"In determining these preliminary markets we assume peak to trough of 25 to 30% including estimated depreciation in Florida and California in the high 30s to just over 40%."
I believe that we will see this as an expensive underestimation.
OT: "An exclusive look inside C.E.O. Angelo Mozilo's secret effort to curry favor with lawmakers, politicians, and others who could influence the company's fortunes."
With all these "Better than expected" results, one would expect the DOW to hit at least 12K and the S&P 1300, otherwise it's going to be really really bad going forward.
Anyone got any info on the FED's clearinghouse for derivatives? Please give us an update if you got news.
The July issue of the Moodys/REAL Commercial Property Price Index (CPPI), based on data through the end of May, experienced a 3.5% decline from the month before. This is the third consecutive month the index has shown a negative return.
· The CPPI shows a 5.7% decrease in prices year-over-year. The index now stands 8.8% below its peak in October 2007.
· Although both the number and dollar value of repeat sales has fallen over the last few months, transaction volume is still almost nine times the level needed to calculate the monthly index.
· The average transaction price is steadily falling as transaction activity shifts to lower priced assets.
The FDIC currently has a record $53 billion at its disposal in a fund to payoff customers of failed banks like IndyMac.
Bair said the premiums that banks pay into this fund will have to be raised due to the hit it is taking from IndyMac.
"When we made projections on failures at the start of the year, we usually had the total number about right, but we had the institutions all wrong," he said.
To that end, he points out that IndyMac probably wasn't even on the FDIC's watch list of problem banks as of the end of March.
According to the first quarter report, the 90 banks on the problem list had total assets of $26 billion. But IndyMac had assets of $32 billion at the time it failed, which implies it wasn't considered at risk of failure only a few months ago.
"we don't intend to guarantee the public debt but we understand the ramification of not paying".
I find this statement truly disturbing as the guvmint let this buy go thru fully knowing that they had no plans to guarentee the debt. Terrible, just really terrible.
Who is gonna buy any BAC stock based on that glowing thought.
I thought they parked CFC into a special subsidiary.
I think that essentially means they will BK CFC and then as the surviving entity will take the deposits with the blessing of the FDIC and leave the FHLMB stuck with about $3 billion of BAC stock and $90 billion in bad loans.
Yeah, I'm with Nemo. There's something that I just don't understand here. I'm assuming that they CAN do this, I just don't understand HOW. I don't recall Countrywide actually filing for bankrupcy, so how can they stiff it's creditors?
So... The ramifications are that BAC's credit rating gets hit hard, but we pretend that Countrywide debt isn't BAC debt and hope that everyone cuts us some slack for that?
(I don't get it, either -- just trying to make some sense of this.)
NSA writes: This is exactly why BAC swallowed CFC; someone in the gubbmint told them the fix is in, babay.
Not paying is called insolvency.
Well technically...but look at it another way, and not-paying is simply exercising one's options to increase the asset column while the government stitches up the liabilities column. This is Moral Hazard and beyond...we've transcended moral hazard...need a new term. Moral Mushroom Cloud?
JP writes:
we don't intend to guarantee the public debt but we understand the ramification of not paying. That is the biggest bombshell.
Debt markets are NOT going to like this.
I simply cannot get my mind around this phrase. Its too huge. It is a bombshell JP. I think it just tightened up US mortgage lending for a decade!
I'm not getting my mind around the mechanism for pulling this off and keeping BoA solvent.
Seems like the FED will back all the banks although they are insolvent or quickly becoming so.
Just waiting for the announcement and then for all the money to flow back into equities.
Basically, the gist seems to be to buy the pieces of Countrywide that BAC wants (the bank, the servicing portfolio) for above fair value, and then let the rest go bankrupt. This saves the bank, which is what the FDIC cares about, and gets BAC the servicing portfolio, which I assume is what BAC cares about. By paying above fair value, BAC is insulated against claims from the Countrywide bondholders.
I have no idea if that makes sense or not, just pointing those interested to IRA's analysis.
"We don't intend to guarantee the public debt but we understand the ramification of not paying."
This isn't as bad as you think. The debt is owed to private CFC bondholders; this one, at least, isn't guaranteed by the taxpayers. But the "ramification" in this case is pretty serious -- the bondholders would sue BAC for the original assets of CFC (the ones BAC really wants) to pay off those bonds. They're not going to be able to just "walk away".
That's right folks....go ahead and have a glimpse of our future. As more and more of the big boys push off their liabilities to the tax payers....the tax payers will(futily) try follow suit.
This saves the bank, which is what the FDIC cares about, and gets BAC the servicing portfolio, which I assume is what BAC cares about. By paying above fair value, BAC is insulated against claims from the Countrywide bondholders.
I have no idea how you pull that off without a crash in the derivatives, not to mention spending the rest of your corporate days giving depositions and testimony.
I am truly baffled how they think they can pull this off and survive.
Countrywide during its ruup to distress drew down $60B from the FHLB system. As Roubini points out the FHLB system became a liquidity source early on. Clearly this was encouraged and it is telling that Treasury wants the authority to be able to backstop the FHLB system as well (which Paulson included as part of the GSE package). Ken Lewis also said on the call that he spoke with Paulson on Saturday morning. He also noted he sits on the Federal Reserve advisory board.
If home buyers abandon their debts to the banks, and the banks abandon their debts to taxpayers, it seems like a death spiral.
I'm beginning to see why a lot of people hate the current administration, not just commenters here but also among lifelong Republican friends and beer buddies who said they will cross party lines this November.
I guess I'm part of the middle class that just can't accept being labelled as "whiner"... time to change my handle.
thanks for the link to the mozilo/congress coruption article (post at top of thread)...lotta crooks in DC
however i thought it strange that the article didnt give senator (x)edwards credit for not following what must have been known within the beltway as the path to the pig trough
the article plays it off as edwards didnt know mozilo had a tasty treat for him. i dont buy that... heres the quote
"At Brandts behest, Feinberg immediately called Edwards assistant to convey Countrywides eagerness to help, but she fended him off. Oblivious to the behind-the-scenes maneuvers, the senator borrowed from a North Carolina bank."
oblivious indeed...not
edwards may, may deserve credit for playing it straight.
OT - From Bloomberg "Paulson Pushes Covered Bonds, Sidestepping Congress"
"July 21 (Bloomberg) -- Treasury Secretary Henry Paulson, aiming to create a new source of U.S. mortgage financing, wants banks to start issuing covered bonds without waiting for legislation from Congress.
Regulators can provide the guidance that lenders are asking to be set in law, said a Treasury official working on the issue who declined to be identified. Banks want a standardized definition of a covered bond, which requires the lender to make good on payments if homeowners default, and guidelines on bondholder protections.
Paulson is promoting the debt as an alternative to mortgage-backed bonds, the securities that sparked more than $426 billion in writedowns and credit losses as delinquency rates soared. Covered bonds also offer a way to diminish the role of Fannie Mae and Freddie Mac, the troubled firms behind more than two-thirds of new U.S. mortgages, according to the Treasury. . . ."
They bought the company, right? Doesn't that mean they bought the debt as well as the assets?
No, when you buy a company you buy the equity. Whether you own one share or 100% of them. Shareholders are not responsible for a company's debts (that's why we have limited liability companies in the first place). Unless assuming the debt is explicitly part of the takeover agreement.
Debtholders have first claim against CFC assets, as always. They can and will go to court to stop BoA from stripping the assets.
The Countrywide debt is carried on the books at its fair market value, isn't it? So if the market can be convinced that a default is likely, the liability can be written down to its new market value.
Maybe that's how CFC will "add to earnings this year."
I don't think they can get away with not paying, and I don't think they have any realistic expectations of getting away with it, although they may feel they can negotiate some sort of haircut when all of this goes to court. But in the meantime they can book a profit from the market's uncertainty.
"we don't intend to guarantee the public debt but we understand the ramification of not paying"
"That's it for me. I'm closing accounts, cards etc. I don't knowingly deal with crooks and con artists."
Finally, Ross, someone has said out loud what needs to be done.
Mom justice says that this level of mischief and misbehavior rises to a level that merits a spanking.
Colonial justice said that when the powers that be work egregiously against the interests of the people, the people have a right and a duty to end the long train of abuses.
In other words, it's time for a tea party.
To make ourselves heard, to express our disgust at the cock-up this unholy alliance of Washington and Wall Street has created, we need a Credit Holiday.
In the month of January nobody in the U.S. should send a single payment on a single mortgage, credit card, car loan, student loan, department store loan, etc. Pay double in February, but send NOTHING in January. If that doesn't result in immediate, serious and meaningful reform, prosecution of bad guys and help for defrauded consumers, then repeat the party in April and every two months thereafter.
Let 'em reduce 200 million FICO scores by 30 points, but let them know that this crap has got to stop.
Direct quote from Nouriel Roubini's latest missive...
A damning endictment...wow
"Most financial institutions are putting increasing numbers of assets in the illiquid buckets of Level 2 and Level 3 assets. While FASB 157 should prevent manipulation of the valuation of such illiquid assets, forbearance by the SEC, the Fed and other regulators allows a massive amount of fudging. An insider told me that in a major financial institution the approach is as follows now: top management decide in advance what the announced writedowns should be and folks dealing with the toxic/illiquid assets come up with totally ad hoc assumptions to make sure that such illiquid assets are valued consistently with the decided-in-advance amount of writedowns and losses. This is not earnings smoothing; this is active manipulation and falsification of financial results aimed at creating even more obfuscation of the true state of financial institutions. This obfuscation is actively abetted by the SEC, the Fed and all other regulators that are now in forbearance crisis management stage where the objective is to avoid at any cost anything that may trigger a financial meltdown. Thus, most of these earnings reports are not worth the paper they are written off."
Shareholders are not responsible for a company's debts (that's why we have limited liability companies in the first place).
Careful. Shareholders are not PERSONALLY responsible, but the company is.
There is a body of law about attempts to discharge the debt. A company cannot simply sell off assets to a lucky buyer and then declare bankruptcy. Somebody more familiar with the law should comment.
Like I said above, it's not whether they can default; it's whether they intend to engage in the corporate distraction associated with the default. [Not to mention the derivs ripple.]
I read that on Roubini's blog last night and I was flabbergasted. Cooking the books have become "legal." It's being condoned by the Fed, and the SEC! It's quite likely Citi's "beat" was a result of these games. Now what? Where do we go for reliable information?
it's fairly obvious, to me, that these banking stocks are being traded solely amongst the institutions. Anyone buying for the "long term" and still holding is either a fool or just trying to game a few bucks along with the criminals.
With BofA's attitude towards bondholders (in it's own release) is it not obvious what is going on here?
As an aside I went to sell calls today (naked) and was met with the "you can't do that" BS. Of course it would be rectified if I submit yet another form to "apply" for it. But I can buy all I want on the long side (yes I know what puts are....) however it just speaks to the lunacy of the "rules".
If I had the BofA attitude them I would be in jail fairly soon. Just goes to show that wrapping yourself in a flag (pin) makes it all ok....
"The statement today should not be surprising," said Ricardo Kleinbaum, analyst at BNP Paribas in New York.
"The market needs to come to terms with the fact that when financial institutions take over other financials, especially in a rescue, the decision to not guarantee does not imply that Bank of America will walk away from the liabilities," Kleinbaum said.
While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone -- except their own horrific negligence.
This is financial incompetence writ on a scale far grander than anything seen for centuries.
Didn't BAC invest $2 Billion before taking over CFC ? Is it possible this investment is Senior to the other bondholders ?
I know Market Ticker explained how BAC was going to do this waaaayyyy back here. Karl Denniger called this one !
As an aside I went to sell calls today (naked) and was met with the "you can't do that" BS. Of course it would be rectified if I submit yet another form to "apply" for it.
Oh, absolutely. Regulation is so undesirable we can't even allow the markets to regulate themselves...besides, don't we have a constitutional right to speculate? How dare the brokerages try to control their counterparty risk by ensuring that naked option sellers have the financial resources to stand behind their bets?
TS "i let go of the last at 25, and am now loading shorts at this level. BAC is the tell in this market, imo"
I played a little differently, selling 1/2 of my calls Friday and letting the rest convert. Today I sold the $25 calls against my holdings. So far I'm lucky, and that's the only way to explain it, since I can't for the life of me understand how BAC can default on its CFC bonds sending the CDS market into chaos and still pay 8% dividend yield.
On Jan 22, 2008 Naked Capitalism did a piece with a quote from an article in Institutional Risk Analytics which explained how B of A would separate the bond debt from the Bank by use of a Sub.
Naked Capitalism did a piece with a quote from an article in Institutional Risk Analytics which explained how B of A would separate the bond debt from the Bank by use of a Sub.
Think about it: Why wouldn't everybody package up their debt into a sub and then screw the debt holders.
They can create any corporate structure they want, but that doesn't exempt them from spending the rest of their days in court fighting off the bondholders.
shanondoah writes:
"Now what? Where do we go for reliable information?"
.... same as usual, small investors should follow the money flow, and learn to differentiate "end of day price rise" from "up/down volume ratio" (ie are they selling on strenght or buying on weakness)
Anonymous: "rubbed out"?
That someone can even write these words on a BB says a lot. Even if it is a "joke".
"i just don't get that you can't grasp the difference between short calls and long puts, from the brokerage's perspective."
You obviously couldn't bring yourself to read what I posted. I am well aware of there...ahem.....perspective. And I could give a crap about it......what you've missed is that perspective is exactly why we are in the mess currently.
The US is headed for some very nasty surprises in my opinion. One recalls that the Soviet Union collapsed when its finances could not support its military costs. The government collapsed and the USSr dissolved and Russia got out of its satellite states.
The US is now in a situation in which its finances will probably not be able for much longer to support our vast military empire of bases around the world not to mention the war in Afghanistan and the colonial occupation of Iraq. I would not suggest that the government will collapse but I do predict that we will have to abandon many of our bases, wind down the war in Afghanistan, desert Taiwan and perhaps (horrors!!!!) even Israel and stay at home where we belong. This will be a nasty surprise to all the US warmongers who have ruled the roost for so many years.
There is a body of law about attempts to discharge the debt. A company cannot simply sell off assets to a lucky buyer and then declare bankruptcy. Somebody more familiar with the law should comment.
It's called "fraudulent transfer" law. Nearly every state has a version of it derived from a uniform proposal, which itself derived from English common law. There's also a federal version in the bankruptcy code chapter 5.
or to put it another way I gather exempting the MM's from the short "limits"-again another farce of enforcement-was not designed to change the "perspective" in favor of the firms on the so called "list"
It's just another way that the system allows it to be manipulated for it's own gain...but I guess that would require some analysis on your part.
the market makers use of naked short's occurs a thousand times a day. the enforcement bona-fide short by a MM is done by settlement clerks each afternoon. it would be ludicrous to have a firm call stock loan for each and every trade. if that were enacted, the market may as well havea dutch auction one time a day, one print, and go to the beach for the balance of the day.
ms, your usually not this naive.
"This will be a nasty surprise to all the US warmongers who have ruled the roost for so many years.
jim | 07.21.08 - 12:41 pm | # "
AKA the military-industrial complex and, particularly in the last decade or so, the petroleum producers.
If people ever figure out that "protecting U.S. interests overseas" means multinational corporations with U.S. investors (or U.S. investments) and that those corporations aren't actually doing them any good anymore (providing jobs, providing benefits, paying their share of taxes)...
dcrogers: I hope that was typed with a little irony. I have never, nor do I intend in the future, to take comfort in anything conveyed in a reuters "story."
Turtle: "check out WFS and other similar "good" banks at bankrate safe and sound ratings...there are prudent institutions out there."
It would be prudent to advise people to look into who owns and profit from bankrate.com FWIW, I looked into them last year and got the impression that the owners are 4 guys that sit around smoking big fat stogies on a boat called Va' fa' un culo in a miami marina .
I spent the better part of yesterday explaining fractional reserve banking, the FED, the Treasury market and how our government is funded to a guy in his late 30's. When he got ready to leave he turned around and said we're screwed. Yup! The only thing holding this whole piece of crap together is a mass public so ignorant that they are hardly capable of pouring piss out of a boot.
Agreed that they can't simply strip the assets (as seems to be assumed by many here), but as long as they've left all the CFC assets in the sub don't they have the option of declaring that sub bankrupt, auctioning off the assets, and using the resulting cash to satisfy CFC creditors to the extent possible? For that matter, would there be any legal barrier to making a bid on those assets themselves?
There seems to me to be a lot of middle ground between simply defaulting on the debt (which clearly wouldn't be legal) and guaranteeing it (which would mean backing it with their own assets and not just the assets acquired from CFC).
I'd appreciate correction if I've got this wrong....
I'm beginning to see why a lot of people hate the current administration, not just commenters here but also among lifelong Republican friends and beer buddies who said they will cross party lines this November.
It's because Reality has a way of hammering you in the head until it starts to crack through the protective helmet of Talk Radio Spin. It took a good 6-7 years though; really, since about '95 when it became clear the 'revolution' of '94 was no such thing.
...time to change my handle.
Heh...somehow, the smiley face painted on the side of the bus doesn't soften the blow much when the bus hits and runs over you.
Our democratic system is financed by Corporate America - those fine LLC's being debated elsewhere, and it's the "LL" which is the source of our troubles - so regardless of party, we have government of, by and for the LLC.
"What happened to the billions CW borrowed from the Atlanta Federal Reserve?"
JohnW | 07.21.08 - 1:17 pm |
It was the Atlanta FHLB, not the Fed. Otherwise I support your inquiry 100%.
Seems like this is on topic for a real estate site. How would a major haircut on their dumb loan to Countrywide affect the housing market for the next 2 to 3 years?
The ample paucity of posts here concerning this issue may be a tell
The accounting fraud going on at these banks is breathtaking. The phony numbers,rule changes to delay markdowns, all resulting in "better than expected results." This is making the Enron/Arthur Anderson accounting scandal look like a minor transgression. This economy is being run by mobsters!
When it happened in Russia it was called kleptocracy - rule by thieves.
The individuals and institutions - governmental and corporate - who engineered this cluster eff have imperiled the economic sovereignty of my country. If it looks like treason and quacks like treason, I'm calling it treason.
jim writes:
The US is headed for some very nasty surprises in my opinion. One recalls that the Soviet Union collapsed when its finances could not support its military costs. The government collapsed and the USSr dissolved and Russia got out of its satellite states.
The US is now in a situation in which its finances will probably not be able for much longer to support our vast military empire of bases around the world not to mention the war in Afghanistan and the colonial occupation of Iraq. I would not suggest that the government will collapse but I do predict that we will have to abandon many of our bases, wind down the war in Afghanistan, desert Taiwan and perhaps (horrors!!!!) even Israel and stay at home where we belong. This will be a nasty surprise to all the US warmongers who have ruled the roost for so many years.
Jim, I've been saying the US was headed for a Soviet-style implosion for months now. The problem is made particularly more acute, by the fact that the US, like the former USSR, really has a comparative advantage in relatively few things, most of which are capital-intensive and related to military technology.
Gorbachov realized that the pace of spending in the USSR, like in the US, was entirely unsustainable (including heavy borrowing to import foreign-made consumer goods), and identified that the bloated defense budget--the largest component of government spending, was the ripest for cutting--just like it is in the US.
The problem was, that in attempting to reform the system and cut out the fat, it just collapsed instead. It was beyond reformation. We desperately need to cut those military bases in 150 countries, get out of Iraq, and clean up in Afghanistan. Do that, however, and aggregate demand will be going south at a mile a minute, and current account will go through the basement, since what we are is the worlds largest producer and exporter of arms and military technology.
I think what's going on is that BOA will pay countrywide's bond obligations now, which prevents any lawsuits from being filed, but is trying to position itself as favorably as possible for future litigation if/when they do default on CW debt.
Re: OK, I do not understand. They bought the company, right? Doesn't that mean they bought the debt as well as the assets
When you have insiders like Paulson that bail you out with tax payer loot, you buy the business and the debt, then you get the infrastructure for free, then hire Paulson as CEO in about 6 months..easy!
This was a complicated acquisition with various parts of CW's assets and liabilities being spread among many BAC entities. This is all part of BAC's massive negotiation with the creditors at this point (with the guvmint's blessing). Basically, they are saying that they MAY not honor CW's obligations, so you creditors better cut us a deal or we will default and you are in for a long, expensive legal battle that who knows will win.
BofA's merger vehicle, Red Oak, bought CFC. Therefore, Red Oak is on the hook for all of CFC's liabilities. But BofA, as a separate legal entity, is not on the hook for Red Oak. However, if Red Oak goes BK, it will present PR and other problems for BofA and likely induce litigation (such as bondholder accusations that BofA stripped CFC assets).
BofA did the merger to give it the best shot at controlling the valuable assets of CFC and jettisoning as much of CFC's liabilities as possible, most likely through major haircuts in response to BK threats.
First you form a third party entity owned by the parent corporation.
Second, you loan the third party entity money to buy other assets (ie Countrywide) and tie the loan against the assets (ie secure the service assets and business against the loan so it is like a first mortgage in a way).
Third, when the third party entity can not make the loan payments to you, you force it into bankruptcy and put your claims on the secured assets ahead of the other creditors. Since your loan was secure and you are forcing the bankruptcy, your claim is processed ahead of everyone else.
Here is the rub. It may take a while for a clear claim as every other creditor will sue the hell out of you as you tried to get away with this prepackaged bankruptcy that you planned before you even created this third party entity. They might even make the claim that you made the mortgage rescue as a way of stealing the owner's (share holders) equity.
However, I suspect that the only debt that will not be repaid is the $60 billion owed to the US government that Coutrywide borrowed. In this case, the taxpayer will pay it.
"The President,,, shall have power to Grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment."
It doesn't say "except when committed by himself".
"Except in Cases of Impeachment" means that the President cannot nullify an impeachment (against himself or anyone else), since the power to impeach lies solely with Congress. It doesn't mean that the President loses his power to pardon if impeached - remember Clinton was impeached (but not convicted). Of course if he's convicted he loses his job and has no power to do anything.
"In determining these preliminary markets we assume peak to trough of 25 to 30% including estimated depreciation in Florida and California in the high 30s to just over 40%."
I believe that we will see this as an expensive underestimation.
OT: "An exclusive look inside C.E.O. Angelo Mozilo's secret effort to curry favor with lawmakers, politicians, and others who could influence the company's fortunes."
Countrywide Deals Exposed - News Markets - Portfolio.com
What are the ramifications of not paying?
Reposting.
With all these "Better than expected" results, one would expect the DOW to hit at least 12K and the S&P 1300, otherwise it's going to be really really bad going forward.
Anyone got any info on the FED's clearinghouse for derivatives? Please give us an update if you got news.
What are the ramifications of not paying?
beachblvd | 07.21.08 - 10:50 am | #
Hint: It involves you.
Earnings beat expectations. Fnarg, fnarg, fnarg.
Interesting Times writes:
Hint: It involves you.
Mercy. It's only the beginning of the week.
"All I can say at this point is we don't intend to guarantee the public debt but we understand the ramification of not paying."
OK, I do not understand. They bought the company, right? Doesn't that mean they bought the debt as well as the assets?
OT but important
The July issue of the Moodys/REAL Commercial Property Price Index (CPPI), based on data through the end of May, experienced a 3.5% decline from the month before. This is the third consecutive month the index has shown a negative return.
· The CPPI shows a 5.7% decrease in prices year-over-year. The index now stands 8.8% below its peak in October 2007.
· Although both the number and dollar value of repeat sales has fallen over the last few months, transaction volume is still almost nine times the level needed to calculate the monthly index.
· The average transaction price is steadily falling as transaction activity shifts to lower priced assets.
National change from prior quarter:
Apartment + 2.7%
Industrial -1.3%
Office -1.2%
Retail -2.2%
That's nearly a 9% annualized rate of deceline in retail space property values nationally.
we don't intend to guarantee the public debt but we understand the ramification of not paying.
That is the biggest bombshell.
Debt markets are NOT going to like this.
Unless, of course, it's better than expectations.
Most banks are safe ... so is the FDIC
Most banks are safe...so is the FDIC - Jul. 21, 2008
The FDIC currently has a record $53 billion at its disposal in a fund to payoff customers of failed banks like IndyMac.
Bair said the premiums that banks pay into this fund will have to be raised due to the hit it is taking from IndyMac.
"When we made projections on failures at the start of the year, we usually had the total number about right, but we had the institutions all wrong," he said.
To that end, he points out that IndyMac probably wasn't even on the FDIC's watch list of problem banks as of the end of March.
According to the first quarter report, the 90 banks on the problem list had total assets of $26 billion. But IndyMac had assets of $32 billion at the time it failed, which implies it wasn't considered at risk of failure only a few months ago.
This does not inspire confidence.
we don't intend to guarantee the public debt but we understand the ramification of not paying.
Or, do put it another way:
We understood the ramifications of opening the dark portal, but we don't intend to be anywhere near those ramifications.
"we don't intend to guarantee the public debt but we understand the ramification of not paying".
I find this statement truly disturbing as the guvmint let this buy go thru fully knowing that they had no plans to guarentee the debt. Terrible, just really terrible.
JP Writes:
Unless, of course, it's better than expectations.
BofA:
The negative outcome of opening the dark portal was better than our expectations...
This is exactly why BAC swallowed CFC; someone in the gubbmint told them the fix is in, babay.
Not paying is called insolvency.
we don't intend to guarantee the public debt but we understand the ramification of not paying
sounds like a walk-away to me. who do they mail the keys to tho.
Not paying is called insolvency:
You are so right!
sounds like a walk-away to me. who do they mail the keys to tho.
My guess is Ben Bernanke.
Wow.
Just Wow.
Who is gonna buy any BAC stock based on that glowing thought.
I thought they parked CFC into a special subsidiary.
I think that essentially means they will BK CFC and then as the surviving entity will take the deposits with the blessing of the FDIC and leave the FHLMB stuck with about $3 billion of BAC stock and $90 billion in bad loans.
Ugh.
Someday this war's gonna end...
Yeah, I'm with Nemo. There's something that I just don't understand here. I'm assuming that they CAN do this, I just don't understand HOW. I don't recall Countrywide actually filing for bankrupcy, so how can they stiff it's creditors?
So... The ramifications are that BAC's credit rating gets hit hard, but we pretend that Countrywide debt isn't BAC debt and hope that everyone cuts us some slack for that?
(I don't get it, either -- just trying to make some sense of this.)
"We don't intend to guarantee any of the public debt")probablt GSE's)...
HOwever, we'll take any gain on it should we sell it
NSA writes: This is exactly why BAC swallowed CFC; someone in the gubbmint told them the fix is in, babay.
Not paying is called insolvency.
Well technically...but look at it another way, and not-paying is simply exercising one's options to increase the asset column while the government stitches up the liabilities column. This is Moral Hazard and beyond...we've transcended moral hazard...need a new term. Moral Mushroom Cloud?
"one quarter doesn't signify a sustainable outlook"
JP writes:
we don't intend to guarantee the public debt but we understand the ramification of not paying. That is the biggest bombshell.
Debt markets are NOT going to like this.
I simply cannot get my mind around this phrase. Its too huge. It is a bombshell JP. I think it just tightened up US mortgage lending for a decade!
I'm not getting my mind around the mechanism for pulling this off and keeping BoA solvent.
Got Popcorn?
Neil
Seems like the FED will back all the banks although they are insolvent or quickly becoming so.
Just waiting for the announcement and then for all the money to flow back into equities.
"(W)e don't intend to guarantee the public debt but we understand the ramification of not paying."
I think this means if you sell us the Countrywide debt at a big enough discount, we will guarantee it and sell it back to you at a higher price.
That's it for me. I'm closing accounts, cards etc. I don't knowingly deal with crooks and con artists.
Giannini must be turning over in his cript.
we don't intend to guarantee the public debt but we understand the ramification of not paying
two thoughts..
Moral Sandtrap?
more like Moral Quicksand
Sure enough, Countrywide is in the final for "Worst Company in America".
Be sure to vote!
Institutional Risk Analysis has been writing about this for some time. Here is a link to the latest post I could find:
http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=289
Basically, the gist seems to be to buy the pieces of Countrywide that BAC wants (the bank, the servicing portfolio) for above fair value, and then let the rest go bankrupt. This saves the bank, which is what the FDIC cares about, and gets BAC the servicing portfolio, which I assume is what BAC cares about. By paying above fair value, BAC is insulated against claims from the Countrywide bondholders.
I have no idea if that makes sense or not, just pointing those interested to IRA's analysis.
"We don't intend to guarantee the public debt but we understand the ramification of not paying."
This isn't as bad as you think. The debt is owed to private CFC bondholders; this one, at least, isn't guaranteed by the taxpayers. But the "ramification" in this case is pretty serious -- the bondholders would sue BAC for the original assets of CFC (the ones BAC really wants) to pay off those bonds. They're not going to be able to just "walk away".
That's right folks....go ahead and have a glimpse of our future. As more and more of the big boys push off their liabilities to the tax payers....the tax payers will(futily) try follow suit.
Use your imaginations to fill in the rest.
This saves the bank, which is what the FDIC cares about, and gets BAC the servicing portfolio, which I assume is what BAC cares about. By paying above fair value, BAC is insulated against claims from the Countrywide bondholders.
I have no idea how you pull that off without a crash in the derivatives, not to mention spending the rest of your corporate days giving depositions and testimony.
I am truly baffled how they think they can pull this off and survive.
Countrywide during its ruup to distress drew down $60B from the FHLB system. As Roubini points out the FHLB system became a liquidity source early on. Clearly this was encouraged and it is telling that Treasury wants the authority to be able to backstop the FHLB system as well (which Paulson included as part of the GSE package). Ken Lewis also said on the call that he spoke with Paulson on Saturday morning. He also noted he sits on the Federal Reserve advisory board.
YouTube
- Genesis - Robbery, Assault, & Battery, Live in Zurich - Dub
Sums it up for me..
Ciao
MS
I am truly baffled how they think they can pull this off and survive
Turns out that there was enough overlap of CFC equity and bondholders to approve BAC's takedown of CFC.
The stock was a $0, as were the bonds, so it was either take BAC's life preserver or lose everything.
Interesting analysis here.
"What are the ramifications of not paying?"
Someone is going to take it in the poop shute, and hopfully take a whole lot of these banking bastards down with them when they do.
If home buyers abandon their debts to the banks, and the banks abandon their debts to taxpayers, it seems like a death spiral.
I'm beginning to see why a lot of people hate the current administration, not just commenters here but also among lifelong Republican friends and beer buddies who said they will cross party lines this November.
I guess I'm part of the middle class that just can't accept being labelled as "whiner"... time to change my handle.
Angry Renter
thanks for the link to the mozilo/congress coruption article (post at top of thread)...lotta crooks in DC
however i thought it strange that the article didnt give senator (x)edwards credit for not following what must have been known within the beltway as the path to the pig trough
the article plays it off as edwards didnt know mozilo had a tasty treat for him. i dont buy that... heres the quote
"At Brandts behest, Feinberg immediately called Edwards assistant to convey Countrywides eagerness to help, but she fended him off. Oblivious to the behind-the-scenes maneuvers, the senator borrowed from a North Carolina bank."
oblivious indeed...not
edwards may, may deserve credit for playing it straight.
MS,
You devil. Thank's for the link.
Troy, how did you let your bac shares go under 20!
i let go of the last at 25, and am now loading shorts at this level. BAC is the tell in this market, imo
"we don't intend to guarantee the public debt but we understand the ramification of not paying"
Yeah and if you are a homeowner, you better pay your mortgage or we will throw you out on the street. What a joke!
OT - From Bloomberg "Paulson Pushes Covered Bonds, Sidestepping Congress"
"July 21 (Bloomberg) -- Treasury Secretary Henry Paulson, aiming to create a new source of U.S. mortgage financing, wants banks to start issuing covered bonds without waiting for legislation from Congress.
Regulators can provide the guidance that lenders are asking to be set in law, said a Treasury official working on the issue who declined to be identified. Banks want a standardized definition of a covered bond, which requires the lender to make good on payments if homeowners default, and guidelines on bondholder protections.
Paulson is promoting the debt as an alternative to mortgage-backed bonds, the securities that sparked more than $426 billion in writedowns and credit losses as delinquency rates soared. Covered bonds also offer a way to diminish the role of Fannie Mae and Freddie Mac, the troubled firms behind more than two-thirds of new U.S. mortgages, according to the Treasury. . . ."
Paulson Pushes Covered Bonds, Sidestepping Congress (Update1) - Bloomberg.com
"We don't intend to guarantee the public debt but we understand the ramification of not paying."
that oughtta tighten a few rectums
They bought the company, right? Doesn't that mean they bought the debt as well as the assets?
No, when you buy a company you buy the equity. Whether you own one share or 100% of them. Shareholders are not responsible for a company's debts (that's why we have limited liability companies in the first place). Unless assuming the debt is explicitly part of the takeover agreement.
Debtholders have first claim against CFC assets, as always. They can and will go to court to stop BoA from stripping the assets.
Fast forward to 1/21/09:
Obama's new Treasury Secretary is heard yelling "What the F***?" during the first cabinet meeting.
And Hank Paulson is heard laughing as his limo takes him to his private jet for a "well deserved" vacation in the Bahamas.
The Countrywide debt is carried on the books at its fair market value, isn't it? So if the market can be convinced that a default is likely, the liability can be written down to its new market value.
Maybe that's how CFC will "add to earnings this year."
I don't think they can get away with not paying, and I don't think they have any realistic expectations of getting away with it, although they may feel they can negotiate some sort of haircut when all of this goes to court. But in the meantime they can book a profit from the market's uncertainty.
"we don't intend to guarantee the public debt but we understand the ramification of not paying"
"That's it for me. I'm closing accounts, cards etc. I don't knowingly deal with crooks and con artists."
Finally, Ross, someone has said out loud what needs to be done.
Mom justice says that this level of mischief and misbehavior rises to a level that merits a spanking.
Colonial justice said that when the powers that be work egregiously against the interests of the people, the people have a right and a duty to end the long train of abuses.
In other words, it's time for a tea party.
To make ourselves heard, to express our disgust at the cock-up this unholy alliance of Washington and Wall Street has created, we need a Credit Holiday.
In the month of January nobody in the U.S. should send a single payment on a single mortgage, credit card, car loan, student loan, department store loan, etc. Pay double in February, but send NOTHING in January. If that doesn't result in immediate, serious and meaningful reform, prosecution of bad guys and help for defrauded consumers, then repeat the party in April and every two months thereafter.
Let 'em reduce 200 million FICO scores by 30 points, but let them know that this crap has got to stop.
Andrew linked to
"Paulson Pushes Covered Bonds, Sidestepping Congress"
why not...we got the imperial presidency from this administration...why not the imperial treasury.
FHLB debt per analytics is housed inside the bank. Therein lies the hidden value of the bank deposits for BAC.
Can George W. pardon himself when he leaves office?
Direct quote from Nouriel Roubini's latest missive...
A damning endictment...wow
"Most financial institutions are putting increasing numbers of assets in the illiquid buckets of Level 2 and Level 3 assets. While FASB 157 should prevent manipulation of the valuation of such illiquid assets, forbearance by the SEC, the Fed and other regulators allows a massive amount of fudging. An insider told me that in a major financial institution the approach is as follows now: top management decide in advance what the announced writedowns should be and folks dealing with the toxic/illiquid assets come up with totally ad hoc assumptions to make sure that such illiquid assets are valued consistently with the decided-in-advance amount of writedowns and losses. This is not earnings smoothing; this is active manipulation and falsification of financial results aimed at creating even more obfuscation of the true state of financial institutions. This obfuscation is actively abetted by the SEC, the Fed and all other regulators that are now in forbearance crisis management stage where the objective is to avoid at any cost anything that may trigger a financial meltdown. Thus, most of these earnings reports are not worth the paper they are written off."
Can George W. pardon himself when he leaves office?
I hope not. In fact, may he and his crook friends undergo a witchhunt and be sent to jail.
Cathy G
that's why my wife and i moved our money from WaMu to Washington Federal Savings.
it wasnt fear of collapse...fdic and such...but we didnt want to deal with people we dont trust
WFS is top rated and for the most part didnt play the liar loan and other nefarious games common to the industry
check out WFS and other similar "good" banks at bankrate safe and sound ratings...there are prudent institutions out there.
Shareholders are not responsible for a company's debts (that's why we have limited liability companies in the first place).
Careful. Shareholders are not PERSONALLY responsible, but the company is.
There is a body of law about attempts to discharge the debt. A company cannot simply sell off assets to a lucky buyer and then declare bankruptcy. Somebody more familiar with the law should comment.
Like I said above, it's not whether they can default; it's whether they intend to engage in the corporate distraction associated with the default. [Not to mention the derivs ripple.]
I caught that stuart.
Roubini is about 2 steps from being rubbed out.
Roubini is about 2 steps from being rubbed out.
His last post was really a doozy.
stuart,
I read that on Roubini's blog last night and I was flabbergasted. Cooking the books have become "legal." It's being condoned by the Fed, and the SEC! It's quite likely Citi's "beat" was a result of these games. Now what? Where do we go for reliable information?
BTW, I don't Bush has the mental capacity to commit a crime, so pardoning himself would be unnecessary.
I don't believe Bush has the moral compass to realize he has committed a crime, so pardoning himself would be unnecessary.
I wonder if Roubini has ever been threatened a la Meredith Whitney.
Desperate times have made thugs out of a lot of smartest guys in the room, i'll wager
it's fairly obvious, to me, that these banking stocks are being traded solely amongst the institutions. Anyone buying for the "long term" and still holding is either a fool or just trying to game a few bucks along with the criminals.
With BofA's attitude towards bondholders (in it's own release) is it not obvious what is going on here?
As an aside I went to sell calls today (naked) and was met with the "you can't do that" BS. Of course it would be rectified if I submit yet another form to "apply" for it. But I can buy all I want on the long side (yes I know what puts are....) however it just speaks to the lunacy of the "rules".
If I had the BofA attitude them I would be in jail fairly soon. Just goes to show that wrapping yourself in a flag (pin) makes it all ok....
Ciao
MS
PPT asleep at the wheel...they should wake up in the next hour or so.
Sorry folks, CDS rates say the "we don't intend to guarantee the public debt" quote is a nothingburger:
Reuters: Countrywide CDS out as BofA says no bond guarantee
"The statement today should not be surprising," said Ricardo Kleinbaum, analyst at BNP Paribas in New York.
"The market needs to come to terms with the fact that when financial institutions take over other financials, especially in a rescue, the decision to not guarantee does not imply that Bank of America will walk away from the liabilities," Kleinbaum said.
"especially in a rescue"
They never said rescue when they purchased CFC. They said it was a great opportunity and some other BS. So we were lied to? I am shocked.
How do these nothingburgers taste to the debtholders? Are they full of flavor?
Barry Barry Ritholtz at BigPicture nailed it with "Ideological idiocy" in this recent post
Idiots Fiddle While Rome Burns
The Big Picture
While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone -- except their own horrific negligence.
This is financial incompetence writ on a scale far grander than anything seen for centuries.
MS, naked calls are a whole new game. this speaks again to your previous attitude's about credit.
please , no f-bombs,
i just don't get that you can't grasp the difference between short calls and long puts, from the brokerage's perspective.
Didn't BAC invest $2 Billion before taking over CFC ? Is it possible this investment is Senior to the other bondholders ?
I know Market Ticker explained how BAC was going to do this waaaayyyy back here. Karl Denniger called this one !
How BAC is going to do it from Jan 11 2008 ....
The Market Ticker - Entries from January 2008
"...they may feel they can negotiate some sort of haircut..."
Well, that might be the motive for that announcement. I've had that one pulled on me before. Take cents on the dollar or get nothing at all.
You can trust Roubini and Mish. The lipstick on these bank pigs will wear off soon.
As an aside I went to sell calls today (naked) and was met with the "you can't do that" BS. Of course it would be rectified if I submit yet another form to "apply" for it.
Oh, absolutely. Regulation is so undesirable we can't even allow the markets to regulate themselves...besides, don't we have a constitutional right to speculate? How dare the brokerages try to control their counterparty risk by ensuring that naked option sellers have the financial resources to stand behind their bets?
Cooking the books...
Ah yes, we continue the path of Japan,
as we try to avoid a depression.
TS "i let go of the last at 25, and am now loading shorts at this level. BAC is the tell in this market, imo"
I played a little differently, selling 1/2 of my calls Friday and letting the rest convert. Today I sold the $25 calls against my holdings. So far I'm lucky, and that's the only way to explain it, since I can't for the life of me understand how BAC can default on its CFC bonds sending the CDS market into chaos and still pay 8% dividend yield.
On Jan 22, 2008 Naked Capitalism did a piece with a quote from an article in Institutional Risk Analytics which explained how B of A would separate the bond debt from the Bank by use of a Sub.
Naked Capitalism did a piece with a quote from an article in Institutional Risk Analytics which explained how B of A would separate the bond debt from the Bank by use of a Sub.
Think about it: Why wouldn't everybody package up their debt into a sub and then screw the debt holders.
They can create any corporate structure they want, but that doesn't exempt them from spending the rest of their days in court fighting off the bondholders.
shanondoah writes:
"Now what? Where do we go for reliable information?"
.... same as usual, small investors should follow the money flow, and learn to differentiate "end of day price rise" from "up/down volume ratio" (ie are they selling on strenght or buying on weakness)
Anonymous: "rubbed out"?
That someone can even write these words on a BB says a lot. Even if it is a "joke".
"We don't intend to guarantee the public debt but we understand the ramification of not paying."
Translation:
We are not planning to pay back the $60 bln that we have drawn in emergency funding from the FHLB.
We are fully aware of the fact that this will put the taxpayers on the line for this $60 bln.
$30 bln for BS, $60 bln for CFC, anyone wants to make a bet on the next one????
Can Bush pardon himself?...No he can't.
it seems BAC has decided fighting in court is going to be cheaper than paying CFC's debts. and I suspect they are right
Roubini is widely followed. This indictment of regulators and auditors will get the attention of many. FBI, whomever. We need jail time for many.
"i just don't get that you can't grasp the difference between short calls and long puts, from the brokerage's perspective."
You obviously couldn't bring yourself to read what I posted. I am well aware of there...ahem.....perspective. And I could give a crap about it......what you've missed is that perspective is exactly why we are in the mess currently.
Now run along.....
Ciao
MS
The US is headed for some very nasty surprises in my opinion. One recalls that the Soviet Union collapsed when its finances could not support its military costs. The government collapsed and the USSr dissolved and Russia got out of its satellite states.
The US is now in a situation in which its finances will probably not be able for much longer to support our vast military empire of bases around the world not to mention the war in Afghanistan and the colonial occupation of Iraq. I would not suggest that the government will collapse but I do predict that we will have to abandon many of our bases, wind down the war in Afghanistan, desert Taiwan and perhaps (horrors!!!!) even Israel and stay at home where we belong. This will be a nasty surprise to all the US warmongers who have ruled the roost for so many years.
JP:
There is a body of law about attempts to discharge the debt. A company cannot simply sell off assets to a lucky buyer and then declare bankruptcy. Somebody more familiar with the law should comment.
It's called "fraudulent transfer" law. Nearly every state has a version of it derived from a uniform proposal, which itself derived from English common law. There's also a federal version in the bankruptcy code chapter 5.
or to put it another way I gather exempting the MM's from the short "limits"-again another farce of enforcement-was not designed to change the "perspective" in favor of the firms on the so called "list"
It's just another way that the system allows it to be manipulated for it's own gain...but I guess that would require some analysis on your part.
Tootles....
Ciao
MS
the market makers use of naked short's occurs a thousand times a day. the enforcement bona-fide short by a MM is done by settlement clerks each afternoon. it would be ludicrous to have a firm call stock loan for each and every trade. if that were enacted, the market may as well havea dutch auction one time a day, one print, and go to the beach for the balance of the day.
ms, your usually not this naive.
"This will be a nasty surprise to all the US warmongers who have ruled the roost for so many years.
jim | 07.21.08 - 12:41 pm | # "
AKA the military-industrial complex and, particularly in the last decade or so, the petroleum producers.
If people ever figure out that "protecting U.S. interests overseas" means multinational corporations with U.S. investors (or U.S. investments) and that those corporations aren't actually doing them any good anymore (providing jobs, providing benefits, paying their share of taxes)...
well, the party's over.
dcrogers: I hope that was typed with a little irony. I have never, nor do I intend in the future, to take comfort in anything conveyed in a reuters "story."
Turtle: "check out WFS and other similar "good" banks at bankrate safe and sound ratings...there are prudent institutions out there."
It would be prudent to advise people to look into who owns and profit from bankrate.com FWIW, I looked into them last year and got the impression that the owners are 4 guys that sit around smoking big fat stogies on a boat called Va' fa' un culo in a miami marina .
BAC bought the CFC to control the debt, and are going to use the default on it to detonate a mark-to-market event throughout the industry.
This will destroy the competition.
This is why the FOMC forbade shorting of the PD's last week. They are circling the wagons and walling off the Big Boys.
Me naive??
Here's the personification of it in your own statement:
"the enforcement bona-fide short by a MM is done by settlement clerks each afternoon."
Why a list then??
Please... I've no more time to waste with someone who thinks the rules are being enforced across the board.
Ciao
MS
I spent the better part of yesterday explaining fractional reserve banking, the FED, the Treasury market and how our government is funded to a guy in his late 30's. When he got ready to leave he turned around and said we're screwed. Yup! The only thing holding this whole piece of crap together is a mass public so ignorant that they are hardly capable of pouring piss out of a boot.
JP-
Agreed that they can't simply strip the assets (as seems to be assumed by many here), but as long as they've left all the CFC assets in the sub don't they have the option of declaring that sub bankrupt, auctioning off the assets, and using the resulting cash to satisfy CFC creditors to the extent possible? For that matter, would there be any legal barrier to making a bid on those assets themselves?
There seems to me to be a lot of middle ground between simply defaulting on the debt (which clearly wouldn't be legal) and guaranteeing it (which would mean backing it with their own assets and not just the assets acquired from CFC).
I'd appreciate correction if I've got this wrong....
Confused on BAC renig on "public debts of CW". What happened to the billions CW borrowed from the Atlanta Federal Reserve?
CCB writes:
I'm beginning to see why a lot of people hate the current administration, not just commenters here but also among lifelong Republican friends and beer buddies who said they will cross party lines this November.
It's because Reality has a way of hammering you in the head until it starts to crack through the protective helmet of Talk Radio Spin. It took a good 6-7 years though; really, since about '95 when it became clear the 'revolution' of '94 was no such thing.
...time to change my handle.
Heh...somehow, the smiley face painted on the side of the bus doesn't soften the blow much when the bus hits and runs over you.
Our democratic system is financed by Corporate America - those fine LLC's being debated elsewhere, and it's the "LL" which is the source of our troubles - so regardless of party, we have government of, by and for the LLC.
km4:
If by "incompetence" you mean "willful criminality," then I totally agree.
"What happened to the billions CW borrowed from the Atlanta Federal Reserve?"
JohnW | 07.21.08 - 1:17 pm |
It was the Atlanta FHLB, not the Fed. Otherwise I support your inquiry 100%.
Seems like this is on topic for a real estate site. How would a major haircut on their dumb loan to Countrywide affect the housing market for the next 2 to 3 years?
The ample paucity of posts here concerning this issue may be a tell
The accounting fraud going on at these banks is breathtaking. The phony numbers,rule changes to delay markdowns, all resulting in "better than expected results." This is making the Enron/Arthur Anderson accounting scandal look like a minor transgression. This economy is being run by mobsters!
Who's the odds on favorite to be singled out to pick over the carcass of IMB ? WFC ?
"This economy is being run by mobsters!"
When it happened in Russia it was called kleptocracy - rule by thieves.
The individuals and institutions - governmental and corporate - who engineered this cluster eff have imperiled the economic sovereignty of my country. If it looks like treason and quacks like treason, I'm calling it treason.
jim writes:
The US is headed for some very nasty surprises in my opinion. One recalls that the Soviet Union collapsed when its finances could not support its military costs. The government collapsed and the USSr dissolved and Russia got out of its satellite states.
The US is now in a situation in which its finances will probably not be able for much longer to support our vast military empire of bases around the world not to mention the war in Afghanistan and the colonial occupation of Iraq. I would not suggest that the government will collapse but I do predict that we will have to abandon many of our bases, wind down the war in Afghanistan, desert Taiwan and perhaps (horrors!!!!) even Israel and stay at home where we belong. This will be a nasty surprise to all the US warmongers who have ruled the roost for so many years.
Jim, I've been saying the US was headed for a Soviet-style implosion for months now. The problem is made particularly more acute, by the fact that the US, like the former USSR, really has a comparative advantage in relatively few things, most of which are capital-intensive and related to military technology.
Gorbachov realized that the pace of spending in the USSR, like in the US, was entirely unsustainable (including heavy borrowing to import foreign-made consumer goods), and identified that the bloated defense budget--the largest component of government spending, was the ripest for cutting--just like it is in the US.
The problem was, that in attempting to reform the system and cut out the fat, it just collapsed instead. It was beyond reformation. We desperately need to cut those military bases in 150 countries, get out of Iraq, and clean up in Afghanistan. Do that, however, and aggregate demand will be going south at a mile a minute, and current account will go through the basement, since what we are is the worlds largest producer and exporter of arms and military technology.
I think what's going on is that BOA will pay countrywide's bond obligations now, which prevents any lawsuits from being filed, but is trying to position itself as favorably as possible for future litigation if/when they do default on CW debt.
Nemo,
Re: OK, I do not understand. They bought the company, right? Doesn't that mean they bought the debt as well as the assets
When you have insiders like Paulson that bail you out with tax payer loot, you buy the business and the debt, then you get the infrastructure for free, then hire Paulson as CEO in about 6 months..easy!
This was a complicated acquisition with various parts of CW's assets and liabilities being spread among many BAC entities. This is all part of BAC's massive negotiation with the creditors at this point (with the guvmint's blessing). Basically, they are saying that they MAY not honor CW's obligations, so you creditors better cut us a deal or we will default and you are in for a long, expensive legal battle that who knows will win.
BofA's merger vehicle, Red Oak, bought CFC. Therefore, Red Oak is on the hook for all of CFC's liabilities. But BofA, as a separate legal entity, is not on the hook for Red Oak. However, if Red Oak goes BK, it will present PR and other problems for BofA and likely induce litigation (such as bondholder accusations that BofA stripped CFC assets).
BofA did the merger to give it the best shot at controlling the valuable assets of CFC and jettisoning as much of CFC's liabilities as possible, most likely through major haircuts in response to BK threats.
"Can Bush pardon himself?"
nobody would be surprised if he did. in fact, it would be shocking if he didnt try.
According to THE FINAL DAYS, the issue of whether Nixon could pardon himself was under active discussion. The consensus seemed to be that he could.
It's simple:
Bush pardons Cheney.
Bush resigns.
Cheney pardons Bush.
See ya'!
What about Tic-Tac-Toe don't you people understand?
Actually, it is easy to do.
First you form a third party entity owned by the parent corporation.
Second, you loan the third party entity money to buy other assets (ie Countrywide) and tie the loan against the assets (ie secure the service assets and business against the loan so it is like a first mortgage in a way).
Third, when the third party entity can not make the loan payments to you, you force it into bankruptcy and put your claims on the secured assets ahead of the other creditors. Since your loan was secure and you are forcing the bankruptcy, your claim is processed ahead of everyone else.
Here is the rub. It may take a while for a clear claim as every other creditor will sue the hell out of you as you tried to get away with this prepackaged bankruptcy that you planned before you even created this third party entity. They might even make the claim that you made the mortgage rescue as a way of stealing the owner's (share holders) equity.
However, I suspect that the only debt that will not be repaid is the $60 billion owed to the US government that Coutrywide borrowed. In this case, the taxpayer will pay it.
Can Bush pardon himself?...No he can't.
Article II, US Constitution:
"The President,,, shall have power to Grant Reprieves and Pardons for Offenses against the United States, except in Cases of Impeachment."
It doesn't say "except when committed by himself".
"Except in Cases of Impeachment" means that the President cannot nullify an impeachment (against himself or anyone else), since the power to impeach lies solely with Congress. It doesn't mean that the President loses his power to pardon if impeached - remember Clinton was impeached (but not convicted). Of course if he's convicted he loses his job and has no power to do anything.