Bank of America – and the magical money trail
The following is one part … of one story … of one very large U.S. bank – and how the American public got ‘fleeced’ in the bailout process. Financial oligarchs received some very special treatment at the expense of American taxpayers.
The money trail outlined below should provide all the justification anyone might ever need for why American citizens deserve the same direct access to ‘liquidity’ that many of the major (domestic and foreign) ‘commercials’ received.
And here is “The big fleecing, Part 1:”
From the book, Bailout Nation [Excerpts] –
Bank of America – the money trail
June 2005: Bank of America takes a 9 percent stake in China Construction Bank for $3 billion; china’s market tops out in 2008 and then plummets 72 percent.
January 2006: Bank of America acquires MBNA for $35 billion. The world’s largest issuer of issuer of credit cards is taken over right before the world’s largest credit crunch occurs, and (whoops) just before the worst postwar recession begins.
August 2007: Bank of America invests $2 billion in Countrywide Financial, the nation’s biggest mortgage lender and loan servicer. It is a jumbo loser, dropping 57 percent in a few months’ time.
January 2008: Bank of America doubles down and announces a $4.1 billion acquisition of Countrywide. The timing is flawless, and the purchase is announced as the worst housing collapse in modern history is accelerating.
September 2008: Bank of America pays $50 billion for Merrill Lynch, including Merrill’s portfolio of toxic assets (along with some previously unannounced trading desk errors).
Note: On February 20, 2009, Bank of America’s stock hit a low of $2.53. Before the Countrywide acquisition went bust, Bank of America’s stock was at $52 (October 2007).
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August 2011
“The Fed’s Secret Liquidity Lifelines”
Bloomberg – August 22, 2011
“Bank of America Corp., which got two rounds of U.S. Treasury Department capital injections totaling $45 billion to stay afloat during the credit crisis, borrowed twice that amount in secret from the Federal Reserve. On Feb. 26, 2009, the Charlotte, North Carolina-based bank held $78 billion of loans from the Fed’s Term Auction Facility, $8.65 billion from the Primary Dealer Credit Facility, $4.75 billion from the Term Securities Lending Facility. The financing helped bolster the largest U.S. bank by assets as investors worried its 2008 acquisitions of Merrill Lynch & Co. and Countrywide Financial Corp. might lead to nationalization.”
Bank of America Corp.
Peak Amount of Debt on 2/26/2009: $91.04B
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August 2011: “Bank of America’s back-door TARP”
CNN Money – August 20, 2011 by Abigail Field, contributor
[Excerpts]:
FORTUNE — Taxpayers may not realize it, but they just bailed out Bank of America again, this time to the tune of more than a half billion dollars.
The Charlotte, NC-based bank was one of the biggest recipients of bailout funds during the financial crisis. But Bank of America (BAC) continues to face deep problems related to its troubled mortgage portfolio and investors have battered the stock, which has plunged over 40% so far this year…. the federal government is determined to resurrect BofA: the Wall Street Journal reports the feds have just used Fannie Mae, which is controlled by the U.S. government, to infuse BofA with $500 million and ease one of the bank’s biggest headaches.
According to the WSJ, Fannie Mae spent $500 million to buy the servicing rights to a big chunk of the “seven million loans still causing the most problems.” Although the $500 million is a paper loss to BofA, in that the rights were “originally worth more,” it looks like BofA is still getting a good deal because the portfolio’s “value is expected to deteriorate further.”
In fact, the deal is worth much more than $500 million to BofA, because getting rid of those servicing rights lifts a huge cost burden off BofA’s shoulders. And if securitized loans are involved, which they most likely are, the sale also limits the BofA’s potential liability to investors for its current servicing violations. Finally, the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to “deteriorate further,” the goal of the intervention can only be to fix Bank of America’s capital structure, which is easier for the government to do if it overpays for the rights.
In short, purchasing these servicing rights was another Troubled Asset Relief Program.
Servicing defaulted loans can be good business if cheaply produced foreclosure paperwork isn’t questioned, and if the foreclosures have equity and can be resold easily with lots of junk fees. But the mortgage servicing rights Fannie Mae bought are stinkers: they have a 13% delinquency rate, which means lots of foreclosures and loan modifications.
But the loans Fannie Mae now has to deal with are even worse than 13% delinquency rate suggests. According to the WSJ, “more than half of the loans are in troubled U.S. real-estate markets.” This likely means markets where a high percentage of the houses are underwater and there’s a huge oversupply, driving prices down further and making defaults more likely.
Fannie Mae is purchasing “the servicing rights in order to transfer the day-to-day management of those loans to a different company.” That’s another huge sign that Fannie Mae is overpaying. If the rights were really worth $500 million, wouldn’t a private company pay that for them? Instead, it sounds like Fannie Mae is doing a bailout two-step, one to BofA and one to whomever takes these rights off Fannie Mae’s hands.
Another thing needs to become clear: where did Fannie Mae get the money to do BofA the favor of buying these rights? Fannie Mae just asked for another bailout of its own, seeking a new $5.1 billion infusion last week.
Think about how good this deal is for BofA: it gets to stop the bleeding, or at least cauterize much of the wound in its balance sheet that lousy mortgage servicing rights and mortgage securities liabilities are creating. And it gets half a billion dollars to boot.
And taxpayers? Well, we get to own yet another good chunk of BofA’s mess.
Full article: http://finance.fortune.cnn.com/2011/08/10/bank-of-americas-back-door-tarp/
February 2012 Bank of America Fined $1 Billion for Mortgage Fraud
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The Leviticus 25 Plan 2018 (2516)