Obama is Bush part 3

Thinking the Impossible: Could Bank of America Go to Zero?

Bank America is already worth zero and has been for some time. As one of the largest mortgage underwriters in the country, it is insane to figure they would not be effected by the credit collapse... then they overpaid for Countrywide (which had significantly negative net value) and then they overpaid for Merrill (whose brokers will never tolerate the bureaucracy of a big bank and who have plenty of alternatives).

Like many other banks, BofA's stock is an option that the government will shift the losses to the taxpayers and leave the equity holders with something economically relevant. Under the previous crony Hank Paulson regime, that was possible -- albeit unlikely since Uncle Sam could not afford to take on the debts of FNMA and FHLMC. Even with a tax cheat in the Treasury, the odds are now even lower.

BofA (and JPM and Citi) are too big to save

Three Financial Stocks Worth Holding

Another "me too" set of stock recommendations that sound disturbingly like the ones I get from every single sell side analyst on the street. You picked the same three political winners (not economic winners) as Henry Paulson.

WFC, like every other bank, claims to have (say it together now) "a very conservative loan portfolio". Whoopee, so did everyone else. Unless and until WFC publishes for more details on their loan portfolio, we have to assume this is on par with Dick Fuld telling us Lehman is solvent. We all know that WFC's loan portfolio is heavily concentrated in California (where home prices have fallen more than the national average). On that basis alone, real analysts (not the ones on Wall Street) would be worried about any company with a heavy California concentration.

I know in my state WFC sent out **UNSOLICITED** home equity checks through the US mail. Presumably, these went to people with high credit ratings -- meaning the loans will goose up Wells' statistics. But sending unsolicited loans through the mail (only requiring a scribble / signature to start?) is hardly a bank you can call "conservative". I think its more accurate to say WFC knows how to manipulate average portfolio statistics.

As pointed out by another commenter, JPM runs the largest derivative book in the country. I doubt Jamie Dimon fully understands all the risks on (well, really off) his balance sheet -- and I am positive that the author has no clue.

BAC overpaid for Countrywide and Merrill. Ken Lewis is already backpedaling on whether BAC stands behind CFC debt -- its clearly not worth par, and probably not worth much at all. But since he bought CFC under the cover of darkness (and probably with the Fed's gun to his head), its not clear he can legally walk away. On Merrill, Lewis has stated unequivocally that he will shut the trading desks and focus on wealth management -- meaning the traders who actually know the risks on Merrill's books have zero reason to stay. Merrilll brokers can easily go into a private practice and outsource record keeping to Schwab, eTrade, Interactive Brokers, etc... its far from obvious why any of them want to deal with the bureaucracy of a mega bank.

And all three banks you mention face massive integration risks-- the corporate cultures of WFC / JPM / BAC do not match those of any of the companies they are acquiring. Risk systems (such as they are) are incompatible.

And all three banks are likely to face Citi's problem -- being too big to manage. I know CEOs are supposed to be able to leap tall buildings in a single bound and all that -- but the reality has fallen far short of that.

The management style needed to be a successful mortgage underwriter is not the same as the one needed to be a good wealth manager... A bank's best **trading** client might easily be a really bad mortgage risk. Having the same clients borrowing money and investing money is very obviously a doubling down of risk (from the bank's standpoint).

Paulson/Bernanke: $700 Billion at 'Hold to Maturity' Pricing

There is no such thing as "hold to maturity price".

If Bernanke knows exactly which home owners are going to default and which will not, he should definitely tell us -- and more importantly tell us where he bought his crystal ball that foresees defaults but somehow fails to warn him about the credit crisis.

Unless you know who will/will not default -- you have no way of knowing if a mortgage is worth par or zero.

If he really did earn his PhD, than Bernanke knows this very well and he is deliberately lying to us. Shame on him

The Credit Bubble: Deregulation Gone Wild

Deregulation is the big lie here. Government is MUCH bigger now than when Reagan took office. The Fed knew perfectly well what was happening, and on several occasions issued warnings. They had, and still have, the authority to regulate lending practices at the money center banks (and the little banks tend to follow). The other lending is done by FNMA and FHLMC, which are completely government controlled.

Before you start expanding regulatory power, you need to ask why the regulators made almost no use of their existing powers. You need to establish that existing powers are insufficient -- as opposed to just unused.

Even if you make the Fed into an absolute dictator, what good would it do if they don't use their powers (for good)?

The problem isn't deregulation (which never happened except on paper). The problem is the regulations we already have were not enforced.

The government had to choose between collecting higher taxes on bubble homes, or enforcing the existing rules. The government repeatedly chose higher taxes by turning a blind eye to a problem they knew about all to well.