Hoping the Fed Will 'Disappoint' the Market and Say No to QE2 [View article]
Baloney! It was NOT a mere asset swap. Asset swaps imply that two or more assets are exchanged at free market value. But, in QE-1, the Fed bought mostly mortgage backed and agency securities that the private market was only buying at a deep discount.
No one was willing to purchase such assets, at that time, at anything close to full price, except the Fed. It created a market, vastly increased the price of such securities, and, therefore, gave away money. On top of that, by vastly increasing the amount of cash in the financial system, it increased the amount of money available to buy all assets held by banks while, at the same time, decreasing the purchasing power of dollar denominated savings held by grandma, grandpa and every other honest saver. It was and is a massive theft and transfer of wealth from savers to speculators.
Quantitative easing now is just as much a free gifts to banks as the quantitative easing done by the Reichsbank in Weimar Germany from 1919-23. The end result is the enrichment of speculators and the financiers, generallly, and impoverishment of the middle class as well as persons of wealth outside the financial world.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
I could only answer your question if I took about 8-10 hours of time to find and read, word by word, the entire merger agreement between Countrywide and BAC, plus do some level of investigation of the way BAC is now operating to determine whether the corporate veils, if there are any, would be pierced by the courts. But, even if Countrywide were a separate corporation, with separate liability from BAC, the loss of all the value of it by reason of putting it, alone, into bankruptcy (without the rest of BAC) would be 10s of billions of $$. My understanding it that the maximum liability from Countrywide mortgages, to BAC, is $200 billion. However, that does not include the securitizations that were performed by BAC's own investment bank as well as Merrill Lynch. I do not know what percentage of the total of the estimated $20-30 trillion worth of RMBS, synthetic RMBS, and credit default swaps are the liability of Merrill Lynch and/or BAC's pre-existing investment bank.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
There is no reason to "impress" you. If I happen to have the exact citation in hand, at the time I write a comment or article, I will generally give it exactly, but if I don't, I will normally use my general knowledge of the law to express my opinions without checking every citation. This article is intended to provide general information as a free public service, to an audience of individual investors who cannot afford to pay $350 per hour, as large investment firms do, in order to get a general understanding of such important matters. It is not intended to be a legal brief nor a primer on how to sue banks or defend them in such cases.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
One thing more, TBode. It is not like returning a gallon of sour milk primarily because returning a security does not involve a refund of $3.40. It usually involves millions or billions of dollars in either direct or potential losses to the issuer (or trillions if enough buyers demand redemption). So, it involves time and litigation, even if it is an inter-institutional matter that goes to arbitration, which is the fastest scenario. Indeed, some buyers may well limit their legal claims to less than they could get under the law, like the Federal Reserve Bank of New York has done. If every buyer demands its full legal rights, for example, it will mean probable bankruptcy for many of the biggest banks in the USA, and, possibly, abroad. We can only watch and wait as this situation fully unfolds.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
In the article, I referred to the Securities Act of 1934 and state laws by general knowledge of the applicable laws. When I am operating in this way, by memory, citations are not exact because I am not putting them, for example, in a legal brief. Later, in my specific response to you, I happened to have quickly looked up that exact citation for another reason, and, so, was in a position to give it to you.
There are multiple clauses in the Federal Code similar to the one I cited, and, in fact, too many to describe exactly, in the absence of an hourly fee for the many hours of work required. In addition, every state has a code of laws involving securities, collectively referred to as "Blue Sky" laws. Since there are 50 states, looking up and citing with exactitude every single one of them, would take an inordinate amount of time. I am not involved in any cases relating to this subject matter and, therefore, have no reason to write a legal brief. Suffice it to say that the general laws all support the obligation of an issuer to redeem a security, if the security was sold upon the basis of material misrepresentations.
I am not saying that the Securities Litigation Reform Acts of 1995 & 1998 would not apply at all, especially to procedural matters if someone were to attempt a class action on the issue. I am merely saying that neither act materially changes the obligation of an issuer to redeem a security that has been sold by reason of material misrepresentation of its contents. Material misrepresentation does not mean fraud. Fraud cannot exist without material misrepresentation, but material misrepresentation, as a legal cause of action, exists without the need to prove intentional fraud. In other words, none of these "reform" acts change the conclusion. Because of the serious nature of the errors made, and the material effect that those errors have on the value of what was sold, issuers of residential mortgage backed securities (RMBS) have a potential exposure to loss measured in the trillions of dollars.
The issuers may be required to repay insurers, smaller banks, other financial institutions, and individual investors. The Federal Reserve Bank of New York filed suit, yesterday, to force Bank of America to repay some of the mortgages. Others may demand all their legal rights, returning the entire securities, rather than limiting themselves to individual bad mortgage repurchases.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Briar, you are smelling more and more like someone who is just a smelly guy.
Perhaps, you take such offense to this article because you are one of the employees who helped make the mistakes that will now doom these banking institutions?
There are greedy people in every walk of life, including law, medicine, home repair and so on. I, however, will gain nothing from the upcoming event I describe in the article. I will not be taking any cases involving this subject matter. I do not relish the prospect of additional stress on the economic situation this country is in.
However, the things discussed here are simply political, economic and legal realities, that the little old men and women, as well as everyone else, who are invested in these banks through their mutual funds, and elsewhere, must carefully consider.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Wrong. Under Section 12(a)(2) of the 1933 Act, a purchaser of securities may seek to rescind the purchase if the prospectus contained a material misstatement or omission. Similar rescission provisions exist under state laws. That was not changed by the Private Securities Litigation Act.
Issuers might try to defend themselves by claiming, in as many cases as possible, that there was no "public" offering, and that the buyers are "sophisticated" investors. However, most of the securities have clauses in the paperwork that permit rescission by contract, outside the securities laws, if errors like this occur.
It may be possible to argue that many of the buyers were sophisticated financial institutions who should have known better. It may also be possible to argue, in some of the cases, that the transaction was not a public offering. However, because of the rescission clauses within the contracts, we arrive back in the same place as we get to by use of the securities laws. Huge exposure to loss.
I am certain that purchasers are going to be seeking rescission in large numbers now that the errors have become clear.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
A lot of people who are commenting have not read the article, or misunderstand the issue. The "down-and-out" homeowners, who don't pay their mortgages, will eventually have their houses taken. The purchasers of the flawed securities are pension funds, smaller banks and insurers and these are the ones who have the right to sue. The buyer financial institutions will be the people demanding trillions of dollars worth of refunds from the big banks who created this mess. They also have considerable "clout" in Washington D.C.
Excellent analysis, although I disagree with your point about Germany doing a structural "devaluation" by becoming more efficient. Devaluation implies a debasing, which is certainly not the case with respect to German industry.
Efficiency in production increases the value of a nation's currency. It is the opposite of debasement. If Germany still had the Mark, it would be increasing in value by leaps and bounds, right now. Absent the Euro, Germans and Dutchmen and others in northern Europe would be considerably wealthier than they are now, by virtue of currency appreciation, and the sales that they might lose in Southern Europe would be more than compensated by the increased sales in Northern Europe, itself, as a result of the "wealth effect."
In short, the Germans would be wise not to wait for Greeks, Spaniard or others to exit the euro-zone. They should jettison the common currency, and the foolishness of the ECB, whose attempts at money printing may run out of control, unless the courts control it. They should reinstate the Mark as the type of hard currency that the Euro can never be.
Hidden Benefits of a Greek Debt Default [View article]
The whole world economy will be in danger of total collapse, in a few years, if this bailout mania does not stop. I prefer a double-dip to a "Fall of Rome" scenario, complete with currency debasement, hyperinflation and a new dark ages to follow.
Hidden Benefits of a Greek Debt Default [View article]
You make a very good point. Nations, companies and people should NOT be encouraged to steal from creditors by means of defaulting on debt. But, when I say that the Greeks would be better off defaulting, I do not mean that they should never pay off their debts. Missing payments is also a "default", and it would trigger credit default swap payments that would cause many banks in Europe to become insolvent.
At any rate, subsidizing the Greek government with EU/IMF giveaways will solve nothing. They are merely delaying the inevitable and making it worse. The Greeks WILL NOT be able to enact austerity budgets, because until there is no choice, whatsoever, their unions will not allow it. Bailouts will allow the government to avoid the hard choices and painful cuts. Its debt load will continue to grow until, no matter how much they cut back, it will still be impossible to raise enough cash to pay the money back. The bailout insures that the taxpayers of Europe and the USA will be on the hook, instead of the banks which loaned the money and wrote the CDS.
Hidden Benefits of a Greek Debt Default [View article]
You make a good point. However, I don't think that a default of one small country-member of the Euro-zone means the Euro is doomed. A default by Greece is analogous to a default by New York or California. They also have separate fiscal policy from the Federal government.
Would a default by one state destroy the dollar? No. It might cause a decline in exchange value (or might actually cause an increase if people fled to the dollar due to the increased uncertainty) but, in any event, the dollar would still be the currency of the USA, and it would still be used in world trade. The same is true of the Euro.
Hidden Benefits of a Greek Debt Default [View article]
Rampole, If you know German (or other non-English speaking) media outlets, which desire to run this article, they may do so, so long as they attribute the work to the author. Better still if the article is translated into the appropriate language.
Hoping the Fed Will 'Disappoint' the Market and Say No to QE2 [View article]
No one was willing to purchase such assets, at that time, at anything close to full price, except the Fed. It created a market, vastly increased the price of such securities, and, therefore, gave away money. On top of that, by vastly increasing the amount of cash in the financial system, it increased the amount of money available to buy all assets held by banks while, at the same time, decreasing the purchasing power of dollar denominated savings held by grandma, grandpa and every other honest saver. It was and is a massive theft and transfer of wealth from savers to speculators.
Quantitative easing now is just as much a free gifts to banks as the quantitative easing done by the Reichsbank in Weimar Germany from 1919-23. The end result is the enrichment of speculators and the financiers, generallly, and impoverishment of the middle class as well as persons of wealth outside the financial world.
Hoping the Fed Will 'Disappoint' the Market and Say No to QE2 [View article]
Should read with all such activities inside the parentheses:
(as opposed to converting it into foreign currencies and/or gold, or engage in speculation like the banks),
Hoping the Fed Will 'Disappoint' the Market and Say No to QE2 [View article]
Should read "March 2009"
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
There are multiple clauses in the Federal Code similar to the one I cited, and, in fact, too many to describe exactly, in the absence of an hourly fee for the many hours of work required. In addition, every state has a code of laws involving securities, collectively referred to as "Blue Sky" laws. Since there are 50 states, looking up and citing with exactitude every single one of them, would take an inordinate amount of time. I am not involved in any cases relating to this subject matter and, therefore, have no reason to write a legal brief. Suffice it to say that the general laws all support the obligation of an issuer to redeem a security, if the security was sold upon the basis of material misrepresentations.
I am not saying that the Securities Litigation Reform Acts of 1995 & 1998 would not apply at all, especially to procedural matters if someone were to attempt a class action on the issue. I am merely saying that neither act materially changes the obligation of an issuer to redeem a security that has been sold by reason of material misrepresentation of its contents. Material misrepresentation does not mean fraud. Fraud cannot exist without material misrepresentation, but material misrepresentation, as a legal cause of action, exists without the need to prove intentional fraud. In other words, none of these "reform" acts change the conclusion. Because of the serious nature of the errors made, and the material effect that those errors have on the value of what was sold, issuers of residential mortgage backed securities (RMBS) have a potential exposure to loss measured in the trillions of dollars.
The issuers may be required to repay insurers, smaller banks, other financial institutions, and individual investors. The Federal Reserve Bank of New York filed suit, yesterday, to force Bank of America to repay some of the mortgages. Others may demand all their legal rights, returning the entire securities, rather than limiting themselves to individual bad mortgage repurchases.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Perhaps, you take such offense to this article because you are one of the employees who helped make the mistakes that will now doom these banking institutions?
There are greedy people in every walk of life, including law, medicine, home repair and so on. I, however, will gain nothing from the upcoming event I describe in the article. I will not be taking any cases involving this subject matter. I do not relish the prospect of additional stress on the economic situation this country is in.
However, the things discussed here are simply political, economic and legal realities, that the little old men and women, as well as everyone else, who are invested in these banks through their mutual funds, and elsewhere, must carefully consider.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Issuers might try to defend themselves by claiming, in as many cases as possible, that there was no "public" offering, and that the buyers are "sophisticated" investors. However, most of the securities have clauses in the paperwork that permit rescission by contract, outside the securities laws, if errors like this occur.
It may be possible to argue that many of the buyers were sophisticated financial institutions who should have known better. It may also be possible to argue, in some of the cases, that the transaction was not a public offering. However, because of the rescission clauses within the contracts, we arrive back in the same place as we get to by use of the securities laws. Huge exposure to loss.
I am certain that purchasers are going to be seeking rescission in large numbers now that the errors have become clear.
Mortgage Mess Means Trillions in Losses for Wall Street Banks [View article]
Why the Eurozone Is Doomed [View article]
Efficiency in production increases the value of a nation's currency. It is the opposite of debasement. If Germany still had the Mark, it would be increasing in value by leaps and bounds, right now. Absent the Euro, Germans and Dutchmen and others in northern Europe would be considerably wealthier than they are now, by virtue of currency appreciation, and the sales that they might lose in Southern Europe would be more than compensated by the increased sales in Northern Europe, itself, as a result of the "wealth effect."
In short, the Germans would be wise not to wait for Greeks, Spaniard or others to exit the euro-zone. They should jettison the common currency, and the foolishness of the ECB, whose attempts at money printing may run out of control, unless the courts control it. They should reinstate the Mark as the type of hard currency that the Euro can never be.
Hidden Benefits of a Greek Debt Default [View article]
Hidden Benefits of a Greek Debt Default [View article]
At any rate, subsidizing the Greek government with EU/IMF giveaways will solve nothing. They are merely delaying the inevitable and making it worse. The Greeks WILL NOT be able to enact austerity budgets, because until there is no choice, whatsoever, their unions will not allow it. Bailouts will allow the government to avoid the hard choices and painful cuts. Its debt load will continue to grow until, no matter how much they cut back, it will still be impossible to raise enough cash to pay the money back. The bailout insures that the taxpayers of Europe and the USA will be on the hook, instead of the banks which loaned the money and wrote the CDS.
Hidden Benefits of a Greek Debt Default [View article]
Would a default by one state destroy the dollar? No. It might cause a decline in exchange value (or might actually cause an increase if people fled to the dollar due to the increased uncertainty) but, in any event, the dollar would still be the currency of the USA, and it would still be used in world trade. The same is true of the Euro.
Hidden Benefits of a Greek Debt Default [View article]