• 24 Oct 2012 at 2:28 PM
  • Banks

Bank Of America’s Countrywide Acquisition Gets 2.5% Worse

Bank of America bought Countrywide Financial in 2008 and it’s fair to say that went poorly; the Wall Street Journal totted up total Countrywide losses at about $40 billion but that was in July so they’re probably, like, $80 billion by now. If you were trying to figure out the maximum past and future losses you might start with the fact that Countrywide Financial originated about $2.2 trillion of mortgages between 2003 and 2007; ignoring anything before that you might ballpark the upper bound at $2.2 trillion. Let me draw you a Venn diagram, because this is now that kind of blog:

Eventually that yellow circle can grow to the size of the blue circle, but no bigger: the absolute highest number of fraudulent mortgages that Countrywide could have written is “all of the mortgages it wrote.” Right? No, wrong, of course: Read more »

Last week some guys at Credit Suisse got in a bit of trouble for marking some structured credit assets at fantasy valuations in order to appease their bosses and get better bonuses. I commented that this was a bit different from the run of CDO-fraud cases we’ve seen: the CS guys seemed to think they had a better chance of passing off fake-o valuations on their bosses than they would on the market, and so rather than dumping those assets on unsuspecting clients, they held on to them and hoped/lied.

They might have chosen differently had they met Bobby L. Hayes:

BOBBY L. HAYES, an engineering entrepreneur in Incline Village, Nev., used to trust financial institutions. This is the story of why he no longer does.

Short version of the story is: Because he got stuffed with the equity tranche of a CLO that had bought loans at par when they were really worth 95, making his equity tranche worth zero.*

This is sort of Version 2.0 of the usual synthetic CDO fraud/fraudishness where it’s like Party A wants to bet Thing X will go down, Party B wants to bet that things of Class XYZ will go up, Bank C convinces Party B to go long Thing X because it’s in Class XYZ, Thing X and the rest of Class XYZ go down, and Party B is shocked, shocked, to find GAMBLING against Thing X (really “gambling AGAINST Thing X” which is even dumber) and it’s all sort of woolly-headed. Here, the claim is not that the investors were deceived about who was on the other side of the trade, but about the market value of the underlying securities. That sounds worse. But I’m not so sure it is. Read more »

  • 11 Aug 2010 at 4:59 PM

Landmark Legal Precedent For Budding Frauds

“Eric is pleased with the result,” said Zachary Johnson, a lawyer representing the Morgan Stanley broker convicted of securities fraud said of the decision by FINRA that allowed his client to keep his multi-million dollar signing bonus. A testy Morgan Stanley was apparently less pleased. Read more »

Are you a money manager currently ripping off your clients or considering doing so in the near future? Are you of the opinion that, if caught, you wouldn’t do so well in the big house? Then here’s a free one: convince the judge you have a gambling addiction and he just might let you a) avoid time downtown and b) let you pay off your debts to society via card games. Read more »