Bank of America Is in Deep Trouble, and There May Be Financial Disaster on the Horizon

Vatic Note: Keep in mind that Alternet is a neolib financed "Controlled opposition" press. So what does it mean when they now after all this time publish what we have known all along and what they have banned posters for saying and proving when they posted there. Both Bruecke and Vatic got banned from alternet for exposing exactly this type of information below with links and evidence and we were put out to pasture. Bruecke received the worst of it. That is why we started Vatic project together and vowed no censorship for opposing views, but then we are not financed by those telling us what we have to write. Its why we went the donations route so we could be faithful to the donors who are the public.

This is out now, because its common knowledge and that is how controlled opposition press works. They finally show up late, never breaking the news, rather taking what is out there and now common knowledge and putting on the bankers spin. See if you can spot the spin in favor of the bankers or at least mitigating it. Then read my vatic note at the end of the article to see what spin I saw on the entire episode. CHECK OUT THE PROFITS FOR ROTHSCHILD AND GOLDMAN SACHS AND OTHER CORPS THIS YEAR.  http://vaticproject.blogspot.com/2010/11/corporate-profits-were-highest-on.html    Now you can see how deeply we have been scammed and why??? BECAUSE WE TRUST OUR INSTITUTIONS AND THAT HAS TO STOP.  No more. 

Bank of America Is in Deep Trouble, and There May Be Financial Disaster on the Horizon
By Joshua Holland, AlterNet
Posted on November 11, 2010, Printed on November 19, 2010
http://www.alternet.org/story/148817/

Will Bank of America be the first Wall Street giant to once again point a gun to its own head, telling us it'll crash and burn and take down the financial system if we don’t pony up for another massive bailout?

When former Treasury Secretary Hank Paulson was handing out trillions to Wall Street, BofA collected $45 billion from the Troubled Asset Relief Program (TARP) to stabilize its balance sheet. It was spun as a success story -- a rebuke of those who urged the banks be put into receivership -- when the behemoth “paid back” the cash last December. But the bank’s stock price has fallen by more than 40 percent since mid-April, and the value of its outstanding stock is currently at around half of what it should be based on its “book value” -- what the company says its holdings are worth.

“The problem for anyone trying to analyze Bank of America’s $2.3 trillion balance sheet,” wrote Bloomberg columnist Jonathan Weil, “is that it’s largely impenetrable.” Nobody really knows the true values of the assets these companies are holding, which has been the case ever since the collapse. But according to Weil, some of BofA’s financial statements “are so delusional that they invite laughter.”

Weil points to the firm’s accounting of its purchase of Countrywide Financial -- the criminal enterprise at the center of the sub-prime securitization market. Bank of America, Weil notes, hasn’t written off Countrywide’s entire value. “In its latest quarterly report with the SEC,” he wrote, “Bank of America said it had determined the asset wasn’t impaired. It might as well be telling the public not to believe any of the numbers on its financial statements.”

With investors valuing BofA at half the worth that the bank claims, it’s one titan of Wall Street that may be on the brink of collapse. But it’s not alone. “Everybody was doing this, this is not just something that Countrywide and Bank of America were doing," legendary investor Jim Rogers told CNBC. As a result, the banks’ balance sheets are "full of rotten stuff" that “is going to be a huge mess for a long time to come.”

And that “rotten stuff” will continue to be a drag on the brick-and-mortar economy until the mess gets cleaned up. Which, in turn, is a powerful argument for a second dip into the public trough.  (VN:  yup, a controlled opposition position,  oh, bail them out again, NO THANKS, WE ARE DONE.)

When the financial crisis hit, those of us who view the free market as more than a hollow slogan urged the government to take over the ailing giants of Wall Street, wipe out their investors, send their parasitic management teams to the unemployment line and gradually unwind the huge pile of “toxic” assets that they’d amassed before selling them back, leaner and meaner, to the private sector.

It worked in the past -- it was Ronald Reagan’s response to the Savings and Loan crisis of the 1980s. But that was then, and today Reaganite policies are deemed to be “creeping socialism” -- thoroughly unacceptable. We were told the banks were too big to fail, and Bush saw eye-to-eye with Republicans and Blue Dogs in Congress and bailed the banks out without exacting a penalty in exchange for the taxpayers' largesse. They socialized the risk, but the financial industry went right back to its old tricks, paying its execs fat bonuses and playing fast and loose with its accounting.

Much of that toxic paper remains on their books -- somewhere. The assets are still impossible to price and now several Wall Street titans appear to be approaching a tipping point, poised to once again to extort a mountain of cash from our Treasury by claiming to be too big -- and interconnected -- to crash and burn as the principles of the free market would otherwise dictate.

But there’s a difference between then and now. At the time, most of us saw the crash as a result of hubris and greed run amok in an under-regulated financial sector. Now, we know the financial crisis was the result of unchecked criminality -- that fraud was perpetrated, in the words of University of Missouri scholar (and veteran regulator) William Black, “at every step in the home finance food chain.” As Black and economist L. Randall Wray wrote recently:

The appraisers were paid to overvalue real estate; mortgage brokers were paid to induce borrowers to accept loan terms they could not possibly afford; loan applications overstated the borrowers' incomes; speculators lied when they claimed that six different homes were their principal dwelling; mortgage securitizers made false [representations] and warranties about the quality of the packaged loans; credit ratings agencies were overpaid to overrate the securities sold on to investors; and investment banks stuffed collateralized debt obligations with toxic securities that were handpicked by hedge fund managers to ensure they would self destruct.

That homeowners would default on the nonprime mortgages was a foregone conclusion throughout the industry -- indeed, it was the desired outcome. This was something the lending side knew, but which few on the borrowing side could have realized.

And since the crash, they’ve committed widespread foreclosure fraud, dutifully whitewashed by the corporate media as nothing more than some “paperwork” problems resulting from a handful of “errors.”

It is anything but. As Yves Smith, author of Econned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism, wrote in the New York Times, “The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits.”

Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.

Judges are beginning to demand that the banks show their work -- prove they have the right to foreclose -- and in many instances they can’t, having sliced and diced those mortgages up into a thousand securities without bothering to verify the paperwork as most states require by law. This leaves what Smith calls a “cloud of uncertainty” hanging over trillions in mortgage-backed securities -- the largest class of assets in the world -- and preventing a real recovery of the housing market. In turn, that is holding back the economy at large; according to the International Monetary Fund, it’s the drag of the housing mess that’s causing the high and sustained levels of unemployment we see today.

Big financial firms have also been cooking their books in order to obscure how shaky their balance sheets really are because honest accounting would likely bring an end to those big bonuses that drive “the Street.” Yet a day of reckoning may be fast approaching.

If the worst-case scenario should come to pass, with the banks hit by thousands of lawsuits, unable to foreclose on properties in default and with investors running for the hills, expect to hear calls for TARP II. It’d be a very heavy political lift, but given Congress’s fealty to Wall Street it could plausibly be passed.

There are alternatives. As in 2008, the federal government could put failing financial institutions into receivership. But some experts are saying that if we want to get off the roller coaster of an economy moving from one financial bubble to the next, a bolder approach is necessary: permanent nationalization of banks that can’t survive without public dollars.

“Inevitably, American taxpayers are going to pick up much of the tab for the banks' failures,” wrote Nobel prize-winning economist Joseph Stiglitz last year. “The question facing us is, to what extent do we participate in the upside return?” Stiglitz argued that the government should take “over those banks that cannot assemble enough capital through private sources to survive without government assistance.”

To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk-taking. Ownership cannot be a one-sided bet.

Of course, most of the employees will remain, and even much of the management. What then is the difference? The difference is that now, the incentives of the banks can be aligned better with those of the country. And it is in the national interest that prudent lending be restarted.

Leo Panitch, a professor of comparative political economy at Canada’s York University, wrote that "the prospect of turning banking into a public utility might be seen as laying the groundwork for the democratization of the economy.”

Ellen Brown, author of Web of Debt, points to the success of the nation’s only government-owned bank, the Bank of North Dakota. “Last year,” she wrote, “North Dakota had the largest budget surplus it had ever had…and it was the only state that was actually adding jobs when others were losing them.”

North Dakota has an abundance of natural resources, including oil, but as Brown notes, other states that enjoy similar riches were deep in the red. “The sole truly distinguishing feature of North Dakota seems to be that it has managed to avoid the Wall Street credit freeze by owning and operating its own bank.” She adds that the bank serves the community, making “low-interest loans to students, farmers and businesses; underwrit[ing] municipal bonds; and serv[ing] as the state’s 'Mini Fed,' providing liquidity and clearing checks for more than 100 banks around the state.”

Several states have considered proposals to emulate North Dakota, but such a bold move would obviously be all but impossible in Washington. But it shouldn’t be off the table. Banks provide an “intermediary good” to the economy, creating no real value. But Big Finance’s speculation economy has caused great and real pain for the rest of us. As Joe Stiglitz put it, there’s no reason in the world the incentives of the banks shouldn’t be better aligned with the interests of the country and its citizens.

Joshua Holland is an editor and senior writer at AlterNet. He is the author of The 15 Biggest Lies About the Economy (and Everything else the Right Doesn't Want You to Know About Taxes, Jobs and Corporate America). Drop him an email or follow him on Twitter.  (VN:  He is also the neocons chief divider of the people and not a uniter under these circumstances where we all get hurt, both right and left,  and he is the chief defender of these cretins bankers and Zionists, that have literally destroyed what was once a great nation.  Congratulations Josh.)

© 2010 Independent Media Institute. All rights reserved.
View this story online at: http://www.alternet.org/story/148817/

Vatic Note: Ok, here is my spin. Notice in there they are deflecting you back to the quality of the loans and the assets on the books, right? Notice how they then focus the entire article on the fraud or criminality of the loans themselves as if they were the problem. Actually, Bank of America was correct in that their assets are pretty good. So why DID THE CEO'S OF ALL THESE BANKS GET MASSIVE OUTRAGEOUS BONUSES? WHAT HAD THEY DONE TO DESERVE THOSE BONUSES? They successfully obtained partial bailout to offset the annual payment due on not only the margin accounts, but on the DERIVATIVES THAT THEY ENGAGED IN THAT IF THEY HAD BEEN UNDER SEC REGULATORY SCRUTINY, SOMEONE WOULD HAVE GONE TO JAIL FOR WHAT THEY DID.

ITS NOT ABOUT THE LOANS AND NEVER HAS BEEN, but notice Alternet never says a word about the derivatives these guys gambled with, AGI INSURED AND THEN GOT BAILED OUT SO AIG COULD PAY OFF GOLDMAN SACHS AND BANK OF AMERICA & all the others FOR THEIR LOSSES ON THE DERIVATIVES. That is where they bet the interest rates would go down or up and they bet wrong so now the international banking system on Over the counter derivatives is in it to the tune of about $ 400 trillion dollars and the globes total GNP is only $60 trillion therefore the bailout is to spread the losses over generations of tax payers.  WHAT IS OBSCENE IS THEY ARE BETTING EACH OTHER,  THERE IS NO MARKET OR INDIVIDUALS OR PENSION FUNDS AT RISK HERE.  IF THEY DO NOT PAY OFF, THEN ITS JUST ANOTHER BIG GAMBLING ROCKEFELLER OR ROTHSCHILD BANK GETTING BAILED OUT AND BOTH THE WINNER AND THE LOSER WIN.  And Rothschilds  Fed Reserve continues for generations to receive interest on the bogus debt.  That is GRAND LARCENY, A FELONY and prison term.   Some of these guys need to go to jail. 

IS ALTERNET TELLING YOU ANY OF THIS??? NO SIREEE, SINCE THEY GET FUNDED BY THE SAME PEOPLE WHO ARE INVOLVED IN GLOBALIZING AND DESTROYING FIRST WORLD COUNTRIES IN ORDER TO DO SO. THIS SPIN WAS BLATANT. I THOUGHT IT WOULD BE MORE SOPHISTICATED AND HARDER TO SPOT, BUT I WAS WRONG, THANK GOODNESS.

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