Monday, August 08, 2011

The Mortgage Mess, B of A Version, UPDATED

Bank of America's lawyers will be sending all their chilluns to VERY nice colleges.  First item:

The American International Group is planning to sue Bank of America over hundreds of mortgage-backed securities, adding to the surge of investors seeking compensation for the troubled mortgages that led to the financial crisis.

AIG says B of A (and its Countrywide and Merrill Lynch subsidiaries/acquisitions) "misrepresented" the quality of the mortgage portfolios.

That's not all, folks.

Fan/Fred have made a few demands, too:

New demands for refunds on soured loans from the two U.S.-owned mortgage firms are coming “in numbers that were not expected based on historical experience,” the company said in its Aug. 4 quarterly report to regulators....

B of A already booked $30Bn in expense for Fan/Fred claims; apparently that wasn't enough.


Denninger is going bonkers over this.

Note that given the utter fraud of allowing a bank to count "Shareholder's Common Equity" as capital, when it cannot be spent, means that precipitous stock price drops like this can instantly render a bank insolvent.  Why?  Because paid-in capital isn't being held in reserve, that's why, and when the price declines like this the company can't issue more stock into the market. 
This leaves you with only one real choice - a firesale of assets so as to bring your coverage of liabilities back within assets.  What happens if your assets are being held on the balance sheet at fantasy prices?

He kinda thinks that B of A cannot execute a 'firesale,' either.


J. Strupp said...

Denninger goes bonkers over everything.

Like all this inflation we're experiencing and the huge spike in U.S. treasury yields following the end of the Feds. asset purchases.

Er not.

Dad29 said...

Well, he has a point.

B of A "capital" might be less mighty than one wants.

And he's also right about the mortgage-loan situation; see the AIG lawsuit.

Their last Chairman was a tool.

As to the inflation: like I said, buy mayo, beef, or coffee lately?

At least beer remains reasonable. We'll need lots of it so long as Obozo is in office.

J. Strupp said...

I have a back up plan for beer inflation. I make my own.

We can barter if I run out of ammo.