Jamie Dimon: The Face of America’s Free Market Politburo

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Sorry for the Jamie Dimon obsession today, but the extended article from his interview with the Financial Time is just as infuriating as his whining about “anti-American” banking rules. In this one, this so-called capitalist lays out his solution to mortgage woes: a Larry Summers figure should invite a bunch of public companies down to DC for a private meeting at which they’ll decide what the market will look like.

Meanwhile, the increasingly distant relationship between politicians and financial leaders has, Mr Dimon suggests, caused its own problems. In the 1990s, Larry Summers as Treasury secretary allegedly phoned a recalcitrant regulator and told her he had 13 bankers in his office who said proposed rules on derivatives could create economic chaos. Reformers saw this as supremely unhealthy. But a meeting between regulators, banks and investors could usher in a grand bargain over the future of mortgage finance, according to Mr Dimon.

“The right way … is to convene all the people involved in the markets, discuss all the plusses and minuses, talk about what you want, design a new mortgage market and go,” he says.

“We’re raring to go. If someone called me and said: ‘Come on down’, I’d get on an airplane and do it today. And so would every major bank.”

As it is, the various plans for mortgages – like other regulations – create overlap that ends up with an unworkable system, he says. “You could design several different types of mortgage market that would work but you can’t design a warthog – you can’t have it be non-recourse, pre-payable, fixed rate, 500 days to foreclose and think you can have a mortgage market. It’s got to work for investors, it’s got to work for everybody.”

Dimon (or the FT–this is a bit unclear) is advocating doing what Summers did when he forced Sheila Bair to back off her consideration of regulations on derivatives. Most people now believe that Bair was right in that dispute, that regulations would have limited the damage of our recent crash. But Dimon, it appears, would like to repeat the short-sighted decisions about regulation that got us into this mess.

And note how “all the people involved in the markets” for Dimon includes regulators, banksters, and investors, but no actual consumers?

Can’t let the riff raff into the Politburo.

Note, too, that Dimon’s promise that “all the major banks” would be at the table if called comes just a week after the banksters blew off Tom Miller and the other Attorneys General trying to give them a Get Out of Jail Free card for their mortgage servicing abuses.

On that note, Dimon whines that the crappy housing market has held back the banks’ recovery. That’s like saying, “If people would just recover from their radiation poisoning more quickly, the country would be better able to recover from having nuked them.” There’s no self-consciousness here, no admission that the woes of the banks (and the economy generally) stem from the banks having marketed of a bunch of shitpile put together using faulty securitization in the first place.

In a normal recovery, some of these issues would diminish in significance. A resurgent housing market would not only help bank profits and cushion the impact of regulation but stem the lawsuits that have engulfed the industry.

If mortgage-backed securities perform better, investors have little incentive to sue for the way banks mishandled their construction.

If only investors didn’t have good reason to sue, they wouldn’t sue.

Which sort of makes clear that when Dimon complains about double jeopardy, he is again bidding for an AG settlement that releases the banks from their other shitpile liability.

But we are not there. “My guess is the legacy litigation is going to go on for three to 10 years because every securitisation is different,” says Mr Dimon. “We are geared up and we’ve hired some top experts that do nothing but this. We’ve put away billions of dollars [in reserves against losses] already. It’s an unfortunate drag on the company but we’re still looking at the mortgage business as a very important business going forward and these are legacy problems that will have to work themselves out.”

One litigation issue that participants say should be settled is the foreclosure mess, where banks improperly processed the mechanism for repossessing homes of people not making their payments.

State attorneys-general want a big financial settlement, including help for struggling homeowners. Banks, though, will only pay up if they get a broad release from future litigation. “Obviously some errors were made regarding who signed off on files,” says Mr Dimon. “We are working hard to settle these matters. But you can’t settle something and be subject to double jeopardy – that’s the issue. But we’re willing to be punished for what we’ve done wrong.”

Dimon, of course, is pretending that robo-signing fraud was the only crime the banks committed here, and that the big banks don’t have a range of liabilities.

Altogether, this poor capitalist is whining and bitching that the government is not helping banks avoid the consequences of their past decisions.

After Trading with the Enemy, JP Morgan Chase Whines for Regulators to Fight “Anti-American” Regulations

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Two and a half weeks ago, JP Morgan Chase signed an $88.3 million settlement with the government. JPMC traded with Iran, Sudan, Liberia, and Cuba, all in violation of Treasury’s various trade restrictions. When subpoenaed on the Sudan transfer, JPMC at first denied it had the documents in question. While I think many of these sanctions (particularly the Cuban ones) are silly, the settlement revealed that JPMC thought it was above rules designed to serve America’s self-interest.

Which is why I find MOTU Jamie Dimon’s wail for help fighting “anti-American” regulations so distasteful.

The United States should consider pulling out of the Basel group of global regulators, Jamie Dimon, chief executive of JPMorgan Chase, said in an interview with the Financial Times.

[snip]

“I’m very close to thinking the U.S. shouldn’t be in Basel anymore. I would not have agreed to rules that are blatantly anti-American,” he said in the interview.

“Our regulators should go there and say: ‘If it’s not in the interests of the U.S., we’re not doing it’.”

Dimon is complaining because Basel’s rules require more reserves from the very largest banks–including JPMC–to hold 9.5% of reserves, as opposed to the 7% required from smaller banks. Just three of the eight banks with higher reserve requirements are from the US. The Basel rules also treat “covered bonds”–a European product–differently from mortgage backed securities with a GSE guarantee.

I’m particularly amused with the way Dimon describes “global financial firms” to be in the best interest of the US.

“I think any American president, secretary of Treasury, regulator or other leader would want strong, healthy global financial firms and not think that somehow we should give up that position in the world and that would be good for your country.”

Bank of America’s global status right now risks putting the US at great risk, because the bank is insolvent but regulators have a tough time unwinding it because of that global reach. We know that because a bunch of global financial firms crashed the economy just a few years ago.

There’s one more ugly irony about Dimon’s wail. His concern, he says, is that because of these rules, Asian banks will pick up market share in the US.

He’s saying this, of course, at a time when Obama is about to push through a trade deal with Korea–one that will ultimately cause American manufacturers to lose market share in the US–in significant part so JPMC and Goldman Sachs can spread their toxic finance to Korea. That is, he’s whining about competing on an uneven playing field with Asian banks at the same time as the government is helping his company get preferential access to Korea’s finance market.

Jamie Dimon wants to pretend he is both a free market capitalist and a good American. But his whining and the actions his bank have taken suggest he’s neither of those things.

Update: In the longer account of this interview, Dimon whines even more about how poor American banks won’t be able to compete against Asian and European banks.

In his office, looking relaxed in white shirt with two buttons undone, Mr Dimon is still exercised about what he sees as a “miscarriage of justice”. US policymakers, he says, have sold their banks down the river – the Yangtze river. “There are plenty of countries out there that are happy with the changes being implemented in the US. They realise that they can be huge beneficiaries of this. I’m talking about China, India, Singapore, Japan. I wouldn’t want to see, 20 years from now, the US asking, ‘what happened? How come the winners in the marketplace are all outside the US?’”

[snip]

Derivatives dealt off exchanges will need to use clearing houses – which Mr Dimon supports – and will be subject to margin rules governing how much collateral they have to supply.

These he does not like, particularly if, as currently framed, they apply to JPMorgan’s overseas businesses too. He fears British, French and German competitors might not be subject to the same standards and will gain market share.

Update: Yves Smith debunks Dimon’s jingoism.

Dimon manages to play yet another jingoistic card, acting as if Basel III singles out US banks when a majority of the financial firms subject to the most stringent rules are outside the US. And he raises the truly bizarre specter of “Asian” hordes invading the US. Huh? Does he mean HSBC? I presume not, that’s a UK bank. The only Asian bank in the top 10 is Mitsubishi UFJ, and the Japanese are not likely to be in aggressive expansion mode (they’ve never gotten the knack institutionally of hiring and managing good top level foreigners; I know of a very few Japanese executives who have figured it out and did a good job when they were posted in the US, but as soon as they were rotated back to Japan, their successors made a hash of what they had put in place).

The Chinese are even less likely to move in near term (long term is a completely different matter). First, the Chinese were apparently interested in investing in US players in the crisis and were rebuffed. But having worked repeatedly with foreign banks in the US, building a denovo operation (or using small acquisitions as a platform) is a completely different kettle of fish. And going from the Chinese market of heavy state control and limited product scope to the US is like saying a drayage company can operate a supersonic plane because both are in the transportation business. I’ve seen what a hard time foreign banks have had in the US with a vastly lesser skill gap (one they closed over a period of decades). The Chinese are too far behind skill-wise to constitute a threat in the US until they can acquire the skills via a major acquisition (and that was not the scenario Dimon was hinting at).

And it goes without saying that Dimon made clear that he believe that what is good for banks is good for the US, when that has been demonstrably false for at least the last decade.

What’s striking about Dimon’s comments is how brazen they are. He’s not making clever, narrowly accurate but substantively misleading comments. Much of what he says and implies is unadulterated bunk. The fact that he peddles this tripe shows how confident he is that his message will go unchallenged. And that in turn reveals that he is secure in his belief that the banks have won the war; all he is caviling about is the speed of the mop-up operation.

FHFA Shows TurboTax Timmeh Geithner What a REAL Long Weekend Is

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Because after the bomb they just dropped on the finance world, I would imagine Geithner will be busy.

Here’s the listof banks they’re suing:

  1. Ally Financial Inc. f/k/a GMAC, LLC
  2. Bank of America Corporation
  3. Barclays Bank PLC
  4. Citigroup, Inc.
  5. Countrywide Financial Corporation
  6. Credit Suisse Holdings (USA), Inc.
  7. Deutsche Bank AG
  8. First Horizon National Corporation
  9. General Electric Company
  10. Goldman Sachs & Co.
  11. HSBC North America Holdings, Inc.
  12. JPMorgan Chase & Co.
  13. Merrill Lynch & Co. / First Franklin Financial Corp.
  14. Morgan Stanley
  15. Nomura Holding America Inc.
  16. The Royal Bank of Scotland Group PLC
  17. Société Générale

FHFA explains,

These complaints were filed in federal or state court in New York or the federal court in Connecticut. The complaints seek damages and civil penalties under the Securities Act of 1933, similar in content to the complaint FHFA filed against UBS Americas, Inc. on July 27, 2011. In addition, each complaint seeks compensatory damages for negligent misrepresentation. Certain complaints also allege state securities law violations or common law fraud.

Finally, someone calls it fraud.

Update: Just scanned the BoA suit. Their suit is based on $6B of certificates, between Fannie and Freddie. The defaults and foreclosures range from 7.6 to 61.6%, perhaps averaging 30%.

To emphasize what a stinker BoA was, the complaint notes that even Countrywide thought BoA was going after high-risk loans very aggressively (note FHFA sued Countrywide in separate capacity).

BOA was one of the most aggressive competitors in the mortgage origination market. Even the top executives of Countrywide Financial Corp., the notorious mortgage lender singled out by the FCIC for having originated high-risk loans destined to bring “financial and reputational catastrophe,” FCIC Report at xxii, complained to each other at the time that BOA’s appetite for risky products was greater than that of Countywide. In a June 13, 2005 e-mail Countrywide CEO Angelo Mozilo wrote to President and COO David Sambol: “This is the third deal in the last 10 days that BoA has offered that is impossible to beat. In fact the other two were substantially worse than this one. It appears to me that BofA is making an aggressive move into mortgages once again.” [Emphasis in the complaint]

Yet in spite of the fact that they lay this out in detail, they specifically do not make any claim of fraud.

Plaintiff realleges each allegation above as if fully set forth herein, except to the extent that Plaintiff expressly excludes any allegation that could be construed as alleging fraud.

I find that rather curious–are they going easy on BoA because they’re already broke?

Though that can’t be it–they allege fraud throughout the Countrywide complaint.

Update: Here’s an interesting detail. The naming convention used for most of these complaints is FHFA v. [BankName]. But it’s different for five of them. Société Générale is a big long number (including, but not limited to, today’s date). Morgan Stanley and GE (two of the last ones uploaded) have some version of “Final Complaint.” And Countrywide and Ally have that plus a “Filing Copy” in the name.

I’m guessing that suggests additional iterations for those banks.

Just in Time To Undercut Eric Schneiderman, the (Ongoing) HUD Investigation!

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American Banker has an article suggesting that Tom Miller will be able to use the results of HUD’s investigations into servicing problems to craft a settlement with the banks.

The state attorneys general have a secret weapon in their negotiations with the largest mortgage servicers: the results of a HUD investigation into the banks’ robo-signing practices.

But by all appearances, this is an attempt on the part of IA Attorney General Tom Miller to undercut claims that the Attorneys General need to do more investigation. The article–which relies almost entirely on Miller’s own staff–concludes that this report will “fill in a major gap” in what the Attorneys General know (that is, real data about how bad the robo-signing problem is).

The Department of Housing and Urban Development has completed an investigation begun last year of foreclosure robo-signing and given state officials the results, a spokesman for Iowa Attorney General Tom Miller says.

A full government investigation would fill in a major gap in state officials’ information as they negotiate with the servicers: the attorneys general have not known the full scope of the banks’ robo-signing practices, or how many homeowners have been affected by their paperwork lapses.

[snip]

“One of our federal partners, HUD, has conducted a thorough investigation of robo-signing,” says Geoff Greenwood, a spokesman for Miller. “HUD has shared that investigation with our executive committee.”

The states and their “federal partners,” including HUD, “have the information we need concerning the banks’ robo-signing activities, and this is key to the strength of our understanding and our negotiating position,” he says. [my emphasis]

There’s something funny about Tom Miller’s flack’s claims that the HUD investigation fills in what the Attorneys General didn’t already have: the one thing that HUD would say about it is that it wasn’t finished.

A HUD spokesman would not discuss any investigation, except to say its probes into robo-signing are ongoing. [my emphasis]

Maybe the claim HUD’s probe is complete is just a mis-paraphrase of Greenwood’s comments; such a claim doesn’t show up in his direct quotes. But if the investigation is not done–and HUD says it’s ongoing–then how does the incomplete study give the AGs what they need?

In any case, I find it particularly neat that the AGs’ Executive Committee got this incomplete complete study after Eric Schneiderman got booted from it.

If Bank of New York Mellon Has So Many Tax Shelters It Doesn’t Pay Taxes, How Is It NY’s “Main Street”?

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Update: Kelly just stepped down, citing “differences in approach.”

A number of outlets have carried the report on the number of CEO’s getting paid more than their companies paid in taxes last year, but few have linked to the actual report, which means just the usual suspects, like GE’s Jeff Immelt, are getting the bulk of the focus.

Yet if you look at the appendices (pages 31-33–click the picture to the right to enlarge it), the report not only lists all the companies paying their CEOs more than they pay Uncle Sam, but provide details like the company’s political spending.

Among those listed in the report not getting much attention is Bank of New York Mellon’s CEO Robert Kelly, who got millions while his company got a $670 million tax refund.

Bank of New York Mellon CEO Robert Kelly took home $19.4 million in 2010. The bank, the same year, claimed a $670 million federal tax refund, despite $2.4 billion in U.S. pre-tax income.

Kelly’s compensation has skated above $10 million during each of the past three years of financial crisis. The CEO artfully managed to avoid the salary limits President Obama’s “pay czar” imposed on bailed-out banks by making sure Bank of New York Mellon repaid the taxpayer funds before those restrictions went into effect.27 The bank raised the money to pay back its $3 billion in TARP assistance by taking on uninsured debt, slashing dividends, and issuing new stock.28

The Bank of New York Mellon, with 10 subsidiaries in tax havens, did not pay a dime in federal taxes in 2010. However, the banking giant did devote $1.4 million to lobbying over the year. The bank’s lobbyists worked diligently to exempt currency trading from new transparency and oversight rules.29 In related news, officials from eight U.S. states are conducting inquiries or pursuing litigation against Bank of New York Mellon for ripping off state pension funds by overcharging for currency trades. The Securities and Exchange Commission and Justice Department are also investigating the allegations.

Screwing pension funds on currency trades is not the only anti-social behavior the federal government gave BNYM a refund to engage in. They’re also the trustee on the controversial Bank of America settlement.

That’s relevant because of the terms the settlement’s chief defender, Kathryn Wylde, has used to defend it, particularly in the face of Eric Schneiderman’s lawsuit to stop it.

The lawsuit angered Bank of New York Mellon, and as Mr. Schneiderman was leaving the memorial service last week for Hugh Carey, the former New York governor who died Aug. 7, an attendee said Mr. Schneiderman became embroiled in a contentious conversation with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York who represents the public. Ms. Wylde, who has criticized Mr. Schneiderman for bringing the lawsuit, is also chief executive of the Partnership for New York City.

[snip]

Characterizing her conversation with Mr. Schneiderman that day as “not unpleasant,” Ms. Wylde said in an interview on Thursday that she had told the attorney general “it is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Now, as I’ve already pointed out, it’s sort of odd for Wylde to defend Bank of America, a North Carolina corporation, in her role as NYC’s chief booster.

But if BNYM is paying nothing in the US–rather is getting tax refunds–on its $2.5 billion global profit, then presumably it’s a corporate resident of some other place, not New York, not the United States. So maybe, in addition to North Carolina, Wylde has added the Cayman Islands to the list of places whose corporations she defends as her own Main Street?

In any case, Wylde says Schneiderman shouldn’t sue to prevent BNYM’s scam settlement with BoA. Why is she protecting such a giant corporate deadbeat?

IA AG’s Office Whining That They’re Not Getting Credit for Settlement Bank of America Violated

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The folks desperately working to give the banks a Get Out of Jail Free card for their servicing abuses are trying hard to deny they’re not doing so.

Take this anonymous accusation from someone involved in the settlement talks claiming that opponents of the settlement are using innuendo to smear those participating in it.

Another person close to the talks, who like several others spoke on the condition of anonymity to discuss the situation more freely, said many in the group are “just exasperated. . . . This smear campaign of lies and innuendo, it’s uncalled for, it’s unprecedented, and it threatens substantial consumer harm.”

Aside from the fact that even if there were such a campaign it would not be unprecedented, since folks have tried to suggest Eric Schneiderman committed an impropriety by paying himself back for a campaign loan he made to his campaign.

But unless the WaPo left the material describing the substance of the “smear campaign of lies and innuendo” on the cutting room floor, then what we have here is a person anonymously making vague innuendos about a smear campaign of innuendos.

And then there’s the whining from IA Assistant Attorney General Patrick Madigan, who says it’s unfair to say he and Attorney General Tom Miller are in bed with the banks (in spite of Miller’s fundraising outreach to the banks) because of the great work they’ve done holding banks to account in the past.

“We’ve been accused of being in bed with the banks. To say that to a group of people who have spent the last seven to 10 years fighting mortgage abuses day in and day out is an insult of the highest order,” said Iowa Assistant Attorney General Patrick Madigan, a longtime Miller deputy, who has worked on major settlements with subprime lenders such as Countrywide and Ameriquest. “It’s just unreal.

You know, their work “fighting mortgage abuses”? As in the settlement they signed onto with Countrywide in 2008? The one that–according to NV Attorney General Catherine Cortez Masto–Bank of America has basically blown off?

In her filing, Ms. Masto contends that Bank of America raised interest rates on troubled borrowers when modifying their loans even though the bank had promised in the settlement to lower them. The bank also failed to provide loan modifications to qualified homeowners as required under the deal, improperly proceeded with foreclosures even as borrowers’ modification requests were pending and failed to meet the settlement’s 60-day requirement on granting new loan terms, instead allowing months and in some cases more than a year to go by with no resolution, the filing says.

The complaint says such practices violated an agreement Bank of America reached in the fall of 2008 with several states and later, in 2009, with Nevada, to settle lawsuits that accused its Countrywide unit of predatory lending. As the credit crisis grew, the settlement was heralded as a victory by state offices eager to help keep troubled borrowers in their homes and reduce their costs. Bank of America set aside $8.4 billion in the deal and agreed to help 400,000 troubled borrowers with loan modifications and other financial relief, such as lowering interest rates on mortgages.

(See DDay for more on Masto’s complaint.)

Perhaps Madigan doesn’t understand this. But pointing to a settlement that, in retrospect, appears to have largely been a PR stunt as proof that you’re not in bed with the banks sort of proves the point that you are.

Jamie Dimon’s Company Fined $88.3 Million for Trading with the Enemy

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That’s not the technical term for violating economic sanctions against Cuba, Sudan, Iran, and Liberia (and FWIW I think the sanctions against Cuba are stupid).

Nevertheless, that’s basically what the sanctions JP Morgan Chase just admitted to violating amount to.

The big dollar amounts involve $178.5 million in wire transfers with Cubans.

JPMC processed 1,711 wire transfers totaling approximately $178.5 million between December 12, 2005, and March 31, 2006, involving Cuban persons in apparent violation of the CACR.

But the more interesting violation came when JPMC refused to turn over some documents relating to Khartoum until the government told the bank they knew JPMC had the documents.

The apparent violation of the RPPR occurred between November 8, 2010, and March 1, 2011. On October 13, 2010, OFAC issued JPMC an administrative subpoena pursuant to section 501.602 of the RPPR directing JPMC to provide certain specified documents related to a specific wire transfer referencing “Khartoum.” In response to this subpoena and a subsequent communication, JPMC compliance management failed to produce several responsive documents in JPMC’s possession, and repeatedly stated that JPMC had no additional responsive documents. OFAC ultimately provided JPMC with a list of multiple responsive documents that OFAC had reason to believe were in JPMC’s possession based on communications with a third-party financial institution. This prompted JPMC to correct its prior statements that the bank possessed no additional responsive documents and to produce more than 20 responsive documents. JPMC did not voluntarily self-disclose the apparent violation of the RPPR to OFAC. The base penalty for this apparent violation was $250,000.

And in spite of that apparent obstruction, TurboTax Timmeh Geithner’s agency still treated Jamie Dimon’s disloyal company leniently because of what they called JPMC’s “substantial cooperation.”

OFAC mitigated the total potential penalty based on JPMC’s substantial cooperation,

According to Bloomberg’s count, the Fed lent this disloyal company $68.6B after banksters like Jamie Dimon crashed the economy.

During and after the period JPMC took that money, it financed trade with Iran, tried to hide the Khartoum deal, and financed more trade with Sudan (though it sent money to Cuba and sent Iran 32,000 ounces of gold, now worth $55 million, before taking our money, in 2006). Some of this trading with the enemy was reported internally to “JPMC management and supervisory personnel;” at least some of this wasn’t the work of rogue employees.

This is the kind of MOTU that Obama considers an ally.

Paul Kanjorski: Government Can’t Control Multinationals Anymore

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I confess. When I read Zach Carter’s account of his interview with Paul Kanjorski, my first response was to wonder why HuffPo had decided an interview with the former Congressman would make for the (admittedly very fascinating) article that resulted.

Turns out the reason is Bank of America’s woes; as one of the champions of breaking up the banks in Dodd-Frank, this ought to be an “I told you so” moment for Kanjorski, because had we already broken BoA up, it would have forestalled some of the difficulties we’re likely to experience in the near term.

And Kanjorski did address that, intimating that regulators who had left the Administration, like Sheila Bair, had been willing to entertain taking such step, but those who remain (Carter notes that Tim Geithner recently decided to stick around) basically made an agreement with the banks not to use Dodd-Frank’s authority to break them up.

But Kanjorski framed all this within the larger question of whether multinational companies have simply become too big for mere governments to control anymore.

“Because [corporations] have become so international and global in nature, it’s highly questionable whether governments can actually control corporations to a sufficient degree to prevent them from controlling governments,” said Kanjorski,

And he then demonstrated that principle in his discussion of discussions about a tax holiday, which would allow tax cheating corporations to bring money back into the US but only pay cut rate taxes.

“I’m not saying we shouldn’t adjust our tax code otherwise — there are thing we need to do there — but to give them a free ride, what are you encouraging? The next guy who doesn’t like the law will just do the same thing,” Kanjorski said of the proposed tax holiday. “The reality is, why should we be bargaining with super-national corporations who are actually acting against our interest in avoidance of what our law is? We are impotent to get them to respond.”

This takes the argument of Treasure Islands–that corporations are using secrecy havens to avoid taxes–to the level where a former senior legislator of the world’s economic powerhouse admitting to impotence in the face of the corporations because of their size and multinational status.

And he notes something often forgotten in DC: that these are no longer American companies, and their interests do not coincide with our interests.

Of course, that’s not necessarily going to help us, given that Kanjorski’s watching from the private sector as top financial regulators still do act as if these multinationals’ interests coincide with ours.

How Would States Divvy Up the Foreclosure Settlement?

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For the record, I still doubt the 50-State-Less-the-Rule-of-Law-AGs Settlement will happen. A year in, they haven’t even agreed on the underlying guidelines for the settlement, like what they do with MERS.

But this line in the LAT’s coverage made me think of another issue that could kill that settlement.

New York and Delaware have more than a dozen attorneys working full time on their effort. They have subpoenaed or requested information from 13 financial firms, including Goldman Sachs Group Inc. and JPMorgan Chase. [Kamala] Harris would be a key addition to the investigation because California was the location of a vast number of the mortgages and foreclosures that fed into the crisis. She met with Schneiderman in San Francisco last month to discuss participating in the probe.

Harris is weighing whether she would sign on to the 50-state settlement if it gave banks immunity. The main consideration is how much money would go to California homeowners, according to a person familiar with her thinking. [my emphasis]

At least at the moment, the public explanation CA’s Attorney General is giving for her indecisiveness about which side to join is a concern over CA homeowners getting enough out of the settlement.

Now that may just be a convenient excuse to cover political indecision, but it’s a significant point. CA has a tenth of the country’s population, and it was very hard hit by the foreclosure crisis … two years ago.

As the Calculated Risk chart above shows, while California at its worst had the sixth highest percentage of homes in default, it is now 22nd (out of 42 states plus DC) on the list of current percentage of homes in default. So while CA has had the most number of residents go through this shitty process, going forward it might appear to be in much better shape than a lot of other states that weren’t as hard hit by the foreclosure crisis.

But that’s not the entire story. Note, first of all, the reason CA no longer has so many delinquencies:

Some states have made progress: Arizona, Michigan, Nevada and California. Other states, like New Jersey and New York, have made little or no progress in reducing serious delinquencies.

Arizona, Michigan, Nevada and California are all non-judicial foreclosure states. States with little progress like New Jersey, New York, Illinois and Florida are all judicial states.

That is, CA has worked through its delinquencies because its residents (like those of AZ, MI, and NV), have been subjected to the full brunt of the servicer abuses that this settlement is supposed to address, without the opportunity to challenge a foreclosure in court. So if we could measure this quantitatively (precisely what Tom Miller is trying to avoid) CA’s residents would like be even more screwed by the servicer abuses, because no one had an easy way to push back against obvious abuses.

Now look at who–at least as of the first quarter of this year–remains underwater on their house (from this Calculated Risk post). Those states most affected by foreclosures, including CA, still lead the list of states with the highest number of houses underwater, a key indicator for future defaults. The map from the New Bottom Line shows this even more graphically; put FL and CA’s population combined with their high negative equity rate, and they’ve got the largest number of potential foreclosures, over 2 million homes in each (compare that to worst hit on a percentage basis, NV, with 358,241 houses underwater, or IA, with 31,077). Finally, add in the much higher median home price in CA, and it’s clear that Harris ought to be demanding a significant chunk of the settlement funds perhaps in the 15-20% range (nevermind that even that–optimistically $4B–would do proportionately very little in CA).

I originally thought the banks would get to decide how to divvy up the settlement money (which would be prone to abuse in any case). But if the 40-45 AGs who might participate in this settlement plan to decide how the paltry $20B gets split up, then one of the only fair solutions would be for most of those states to give up the right to sue while giving CA and FL the great bulk of the settlement money. That is, a fair solution would have about 20 AGs grant immunity in exchange for little for their own residents.

Is Tom Miller willing to boast of a great settlement only to tell his own constituents (well, his nominal constituents, anyway) they will get nothing?

The Timing of the Schneiderman Attack

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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