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Wednesday, June 25, 2008

Bank of America Rapes Complacent Taxpayers

The first screenshot ‘Executive Summary’ is a clip from an Internal Bank of America Report that made the rounds earlier this week. The report is best described as a manual on “how to rape your fellow countrymen and taxpayers”.

Bank of America's Countrywide Tab Signed by Taxpayers (Update1): “Bank of America Corp.'s $3 billion takeover of Countrywide Financial Corp. will be financed by 138 million tax-paying Americans.

Bank of America, led by Chief Executive Officer Kenneth Lewis, can use tax write-offs to pay for Countrywide, the country's biggest mortgage lender, said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who now runs his own accounting firm. Taxpayers may pick up about $5 billion of Countrywide's losses over 20 years, he said. Countrywide shareholders vote on the sale today.”

How exactly does it work?

“Miller, the top- ranked analyst in Bloomberg's latest survey of stock-pickers, estimates Countrywide will lose as much as $33 billion on bad home loans. Lewis said this month Bank of America, the biggest U.S. consumer bank, will come out ahead even if home prices drop by more than 25 percent in the next two years.

Based on Countrywide losses of $30 billion, which are less than Miller's estimate of $33 billion, Bank of America would more than recoup the entire $3 billion purchase price, Willens said.”

What a neat trick.

Bank of America (BAC) is a crafty one. Sticking it to Mr. Taxpayer seems to be BAC corporate policy. As if that wasn’t enough, this has been raged about for a good week now in the blogosphere:

Over at Market Ticker in Did Bank of America / CFC Write the Housing Bill?.
Over at Calculated Risk in BofA and the Dodd Bailout Bill.

In the end, BAC could stick taxpayers with about $300 billion in mortgage losses AND acquire Countrywide (CFC) for free. Fun times.

BOHICA dear taxpayers!

The unhappy side effects of these kinds of shenanigans are that treasury yields (and by extension all other yields) have started to rise as described in Inflation, Rates and Fed Out of Ammo because the entire US financial system has overdosed on credit as can be seen in Public and Private Debt vs GDP: The Illusion of Prosperity.


Anonymous said...

I'm actually a little surprised you give credence to the other blogs conspiracy theories. The 'confidential' presentation was released publicly, in much more detail, many months ago by the banks residential strategy team, and still is available on their website. The context was very clearly labeled that "if there is going to be a government bailout", here are some thoughts on how to do it.

It's actually quite interesting, discusses the successful & profitable HOLC plan that bailed out the residential mortgage market following the great depression, etc.

Park the black helicopters. I shiver at the fact that I'm defending BOA here, but the characterization put for by the Nat. Rev., then CR, now you, are not accurate. We should be screaming at Dodd regarding the merits of his bill, not BOA for thinking about solutions to the problem, and not even for pushing an idea into the hands of a lawmaker who might be able to execute the idea that might benefit them in some ways.

Ben Bittrolff said...

The PDF I received was labeled an 'internal' document. Not 'confidential'. No conspiracies. Nowhere in my post do I say 'confidential'.

No black helicopters here.

Anonymous said...

I says 'confidential and proprietary' on the copy I saw that is referenced by the two blog references listed in this blog:

Bad assumption on my part - Kind of makes you wonder when the labels were added and who added them, especially since a public version was published in February of this year.

I guess the point is that BOA is not the rapist, it's not even giving the rapist revolutionary ideas.

The late Feb 22, 2008 BOA report that the 'internal' slideshow is based on, is a reaction to several ideas being tossed around in late Jan 2008 (by Dodd, Jan 24, 2008), who was throwing around ideas based on previous government bailouts of mortgage market collapses. I think its easy to make BOA a scapegoat when you have a leader over there that repeatedly makes horrible decisions around the hold mortgage crisis debacle, but he didn't have any part in this report (the guys over in the IB that "he's had about enough fun with" wrote it - see the footers and footnotes). Shifting the whole problem on to the tax payers' backs is not a desirable outcome to me (a taxpayer who pays his conservative and standard mortgage on time), but the implication that BOA is the impetus here is just incorrect.

And, thank goodness the politicians look to people in the industry for guidance. Would you rather someone like Barney Frank, who is obviously a blabbering idiot when it comes to finance despite his position, figure out a way to solve the issue? It is extremely, I should reiterate extremely, commonplace, and should be, for industry participants to provide guidance on bills, in some cases writing the bill in standard format, and relinquishing it to the elected officials for review. You can only hope that the legislators, in all their wisdom, review, alter, and/or ignore input so that the final is in the best interest of their constituency. Maybe this isn’t the best method, and it gets some press on a regular basis when journalists unfamiliar with the process are caught unaware (i.e. Amnesty Bill for illegal immigrants), but you would hope that industry experts would have at least some level of input into laws that are going to directly affect them.

So, yes, I call it weak pseudo-journalism that this has shown up on some sites that I otherwise hold in high regards. In full disclosure, I do not work at BOA, I do know one of the authors whom I respect but do not like much on a personal level, I do think the to BS traders are going to serve time in jail for making non-criminal bad decisions, I do not think this solution will fix the underlying problem of fraud that the industry reeks of, but I don’t have anything better. As far as being a tax payer being raped, I’m much more concerned about earmarks, a war I don’t agree with, and a future healthcare system that likely will not benefit me and cost me twice as much as I currently pay.

sorry have to be anonymous at this time.

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