America's Banks are in Trouble - as is the Bank of America

I've blogged about the US Mortgage Debacle before. Now the first chickens are coming home to roost - with the Bank of America.
From DailyFinance

Testimony in a New Jersey foreclosure case decided last week may spell big trouble for Bank of America (BAC). If what one bank employee said on the stand proves to be accurate, paperwork problems it acquired when it purchased the failing mortgage provider Countrywide in 2008 could leave BofA on the hook for billions of dollars.

As first reported by Kate Berry for American Banker, Linda DiMartini, a supervisor and operational team leader for the Litigation Management Department of BAC Home Loans Servicing, testified in the foreclosure case of John T. Kemp that it was "customary for Countrywide to maintain possession of the original note and related documents."

If that's true, then Bank of America may discover that it has millions of loans on its books that it thought it had transferred to trusts that issued mortgage backed securities, because 96% of Countrywide loans were ostensibly securitized. As the Congressional Oversight Panel explained, that outcome alone could cause massive damage to a bank's balance sheet. And as bad as that would be, it isn't the only problem that could result from Countrywide hanging on to the notes.

If the mortgage-backed securities aren't in fact "mortgage-backed," investors who bought them could be able to force BofA to buy the securities back. A significant number of buybacks could on its own destroy BofA's balance sheet. Nor could BofA stave off either outcome retroactively by delivering those notes today. First, the contracts that created the trusts would typically forbid transferring the loans into the trusts now. Second, even if somehow that could happen, such a transfer would destroy the special tax status the mortgage backed securities enjoy and give the investors a different reason to put back the securities or sue over them.

This is what is known as "being in deep doo-doo". And the BAC is not the only major financial institition in this situation.

The US economy is starting to stage a comeback; but my bet is that it's the eye of the storm, with more to come soon.



The traditional lifeboat for assets has been Gold. The Filthy Rich have tons of the stuff sitting in bank vaults, "just in case".

Or so they think... because some of the world's banks have been playing a little fast and loose with more than just mortgages....

From NZ Gold Survival Guide :

First Jim Rickards reported that a Swiss bank refused to deliver roughly $40 million of gold bullion to a wealthy client for 30 days, and only finally physically delivered his gold when the client brought in his lawyers and threatened to take his story to Reuters and other syndicated financial news networks.

Later in the week, James Turk reported that he is aware of another individual who has been trying to take physical possession of approximately $550,000 of silver for two months now from a Swiss bank with zero luck. Turk further elaborated that the bank has been trying to pressure the client into accepting the cash equivalent market value of the silver, rather than deliver the physical silver to the client.

In both of these cases, I presume that neither of these Swiss banks ever held allocated gold and silver for their clients … or, if they did, had then leased out the gold/silver or sold the same gold/silver to multiple clients, and thus were forced to stonewall their clients until they could secure the physical metal. Why else would a bank take 30 days to deliver something that was supposed to be sitting in a vault in an allocated account?

Of course, none of this is really shocking, as the two above cases merely mirror the circumstances of the 2005 class-action lawsuit against Morgan Stanley (MS) in which it told its clients it was selling them silver in allocated accounts and storing it in its vaults. However, when one of their clients, Selwyn Silberblatt, demanded physical delivery, Morgan Stanley failed to deliver, prompting the class-action lawsuit that MS eventually settled for $4.4 million.

Time after time, bankers have been caught committing likely fraud regarding the sales of gold and silver. This likely fraud extends to more than physical sales. In the futures markets, bankers have been discovered to be selling 100 ounces of paper gold for every one ounce of physical gold that actually exists in the market. With PM ETFs, it is highly likely that multiple claims exist on whatever physical gold and silver back the GLD and SLV … if any physical gold and silver even back them at all.

Luckily, we don't have that problem. There's something to be said for owning the roof over your head (but little else), no debts, and a meagre but reliable income, supplemented by the occasional windfall.

"Financial Freedom's just another word for nothing left to lose". Plus No Debts, and a frugal lifestyle tailored to a meagre income.

I'll be teaching two courses at the ANU next year. A part-time associate lectureship is just my style when I'm completing my PhD, so that counts as a "windfall". My partner's retired, and she's actually getting more in her fully-indexed government-guaranteed pension than she did while she was working. God knows she'd earnt it, being in the Public Service can corrode the soul, and is something I've always managed to avoid.

So we're about as well prepared as we can be if things start turning to custard.