…abandon claims that they had been sold trash
Via Benzinga, L. Randall Wray notes more of the same for socializing the costs of our financial woes:
In truly depressing news, Secretary Treasury Geithner announced he was funneling $2.8 billion more bail-out funds to Bank of America. In the deal, Fannie and Freddie would agree to abandon claims that they had been sold trash in fraudulent “mortgage backed securities” by the BofA. (A similar deal was provided to Ally Financial.)
As I have written, holders of the securities have gradually realized that the securitizations did not meet the “reps and warranties” asserted by the banks that pooled mortgages. A growing number of investors have demanded that the originating banks take back the fraudulent securities, including Fannie and Freddie, as well as the NYFed and PIMCO. But true to form, Timmy prefers to backstop the control fraud banks rather than forcing them to bear the costs of their frauds.
The actual losses that Freddie and Fannie will take on the toxic waste sold to them by Countrywide (absorbed by Bank of America, which is now responsible for the put-backs) will undoubtedly be much larger than the $2.8 billion they received in the settlement. And guess who will suffer that extra loss? You betcha: Uncle Sam. As always, Geithner instinctively socializes losses to protect Wall Street’s private bonuses.
So they’re also funneling more money to F&F as well? This is truly depressing. At this rate, rule of law will cease to exist.
The place to start is for enough of the holders of the securities to sue the trustees for not overseeing the process enough. The trustees were responsible for this and fell down. In that part of the market cavet emptor applies per Llyod Blankfien (the are big boys and should be able to check things out).
Anyway it would be interesting to see in the private case if the old rule does not protect the sellers unless out and out fraud is involved, and in that case fraud that could not be detected at the time.
By the way, BofA’s purchase of Countrywide and Merrill Lynch (the latter at least forced upon them by the Govt) has cost B of A shareholders dearly: http://moneycentral.msn.com/investor/charts/chartdl.aspx?symbol=bac&CP=0&PT=9
If BofA didn’t buy them, the taxpayers may well have been holding this bag instead. So much for socializing losses.
Lets break it into 2 pieces, Merrill yes it probably was systematically important, but Countrywide I am not so sure about. If it had folded others could have provided the mortgages just as well. Yes the banks loaning money to Countrywide would have taken somewhat of a hit, but not a terrible one (recalling that these were essentially the warehouse lines, and for the balance that had been loaned but not sold, the loans would have been sold by the bankrupt estate).
Anyway I am glad the annoying adds “Homeowners!!” by Countrywide are gone, they were all over cable in the last few months as it tried to get everyone to do cash out re-fis.