You’ve had! Been took! Hoodwinked! Bamboozled! Led Astray! Run Amok! This Is What They Do!

Many people ask me for investing advice, something that I am quite
reticent to give over casual conversation. There is one aspect that I do
offer freely though, and that is the push for the return of common
sense. When people ask me what sectors to invest in, and whether banks
are a potentially good buy or not, I remind them that buying stocks for
the longer term is no different than buying a chunk of any business.
The question is, “Is this a good business prospect?”.

Just imagine if I came up to you and pitched my business for an investment along the lines of the following…

“Listen, Dude! I have this big
banking business that does several billion dollar per year. It is very
sensitive to the business cycle and as you know, Tim Geithner and Ben
Bernanke – two of the smartest and most honest people this universe has
ever experienced – says that the worst is behind us and the economy is
growing. Hey, even the NAR says that we should buy a  house now, and
they have those high falutin’ fancy economists to crunch numbers
for them. So, with that being said, all you have to do is look past the
fact that I had to get bailed out by the government several times to
the tune of many billions of dollars. My lawyers may also want me to
disclose that some smart ass investor/blogger types say that we are
coming off a high in the business cycle, but we have Optimism Driven Reduction of Risk Reserve
due to our very rosy outlook. Due not be deterred by the fact that the
collateral behind our loans has depreciated by as much as 42% and is
still on the downfall. I know that blogger/investor guy that is starting
to get a few seconds of airplay says we are in a Real Estate Depression That Is About To Get Much Worse, but truth be told, it’s really a matter of semantics. A depression
is generally a 20% drop in values surround by severely depressed
economic activity. We are experiencing 40%+… See! The numbers don’t
match. It ain’t a depression! What that blogger dude fails to realize is
that my whole industry is under the protection of the US gubment –
that’s right, we are directly indemnified by .GOV. In case you didn’t
get the memo, FASB Appears to Have Bent Over For The Final Time & Accuracy In Financial Reporting Dies An Ignominious Death!!!

We have put out record profits, as
the government supports our paying out that vast majority of what
should be retained earnings as salary, bonus and other unearned
compensation. As a matter of fact, the government has actually funded this
exercise with tax payer dollars! I’m telling you man, this is the best
gimmick since that PT Barnum guy and his snake oil. There’s an ass for
every seat.” [continue reading up on this topic, for it is highly illuminating. Of course, it doesn’t end there. After all, Buried
Deep Within The Files That The Federal Reserve Released On Their MBS
Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks]

Does this sound like a sound investment to you?
Yes, I know the government has bankrupted the country to save the
banks, and I know that the government has allowed the banks to trade
“funny money” so they don’t have to produce the real stuff. Most people
think that, with the mark to market rules totally obliterated, the
banks are home free. The problem is that it was never the mark to
market rules that were the problem in the first place. It was overt
leverage and depreciating (trash) assets, resulting in negative equity
(insolvency). Nothing has changed. Remember, I called both before their
respective crashes and called the reasons for such in ample detail:

1. 2 months before Bear Stearns fell, while trading in the $100s and
   still had buy ratings from the sell side and investment grade AA or
   better from the ratings agencies – see Is this the Breaking of the Bear?
2. One of several warnings about Lehman Brothers (May 2008): It appears that I should have dug deeper into Lehman!

Why didn’t Wall Street read my post on Lehman being a yellow lying lemon? See “Is Lehman really a lemming in disguise?”
and realize that this post was made on February 20th, when Goldman
Sachs had a recommended price of about $55 while this blog warned
that Lehman may be done for. This very similar to when I warned
about the potential demise of Bear Stearns in January, when the rest
of the Street had a “buy” at about $130 per share. See Is this the Breaking of the Bear?. ⁷ We all know how both of these stories ended. Please click the graph to enlarge to print quality size.

So, what made Lehman Brothers and Bear Stearns go bust?
Real counterparties and real investors wanting REAL money back, not
accounting profits or the government’s newly issued and sanctioned
proxy for capital. Wjem JP Morgan and the other clearing houses and
counterparties wanted to be made whole or have their deals properly
collateralized, they failed to accept hopium, and didn’t even want
discounted pipes. They wanted real assets or cash, neither of which these banks had in abundance! Well, the same thing is happening again. Remember, about this time last month I issued the memo regarding Bank of America: Re: B of A – With Banks Being Forced To Admit The Inevitable Truth, How Long Will It Be Before Fundamentals Rule The Day Again? [be sure to follow all of the links below, they are worth the effort!]

As far back as 2009  (yes, over a year ago) I have been
warning readers and subscribers of the (not so) hidden risks of
putbacks, warranty and rep reserves, and the overly optimistic under
reserving of the big commercial banks. I used JP Morgan as an example (see link list below), but made it clear this warning stood for several big banks (several of the big banks – As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves, As a matter of fact I said that the banks ‘May Become The “New” Tobacco Companies‘ due to legal risk. This risk was significantly exacerbated the day after making that post, Less
Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking
Industry, The Massachusetts Supreme Court Drops THE BOMB! wherein the Massachusetts Land Court Decision that invalidates foreclosures based on post sale assignments was
up held by the Massachusetts Supreme Court. This is permanent, and
precedent setting, absolutely justifying and vindicating my post from
the day before and clearly demonstrates that The
Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!

I know many find this to be sensationalist, but they also found the
bombastic posts of 2007 to be sensationalist as well, that is at least
until 2008! We have mortgage situations where the actual BANKS are
walking away from home, see I Warned That Banks Will Soon Be Forced To Walk Away From Homes… Guess What! Now,
tell me how much the mortgages are worth behind abandoned houses –
houses that were abandoned by both the homeowner and the bank? Although
these are minority occurrences, I see them spreading away from the
fringes and closer to the core as the economics of foreclosing on
certain properties makes less and less sense in an increasing number of
situations. All of this ranting and raving is simply to provide a
background for the not so surprising development in the latest Bank of
America quarterly earnings announcement. From Bloomberg: BofA Reports Loss on Costs Tied to Bad Loans, Mortgage Unit…

Well, guest who has popped up in the news again, and better yet – guess why…

Bank of America Sued by Investors Seeking to Unload Loans – Bloomberg

Bank of America, Wells Fargo May Face Fines on Foreclosures: 2 days ago – Bank of America
Corp. and Wells Fargo & Co., the largest U.S. mortgage firms, said
they may face fines or enforcement actions from regulators amid …

Bank of America Says Putback Dispute Doubles With Pimco Group …2 days ago – Bank of America
Corp. said a bondholder group pressuring the lender to repurchase
soured mortgages has almost doubled the number of securitizations on
which …

Bank of America Sued by Investors Seeking to Unload Loans – Bloomberg 4 days ago – Bank of America
Corp. , the biggest U.S. bank by assets, was sued by investors in
mortgage-backed bonds who are seeking to force the bank to buy back
loans …

Bank of America, KPMG Settlement With Countrywide Shareholders Is … Countrywide Financial Corp., the mortgage lender acquired by Bank of America Corp., and KPMG LLP, its former auditor, won final approval for a $601.5 million minimum settlement with Countrywide investors suing for securities fraud.
U.S. District Judge Mariana Pfaelzer in Los Angeles today approved the
settlement of the class action, which was revised in December to set
aside $22.5 million for possible separate settlements after about two dozen institutional investors, including the California Public Employees’ Retirement System, opted out of the original $624 million agreement.

You see, you can kick the can down the road, lie about (and conceal)
true market values, mislead the sheeple, but at the end of the day
many seem to forget that there were investors and counterparties that
funded many of these deals to begin with. When they come knocking on
the door, they are not going to accept mark to mythology as payment in
full. Hey, but it’s different this time, right?! Bear could never
happen again. It was a once in a lifetime occurrence, except for (of
course) Lehman! Hey we finagled our way out of Merrill, who was sold
to… Guest who?

You just have to be asking yourself by now, “Is Another Banking Crisis Inevitable?”.

The chickens are coming home to roost, dude. When you send your
chickens out in the morning, they return to your barnyard. Not your
neighbor’s barnyard, not the guy across the street, but your barnyard. Oh, I say it and say it again… You’ve had! Been took! Hoodwinked! Bamboozled! Led astray, run amok! This is what they do!

Another stint on Max Keiser discussing what happens when its the
banks that walk away from a home, phantom banking profits that never
were, and more shenanigans that are the tour de force that is today’s
banking system and economy. To skip directly to the Reggie Middleton
interview, move to 11:55 in the video.

Related articles:

• Is
  It Now Common Knowledge That Goldman’s Investment Advice Sucks???As
  Clearly Forecasted On BoomBustBlog, Housing Prices Commence Their
  Downward Price Movement In Search Of Equilibrium Scraping Depression
  Levels Tuesday, December 28th, 2010
• The
  3rd Quarter in Review, and More Importantly How the Shadow Inventory
  System in the US is Disguising the Equivalent of a Dozen Ambac
  Bankruptcies! Wednesday, November 10th, 2010
• Banks,
  Monolines, and Ratings Agencies As The Three Card Monte (Wall)Street
  Hustlers! Its a Sucker’s Bet, Who’s Going to Fall for it in QE2? Tuesday, November 9th, 2010
• JP
  Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder
  of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can
  Be When They Say XYZ Bank Can Never Go Out of Business!!! Sunday, October 17th, 2010

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Comments

[moneymutt]

thanks Reggie, saw that article on Bloomberg and all I could think about was your next post....I think banks are hanging everything on their lap dogs at OCC making the fraudclosure thingee go away but the investors suing banks for putbacks can't be legislated away by corrupt politicians, because those suing the banks are rich too. 

Calling all lawyers, biggest money since Tobacco: emails and deposed witnesses showing banks lied and broke the law and best of all, they did it to rich people, lawyers dream.

[InconvenientCou...]

ever consider public service Reggie? We need more "game-changers".

[Doeko]

hahaha, that's a classic. "When this collapses, it's going to make 2008 look like a bull run"

[Crumbles]

Everything's fucked up, and nobody goes to jail.

Matt Taibbi told your entire tale in one line.

Rollingstone.com - March 3 edition

[LongSoupLine]

Reggie you're on a roll my man!  Keep fightin' the fight with great data and research!

[geno-econ]

As usual, great posts from Reggie even if repetitious which is required to wake up  sheeple and counter political PR.  Has anyone analyzed inpact of walk-a-ways , forclosures and knockdowns on local, county and state property tax base ?  Tax rolls are public knowledge and cant be hidden.  Obviously another shoe to fall is drop in government revenues politicians are just beginning to recognize. As an individual investor,  Iam shunning undue risk in stockmarket therby earning less , but so what, Iam also paying less taxes which delights me . Yes , its a form of nonproductive protest, but when the next collapse comes I will be in a better position as I have been since 2007.  I guess the point is very few think in terms of what is good for America anymore-- the result of outlandish greed and  so called "global economy" 

[Boilermaker]

...As the REITs, IYR, and RMZ post yet another +2% trading day.

[Confucious 222]

Reggie, thanks for another outstanding contribution!

You and your team have been absolutely spot on.

You have a great sense of humor to go with it all.

[Fred Hayek]

David Rosenberg told them the truth back in 2004, that the real estate market had become a bubble and to get the hell out.  But they didn't listen.

[JW n FL]

Knowledge is Power!

Power to the People!!

God Bless You and Yours Reggie as always, JW

[IQ 145]

 What a nice picture! Two intelligent people at once. How agreeable. There's a nice article this morning on Marketwatch about how wonderful commercial REITs are; it seems they've gone up since Mar.09; how remarkable! Of course Freeport McMoran went up twice as much; and unlike the commercial REITs, it has a future ! Keep up the good work Reggie; you make a lotta sense.