Matt Taibbi with some news that is making bankers very, very unhappy:

Minds are changing on Too Big to Fail. A month ago, it was just something in the air. Now, it looks like we're headed for a real legislative confrontation. And man, is the finance sector freaking.

Last week, on April 24th, Democratic Senator Sherrod Brown of Ohio and Louisiana Republican David Vitter introduced legislation called the "Terminating Bailouts for Taxpayer Fairness Act of 2013 Act," or the "Brown-Vitter TBTF Act" for short. The bill is a gun aimed directly at the head of the Too-Big-To-Fail beast.

During the Dodd-Frank negotiations a few years ago, Brown teamed up with Delaware Democrat Ted Kaufman to introduce an amendment that would have physically capped the size of the biggest banks. The amendment was bold and righteous but was slaughtered on the floor by a 61-33 margin, undermined by leaders of both parties – 27 Democrats voted against it.

Brown-Vitter offers a different and, in a way, more elegant solution to the problem than Brown-Kaufman. Rather than impose size limits, it simply insists that banks with over $500 billion in assets maintain higher capital reserves than are currently required. Companies like J.P. Morgan Chase, Wells Fargo, Morgan Stanley, Goldman Sachs, Citigroup and Bank of America will have to keep capital reserves of about 15 percent, about twice the current amount.

The bill only has such tough requirements for just those few megabanks, which sounds unfair, except that the aim of the bill, precisely, is to level the playing field. Right now, the biggest U.S. banks enjoy a massive inherent market advantage in that they're able to borrow money far more cheaply than other banks, because everybody on earth knows the government will never let them fail and will always bail them out in a pinch, making their debt essentially U.S.-government guaranteed. Studies have shown that these banks borrow money at about 0.8 percent more cheaply than other banks, and that this implicit government subsidy is worth about $83 billion a year just to the top 10 banks in America. This bill would essentially wipe out that hidden subsidy and make the banks bailout-proof.

As soon as Brown-Vitter was introduced, a very interesting thing happened. The Independent Community Bankers of America, or ICBA, issued a press release boosting the bill. "ICBA strongly supports this legislation," the release read, "and urges all community banks to join the association in advocating passage of legislation to end too-big-to-fail."

Continue reading »

UPDATE: Fooled again. Yes, this story is two years old. But it still cheers me up!

This certainly cheered me up! I've read so many horror stories just like this, where homeowners end up bankrupting themselves to deal with foreclosures on a mortgage they never even had. Thankfully, this couple had a really good attorney who knew just what to do:

Collier County, Florida -- Have you heard the one about a homeowner foreclosing on a bank?

Well, it has happened in Florida and involves a North Carolina based bank.

Instead of Bank of America foreclosing on some Florida homeowner, the homeowners had sheriff's deputies foreclose on the bank.

It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn't owe a dime on their home.

The couple said they paid cash for the house.

The case went to court and the homeowners were able to prove they didn't owe Bank of America anything on the house. In fact, it was proven that the couple never even had a mortgage bill to pay.

A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners', Maureen Nyergers and her husband.

The Judge said the bank wrongfully tried to foreclose on the Nyergers' house.

So, how did it end with bank being foreclosed on? After more than 5 months of the judge's ruling, the bank still hadn't paid the legal fees, and the homeowner's attorney did exactly what the bank tried to do to the homeowners. He seized the bank's assets.

"They've ignored our calls, ignored our letters, legally this is the next step to get my clients compensated, " attorney Todd Allen told CBS.

Sheriff's deputies, movers, and the Nyergers' attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller's drawers.

After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.

"As a foreclosure defense attorney this is sweet justice" says Allen.

Gretchen Morgenson of the New York Times had this little bombshell tucked into the business section Saturday: The Federal Reserve is still giving bailouts to big banks. Not only that, they're giving away billions in legal claims:

The existence of one such secret deal, struck in July between the Federal Reserve Bank of New York and Bank of America, came to light just last week in court filings.

That the New York Fed would shower favors on a big financial institution may not surprise. It has long shielded large banks from assertive regulation and increased capital requirements.

Still, last week’s details of the undisclosed settlement between the New York Fed and Bank of America are remarkable. Not only do the filings show the New York Fed helping to thwart another institution’s fraud case against the bank, they also reveal that the New York Fed agreed to give away what may be billions of dollars in potential legal claims.

Here’s the skinny: Late last Wednesday, the New York Fed said in a court filing that in July it had released Bank of America from all legal claims arising from losses in some mortgage-backed securities the Fed received when the government bailed out the American International Group in 2008. One surprise in the filing, which was part of a case brought by A.I.G., was that the New York Fed let Bank of America off the hook even as A.I.G. was seeking to recover $7 billion in losses on those very mortgage securities.

It gets better.

What did the New York Fed get from Bank of America in this settlement? Some $43 million, it seems, from a small dispute the New York Fed had with the bank on two of the mortgage securities. At the same time, and for no compensation, it released Bank of America from all other legal claims.

[...] To anyone interested in holding banks accountable for mortgage improprieties, the Fed’s actions are bewildering. If the Fed intended that Maiden Lane II own the right to sue Bank of America for fraud, why didn’t it pursue such a potentially rich claim on behalf of taxpayers? The Fed made $2.8 billion on the Maiden Lane II deal, but the recovery from Bank of America could have been much greater. Why did it instead release Bank of America from these liabilities and supply declarations that seem to support the bank in its case against A.I.G.?

The New York Fed would not discuss this matter, citing the litigation. But taxpayers, who might have benefited had the New York Fed brought fraud claims, deserve answers to these questions.

[...] A New York Fed spokesman said it supported the settlement because it would generate significant value without potentially high litigation costs.

And of course, without disclosing any embarrassing details. That's how we do things now.

The news from the world of finance has been incredibly depressing of late, as the big Wall Street banks keep winning round after round in their battles with regulators. The flurry of deals, which in part were closed pre-Jan 1st to allow the banks to clean up their books before the end of the year, were just one big win for the banks after another: the $10 billion Bank of America deal with Fannie Mae; the deal between 2 regulatory agencies and 10 major banks to come up with $3.3 billion dollars for 3.8 million homeowners; the international Basel 3 capitulation caving into everything the big international banks were asking for on regulation. Compared with the size of the crimes, the number of people who got badly hurt, and the amount of money these banks made off the fraudulent deals they committed, this money is pocket change, an insult to the millions of hard working families who have had their lives ripped apart by bank fraud.

Now even the Consumer Financial Protection Bureau, the one agency which has been rightly lauded for fighting for consumers on other issues since it got created due to Elizabeth’s Warren’s work, has caved into Wall Street demands on a new rule they just issued relating to mortgages and given the big banks a major edge against homeowners in legal issues going forward. People at Americans for Financial Reform and the other groups working on these issues tell me they are appalled by these new rules.

The best hope for investigating and prosecuting fraudulent bankers has been in the inter-agency task force co-chaired by NY AG Eric Schneiderman, but the DOJ has refused to give the task force the staff that it needed, and as a result things have been moving slower than molasses, and it is not at all clear at this point whether anything is going to come of it.

Media figures enamored of Wall Street think all this is a swell thing. WP writer Neil Irwin thinks it’s terrific because “every dollar a bank holds as part of its liquidity buffer is a dollar they are not lending out…as a loan to build a factory.” This was Obama’s argument in his first State Of The Union speech, where he talked about how he hated to bail out the banks but only by helping them would they be able to start making loans again so that the economy would recover. It has pretty much been Geithner’s entire philosophy while at Treasury: anything that gets in the way of the big banks’ ability to make money will hurt the economy. The problem is that while the big banks have been swimming in money most of the last 4 years, making record profits and handing out record bonuses to execs in some years, the rest of the economy is flat. Small businesses are still having trouble getting loans, factory start-ups have been slow, housing remains weak even with its recent uptick, and in case nobody has noticed in a DC obsessed by deficits, unemployment is still appallingly high.

Continue reading »

There is finally, finally, finally some momentum starting to build toward accountability for the biggest banks. The results of the election will determine whether it continues to build or completely fades away.

I will be the first to admit that there is a certain irony in that last sentence. Tim Geithner and Eric Holder haven’t exactly been jumping up and down in excitement to prosecute the Too Big To Fail banks for their evident fraud in pumping up the housing bubble and making billions off it. The wheels of justice have turned pathetically slowly. Martin Luther King said that “the arc of the moral universe is long, but it curves toward justice”, but in the case of banks this big and powerful, that arc is even longer. Inch by inch, though, the wheels long stalled have begun to move, and now the pace is beginning to pick up.

In the last several weeks, JP Morgan (twice), Wells Fargo, and now this week Bank of America have all been taken to court by different parts of the government. And while we don’t know how things will turn out, none of these are small potato cases. Together, they represent the broadest cases against the TBTF banks that we have seen since the crisis hit. And the Residential Mortgage Backed Securities task force co-chair says that more are coming.

My colleagues in the Wall Street accountability movement, burned by the lack of action from the DOJ for 4 years, have been understandably skeptical of the RMBS task force, especially when it took what seemed like forever to bring its first case. But without that commission from the President, I don’t think any of these cases would have been brought, because it focused resources (definitely not enough, but some) on investigations, and it raised the political stakes on not doing anything.

Where this heads next will be fascinating. I suspect what Schneiderman and the other more aggressive prosecutors in the task force want to do is to build a web of tough, broad cases against these banks in order to given them maximum leverage. Such a legal strategy could well reap major benefits as investigations proceed.

But imagine a scenario where President Obama loses, and the Democrats lose the majority in the Senate.

Continue reading »

They're assuming, of course, that the banks actually believe them. If I were in charge of a big bank, what reason would I have to believe that the U.S. government isn't going to come to my rescue if I bet the house again - and lose?

U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.

[...] According to documents obtained by Reuters, the Federal Reserve and the U.S. Office of the Comptroller of the Currency first directed five banks - which also include Citigroup Inc,, Morgan Stanley and JPMorgan Chase & Co - to come up with these "recovery plans" in May 2010.

They told banks to consider drastic efforts to prevent failure in times of distress, including selling off businesses, finding other funding sources if regular borrowing markets shut them out, and reducing risk. The plans must be feasible to execute within three to six months, and banks were to "make no assumption of extraordinary support from the public sector," according to the documents.

Alternative titles for this week's episode:

"Mexico: It's Not Just the Water That Will Make You Crap Your Pants."

"Debby Does Florida and Rick Scott Undoes it."

ENJOY! And leave a comment!!!

Alan Grayson on the original problem with Bank of America

As part of the mortgage settlement announced earlier this year, Bank of America announced that they sent out 200,000 letters to underwater mortgage holders they own or service, offering them the opportunity to reduce their principal. Eligible letter recipients can receive reductions as high as $150,000. Sounds good, right? Not so fast.

David Dayen points out that this isn't really going to hurt Bank of America much at all:

In other words, this is exactly as we suspected; BofA will try to extinguish cash penalties by modifying principal on loans they service but don’t own. And they’re trying to load up on the modifications with those loans.

...

I’m generally happy to see any principal reduction happening, though of course these are letters and not actual principal reductions. BofA sent out the letters to 200,000 borrowers, and now they can pick and choose on whom to bestow these benefits. And additionally, BofA will build in a three-month trial period where borrowers will have to pay the mortgage at the new rate. This was the trap in HAMP, as borrowers didn’t get an answer on a permanent modification after three months, waited, and were then hit with a denial and a demand for the difference between the trial payments and the original mortgage within days to avoid foreclosure. Looks like BofA may be setting the same trap.

To call this a “penalty” for these banks, or a first step or a down payment or whatever it is Shaun Donovan is calling it these days, should only provoke laughter.

So the question is, how many people will actually be able to obtain the reductions? The process of getting it doesn't seem easy. Only the recipients of the letters are eligible and, as a Bank of America official points out, if someone misses the letter in the avalanche of mail that BoA sends its customers, they lose their opportunity. In order to qualify:

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be more than 25 percent of gross income, and the borrower must show they are unable to afford that.

“If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

...

Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.

Even if all 200,000 borrowers were to successfully participate in the program, Bank of America services a million loans that are currently underwater, so the vast majority of the struggling families that BoA deals with will get no assistance.

So right before the company has its shareholders meeting, it announces a big program to reduce principal and goes on a media campaign to make it seem like they're taking a chance of possibly paying out more than they are required to, yet they are making it difficult for people to actually obtain the reductions and they aren't actually making any promises. It remains to be seen how much reduction they'll actually follow through on.

I'm really happy that these kind of public actions are becoming more common, because for too long, Americans have been operating on automatic pilot and now, thanks to a crushing recession, extreme weather and the Occupy movement, they're actually beginning to connect the dots. This action by Rainforest Action Network raises awareness as to how intertwined our problems are. When we learn how banks are heavily invested in the things that destroy the environment, we understand why it's been almost impossible to save our planet:

CHARLOTTE, NC — The much-politicized Bank of America stadium received a facelift today when five people with Rainforest Action Network skillfully unfurled a 70-foot by 25-foot banner off the top of the building, rebranding the stadium the “Bank of Coal.” Just days before the bank’s annual shareholder meeting, the act was intended to call attention to the bank’s role as the leading financier of the coal industry, one of the main concerns for bank critics.

The advocates, all trained climbers with safety gear, hung from the outside of the stadium more than 100-feet above the ground.

In the past two years alone, Bank of America has pumped $6.74 billion into the U.S. coal industry according to Bloomberg data. The Bank of America Stadium is where President Obama will accept the Democratic Party's nomination to a second term in early September, and, to many, symbolizes the cozy relationship between banks and government highlighted throughout the Occupy protests.

“Today, Rainforest Action Network has taken our message to extraordinary heights because the risk that coal poses to our health and our climate is nothing less than extraordinary. It’s past time Bank of America take a leadership role in transitioning our economy away from this dangerous and outdated industry,” said Todd Zimmer, a lifelong Charlotte resident and organizer with Rainforest Action Network.

Today’s action kicks off a week of events leading up to Bank of America’s annual shareholder meeting on May 9 where organizers predict more than 1,000 people plan to protest the company.

Not only is coal burning responsible for one third of U.S. carbon emissions — the main contributor to climate change — but it is also a major public health risk. In 2012, one in every four children living in Charlotte will develop asthma or other respiratory problems, while 3,000 North Carolinians die prematurely every year, all due to air pollution.

There are four coal plants in the Charlotte area. Duke’s Riverbend plant, which Bank of America finances, is within 12 miles of Uptown Charlotte.

American Banker has an in-depth look at how the Bank of America sold a bunch of debts to collectors while noting that the amounts could be very wrong — and the people might have paid off the debts already:

At Bank of America, records declared unreliable yet sold to CACH were used to file thousands of lawsuits against consumers, according to a review of hundreds of cases in the state courts where collection suits are typically filed. The overwhelming majority of cases end in default judgments, which are awarded to creditors when borrowers don't show up to contest the claims made against them.

In cases where debtors do challenge collections demands in court, the original bank-creditor must testify about the documentation supporting the claims. In several such instances, people identified as Bank of America employees have submitted affidavits attesting to the validity of debts sold by the bank to collections firms.

Even though Bank of America previously disavowed "the accuracy of the sums shown as the current balance," the sworn statements vouch for the borrowers' debts down to the penny and declare that the bank's "computerized and hard copy records" back the claims. There are other possible discrepancies, as well: the affidavits state that B of A "has no further interest in this account for any purpose," while the sales contracts reference a "revenue sharing plan."

The prospect that B of A was selling unreliable credit card debts did not deter CACH from buying them. A subsidiary of SquareTwo Financial, CACH does not collect debts itself. Instead, it operates like a restaurant franchiser, acquiring rights to the delinquent debts that are the raw materials of the collections business. It then works with law firms around the country that do the actual collections work, providing them with debt files, court witnesses and other services.

In thousands of cases in state courts, CACH has appended a single page from its purchase agreements with Bank of America attesting to its ownership of delinquent credit card debt. CACH has omitted from many such filings the more than 30 additional pages where Bank of America disclaims the accuracy of its debt records. Even so, attorneys affiliated with CACH have cited the reliability of Bank of America's records as the foundation for their collections lawsuits.

Yes, just as Bank of America did with its mortgage documentation, they simply made it up as they went along. The problem we have here is that, just as they did with the fake mortgage papers, some judges are accepting these lying affidavits as original source documents — which they're obviously not.