The Timing of the Schneiderman Attack

I find this article odd for the way it mentions nothing of Bank of America’s attempts to game the legal system to stay in business, much less Tom Miller, Shaun Donovan, and Kathryn Wylde’s increasing attacks on Eric Schneiderman. Because his conclusion: that BoA may go under and if it does it may take the economy with it, explains why everyone just intensified their attacks on Schneiderman.

The article, by Tom Leonard, purports to weigh the prospect of economic chaos. On the plus side, Leonard looks at prospects China might not be as bad as some people have been thinking, the promise of QE3, and news that small banks may be returning to health. On the negative, he notes that manufacturing and housing continue to decline.

But none of that matters, Leonard suggests, as much as the fate of Bank of America.

But the most perplexing economic risk factor of all may be the case of the embattled Bank of America, which found itself at the center of a swirl of rumors on Tuesday. How Bank of America fares in the days to come could tell us more about the future of the U.S. economy than any other single factor.

And on that count, Leonard writes, we have reason to worry. He looks at Bank of America’s desperate attempts yesterday to refute the analysis of Henry Blodget, who said BoA is probably worth $100 to $200 billion less than it claims to be–potentially, that is, insolvent.

A big part of Blodget’s analysis rests on this Zero Hedge argument (though I saw the graphic at Ritholtz’s site first), which in turn notes that the key analyst–who happens to be a former Merrill Lynch employee–who thinks BoA can get away with just $8-11 billion to clean up what it will owe investors for the shitpile it (and Countrywide) sold them basically just took BoA’s estimates about the quality of the shitpile rather than looking at the underlying files. Zero Hedge quotes from a filing the Federal Home Loan Banks filed last month in NY (the bold is ZH’s; the screaming red highlighting is mine):

To get from $61.3 billion to a “reasonable” settlement range of $8.8 to $11 billion, Mr. Lin made two more assumptions. He assumed that only 36% of loans that go into default will have breached Countrywide’s representations and warranties about the quality of its underwriting. That assumption is difficult to understand. Mr. Lin did not do any independent analysis of this assumption. Instead, he simply adopted Bank of America’s estimates of this percentage, which in turn appear to have been based on a completely different portfolio of loans that were subject to the underwriting standards imposed by Fannie Mae and Freddie Mac. Moreover, Mr. Lin’s assumption is inconsistent with widely publicized reports by professional loan auditors that even Countrywide loans that are merely delinquent (that is, behind on payments but not yet in default) have a “breach rate” of well over 60% and often as high as 90%.

So to recap: Leonard says we should be worried because if this analysis is correct–if BoA is actually insolvent–it’ll take the economy down.

Now, I’ll set aside for the moment the underlying analysis Leonard does–his take that BoA’s continued existence is more important than the manufacturing decline and continued housing depression. And I recognize that he posted this last night before the news that Eric Schneiderman got kicked out of Tom Miller’s tree house broke widely.

But even without last night’s news, you can’t separate the ongoing pressure on Schneiderman from the underlying issue–whether the analysis which BoA used, which depended on their own internal review of completely incomparable files, to declare themselves solvent is valid.

Because what Schneiderman is insisting on doing, both in the $8.5 billion proposed securitization settlement and the $20 billion proposed servicing settlement, is to try to look at the files.

Schneiderman is insisting on doing the analysis that BoA’s handpicked analyst didn’t do.

Now what do you suppose it means that BoA’s surrogates have gotten so angry and panicked and, well, dickish, as Schneiderman continues to insist on actually looking at BoA’s books before making a settlement with them? And do you really think it’s a coinkydink that increasing numbers of Wall Street vultures are raising doubts about what’s in those books at precisely the time Obama’s surrogates are increasing pressure on Schneiderman to drop the legal efforts to do so?

I think the timing tells us everything we need to know about the quality of BoA’s analysis. The only question, really, is whether they’ll be able to abuse the legal system so as to continue to hide that reality.

Update: Schneiderman just sent out email vowing to continue:

You might have been following the latest developments related to the national settlement of the mortgage probe, including this story in today’s Huffington Post about our tough fight for a comprehensive resolution to this crisis.

Let me tell you directly: I am deeply committed to pursuing a full investigation into the misconduct that led to the collapse of America’s housing market, and to seeking a resolution that gives homeowners meaningful relief, allows the housing market to begin to recover, and gets our economy moving again.

Our ongoing investigation into the housing crisis cannot be shut down to accommodate efforts to settle quickly and give banks and others broad immunity from further legal action. If you have any thoughts or concerns about this critical issue, please contact me at 1-800-771-7755, or send a message via Facebook or Twitter.

Thank you for your support,

Eric T. Schneiderman

Marcy has been blogging full time since 2007. She’s known for her live-blogging of the Scooter Libby trial, her discovery of the number of times Khalid Sheikh Mohammed was waterboarded, and generally for her weedy analysis of document dumps.

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including the Guardian, Salon, and the Progressive, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse and dog in Grand Rapids, MI.

20 replies
  1. Bob Schacht says:

    EW,
    Thanks for this important analysis! I guess we’re in a “Too Big To Fail” debate. I suspect that what’s really involved here is that BOA is worried about what Dodd-Frank says about what happens in case a TBTF bank fails– i.e., the BOA MOTUs take it on the chin. They would lose control of the whole shebang.

    Bob in AZ

  2. emptywheel says:

    @rkilowatt: I don’t think so. I just think the CIA or DOJ is closing in on Assange, probably w/DDBs cooperation, so it’s accelerating things.

  3. susan says:

    “And, there is no mechanism for getting rid of a vice president who can’t function.”

    All I can think about is our almost Vice President Sarah Palin.

  4. orionATL says:

    Discovery

    Discovery

    Discovery

    Mr president,
    do you favor/when will you encourage attorney-general miller to undertake discovery in the states’ bank mortgage settlement matter?

    Attny-gen Miller,
    when will you begin discovery regarding bank practices in their mortgage lending?

    Sec donovan,
    Do you support discovery efforts by attny-gen miller or by attny-gen schneiderman?

  5. orionATL says:

    Zerohedge in “is brian Lin the next joe casssno?”

    Discusses Lin’s substantial conflict in neutrally evaluating bofa’s settlement figures’.

    Lin worked for merrilllynch bogs.

    Lin sold securities for several firms.

    Lin’s current firm, the one issuing the bofa report, houses several securities miscreants from the good old, wild old days of securities fraud.

    charming group.

  6. orionATL says:

    Brisk Lin is not tje only person with the surname Lin who has worked for merrill lynch/boa.

    One james Lin, a native taiwanese, was appointed CEO of boa’s merrill lynch “branch” in Taiwan in 2006.

    His speciality was risk management :>)

    at the time of his appointment (2006) he had twenty years banking experience.

    don’t see any obvious connection, but who knows.

  7. rugger9 says:

    The thing is, if B of A is as badly funded as it has been reported, even the settlement isn’t going to save their sorry asses. That’s even before you account for the still undiscovered CDSs and MBSs and associated scam stuff where the “investors” real and predatory will want all of their $$$. The only way THAT happens is if the settlement is declared as the sole liability for B if A, and the only entity I see doing that is the federal government.

    Of course I still don’t see why Kamala Harris is so silent on this, or even in the committee. Add to that the lack of Beau Biden in the mix, and you have the three principal incorporation/financial states not involved in what looks to me to be a whitewash that will be imposed by the feds.

    If Obama’s financial gurus do this, I guarantee he would lose to Palin in 2012.

  8. orionATL says:

    I suspect tom leonard’s article is just the nytwit times doing a favor for Obama-banco.
    before you get all tearry-eyes about bank of America’s demise, go to der goggle and enter:

    Bank of America +wikipedia.

    then read the long, long history of an incompetently managed banking institution that has managed to make a large number of very large bad deals over the last 25 years.

    institutions who (cf, roberts, j., chief justice) repeatedly blunder like this need to fail for market discipline/capitalism to work.

  9. orionATL says:

    keep in mind that “bank of america” is not really the california based bofa of old.

    that bank of america was bought out by charlotte, n. c. based “nations bank” which then took for itself the more glittery name “bank of america”.

    so the long history of “bank of america” fuc¥-ups involves not one but two of america’s most incompetently managed major financial institutions – the old calif. “bank of america” crowd and the old n.c. “nations’ bank” crowd.

  10. Terry Olson says:

    Curious as to why Litton Loan has sold out to Ocwen Loan Servicing, LLC
    Attn: Customer Service Department
    PO Box 24738
    West Palm Beach, Florida
    33416-4738

  11. ReaderOfTeaLeaves says:

    I want to scream that the Tom Leonard’s of the planet are such flaming weasels that they believe ifBoAGoesDownEconomicDiaster!!! will ensue.

    It may. Then again, empires have risen and fallen and BoA is not able to function without massive public subsidy to hide fraudulent mortgages. So it goes; karma is a bitch.

    Some of these gutless weenies need to get over themselves, and the longer this crap drags out, the
    longer the economy suffers.

    Schneiderman’s efforts to clear out the rot will do more to rebuild the economy than all the bleating and crybaby silliness about the horrors that will befall us all if we actually document the fraud and bullshit.

    It’s revolting to see what amounts to bedwetting on behalf of people making millions from reckless bets.

    What I find most interesting is that in a world where shadow banking begins to dwarf legit banking, and where Cayman Islands is now the fifth largest financial hub on the planet the Tom Leonards really believe the fate of the world rises or falls on BoA.

    Fukushima, pollution,and global warming are each far larger problems. The mess with BoA is a measure of craven federal policy.

  12. emptywheel says:

    @ReaderOfTeaLeaves: BoA’s downfall WILL be pretty significant. Even just protecting the legitimate investors will take a great deal of work. And there is a chance others will panic which might expose JPMC and Citi.

    In other words, our biggest credit card holders could go down at once. (Not to mention both BoA and JPMC are big players in EBT cards which states use to distribute food stamps and unemployment).

    But I tend to think the housing depression is a bigger draw on the economy right now than BoA. And bailing out BoA just makes that worse.

  13. orionATL says:

    @emptywheel:

    why bail out anyone (“legitimate investors”) or any institution.

    just nationalize and continue operations.

    one can’t make fun of “too big to fail” if one secretly believes in/has fears about “too big to fail”.

    let’s see what happens.

    let’s be ready to adopt new means and new institutions – very rapidly- to deal with credit cards, ebt’s, deposits, etc.

    guarantee the deposits, protect business lines of credit, and fuc* the investors.

  14. TC says:

    Tom Leonard says, “If the market thinks you need to raise billions of dollars, the ensuing credit squeeze will push the cost of raising that cash steadily higher, digging you into an ever deeper hole — and then you really will need to find some more money, fast.” The trouble with this sort of view is its flawed disregard for all manner of fraud facilitated over the recent decade through the workings of “the market.” In other words, you can no more suppose the market’s attack on BAC is any more legitimate than S&P’s attack on the U.S. Treasury. “The market” increasingly has become a giant lever used to perpetrate massive theft. We need more evidence of this?

    Specifics making BAC an easier mark than say, JPM at this point are irrelevant. Eventually, all will be destroyed. The crisis is systemic. Movement in the direction of inevitable collapse began on August 15, 1971 when Nixon formally ended the Bretton Woods system of fixed exchange rates. The trend toward destruction accelerated when King Ponzi, Alan Greenspan, became Fed chairman. Now even the U.S. Treasury is in the cross hairs (this via the JSC).

    So, forget about BAC. The real tragedy awaits destruction of Treasury’s “full faith and credit.”

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