Our Common Good
Bank Of America Sued Over ‘Brazen’ Mortgage Fraud


Ben Protess of the New York Times:

“Federal prosecutors in New York sued Bank of America on Wednesday, accusing it of carrying out a mortgage scheme that defrauded the government during the depths of the financial crisis. In a civil complaint that seeks to collect $1 billion from the bank, the Justice Department took aim at a home loan program known as the ‘hustle,’ a venture that has become emblematic of the risk-fueled mortgage bubble. The complaint adds to a flurry of federal and private lawsuits facing Bank of America’s beleaguered mortgage business….

Prosecutors say the venture was a symbol of Wall Street’s slipshod standards during the mortgage bubble. According to the lawsuit, Countrywide rubber-stamped mortgage loans to risky borrowers and passed them on to Fannie Mae and Freddie Mac, the two government-controlled mortgage financial giants that guaranteed the loans. The two entities were ultimately stuck with heavy losses and a glut of foreclosed properties.

Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.

So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.


It’s bad enough that these letters are inaccurate. But even worse are the tax problems that they may create for people like Ms. Esposito. In most cases, the Internal Revenue Service considers debt that is forgiven to be taxable income. One exception occurs in bankruptcy; when a debt is discharged, it is not taxable.

But the letters sent by Chase and Bank of America clearly warn that the forgiveness will be reported to the I.R.S. If so, these borrowers may have to prove that the banks erred in claiming to have forgiven the debts.

The report details how the process works. In most cases, companies like JPMorgan Chase and Bank of America buy tax liens from the city and eventually evict the original owners. The investors then resell the house for a hefty profit. A $200,000 home, for example, might be sold on tax lien sale for $1,200.

Nationally, NCLC reports annual tax lien sales total $15 billion and the elderly and disabled are the most vulnerable.

Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup all suffered credit ratings cuts on Thursday. The rating agency Moody’s Investors Service said that, even though these banks had moved to strengthen their operations, their core trading businesses contained structural weaknesses.

In other words, the downgrades reflect the new sober era for Wall Street.

Since Moody’s put the banks on warning in February, the firms have had time to brace themselves and the immediate impact of the cuts is not likely to be drastic. But banking industry analysts say they think Moody’s actions will cause lasting pain.

Days before Bank of America shareholders approved the bank’s $50 billion purchase of Merrill Lynch in December 2008, top bank executives were advised that losses at the investment firm would most likely hammer the combined companies’ earnings in the years to come. But shareholders were not told about the looming losses, which would prompt a second taxpayer bailout of $20 billion, leaving them instead to rely on rosier projections from the bank that the deal would make money relatively soon after it was completed.


The disclosure, coming to light in private litigation, is likely to reignite concerns that federal regulators and prosecutors have not worked hard enough to hold key executives accountable for their actions during the financial crisis.

Your account information will now be accessible to call center workers in the Philippines.

Brian T. Moynihan, chief executive of Bank of America, earned $8.1 million in 2011, a sharp increase from the $1.9 million payout he received in 2010.

$8.1 million for a single year.  But it gets worse….

Mr. Moynihan was not the highest paid executive cited in a proxy filing from the bank on Wednesday. Tom Montag, co-chief operating officer of the company and the head of Bank of America Merrill Lynch, earned more than $14 million. Bruce Thompson, the chief financial officer and a close ally of Mr. Moynihan’s, made more than $11 million.

In recent years, Too-Big-To-Fail banks like Bank of America and Chase and Wells Fargo have been caught rigging the bids for financial services in dozens of municipalities nationwide. Worse, these same banks have repeatedly been let off the hook by regulators, who rarely seek jail sentences for the offenders, and more often simply apply fractional fines to the companies caught. This behavior, if left unchecked, will ultimately mean that we will all have to pay more for our roads, our traffic lights, our sewers, in fact all public services, as the banker’s secret bonus will soon become an institutionalized part of the invoice. And it’ll be our fault, because we didn’t do anything about it now.

The only way to prevent this kind of slide to total lawlessness is to break this unhealthy relationship between bank and government. It would be a great sign of America’s return to healthier capitalism if we could allow one of the worst of public-private monsters, Bank of America, to sink or swim on its own, in the free market.

We don’t want Bank of America to fail. Our position is, it already is insolvent, and already has failed – and only our tax dollars, and our government’s continued protection, is keeping that failure from becoming more common knowledge. There are many opinions about the nature of modern American capitalism. Some think the system is no longer able to meet the needs of ordinary people and needs to be radically overhauled, while others like it just the way it is.

But one thing that everyone on this spectrum of beliefs can agree upon is that our system doesn’t work when corrupt companies, companies that should fail in the free market, are kept alive by the government. When we allow that, what we get is a system that is neither capitalism nor socialist, but somewhere more miserably in between – a bureaucratic state in which profit is not tied to performance, but political power. [++]


A 12-hour occupation by workers at a Chicago factory on February 23 won an agreement that will save workers’ jobs for at least three months so they can seek other ways to keep their plant open and producing.

The factory on the northwest side of the city is the former Republic Windows & Doors plant, where union members occupied for a week in December 2008 after the previous owners and their financial backers, Bank of America, announced without warning that the factory was closing.

That struggle electrified the local and national labor movement, causing an outpouring of solidarity that stunned the bosses and bankers. After six days of the occupation, management caved. A new owner who promised to continue operations took over, and the Republic factory became Serious Energy.

On Thursday afternoon, the same workers whose courage three years ago inspired people around the country again heard that the next day would be their last day of work. They again turned to the tactic of the great labor struggles of the 1930s and occupied the factory.

But this time, they won a concession that saves their jobs for now before the dawn of the next day. Around 2 a.m.—with snow flurries starting to fall that brought back memories of the 2008 occupation—the 60 members of United Electrical Workers (UE) Local 1110 who remained inside the plant proudly marched out, fists held high, after an agreement was reached.

UE Local 1110 President Armando Robles, who led the 2008 occupation, told the crowd of supporters who assembled as soon as they heard about the new takeover: “We got more than we expected. Now we have 90 days to work and try to get somebody else to buy the company, with the possibility of the workers run it under our own banner.



One of the central characteristics of highly unequal societies is that two sets of laws develop: One set for the rich and powerful and one set for everyone else. The more unequal societies become, the more easily they accept the unacceptable, and with each unrebuked violation, the powerful actors at the top of the society gain an ever greater sense of entitlement and an ever greater sense that the laws that govern everyone else don’t apply to them. As a result, their behavior becomes increasingly egregious.

I would suggest that the robo-mortgage scandal is a strong indicator that this type of unequal justice is now becoming ever more commonplace in America. Past bank abuses are typically discussed without a sense of outrage. They have, in effect, become a recognized practice of deception with no consequences. Here are three prominent examples from the past few years:

First, the robo-mortgage scandal was discovered. As powerful members of society, the banks effectively decided what laws they wanted to follow and disregarded others. The banks claimed that their violations were technical and harmed no one. Nonetheless, the activities of the banks constituted massive fraud, perjury, and conspiracy. Bank officials have testified in court that they filed as many as 10,000 false affidavits a month. These are effectively undeniable admissions of law-breaking on a massive scale.

It’s a federal crime, punishable by up of five years of imprisonment, to knowingly file a false affidavit with the court. From the perspective of the law, you are guilty of the same perjury when you falsely testify in court or when you submit a false affidavit. In most states, filing false affidavits with the court similarly constitutes a felony offense of perjury.

If an individual citizen perpetrated this kind of massive perjury, he or she would be prosecuted. For illegal activities to take place on this type of massive scale, other serious crimes, such as conspiracy, are undoubtedly committed as well.

The banks committed very clear, easily provable crimes by transferring property titles that they didn’t own- stealing from homeowners, and lying to the court about it.  The only consequence they face for these crimes is the “settlement” that affords for less than a $2,000 per loan file fine- not bad for a felony offense that can normally result in five years in prison.

That’s assuming that the banks even comply with that much. Gretchen Morgenson at the New York Times details how Banks often simply forgo their end of settlements:

[T]wo years of statistics, through last September, show 5,771 cases where mediators found that banks had failed to participate in good faith or were not complying with other aspects of the mediation law. That is equivalent to 42 percent of all the mediations completed in the [Foreclosure Mediation Program in Nevada].

This is in addition to other bank fraud settlements in Nevada that Bank of America violated with what appears to be complete impunity. We have two sets of rules now; one of the wealthy and one for the rest of us.


Oh damn this is satisfying.

This investigation is about an type of investment called CLOs, which are a category of the CDOs that got so much blame in the fall 2008 crash. It works something like this:

  1. A bank signs 1000 mortgages, and is now getting interest payments from 1000 homeowners. On average, any individual homeowner has a 95% chance of paying. (All these numbers are totally made up for illustrative purposes. Also, it doesn’t have to be mortgages - any type of loan works.)
  2. The bank repackages the total cash flow from those 1000 loans into three separate cash flows, sorted by risk level. One pays out 99% of the time (ubersafe), one pays out 96% of the time (safe), and one pays out 93% of the time (risky). 
  3. The bank goes to investors and sells contracts which give the investors the right to these cash flows. Investors will pay a higher price for the contract that gives them the right to the ubersafe flow, and a lower price for the contract that gives them the right to the risky flow.

This process allows investors seeking different levels of risk to participate in the market - something like a pension fund (which can’t take any risk) might want the ubersafe contract, and something like a hedge fund (which takes a relatively high level of risk) might want the risky contract. Systems like this have been around since the 1980s, but have only really taken off in the last decade after the development of better mathematical models for pricing.

It’s important to note that all three contracts are supposed to include cash flow from mortgage payments from all 1000 homeowners, and (in general) that the 1000 homeowners aren’t supposed to be specially picked for any particular characteristics. Otherwise, the bank could say to the investors “oh sure this is the 99% ubersafe contract” and the investors would buy the contract for way more than it was worth, because they value that guarantee of safety.

That’s what this investigation seems to be about - regulators are suspicious that Bank of America was taking relatively risky loans and packaging them up into CLOs where even the ubersafe category wasn’t all that safe. If so, they could be on the hook for hundreds of millions in damages. Will be interesting to see how this goes.

Also, I’m fairly certain that there will be more similar subpoenas in the near future, as the big deal between banks and regulators over abusive foreclosure practices that just closed this week has a clause that lets regulators go after banks for this sort of loan repackaging. (The banks had apparently hoped that the settlement would give them immunity, which is mighty effing sketchy.)

(via PHOTOS: Occupying Bank of America in SF | Mother Jones)

The county is severing ties with two banks involved in municipal bid-rigging scandals, county Treasurer-Tax Collector Fred Keeley announced Thursday.

Keeley said he is removing New York-based JP Morgan Chase and North Carolina-based Bank of America from an approved list of banks handling bond investments for Santa Cruz County. The decision was based on nationwide, multimillion-dollar settlements involving fraud allegations that the two companies negotiated agreements giving them a look at competitors’ bids for handling the investments.

"There seems to be no limit to the greed of some of our nation’s largest banks," Keeley said in making the announcement. "Whether it has been unjustifiable fees, collateralized debt obligations, betting against their own investment products through the purchase of credit default swaps, or now bid rigging.

"Local, state and federal governments should not be involved with those who have abused the trust of their customers, especially in the case of public agency investments."


Look at all of the jobs that are being created when fiscal policy allows corporations to legally avoid paying income tax! Oh, wait.