At the moment, things look bad for Bank of America but this too shall pass.
Yves Smith wrote a nice summary of the latest on ForeclosureGate . This includes just released information concerning HUD assistant regional inspector general William Nixon. Supposedly, he is after BofA for significantly hindering an investigation into wrongfully filed claims on failed mortgages, about $6 billion worth.
Smith reminds us that she saw the BofA purchase of Countrywide as a real loser. Her reference to a prescient column by Gretchen Morgenson from August 27, 2007 contains this gem:
Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrower … One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.
That practice represents innumerable counts of fraudulent representation on the part of Countrywide. BofA knew or should have known that this was going on before the acquisition. Maybe this digital dexterity was part of the reason they acquired Countrywide in the first place.
Smith asks a very good question at the end of the short piece:
Even if BofA’s penalties on these FHA claims turns out to be a significant portion of the total amount [$5.7 billion], it is not enough to constitute a major blow to the Charlotte bank, which then makes one wonder why it would obstruct the investigation (of course, the lender denies it did any such thing). Perhaps the drip drip drip of liability on so many fronts is leading to some desperate measures to plug the leak." Yves Smith, June 13
I propose an alternative explanation.
Same as it ever was…
At the start of 2010, I wrote about a complaint filed by the New York Attorney General against BofA for defrauding shareholders during the acquisition of the very troubled Merrill-Lynch:
"Andrew Cuomo's complaint filed in the New York Supreme Court, County of New York against the Bank of America and two former top executives has the potential to push that too big to fail entity off the edge of a very steep cliff. The charges of massive fraud are based on a compelling and exhaustive filing on February 4.
"A trial will likely involve testimony by the current Bank of America CEO and President Brian Moynihan against defendants Kenneth Lewis, the bank's former CEO and board chairman, former chief financial officer (CFO) Joseph L. Price, and the bank itself. Price is currently in charge of BofA's credit card division." Cuomo Takes on The Money Party, Michael Collins, February 27, 2010
While the above is technically accurate, I lacked Smith's predictive powers. There was no trial and, as a result, no dueling executive testimony. Brian Moynihan is now CEO of BofA. Lewis and Price have not had their day in court. They're walking around unhindered by blind justice.
Here's why I maintain nothing will come of the current BofA - HUD flap or any other scandals de jour.
When it comes to mortgage or other financial fraud, nobody gets prosecuted for anything, not a single thing. The charges against BofA were sidetracked by Andrew Cuomo's campaign for governor. They may be rolled up into a set of broader charges pursued by New York Attorney General, Eric Schneiderman (D). Then again, they may not. But in 2010, there was no perp walk, no trial, no conviction, and no time served.
The complaint by then Attorney General Cuomo contained devastating evidence. It was well beyond a prima facie case. Absent major factual errors, the outcome was clear: guilty as charged.
A few months before Cuomo filed against BofA, there were congressional hearings. Outraged members of Congress took then CEO Ken Lewis apart, turned him upside down, and tossed him around a little. The committee issued a fine report. Nothing happened.
Today we're hearing the latest outrage by BofA. We've also heard a great deal about the other collapse perpetrators. We had even bigger and better congressional hearings just a few weeks ago. A comprehensive listing of crimes by major financial institutions that led to the collapse of 2008 was reported and submitted to United States Attorney General Eric Holder.
Nothing happened, not a thing. Holder was nonplussed. His boss is on Wall Street collecting payback for loyal and effective service. The devastating report is a dead letter.
The system is broken beyond repair. Any expectation that justice will be pursued, let alone dispensed, is wishful thinking. Appearances to the contrary are either for show or sure to be quashed with extreme prejudice.
Turn out the lights. The party's over.
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