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IMHO, the most outrageous, surreal Wall Street bailout story since September 2008 has started to play out over the past 48 hours and, chances are, you haven't even heard about it. (Funny how that happens, isn't it?)

Concurrent with the advent of the Citizens United SCOTUS decision, the topic of corporate personhood has rightfully become the rage of the blogosphere and our intelligentsia, in general, of late. And, right about now, if Bank of America was a person, they'd be propped up on a pillow, naked in bed, smoking a cigarette, sipping a glass of wine, smiling as they looked into your eyes while tritely asking: "Was it as good for you as it was for me?"

What am I referencing you might ask? I'm talking about the reality that our nation's largest bank announced on Monday that it just "settled" with taxpayer-owned, government-sponsored enterprises (GSE's) Fannie Mae and Freddie Mac for roughly the equivalent of one penny on the dollar, in terms limiting Bank of America's exposure to mortgage fraud put-backs (100% refunds) by Wall Street investors, going forward, which are expected to amount to scores of billions of dollars (if not hundreds of billions, once you add the other major mortgage lenders into the mix) in coming months and years. What!?!? You might then ask: "Is Fannie bailing out the banks?"

IMHO, you betcha! (And, this is from one of Wall Street's friendliest media outlets.)


Is Fannie bailing out the banks?
Posted by Colin Barr
Fortune Magazine
January 3, 2011 10:11 pm

Financial stocks just caught fire. Someone must be getting bailed out, right?

Why yes, say critics of the giant banks. They charge that Monday's rally-stoking mortgage-putback deal between Bank of America (BAC) and Fannie Mae and Freddie Mac is nothing more than a backdoor bailout of the nation's largest lender...
...

Monday's arrangement, according to this view, will keep the banks standing -- but leave taxpayers on the hook for an even bigger tab should a weak economic recovery falter. Sound familiar?

You know it's a pathetic Wall Street meme when the lead quote in the piece supporting this travesty is from "...Edward Pinto, a resident scholar at the American Enterprise Institute."


...Pinto says truly holding BofA responsible for all the mortgage mayhem tied to its 2008 purchase of subprime lender Countrywide would likely drive it into the arms of the Federal Deposit Insurance Corp., which has enough problems to deal with. Though BofA would surely dispute that analysis, it's easy enough to see where the feds don't want that outcome.

But, once again, we get the great counterfactual. You see, that line is pure, unadulterated bullshit. And, that's because it would be the investors and bondholders that would suffer most if BofA went under. And, ultimately, it's the U.S. banking community -- not taxpayers -- that's required to provide funding for the FDIC. (Yes, given the FDIC's history, the U.S. Treasury would front the money to the FDIC, while simultaneously implementing a longer-term payback plan to U.S. taxpayers from the coffers of our nation's banks.)

But, we absolutely, positively cannot let that happen, now can we? Crisis? What crisis? Bank stocks rallied,  bigtime, on Monday.


"This looks to me like a gift from Tim Geithner," said Chris Whalen of Institutional Risk Analytics. "There's politics all over this..."

As award-winning business writer Colin Barr asks: "...how sharp is Freddie if all it can do is squeeze a $1.28 billion payment out of a giant customer in exchange for relinquishing fraud claims on $117 billion worth of outstanding loans?"

But, just when you thought this story couldn't get more reprehensible, there's this twist: "Tim Mayopoulos Recused Himself In Discussions Over Bank Of America Settlement With Fannie."


Tim Mayopoulos Recused Himself In Discussions Over Bank Of America Settlement With Fannie
Zero Hedge
01/04/2011 09:54 -0500

When we first heard news about the partial settlement between Fannie and Bank of America, we assumed, naturally, that the current Fannie General Counsel Tim Mayopoulos, and former spurned Bank of America General Counsel, would have been front and center in such discussions. After all he is the damn general counsel, who just happens to know all the dirt there is about Bank of America. We also assumed that any non-disparagement, and/or related trade secrets clauses would be obviously very much irrelevant. We were wrong. It appears that the man who more than anyone should have been able to put two and two together and actually derive some benefits to his bosses, the American taxpayers, and generate a better settlement.... decided to recuse himself from the negotiations! We wonder then just on what grounds this man, who it seems Ken Lewis may very well have had a justifiable reason for getting rid of, was awarded $3 million in compensation for doing nothing to protect taxpayer interests in America's most (openly) insolvent company.

From the WSJ's Heard on the Street:


Sometimes it is great to have an ex-colleague across the negotiating table. Sometimes not. Bank of America must have breathed a sigh of relief when Fannie Mae general counsel Timothy Mayopoulos recused himself from negotiations over soured loans. No wonder. Mr. Mayopoulos was once BofA's general counsel. He was dumped in December 2008 and succeeded briefly by Brian Moynihan, now CEO. That would have been an awkward reunion.

This is an absolute travesty...

#            #            #

UPDATE: Shanikka notes in the comments...


Lousy Deal But One Nit

Of course this deal hits the American taxpayer, ultimately, hard, in exchange for a windfall for BofA.  More importantly, it has sent an extremely dangerous signal - there will be no reckoning, in the end, for those financial institutions whose systematic selling of toxic products (for the borrowers, anyway - the investors are making bank, still, even while whinging about the vast minority of non-performing mortgages) in the mortgage marketplace.

But I do have one nit about this piece, and it has to do with the issue of BofA's former counsel recusing himself.

I am confident that the reason he did so is that he was required to.  No lawyer is permitted to act against the interests of a former client in most states on a matter relating to the former subject of representation without the express written consent of the former client.  In this case, the former client is Bank of America.  The fact that he was in-house counsel (GC) as opposed to an outside lawyer is irrelevant.  If Mayopolos had any confidential information -- and it is certain that as it related to the mortgage situation at BofA he did -- he could not have ethically negotiated against BofA without a waiver -- without putting his law license at risk.  In some states, he could not have even sought a waiver, period.

So while it seems that he was playing favorites for his old employer, from the perspective of professional responsibility he did precisely what he was supposed to do.

by shanikka on Wed Jan 05, 2011 at 11:15:59 AM EST

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But again, without exaggeration, this could, conceivably, amount to a $100 billion stealthy Wall Street bailout, for just this one Bank of America deal, alone. Of course, as Barr notes in the Fortune blog article...


"They're sending a signal to the banks that now is the time to do a deal and put this stuff behind you," said Pinto.

(Read: Claims against Citigroup, Wells Fargo, JP Morgan Chase, and many others, aren't even discussed in this story. That's because they're yet to be negotiated.)

This past October 13th, I asked this rhetorical question in my diary headline: "Guess who's going to pay the bill for the foreclosure crisis?"

Now we know...

#            #            #

For more background on this story, here are links to a few more (and there are lots more links on this topic where these came from, too) of my posts:

"Has The Mortgage/ Foreclosure Fraud Crisis Gone Surreal?" 10/18/10

"Are We So Poor, We Can't Even Afford To Pay Attention?" 10/23/10

"Stiglitz: 'Corruption, American-style.' (Where's Liz Warren?)"  11/9/10

"Killer Myopia: In D.C., The Trees Are Obscuring The Forest" 11/11/10

"The Great Unravelling: Is Bank of America Done?" 11/22/10

"Hell To Pay: Bank of America's Double Trouble" 12/1/10

Originally posted to http://www.dailykos.com/user/bobswern on Wed Jan 05, 2011 at 01:11 AM PST.

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