Boycott Bank of America

I've had it. Trying to hijack the rule of law (via our state AGs) was bad enough. Initiating a back-door TARP (via state-owned Fannie Mae) was even worse. But a third stealth taxpayer-funded bailout is just too many. Three strikes, you're out.

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties... The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”

In the words of Bruce Wayne, the details of this ridiculous bailout attempt are "a bit technical," so I'll put it in layman's terms for you--Bank of America just backed a pickup truck full of toxic horseshit from its investment bank into your backyard, and dumped it all there. Now it's your job to clean it up.

This is an absolute joke, and it's not even close to legal. The FDIC does not exist in order to backstop failed bets from investment banks and trading desks. Attempting to use the taxpayer-backed institution that way is nothing short of theft, and all Americans (not just BofA account holders) should be furious--the FDIC itself already is.

The fact is, the "toxic assets" that caused the financial crisis of 2008-09 never actually went away--they were simply hidden from the public view via a suspension of mark-to-market accounting (itself a borderline crime via accounting fraud). These assets have bounced around for a couple of years, never regaining value, and now the banks are trying to park them in your backyard--if you still have one.

The banks (and their cronies at the Fed, and the politicians whose campaigns they've funded) have consistently gambled that you won't understand the technical details of the fraud, and therefore won't be upset. So far, they've been disturbingly correct, and they've gotten away with pointing a gun at the head of the taxpayer time and time again by threatening "financial Armageddon". But things are changing, and Occupy Wall Street (OWS) is the result--these people may not now exactly how they've been robbed, but they certainly know the results, and they're fed up.

Of course, there are those who have tried to brand the OWS people as "socialists" or "Marxists". I can hardly conceive of a more offensive (and flagrantly false) depiction. While there may be pockets of whackos involved here (just as there were in the Tea Party--eventually, the fringe hijacked that movement), the core values of the movement are anything but socialist. At the center of OWS is a demand that these socialized institutions be held responsible for their losses, and not be backstopped by the government or taxpayers. How is it socialist to demand equality under the law, and to demand that bad banks be allowed to fail?

Occupy Wall Street is, ultimately, a revolution against the concept of "Too Big To Fail"--that very concept is, indisputably, anti-capitalist. A system that does not allow an institution to fail even when the market has said that it must is hardly capitalist--it's socialist. It requires an amazing act of mental gymnastics to suggest that opposing socialist acts... is somehow Marxist. But this is what our banks and politicians are trying to do.

If you've got assets with Bank of America, don't wait until November 5th. Pull them now. No, don't pull it for the traditional "is my money safe?" reasons. Pull it to send a message that you refuse to backstop bad bets by investment bankers, that you refuse to subsidize their ridiculous salaries, and that you refuse to continue to be a part of this badly broken system.

Bank of America put themselves in this situation. It's not your job to save them, and if you do, you're only paving the way for more bailouts (and $5 debit card fees) in the future. The extortion must end now.

[Bloomberg]

Update on mortgage settlement talks

I first mentioned the Bank of America mortgage settlement talks in my Quote of the Week at the end of August, in which I portrayed New York Attorney General Eric Schneiderman as a lonely soldier fighting on behalf of the public versus the banks. Well now it seems that Mr. Schneiderman has some company, no matter what Kathryn Wylde may think about it.

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, Harris told The Times on Friday.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, Harris said.

“It has been  a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.

Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.

Good for her. With California and New York now out of the settlement talks, the whole concept behind the settlement is essentially dead in the water. As Naked Capitalism's Yves Smith writes,

Now that Kamala Harris... has officially abandoned the talks, they don’t mean much, at least from the state side. The departure of such a big state, in population, foreclosure exposure, and Electoral college terms, along with other states (New York, Delaware, Nevada, Massachusetts, Kentucky, Minnesota, likely Arizona) means any settlement has limited practical meaning from the state side and even less credibility. It also considerably raises the odds of other states bolting. And needless to say, this is a major repudiation of the Obama Administration's “let’s sweep foreclosure fraud under the rug” strategy.

Indeed. For reasons known only to him, Iowa AG Tom Miller seems intent on pressing on with this zombie settlement, even though I can't even see why the banks would be interested at this point. The only benefit to the bank was coming from the wide indemnification that such a settlement would provide, and that benefit is now largely gone. Who cares about Iowa and Kansas when California and New York are out of the game? Just try winning a Presidential election while losing CA and NY--the math is pretty tough, even if George W. Bush did pull it off (twice).

At any rate, congrats to the AGs for standing up for themselves in this deal--even if they do end up negotiating their own state-specific banker-friendly deals down the road, it's important to show the federal agencies that backed this thing that the states refuse to let their rights be trampled on. Thank you, Kamala Harris.

[LA Times]  
(h/t Naked Capitalism)

Quote of the Week (or: Eric Schneiderman, the lonely soldier)

This week's Quote of the Week is a bit late, but it's a real doozy. If you haven't been paying attention to the banking sector lately, you may be unaware that Bank of America has become quite the center of attention. With its stock down nearly 50% since January, the bank has found itself beset with questions regarding its solvency, similar to Lehman Brothers and Bear Stearns back in 2008.

But unlike with Bear and Lehman, the stakes are much higher now for Bank of America, and many more political players have much more to lose if it fails (think "too big to fail" is a thing of the past? Think again--the biggest banks have only gotten bigger). As a result, battlegrounds are shaping up everywhere, with almost everyone in the political and financial world (from Barack Obama to Warren Buffett) aligned to help save this floundering institution. Everyone, that is, except New York Attorney General Eric Schneiderman.

As Matt Taibbi notes in his blog post, the Obama administration is pushing the 50 state AGs to agree to a settlement with Bank of America over massive and widespread mortgage abuses, including foreclosure fraud. The settlement would largely indemnify BofA against future lawsuits from homeowners who were victimized, and essentially wrap up what Taibbi refers to as "the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup".

Unfortunately for Obama and BofA, Eric Schneiderman doesn't think this settlement quite covers it, and he's refusing to lie down. His refusal apparently led to his being kicked off of the leadership committee that is negotiating the settlement, and he's been villainized by bank-friendly politicians everywhere.

Politicians like New York Federal Reserve Bank board member Kathryn Wylde, who is the speaker of this week's head-smacking Quote of the Week. Speaking to Eric Schneiderman, she said:

This week's QUOTE OF THE WEEK

"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."
                       - New York Fed board member Kathryn Wylde

Wylde, like Schneiderman, ostensibly represents "the public" in her role with the New York Fed. But with this quote, she has made it clear that she has no intention of actually representing the best interests of the public. She seems to think that it is the job of public servants to make sure that legal issues are resolved expediently, with fairness and justice running a distant second.

I'd of course love to ask Ms. Wylde what she considers "indefensible", if the list of abuses enumerated in this article don't qualify (yes, that last link is about Chase and not Bank of America, but the very same things have been occurring on BofA's watch, if not worse... I suggest you read that article regardless). Schneiderman naturally concurs with my (and Taibbi's) opinion, and it's a good thing. He seems to be the only one around here who's actually looking out for the public and performing his civic duty.

For what it's worth, Schneiderman's view seems to have gained some traction since Taibbi's blog post was published. On Monday, the FDIC filed its objection to the proposed settlement, and this was followed up yesterday by a similar lawsuit filed by a group of homeowners supported by the National Consumer Law Center. No matter what the Obama administration would seemingly like to see happen here, a President cannot completely override our justice process, not even when big-bank apologists like Kathryn Wylde are trying their best to do so.

Contrary to what Ms. Wylde might like us to believe, this isn't an issue of "love" versus "hate"--it's an issue of right versus wrong, legal versus illegal, and true capitalism versus what is increasingly looking like a semi-socialist corporatocracy. Eric Schneiderman is one of the only friends that the general public has left, whether or not we all realize it. Do yourself a favor and write Schneiderman a note of encouragement--while you're at it, you could also demand Kathryn Wylde's resignation.

Another link dump

Yes, even though I generally hate link dumps, I'm once again staring at a pile of interesting-but-not-interesting-enough-for-a-full-post items, so you know what that means... as usual, I'll post the links, with a quick blurb summarizing my thoughts. Click through for the full articles if you're interested.

Is the SEC Covering Up Wall Street Crimes?
Matt Taibbi; Rolling Stone

I'm always posting Taibbi articles here, and the hits keep coming. This time, our favorite malcontent is taking on the Securities & Exchange Commission (a group I've mentioned briefly here, but probably not enough), levying some pretty serious charges at the SEC's leadership.

I've tended to be fairly understanding of the SEC's shortcoming in the past, since I recognize that given their (lack of) funding, they are essentially set up to fail in their fight against an industry that is politically well-connected and has extraordinarily deep pockets. But if Taibbi's accusations here are accurate, I may have to reconsider my position. To wit:

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records – "including case files relating to preliminary investigations" – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation.

In at least one case, a senior SEC official allegedly prevented the pursuit of a case against a bank--thus ordering the files to be destroyed--only to turn around and accept a job with that very same bank. You know what, maybe this article deserves its own post, after all......

Wells Fargo's $3 Debit Card Charge: A Sign of More Bank Fees to Come?
Ron Dicker; Daily Finance

In response to legislation (put in motion by the Dodd-Frank Act) that has placed a cap on fees that banks charge to retail outlets for debit card purchases, it seems that the banks are trying to recoup this lost income by passing the charges directly onto its customers. Wells Fargo is leading the way by proposing a $3 monthly charge for customers to use their debit cards, and other banks like Chase are primed and ready to fall in line behind them. There's a laundry list of other proposals by the banks to recoup this lost income, none of them good for individual bank customers.

When the swipe-card fee cap was passed, it was hailed and presented as a boon to small businesses, many of whom felt overly burdened by onerous fees. But by passing the fees along to individual consumers, the banks have ensured that there won't be any overall macroeconomic impact from this fee cap--we've just changed who's making the payment, making a transfer from individuals' pockets into business (and bank) coffers.

Of course, with the consumer directly bearing the impact of the fees, retailers won't have to raise their prices any more to compensate for increased bank fees--therefore, inflation statistics as collected by the government will remain lower than they otherwise would (the rising Consumer Price Index doesn't take into account bank fees, only "retail price paid"), possibly fueling a misguided belief that inflation is under control... it's not. The consumer is once again worse off, regardless of what "official" inflation statistics might say--but I'm sure you already knew that.

Bank of America's back-door TARP
Abigail Field; CNNMoney

Yes, we've got a bit of a financial theme going on here in this link dump, but so be it. While you were all busy worrying about debt ceilings and official government spending statistics, your government was busy unofficially spending more taxpayer dollars to prop up a financial institution.

As you're no doubt aware, Fannie Mae and Freddie Mac (as well as AIG, to a different degree) have been in government-sponsored conservatorship since the financial crisis in 2008. Therefore, anything done by those organizations is essentially being done by the U.S. taxpayer, and must be watched very closely--if they lose money, we lose money. So keep your eye out for stuff like this:

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 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. That's escalated concerns that the bank may need to raise more capital. Yves Smith at Naked Capitalism has even started a BofA death watch.

But apparently 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.

So there you have it. It's not "official" government spending--at least not until those losses are realized by Fannie Mae--but it's government spending nonetheless. And when you're throwing around $500 million like this without anyone noticing, it certainly makes that supposed $2 trillion in "savings" look a little less significant, doesn't it?

Southampton engineers fly the world's first 'printed' aircraft
News Release; University of Southampton (UK)

You may remember my Clip of the Week featuring a 3D printer that "printed" a usable wrench seemingly out of thin air. That same type of technology seems to be popping up everywhere now, including at the University of Southampton, where engineers have created (and flown) a small airplane using 3D printing technology.

From their News Release announcing the achievement:

The SULSA (Southampton University Laser Sintered Aircraft) plane is an unmanned air vehicle (UAV) whose entire structure has been printed, including wings, integral control surfaces and access hatches. It was printed on an EOS EOSINT P730 nylon laser sintering machine, which fabricates plastic or metal objects, building up the item layer by layer. 

No fasteners were used and all equipment was attached using ‘snap fit’ techniques so that the entire aircraft can be put together without tools in minutes... 

The electric-powered aircraft, with a 2-metres wingspan, has a top speed of nearly 100 miles per hour, but when in cruise mode is almost silent. The aircraft is also equipped with a miniature autopilot developed by Dr Matt Bennett, one of the members of the team. 

Laser sintering allows the designer to create shapes and structures that would normally involve costly traditional manufacturing techniques. This technology allows a highly-tailored aircraft to be developed from concept to first flight in days. Using conventional materials and manufacturing techniques, such as composites, this would normally take months. Furthermore, because no tooling is required for manufacture, radical changes to the shape and scale of the aircraft can be made with no extra cost.

Very cool. It'll be interesting to see how scalable this technology is, and how economical it may (or may not) be to put into wide usage. Either way, the concept fascinates me, and it's an example of the innovation I'm always saying we need more of.

Definitely more uplifting than bitching about banks all the time...