In late 2010, in a superficially stunning move, Bank of America was sued by, among many others, the New York Fed over the biggest bogeyman for the bank's balance sheet - its legacy portfolio of super toxic Countrywide mortgages it inherited in the worst M&A deal of all time (its purchase of CFC) and the inheritance of woefully inadequate mortgage issuance standards which ever since then (recall our prediction on this issue) has cost the bank billions in litigiation payments and reserves. Obviously, the Fed had no concerns about collecting the money it itself creates, and it certainly doesn't care about legality and criminal financial impropriety, so why was it among the list of plaintiffs? Simple: as we suggested back then, and as has since been proven correct, it was simply so that Bill Dudley's henchmen have a first row view of everything going on in the putback litigation that has been the primary concern for BofA, but with a few of keeping the damage to a minimum. Sure enough, Ever since then the Fed has done everything in its power to mitigate potential losses to BofA as a result of Agent Orange selling hundreds of billions in biohazardous mortgages to anyone and anything with a pulse. It has gotten so bad that the Fed was last week caught lying under testimony, forcing the Fed to take back testimony in a parallel lawsuit between AIG and BofA, which has also involved the New York Fed, as a indirect guardian of BAC's cash hoard.
The WSJ reports:
The Federal Reserve Bank of New York is having some trouble getting its story straight. A New York Fed employee took back testimony he previously gave in a legal clash between American International Group Inc. and Bank of America Corp. over about $10 billion in mortgage-investment losses, according to the big insurer in its newest federal-court filing in a lawsuit seeking compensation.
The testimony is part of a long-running battle between AIG and Bank of America over losses the insurer incurred after purchasing troubled mortgage bonds underwritten by Countrywide Financial Corp. and Merrill Lynch & Co., now part of the Charlotte, N.C., bank. The primary legal battle has been sidetracked by a dispute over who has the right to sue Bank of America.
AIG says it does. But the bank claims AIG gave up its rights to sue when it accepted a bailout by the New York Fed, which purchased the troubled securities in 2008 through a vehicle called Maiden Lane II.
To help decide the dispute, AIG and Bank of America have sought depositions from New York Fed employees who were involved in the bailout.
Bank of America previously cited December 2012 testimony from James Mahoney, one of the New York Fed's lead negotiators on the Maiden Lane II deal.
Mr. Mahoney said that when the Fed bailed out AIG, it intended to receive the rights to all future legal claims.
But on March 18, Mr. Mahoney told AIG's lawyers: "I was really just concerned about moving all the upside and recourse over to the Fed. I didn't contemplate taking something away."
He also said he never discussed with anyone the idea that "AIG was somehow giving up its [tort] claims."
Mr. Mahoney explained the discrepancy in his testimony by saying he spent "less than 10 minutes" discussing a document prepared by Bank of America that asserted AIG had given up all legal claims in the bailout.
Fine, so Bank of America must have legal obligations to the Fed if it has been released of all claims toward AIG right? Wrong.
To settle a separate matter, Bank of America agreed to pay the New York Fed $43 million in exchange for the Fed dropping all legal claims against the bank.
A "massive" $43 million to absolve the bank of any wrongdoing relating to $10 billion in bonds? Some things crony capitalism can't buy: for everything else there's BailoutCard.
As for the Fed and Bank of America, complete the sentence: "when it gets serious, you have to [ ___ ]"