it had not previously achieved. There have
been losses, and lawsuits, from the legacy Countrywide operation, but we
are looking forward. We acquired the best mortgage servicing platform
in the country, and a terrific sales force.

Bank of America's response to our articles ignores its foreclosure
fraud, which we detailed in our articles. News reports claim that the
bank sent a 60 person "due diligence" team into Countrywide for at least
four weeks. The Countrywide sales staff were notorious, having prompted
multiple fraud investigations by the SEC and various State attorneys
general. The SEC fraud complaint against Countrywide emphasized the
games it played with the computer system. Countrywide had a terrible
reputation for its nonprime lending. Nonprime loans were already
collapsing at the time of the due diligence, the FBI had warned about
the epidemic of mortgage fraud, and the lending profession's anti-fraud
firm had warned that liar's loans were endemically fraudulent. Is it
really possible that Bank of America's due diligence team missed all of
this and that the CEO thought even months later that the Countrywide
lending personnel and Countrywide's computer systems were exceptionally
desirable assets?

The obvious questions we have for Bank of America about the due diligence are:

How did you determine the losses in Countrywide's assets?

• How large were the market value losses at that time?
• How large are the market value losses now?
• Which members of the due diligence team were assigned to determine
  the incidence of fraud in various loan categories? What did they find?
• What actions did BofA take in response to finding the incidence of mortgage and accounting/securities fraud?

Even Bank of America now acknowledges that Countrywide's computer system and personnel were defective:

After buying Countrywide, Bank of America decided to
adopt the Calabasas, Calif., company's homegrown mortgage-servicing
technology. For more than a year, though, the combined company used two
core systems that didn't communicate with each other. The company's
resources were strained by the integration, the need to roll out new
loan-modification programs and rising delinquencies. "We knew it would
be challenging," says one executive involved in the integration. Bank of
America soon discovered that information was missing from many
Countrywide loan files, making it more difficult to communicate
effectively with borrowers. "You would shake your head and say: How can
that be?" this executive says.

It didn't help that many Countrywide executives were let go during
the integration, with Bank of America installing its own employees in
key posts. Such moves are routine in corporate acquisitions. Former
Countrywide executives ran the servicing operation until recently, says
Dan Frahm, a company spokesman.

Bank of America says no home-loan servicer could have
anticipated the crushing workload caused by economic turmoil, falling
home prices and the foreclosure epidemic. The bank did its "best" in
"difficult and an unforeseen set of circumstances," says Mr. Mahoney,
the head of public policy.

We explained in our initial posts
why accounting control frauds typically have very poor record keeping.
They are wrong to claim that no "servicer" could anticipate that making
fraudulent loans would cause severe losses. Countrywide was perfectly
poised to know how extensive fraud was in nonprime lending and the sale
of nonprime paper. Indeed, its CEO predicted disaster.

Bank of America's computer problems aligned with its senior officers' interest in hiding its losses, as reported by Michael Powell:

The bank instructs real estate agents to use its computer program to evaluate short sales. But in three cases observed by The New York Times
in collaboration with two real estate agents, the bank's system
repeatedly asked for and lost the same information and generated
inaccurate responses. In half a dozen more cases examined by The New York Times,
Bank of America rejected short sale offers, foreclosed and auctioned
off houses at lower prices. But less obvious financial incentives can
push toward a foreclosure rather than a short sale. Servicers can reap
high fees from foreclosures. And lenders can try to collect on private
mortgage insurance. Some advocates and real estate agents also point to
an April 2009 regulatory change in an obscure federal accounting law.
The change, in effect, allowed banks to foreclose on a home without
having to write down a loss until that home was sold. By contrast, if a
bank agrees to a short sale, it must mark the loss immediately.

Any competent due diligence team would have seen obvious warning
signs within hours of entering Countrywide's offices. Countrywide
openly violated the law on record keeping with impunity. Gretchen
Morgenson reported on such practices on August 26, 2007:

Independent brokers who have worked with Countrywide
also say the company does not provide records of their compensation to
the Internal Revenue Service on a Form 1099, as the law requires. These
brokers say that all other home lenders they have worked with submitted
1099s disclosing income earned from their associations. One broker who
worked with Countrywide for seven years said she never got a 1099. "When
I got ready to do my first year's taxes I had received 1099s from
everybody but Countrywide," she said. "I called my rep and he said,
'We're too big. There's too many. We don't do it.' " A different broker
supplied an e-mail message from a Countrywide official stating that it
was not company practice to submit 1099s. It is unclear why Countrywide
apparently chooses not to provide the documents. More than 85% of the
bank's 1.3 million mortgage customers now at least 60 days behind on
their payments got their loans through Countrywide. The $4 billion deal
also saddled Bank of America with technology problems, paperwork
glitches and cultural tension. The servicing unit now has its fourth
leader in roughly two years.

Is it too much to expect of Bank of America's due diligence team that it might have looked at publicly available reports?

As we explained, fraud begets fraud. Bank of America created over $4
billion in "goodwill" and placed it on its books as an asset when it
paid money to acquire Countrywide at a time when it was deeply insolvent
on a market value basis. Instead of acquiring an asset, they got
thousands of fraudulent employees and officers, a failed computer system
and catastrophic losses. So, we have a question for Bank of America,
its auditors, and the SEC: why haven't you written off that entire
goodwill account?

Given the fact that we have obtained B of A's attention (and that of
the some administration officials), we ask the following questions that
the public needs to make intelligent policy decisions.

• Has Bank of America conducted a review of
  the bank's assets that AMBAC reviewed and found a 97 percent rate of
  false reps and warranties?
• If so, who conducted the review, and what rate of false reps
  and warranties did they find? Does Bank of America agree that liar's
  loans have extremely high fraud rates?
• Does Bank of America agree that an honest secured lender would never seek to inflate an appraisal?
• Does Bank of America agree that a competent, honest secured
  lender would prevent others from frequently inflating appraised values?
• Does Bank of America agree that appropriate home mortgage
  underwriting can minimize adverse selection and produce a positive
  expected value to home lending?
• How many fraudulent mortgage loans made by Countrywide has Bank of America identified?
• What is Bank of America's procedure when it finds suspicious evidence of a fraudulent loan?
• How many fraudulent mortgage loans, by year, since 2000, have Countrywide and Bank of America identified.
• How many suspicious activity reports (SARs) did Bank of
  America file concerning mortgage fraud, by year, for the period 2000-to
  date? What are the position titles of the three most senior Bank of
  America managers that were a subject of the SARs filed by the bank?
• How many SARs did Countrywide file, by year, for the period 2000 on?
• How many mortgage loans or securities did Countrywide and Bank of America sell under false reps and warranties?
• What was the allowance for loan and lease losses (ALLL)
  (aggregate amount and relevant ratios) provided by Countrywide and by
  Bank of America, each year from 2000 on for mortgages and mortgage
  securities? If it varied by type of mortgage provide the ALLL for each
  type.
• Which years does Bank of America consider Countrywide's ALLL to be adequate?
• Has Bank of America reviewed Countrywide's nonprime loans for
  fraud incidence, fraud losses, and the incidence of lender fraud and
  fraud by the lender's agents? Please provide the results.
• What has Bank of America done to remedy the injuries
  that borrowers suffered through loan or foreclosure fraud by them or
  Countrywide?
• Does Bank of America agree that Countrywide's nonprime lending was often conducted in a manner that was unsafe and unsound?
• Does Bank of America agree that Countrywide's record keeping was not adequate and required substantial improvement?
• At current market value of its assets, just how insolvent is Bank of America
• How much can the bank sell its toxic assets for in today's market?
• What is the value of mortgages and mortgage backed securities held by Bank of America for which it has no clear title?
• How many MBSs has the bank sold to investors for which it does not hold the notes that are required?
• What is the bank's current estimate of losses it will suffer in court due to lawsuits by investors?
• The top four banks are holding434 billion in second liens
  (good only if the first lien -- the mortgage -- is paid), and carrying
  these on their books at 90% of face value. What are Bank of America's
  reasonably expected losses on second liens against properties that are
  delinquent, in foreclosure, or likely to go into foreclosure?
• How large a sample of subprime and liar's loans did BofA's due diligence team review?
• What likely mortgage fraud incidence did BofA's due diligence
  team discover? What did they report to BofA with regard to fraud
  incidence? What changes in lending and personnel did BofA implement in
  response to these findings?
• Bank of America has not responded to
  Bill Black's prior requests that it terminate the services of its openly
  racist chief advisor in Germany: Hans-Olaf Henkel. We request a
  response.

Comments

[element115]

I live in a "nice" part of town (Mukilteo, WA). When I visited my BoA branch yesterday (Saturday) I noticed an armed, private security guard outside. He was dressed like a SWAT extra, and was young and fit.

[carbon based unit]

an interesting observation ... of course, one might wonder why anyone would admit that they continue to trade and do business with so obviously criminal an organization as BofA.

[sourgrapesson]

Your right about that -- I'm closing my account I've had with them since 1982 tomorrow.

I've just been dragging my feet--but now it is time..

BAC can kiss my ass and color me gone!

[Spalding_Smailes]

In 2007, Bank of America kicked off a pilot program in the Los Angeles area of offering credit cards to consumers who have no Social Security numbers. "The program was designed to help Bank of America customers build credit history," says BofA spokeswoman Betty Riess. While banks have recently begun to provide checking accounts and sometimes mortgages to the rapidly growing number of undocumented consumers, getting approved for a credit card has been more difficult.

[LeBalance]

ha ha ha:

Dear BoA sir or madam: I wish to become an undocumented customer of the Bank.  Please deliver $1T in small bills to my storage locker via FedEx.  I will be sure to pay ya' back promptly.  This is all undocumented, of course.  /wink/

[Careless Whisper]

it's not a bank, it's a religion

http://www.youtube.com/watch?v=wmIObmv2t6M

all glory to 29.99% credit cards

[Coldfire]

Cringeworthy, cringeworthier, cringeworthiest. Man, that was existentially awful.

[bugs_]

It was something along these lines that caused me to change banks away from BAC.  They would still require me to provide two photo ID's to cash a check at my bank where I had banked for 14 years.

In the next aisle certain customers that had no ID were doing their transactions and cashing their checks.

That was it for me, goodbye bank of america.

You may or may not be insolvent but the taxpayers of America should require you to change the name of your bank.  You have no right to call yourself Bank of America.

[duo]

Ironic.  On several occasions I took out 4-figure sums in cash by swiping my ATM card at the counter, and was NEVER asked to produce ID.

I have my mortgagte with BofA.  I pondered paying it off, but what's the chance I'd get a legitimate note of satisfaction?.  I'll wait for the debt holiday.

[Bananamerican]

"to provide checking accounts and sometimes mortgages to the rapidly growing number of undocumented consumers"

and why not? BofA doesn't seem to "need no stinking documents" either

[carbon based unit]

+ 1000 

kudos to you for being part of the solution instead of merely being a spectator or, worse still, part of the problem.

[snowball777]

Here's hoping the guard made you fellate him at gunpoint for being a traitor to your country, asshole.

[ebworthen]

Easy now...maybe he was closing his account...

[Gloomy]

What an utter waste of words!! As if any of this will every get any of the regulators to do anything. Black and Wray should go play golf or something.

[Gloomy]

"The inescapable truth is that as for restructure of banks, NOTHING. As for the return of US industry from Asia, NOTHING. The USFed with USDept Treasury running interference will next fund programs without reform or restructure, which Joseph Stiglitz is quick to point out will not produce any positive results, and accomplish little if anything. It is like feeding a man whose legs require amputation from gangrene. He (the big banks) cannot walk (lend)."

              -Jim Willie

[Bay of Pigs]

I guess pointing out the facts means nothing to you? I salute Black and Wray and others like ZH who are attemting to bring this corruption and criminal fraud to light.

Now go bury your head in the sand. 

[Gloomy]

I'm happy to watch the show. Just not happy to believe in magic, as you evidently are.

[scaleindependent]

When the pain really hits you, then you will be crying...

I shoulda, coulda, woulda

"Please help me..." but other people will be watching the show and the show will be you.

[hbjork1]

Gloomy,

The legislators will be sensitive to the voters.  The best time for contacting them was before the election but now is better than nothing.   We all have one representative that is our own that we vote for.  Who is yours?  E-mail him.  All the states have two Senators.  I suspect their aids only sort and count the e-mails by subject but, if there are enough, it will carry weight.  It won't hurt to e-mail others who are members of the finance committee.  Let them know what you as a voter are concerned about.

My format, except for my own representative who knows me is to ask in the discourse, "Is this true?"  "If this is true. it shouldn't be permitted." 

I try not to sound angry but concened. IMO, the message is much more likely to be ignored if the sender doesn't sound rational.

Good luck!

[scatterbrains]

for real, can we concentrate on trying to determine which link in the chain of massive corruption is most likely to break first, the one that causes an instant flush of the market we're all waiting for ? That we might be high enough in the order books for our stops to get hit before the true wide open gap collapse hits ? Will it be someone from SEC, FDIC, FBI, the administration that jumps ship and rats these thives out ? Maybe someone from the Fed reserve has a dream they spoke to Jesus and must come clean to the american people ?  What might be the trigger point?

[Dollar Damocles]

War with Iran, which would cause cost-push oil inflation and likely escalate economic/currency war (in the form of Russia and China selling dollars and bonds) is one possible trigger.  A default of physical delivery for gold or silver on the highly leveraged LBMA and COMEX would be another.  Or, we just might just have a smooth transition into "stagflation" as the FED continues to buy treasuries (i.e. there will be no bond market collapse, or failed auction, just a shift of the primary buyers as the FED becomes the only market maker), which will at some point trigger massive dollar dumping (hyperinflation) once the sustained rate of inflation becomes too high for foreign and domestic dollar holders to bear.  We could also see a collapse in the stock market  (should the FED stop POMO) which would be a damning indictment of the US economy and could trigger dollar/bond flight.  Any one of these triggers will set off all the others since they are all connected.  All these things will happen one way or another (except perhaps war with Iran).  Hopefully the US empire will go out with a whimper like the USSR and not with a BANG!

[carbon based unit]

its only futility until hope and change ...

... never mind

[Sespian]

Your avatar name suits you well.  You remind me of a little league coach I once had the unfortunate opportunity to learn from.  After losing a very close game by one run he pulled us all in the dugout and berated us for our lack of heart.  He said "if you're gonna play the rest of this season like that, then you might as well quit now!"  Not one kid quit, but he did a week later.  We took the championship that year.

There is an old saying, "you only fail when you quit trying."

[Saxxon]

Deleted

[JohnG]

Ass.

[Troy Ounce]

BOA can not go into receivership or into liquidation for the simple reason that such an event will ignite a range of OTC derivatives to blow up which in turn will expose the total interdependence of the system and the risk of a financial meltdown.

Going after the fraudsters will also weaken the system.

It is not that they do not want to liquidate or go after fraudsters, they just can't.

The highest level of the US government must be involved here, together with the Fed and the military: they know they are fucked and are trying to micro-manage and keep everything together.

I just cannot see another explanation other than a combination of greed, stupidity and arrogance.

[TaggartGalt]

"The highest level of the US government must be involved here, together with the Fed..."

I entirely agree.  Given the likely response to the questions asked by Black & Randall, the next question is: "Who made you do it?!"  Their answer, "Paulson/Geithner and Bernanke". 

Come on, BoA executive, tell the truth or rot in prison, that's your choice!  Make a deal with a DA and put the real criminals behind bars!!!

[Hacksaw]

Don't forget Greenspan, Franks and Dodd.

[UncleFurker]

Or Phil Gramm!

[scaleindependent]

Oh, don't you leave out Rubin!

[snowball777]

You are an incredibly stupid moocher.

[barwar]

That's it Troy, spot on.  Ahh, the $600 trillion global derivatives market, literally the definition of what Too Big To Fail means.  The banks argued for years that the notional size of the derivative market was nothing to worry about as these contracts are netted out so net exposure was the number to focus on and that was perhaps 3% of the notional.  However, when counterparty risk sits down to dinner and one of the few dozen institutions who make up this market blows up then net exposure becomes notional size.  Global annual GDP is around $60 trillion.  Think anyone has an extra $600 trillion to prop up a global derivatives meltdown?  Not even Benny and the Inkjets could pull that one off. 

This is why the big banks can't tolerate even a small haircut on their capital base.  Think about that tiny pimple on Europe that is Greece.  SocGen, for example, owned about $4bn of Greek debt, if they take a 50% haircut (conservative number as I think Moody's had a restructure at about 70%) then that $4bn becomes $2bn but with a leverage number of 30:1, 20:1 or even a conservative 10:1, then SocGen on a levered basis loses $2bn *30, 20, or 10 in capital.  For a company like SocGen with a market cap of around $22bn, they're toast.  Which means all of their derivative counterparties take huge losses, and the vicious cycle begins.  Reggie and ZH have been all over this and kudos to them for getting the joke.  Most folks, even those that work on Wall Street, have no clue what TBTF really means and why these banks are being allowed to get away with the greatest scam in history.  TBTF isn't going anywhere so long as the +$600tr derivatives market exists.  There were good reasons why Rubin, Summers and Bernanke lobbied hard to shut Brooksley Born up, any real regulation of the derivatives market means game over for the global fiat ponzi.

[Bob]

the $600 trillion global derivatives market, literally the definition of what Too Big To Fail means.  The banks argued for years that the notional size of the derivative market was nothing to worry about as these contracts are netted out so net exposure was the number to focus on and that was perhaps 3% of the notional.  However, when counterparty risk sits down to dinner and one of the few dozen institutions who make up this market blows up then net exposure becomes notional size. 

Those couple dozen or so institutions are virtually--if not literally--all insolvent.  Let them all fail, save the money that would be wasted on perpetuating their predation by bailing them out and properly resolve or liquidate them.  All of them.  They and their investors downstream who bought those "assets" can work it out in bankruptcy.  

TBTF is a strange scam to hear so frequently argued here at ZH.

[barwar]

I couldn't agree more but I'm not in a position to make that happen.  The people who can make that happen are either bot and paid for politicians who probably don't understand or care about macro economics and are happy to do whatever the CEOs/bankers/lobbyists who pay for their campaigns want, out of touch economists (Krugman, Summers, Bernanke, I see you...) who would be admitting that their entire life's work and study was a fraud and a failure or bankers who since Gramm/Leach/Bliley passed only have incentive to blow bubbles and focus on the next bonus.  In other words, essentially no one in power (either government, corporate or even military for that matter) in any developed market country has any incentive to shut down the current scam.  

But at some point in the future Russia or Saudi Arabia or Brazil or Venezuela or maybe all of them will simply stop accepting worthless fiat currency for their very valuable oil and it will be on like Donkey Kong!  No more USD, EUR, JPY or GBP thank you very much, we demand gold.  Suck on that Benny.  Infinite printing press my arse!  

Of course we will go the military route but the dollar will lose value in a heartbeat with DXY sub-30 and diving in no time.  However, the amazing thing will be to watch the other fiat currencies because contrary to common misconception, when one fiat goes down some other fiat doesn't have to go up, not if you're taking the proceeds of your fiats and buying gold or silver with them.  Once the world figures out what JP Morgan said back in 1912 that, "...gold is money and nothing else," the mother of all short squeezes will be on and the game over.  TBTF won't matter one bit at that point.  Bankruptcies and bedlam all around.  The paper gold market will evaporate (GLD, I'm looking at you) as the paper gold market realizes there is at best 1 ounce of physical gold for every 40 ounces of paper claims outstanding (and according to Vampire Squid alum Jeffrey Christian who testified before the CFTC in March of 2010, the number could be 100:1.  Can you say, gold at $138,000 per ounce?  Seems crazy right?  Maybe.  Maybe not.).  At the same time, the $200 trillion in USD value of global financial assets starts marching south to meet the $5 trillion of gold that exists in bar/coin form as talk of a "hard money" standard takes center stage.  Oil goes to the moon, global supply chains completely break down and food riots will kick off in the developed world in a way that we iPad lovers only thought could happen in Somalia.  

Oh yea, the TBTF concept will one day be exposed and broken, but when it does, it will set off a chain reaction of events that could make the world a very, very uncomfortable place for a few months, quarters or even years.  However, when the dust settles, if you were smart and stored your wealth in physical gold, you will enter a period where you will be able to create generational wealth.  Getting to that point, however, will be the hard part.  Be prepared, it's coming.  God only knows when but it's coming...

[Bob]

Indeed, it is easy to see these things coming . . . if the process is not properly controlled in an orderly and sound fashion.  Our choice is simple: Do the right thing now, or suffer the consequences in the not so distant future. 

I simply argue for doing it the right way. 

[Bob]

The argument that the threat of weakening a fraudulent system prevents us from taking appropriate action is absurd on its face.  I'm really tired of this ridiculous meme.  Talk to Black about it--it's been done before. 

[Troy Ounce]

Bob

Not sure why you call this a meme:

• In the time of Black there was not threat of OTC Derivatives.
• In the time of Black it was a containted fraudulent problem in a specific industry
• In the time of Black all was well, no recession/depression
• In the time of Black, the S&L crisis did cost US$160 Billion
• In the time of Black, this was before 9/11...
• In the time of Black, the S&L problem was not worldwide nor systemic
• In the time of Black, there were no big US$ or currency problems.
• In the time of Black, the gold price was low, so people had trust in the government
• In the time of Black, Black could solve his problems, without interference

I have tremendous respect for Black, but they will not, cannot any big company go bankrupt. Nor will they go after fraudsters. OTC Derivatives @ 600 Trillion exposure will not let them.

It is a national security issue.

[Bob]

My point is that it has to be unwound and resolved, unless we're to continue to extend and pretend with our insider enemies.  Look at your desperate list of "reasons" we can't. 

I'll do you better yet: a billlion quintillion in derivatives.  Whatever.  Dissolve them, the fraudulent and insolvent banks themselves carry most of the counter-party risk--take them all down and most of the swap "risk" will likely net out. 

We're powerless, we're at their mercy, it can't be done, etc., is nothing but a meme. 

I call it the Bankster's Buddy Meme. 

[Troy Ounce]

Bob, if you're still there? See the entry below of no one:

"Having Bank of America remain operational is critical to National Security. Therefore, Bank of America will not be required to open their books for inspection."

--- Janet Napolitano, Secretary, Dept. of Homeland Security. November 10, 2010.

[Bob]

Why so much FUD on this topic?  JHC, check your calendar, man: "November 10, 2010." 

It's fiction.

Check yourself.  If this does not prompt you look for unrecognized personal bias, I don't know what will. 

[Fraud-Esq]

I might agree with some of that minus the prosecutions and the CAUSE of our current currency problems. But, prosecuting the fraud is the best contract unwind of all. Prosecuting fraud is a societal MUST. It is non-negotiable. When it is, it's all over.

ALL. I mean all. The human species grinds to a halt again, the best and brightest are kept down and a tyranny of the sloth and connected emerges. Then, there's blood. It's all a huge productive waste. 

F national security when national security is a euphemism for protection of the powerful (not intelligent) , this is a SPECIES SECURITY ISSUE! When we don't ensure the upward mobility of the intelligent, we're screwed.

That's why America, at one time, advanced both racial integration (phase one) and the intelligence of the species. I'm a big supporter. But - now I'm questioning the fundamentals.   

[Rick64]

 The 600 trillion is a total of all derivatives and not just the ones related to mortgages.

[Troy Ounce]

OK, but see the comments below of Jasper and Carbon:

Jasper:

"According to Reggie Middleton's work (which I would recommend to anyone), if BoA goes down, its failure as a derivative counterparty would kill (= wipe out the capital of) 4 other big banks, For Sure.

If I am remembering the list correctly, it's C, MS, GS, Wells"

Carbon:

"you left out JPM which appears, according to reggie, to be more exposed than any of the others."

I compare a default in the derivative market as sending a rubber ball in a room full of mouse traps. It starts with a chain reaction due to one big contract, f.i. one based on mortgages and it ends with the demise of the Western society.

@ Bob

While I hope with that justice will prevail, I have been waiting for the last 2 years for ANYTHING from the SEC, FDIC, DOJ. Lots of talk, no action: NOTHING. This is why I can only come to the conclusion that the SEC, FDIC, and the DOJ have been instructed first to liaise with the White House before making any move or any comment on prosecutions.

"Do NOT weaken the system. There is something more important than Justice. If we follow through with bankruptcies and prosecutions the derivative market will destroy the Western society".

BS? I hope not, but cannot see anything else in your comments than wishful thinking. I am beyond that.

[Rick64]

 I agree totally just wanted to point out that fact about derivatives. They are protecting the current monetary system and everybody is complicit.

[Bananamerican]

"Nor will they go after fraudsters. OTC Derivatives @ 600 Trillion exposure will not let them.It is a national security issue."

all the more reason to do it...at least the corpse can then receive a decent burial.

 Why are we waiting for one of these banks to burst through the chest of amerika anyway?

[unununium]

She is made of iron, sir. I assure you she can [sink] and she will.

[Milestones]

Troy, do you have a delete key on your computer? Think it through, thats all you need to get rid of these derivatives; an electronic stroke, because thats all they are--and all the debits and credits etc. It only means something if you are trying to save the system. 

What you want to do is fight their war on their terms. Be my guest. It is a make believe world you are challenging. 10 years from now (assuming those things don't happen) we are going to look back and say WTF?       Milestones

[scaleindependent]

They set it up like that so that they are even too big to fail, and thus they continue to rip everyone off.

But they can be dismantled safely.

Make them go bankrupt, liquidate the banksters, take over the Fed, THEN PRINT to protect Main Street and the innocent.

EASY WEEZY!

[Bob]

It's nothing more than a choice of goals, a matter of what we're going to pay for, not if we're going to pay.  Though continuing our surrender to the banksters would obviously be more expensive as well. 

[Fraud-Esq]

agreed Bob. Surrender to the bankers is surrendering the upward mobility of the intelligent. That was America's big offering to the world. If it ever shuts down, America might become the enemy to progress. We have to stop that now. 

[Founders Keeper]

[BOA can not go into receivership or into liquidation for the simple reason that such an event will ... risk of a financial meltdown.] -Troy Ounce

Best post I've read all weekend.  Thanks, Troy.

Soon, this 747 is going to run out of fuel.  Descending now to 10,000ft.  In the cockpit: the pilot, co-pilot, and navigator (the Fed, the Administration, and the global Elite, respectively). Fuel tanks near empty.  The navigator insists again that an airfield lies just beyond the horizon.  The pilot taps the fuel gauge.  The co-pilot is conjuring another more convincing announcement to reassure the passengers.

It's nearly a fully booked flight.  Some passengers notice with unease our unusually low cruising altitude.  Over the intercom the cockpit announces yet again, all is well.  "We'll soon be returning to our normal cruising altitude."

Fuel gauge light goes red.  No word from the cockpit.

And that's how it feels.  It's full speed ahead, and hope history will not repeat itself.  And for goodness sakes, don't alert the public.  They might panic.

[SamuelMaverick]

Founders keeper contd......., And one of the clueless passengers looked out of the planes window and saw three parachutes open up; the pilot, the co-pilot, and the navigator were floating to safety. When he tried to tell the other passengers, they either did not want to know, or were too busy playing with their portable games or reading their kindles.  Everything was honky dory until the last second when the plane nosedived into a granite mountain.

[Coldfire]

But only the pilot, co-pilot and navigator have parachutes...

[Rainman]

Dissecting government-approved fraud by the banks is like reading a crime novel without the whodunnit. Disgusting.

[Miles Kendig]

The thing RM is that there are whodunits.  Not many at the core, but enough to call them leading figures in a continuing criminal enterprise.  Most definitely a rolling government aided and abetted RICO if there ever was one.  In Black.Wrey speak this is an indicator of what Frederic Bastiat would call embedded lawful plunder.  But being lawful in no means makes it just or conforming to the social contract implicit in self governance.  Further, this conduct would easily meet the very definition of tyrannical government intent upon subverting the institutions of civil society.

[trav7777]

This article and most like it - most appearing now - are utter TRASH.

What everyone needs to come to grips with is that there is no SUCH THING as capital in the sense that we know it because banks do NOT LEND what they actually have.

Therefore, how can a bank be "undercapitalized"?  Capital is an accounting entry.  The entire nature of money is that of a thing that will be expected to return some share of future production or assets plus extra due to interest.

They can invent extra capital at will.  Doesn't mean that its worthfulness will be preserved, but the ACCOUNTING is what we are arguing over here, and I submit that this may as well distill to an argument over how many angels can dance on a pinhead.

[unum mountaineer]

shell games....call it what is trav. maybe then people will get it. I too have trouble getting people to look past that particular smoke and mirror mind trick. other than, I give up, smile and wave and drink...it works wonders for me. cheers!

[MarketTruth]

EXACTLY!!!  The bank has NOTHING to lend, technically, as it is merely a LEDGER entry. Just wait ZH'ers until Ben Shalom 'Bukkake' has his next utter BS plan happen. Read the below and get ready for it...

"Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system" -- Federal Reserve February 10, 2010

www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm#fn9

[Diogenes]

Trav you are so full of it. Write yourself a check for $1,000,000,000 and f@ck off.

[honestann]

I'm sure you believe yourself, but clearly you are clueless.  It is a simple fact that when banks lend so-called "money", they simply create the "money" out of thin air by writing a check or pressing computer keys.

If you do not believe this, go read the FederalReserve website.  It describes this process clearly.  Either you are an authority-lover, or you're simply clueless --- in which case prepare to be scandalized.

[snowball777]

And if no one came begging and they couldn't lend?

And if people kept coming in for their deposits?

You have precisely as many clues as the person to who's post you responded.

[deez nutz]

America's Bank!: corrupt banking for a corrupt nation.

[moneymutt]

so true...they have been corrupt for some time...when they almost went under due to similar bad loans to third world countries, insiders in SF kept telling they saved the bank by becoming big drug money launderers...

and they learned their lesson from their third world loans, in a perverse way, they did same thing to american homeowners they did to third world countries, give them loans they could not afford and use them to suck them dry.

[Sudden Debt]

Looks like somebody is short on BAC and will soon need to cover :)

[Jasper M]

According to Reggie Middleton's work (which I would recommend to anyone), if BoA goes down, its failure as a derivative counterparty would kill (= wipe out the capital of) 4 other big banks, For Sure.

If I am remembering the list correctly, it's C, MS, GS, Wells

Good riddance!

[carbon based unit]

you left out JPM which appears, according to reggie, to be more exposed than any of the others.

i just don't see this ending well

[cossack55]

Can you please add JPM to the list.  I don't think it applies, I just like to see them listed as co-defendants and potential perp-walkers.

[RockyRacoon]

The only thing that will "cure" BOA is for people to remove their money from the institution.   The current Powers will not do it.   If you want to revolt you'll have to do it one dollar at a time (one ounce of gold or silver at a time).

[billhilly]

Dead on Rocky.  I've been "draining" my ML acct ounce by ounce.  I'm down to 50 % now but will continue transfer as the situation presents itself (buying opportunities in PM's).  This is a very subtle way of affecting a "run" without causing red flags to TPTB....slowly just let them end up holding the bag.  Viva la France and their organized Bank run!

[DonutBoy]

I should, I know, but where?  I need a checking account, personal and business.  I keep them at BofA and only leave a few grand in them.  Where else would I go?  What bank is left that's not in the middle of the foreclosure mess.

The one thing we know from the last 3 years is that BofA is TBTF.  So my money is guaranteed by your taxes, as wrong as that may be.

I content myself with keeping the amount of money in the accounts at "operating minimums".

[RockyRacoon]

Move Your Money » Find A Bank/Credit Union

[honestann]

try http://www.everbank.com

I'm not saying they're perfect (they're a bank, afterall), but clearly they are better... and very convenient.

Personally, I always keep 99% of my savings in gold.  That's what anyone with half a brain or more is doing (where any real, physical, durable good is an okay substitute for gold).  This way, when the dollar explodes in a nuclear flash, you're already where you need to be.

[Rick64]

Bank run on BoA.

[Bob]

a typical strategy for a lender controlled by fraudulent senior officers because it greatly delays loss recognition and allows them to extend their looting of the bank for years through bonuses paid on the basis of fictional reported "profits"

As I keep saying, it has always been and continues to be completely about the bonuses--like the $144B coming up . . .

The insiders ain't just pumping stock prices and dumping their shares, they're looting the companies themselves.  And it is industry-wide.  Wall Street is like a terrorist training camp in Afganistan where people created Weapons of Mass Financial Destruction to cover their wilful crimes. 

Even if you abandon the idea of doing the right thing for its own sake, we must take them down before they take us down. 

[Arkadaba]

Great animated video on the upcoming bankster bonuses - and yes this is how the rest of the world is viewing Amerika:

http://dailybail.com/home/what-if-the-bankers-gorged-on-a-record-144-billion-in-bonuse.html

[honestann]

Well, obviously "the rest of the world" sees the USSA more accurately than the average american slave.

I didn't see anything misleading in that animation.

[George Elliott]

"we must take them down before they take us down." Have they not already taken us down??

[putbuyer]

If all of us called for a bank run, we would kill BAC and QE2.

[cossack55]

I started two years ago. C'mon guys, catch up.

[Oligarchs Gone Wild]

Unfortunately I think this would still have the same results as a gas station boycott.

[Rick64]

+10

[StychoKiller]

What you just stated is, I believe, a crime in the USA.

[Careless Whisper]

proverbs 16:18  just sayin'

pride goeth before destruction, and an haughty spirit before a fall.

Bank of America did not purchase Countrywide for the good of the public. It purchased a notorious lender to feed the ego of their CEO, who wanted to run the biggest bank in America rather than the best bank in America. They certainly knew at the time of the purchase that is was buying an institution whose business model was based on fraud...

[Anal Picnic]

Japan bitchez!

[Rusty_Shackleford]

Oh well, whatever, nevermind....

[Oligarchs Gone Wild]

How classic would security camera footage be of someone with a guy fawkes mask on covering ATM's in crime scene tape be?

[Fraud-Esq]

Obama's use of Bill Black is a perfect metaphor for Obama.

Obama used Black to cut a campaign commercial tough on banks, won and never called Black again.

Obama is a disgrace.  

Black is a hero

[Rick64]

Agree, and totally ignored him even though he offered his help.

[Eureka Springs]

rather amazing BOA replied at all. Do I smell fear?

[straightershooter]

Open BOA books?

Hey, William Black, that's an easy job.

Don't attack BOA. Just Attack the auditing firm of BOA. Scare the shits out of the parters of the auditing firm. Then, suddenly, the book is wide open.

[Fraud-Esq]

Right, how did Putin finally get that guy at Yukos? It was after rattling his accountants. While Putin might have made the accountants lie to put a good guy away, in our case, we just want the truth. 

But imagine, Putin can get accountants to lie to get books against his opponent oligarch, Obama doesn't even WANT the truth from ours.

I am not exactly sure which is worse anymore, honestly.

But - there's no doubt U.S. presidents are WEAK men vis-a-vis the global oligarchy, that's even believing they would ever want to go against them. I see no evidence of that from ANY political party leadership. Putin can, but probably because he's carving out something for himself. But - I am curious about this real difference in leaders. I lack the evidence to draw a real conclusion that Russia isn't a kleptocracy, but you can't argue that Putin blinks in the presence of oligarchs. Obama says they're good folks, work hard, deserve to make more than baseball players even after we bail them out.

Hmmph. 

[Rick64]

 When Russia was in chaos the oligarchs came in and bought at ridiculously low prices by paying off government officials and other illegal methods. They were sucking billions out of Russia. I am not a Putin supporter but he did tear the oligarchs a new hole. Some of Mikhail's shares in Yukos were tranferred to Group Menatep and are supposedly under the control of Lord Jacob Rothschild which Group Menatep has denied. Most of these oligarchs were Jewish and have dual citizenship in Israel where they are immune to international arrest warrants .

[straightershooter]

BB is a B(aby?killer, a collateral achievement of his money printing madness which has already driven up prices of food and energy.

Want to save some babies out there from starvation? Kill Christmas. Don't buy anything this Christmas, none, nada, null, nill, zero. Talk to your family that you want to save starving babies out there while at the same time saving your family from the coming collapse.

Starve the government and boycott politicians by cutting all non-essential expenditures and see who is the last man standing.

[TheSettler]

Here is by far the best idea I have heard...

If we could get 1/2 the people to do this...this idea needs to go VIRAL

[SRV - ES339]

If only it was possible 'straighter!'

The problem... too many fat cats are "doin' just fine" thank you very much... and they simply do not care about those 'lay abouts' (you know... all those 'freeloaders' on the dole). They'd have enough to feed their babies if they weren't out buyin' flat screen TV's with their unemployment cheques, would be the cry (it got a lot of them elected, so why not) from the right

Mike Pence (possible GOP candidate for President) was on one of the Sunday shows arguing for tax cuts for the rich... with David Stockman (Reagans Buget Director) of all people (he calls the GOP position "the big lie"). I just don't see how any thinking person could possibly support the Spence (GOP) position, but of course most of the GOP members of congress do (payback for the election funding from the fat cats) and will, when it comes time for a vote.

http://abcnews.go.com/ThisWeek/video/tax-cut-debate-12079712

[AUD]

Ok, but what will placing Bank of America in receivership do when "it sold $1.2 trillion in loans to the government-controlled housing giants from 2004 to 2008".

How will the losses be absorbed? Will the Fed buy this junk again? 

[honestann]

The point is not to claim putting BofA in receivership will magically generate a trillion dollars to compensate victims!  The point is to stop predators from stealing millions from everyone, reveal the whole truth, and give whatever value remains to those who deserve it --- not pay it out billions at a time in bonus compensation to the exact executives who purposely cook the books and defraud everyone.

[nscholten]

My home with wamu/jpm chase had a $912,000 short sale countered at $935,000 after 1 year on a $997,000 principal.  The buyer finally walked.  The home will probably sell for the low $700,000 range when it is all said and done.

[lynnybee]

yes, BILL BLACK is a hero ....... along with ZEROHEDGE (TYLER), CHRIS WHALEN, DYLAN & KARL DENNINGER .......... i'm so scared of what's to come, mostly for my children.   HOWEVER, just knowing that BILL BLACK & the others having a platform makes me able to sleep a little better now .    regards to all who read my little contribution / ZEROHEDGE is a wonderful website.

[Unlawful Justice]

All this pain to buy stuff, and have a place that is warm and dry to sleep.   

Deception is an art form.  Awake to the unadorned truth and the comic absurdity of this sadistic game.

Instead live authentically.

[surfsup]

Hey Glenn Beck, why are you not reporting THIS:

Accounting control frauds maximize their (fictional) reported income by lending routinely to those who cannot afford to repay their loans. It is this aspect of the fraud scheme that is most counter-intuitive to those that do not study fraud, but to criminologists it provides the most distinctive markers of fraud. The senior officers that control fraudulent lenders maximize the bank's reported short-term income, in order to maximize their compensation, by growing extremely rapidly through making loans at a premium yield. This strategy creates a "sure thing" (Akerlof & Romer 1993). The lender is sure to report record (fictional) profits in the short term and suffer enormous (real) losses in the longer term.

[Arkadaba]

This is a little off-topic but came across this while reading the Sunday papers (UK):

http://www.dailymail.co.uk/news/article-1327323/Morgan-Stanley-financial-adviser-escapes-felony-charges-hit-run-jeopardise-job.html?ito=feeds-newsxml

This is just too much - why isn't this on Dateline or 60 Minutes? I think I need to stop following the news for a while to restore my sanity (seriously)!

[Rick64]

Unbelievable.

[honestann]

What an excellent summary of the practices during the bubble market.  Great job.  Thanks.

[theprofromdover]

This is a job for Homeland Security.

[DollarMenu]

Be careful about what you ask for.

Homeland would more than likely pick on those

calling for a run on the banks, 

certainly before they looked at the banks.

After all banks=government today.

[tom a taxpayer]

Book'em Dano. Put them in the new Bank of America/Countrywide holding tank wing at Pelican Bay State Prison. Give them a taste of the 20 years-to-life hard time they can look forward to after conviction.

[honestann]

Some argue none of the big banks can be shut down, and none of the big banks can have their condition or operations exposed, because the entire world financial system would self-destruct (due to the $1,000,000,000,000,000 worth of CDOs [and such] that would trigger).

This is precisely why these banks must be shut down.

The only hope for the future of mankind is to utterly destroy the current system, which can lead nowhere but worldwide war, pain, misery, destitution and totalitarianism.

Significant short and medium term pain is already impossible to avoid, no matter what.  But everything would begin to improve as soon as productive people see the way to success is not predatory behavior.

Bring it on.  BLOW IT UP.  Now!

[Seymour Butt]

Not to worry boyz and girlz. Uncle Timmy and Uncle Bennie will bailout Skank of America and $htt!egroup. Nice little Christmas gift from taxpayers.  

[kadriana288]

Looks like all the banks dragging people through the loan modification process only to deny them  is now making the news. Showing people who made all their payments and still got foreclosed on does not look good for the banks.

http://www.cnbc.com/id/40057045

[gwar5]

Run on BAC December 7th

[plocequ1]

Why do i have the feeling this is just another Dog and pony show to join all the other Dog and pony shows against the " BIG BAD BANKS" ? This whole society has become one big Dog and Pony show. As Max keiser put it, Its all virtual. Money, Society, People, Courts, Justice..Its one big virtual Dog and Pony show for all the masses to behold. Im not impressed. You tell those "BIG BAD BANKS" whos boss, Bill Black. Im sure they are shaking in their boots. Somethings go to change, Like honesty and lack of there of.

[Rusty Shorts]

This was fortold, in a movie called "Fun with Dick and Jane"

Bank of America at 6:30 ... "Globodyne" is Bank of America.

http://www.youtube.com/watch?v=_2dwL6_SAXE

"These are fickle times Dick"

[Bob]

I just saw that movie a few days ago!  Definitely a spot on allegory. 

[jal]

Putting BoA in receivership does not shut down the daily operation.

FDIC does it every week with no problem. 

B. Black's approach is to go after the biggest offender that you can convict. There is not enough manpower to go after every fish in the ocean.

That's the way its going to happen if it happens.

jal

[snowball777]

While I fully support the idea of taking the metastasizing megalomaniacs to the mat, only the incredibly naive would suggest that an unwind of the Bank of Lynching Countrywide is even remotely comparable to any institution the FDIC has spun down. Even some of the big credit unions they put in conservatorship look dinky compared to the monster from NC.

[No One]

"Having Bank of America remain operational is critical to National Security. Therefore, Bank of America will not be required to open their books for inspection."

--- Janet Napolitano, Secretary, Dept. of Homeland Security

November 10, 2010. 

[Troy Ounce]

No one, this is serious. Where did you find this?

[No One]

It isn't, but it honestly wouldn't surprise me were it to happen.

[Bob]

Looks like you're a PR writer at BAC: You're suggesting that this is what will be released in two days? 

Clearly FUD. 

[Miles Kendig]

All well and good.  Fact remains that if BAC were to submit the whole show may well unravel.  And that wouldn't serve the interests of maintaining faith in the American financial system.  An express national security imperative.  So it's QE forever as the dimensions of the hole that needs backfilling begins to take shape. 4T +/- on plain vanilla public pensions, their additional pending catastrophic loses on their investments (hedging the banks), (with huge shortfalls in private pension funding leading to additional pressure on the job market), 4or5T in RRE (not counting synthetics - who knows which ones those are), 3+T in CRE, Tens of trillions in bank paper crap, call it another 5T to SSA in actual bonds and tens of trillions more in unfunded liabilities, MEDICARE (including Bushcare - Part D), Obamacare, state, county and local government funding shortfalls (an express concern in propping up C/RRE) whatever long term changes in employment will mean and on  and on  and  on...  Then we can start looking at the risk assets we are about to purchase (openly) and all of the foreign issues like the 100T in floating piles of crap in the European banking system.  Simply amazing .. and I know I am missing far more than I am including here folks.

So Black and Wray may well be not only correct in their observations concerning BAC, but that these assertions apply broadly to the whole of the financial edifice.  That being the case why on earth would those perpetrating such a fraud ever own up as long as it controls the books, regulators, courts, Justice Department, Congress, White House and can print the money it needs?

The question that seems to have been answered is which folks have the true security interests of the nation and indeed the world community as their primary focus?  No wonder everyone in authority is all lawyered up, claiming adolescent injury while encumbered in desperate attempt to hide everything within the maze of its own creation.  (A great add on to the question as to why the fed and government are acting as if they are on desperate ground - and Krugman is calling the current response extremely weak).  The deal being that as more and more gets buried the more resurfaces, which is what this effort by Black & Wray represents.

[Murchadh]

A more honest accounting of "good will" and of the value of home equity loans would take a big bite out of Bank of America's market capitalization ($116 billion), which has lost 41 percent of its value since April 15.

Marking to market the value of loans aside, writing off goodwill and intangibles has no effect on regulatory capital ratios as it is already excluded as even the ret@rd regulators know banking goodwill is useless. Usual below par analysis by tyler D.

[snowball777]

Fail: regulatory cap != market cap and mark-to-myth has about 100x the impact on the Bank of Lynching Countrywide so brushing it aside is well nigh fucktarded.

[Murchadh]

Hey muppet anyone's guess what the loan book would look like if you mark it to market. My point was this article contains obvious faults ie that writing off goodwill reduces your capital. It doesn't. You are well nigh fucktarded by the looks of it.

[Freewheelin Franklin]

Firesale, bitchez.

[Freewheelin Franklin]

This loan modification is crap. The bank can take a delinquent homeowner and refinance the mortgage, and then have it backed by the FHA. Great way to convert assets to "government guaranteed".

[moneymutt]

These guys should be in jail just for how they have screwed homeowners and the taxpayers in ther fake modifications, but of course they have done so much more.

Thanks to Black and Wray for keep beating the drum. But I do wonder about the mess of derivatives and if receivership can be done as cleanly as it was done 20 years ago. Having said that, it seems to me from all lessons of history that the longer rule of law is ignored and the police/regulators to not do their job, the worst the infection of corruption becomes and the worst the eventual crash. Unfortunately, I think politicians lack courage to be the one the causes the crash earlier and smaller, rather than later and bigger.

Say if Obama admin called out the fraud like Black is and sent BoA into receivership and then a bunch of financial crap collapsed, even tho that was going to happen, can you imagine the hue and cry from the opposition party? You think they hate Obama now....So we are forced to wait til they cause their own crash.

I would love to hear what Black and Wray have to say about politically making this happen. My thoughts are a public trial about their fraud would be only way to get people to be on board for this tough decision.

[jal]

There are many pieces that need your undivided attention. If you are going to close BofA and start the prosecutions you will need a lot of money ... QE2.

Somebody got ahead of the curve and figured out how to stop the gov. regulators and B. black, from being able to have the financial means of closing down the frauds.

Put backs, buy backs, fines etc. will need the printing press ... QE2.

Putting BofA in receivership does not shut down the daily operation. FDIC does it every week with no problem.    B. Black's approach is to go after the biggest offender that you can convict.

There is not enough manpower or money to go after every fish in the ocean.

  Now, ... its your turn to figure out the motives, diversions and end game.  

Using Palin’s name as being opposed to QE2 sure got a lot of lurkers to do a posting over at the market ticker.

jal

[jal]

removed double posting.

[Dan The Man]

Do any think BOA is the only TBTF doing this?

[Grand Supercycle]

My long term indicators continue to warn of USD strength and EURO weakness.

http://stockmarket618.wordpress.com

[Coldfire]

William Black is a profile in courage.