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Friday, October 29, 2010

Is The BAC Mortgage Bond Buyback A Ponzi Scam Coverup?

Two interesting stories emerged at the same time. Is there a correlation?

First, mortgage bondholders are suing Bank of America and other banks. They are demanding that Bank of America buy back now-junk mortgage CDOs. Those CDOs had a face amount of $47B. Obviously, the fair market value is much less than $47B now.

Surprisingly, the Federal Reserve is joining the party. They are siding with the bondholders, pressuring Bank of America to buy back the bonds. Why should the Federal Reserve care?

Second, some mortgages were sold to multiple CDOs!

You might say "WTF? How does that work? Where does the second payment stream come from?" The answer is that you Ponzi it. You sell a mortgage multiple times. You use the payments from one sale to finance the interest payments on the others. It's accounting fraud. As long as the housing market is booming, you can keep the Ponzi scam running.

One homeowner stopped paying his mortgage. Two different banks tried to simultaneously foreclose! That's how the "same mortgage sold multiple times" scam got caught.

The official reason for the lawsuit is "Bank of America didn't properly administer the mortgages. The mortgage paperwork was bungled. They didn't foreclose in a timely fashion when payments stopped, adversely affecting bondholders."

Is that a lie? Maybe Bank of America executives deliberately sold the same mortgage in multiple bonds. They do *NOT* want a lawsuit and discovery, where this fraud will be exposed.

Normally, when banks sell a crappy product, the buyer is stuck. The banksters usually say "HAHAHA!! We tricked you into buying! You're stuck with the losses now!" In a departure from normal practice, Bank of America will probably buy back the disputed bonds.

One rule of parasite logic is "Never admit wrongdoing!" Bank of America would lose face if they bend over and settle. Every other customer they cheated would come demanding a refund. That would set a bad precedent.

That's why the Federal Reserve is intervening. Bank of America executives say "We don't admit wrongdoing. However, the Federal Reserve asked us politely, so we'll settle." By bringing in the Federal Reserve, this gives a way out.

Executives at Bank of America have enough influence to get the Federal Reserve to do whatever they want. If the Federal Reserve is publicly pressuring Bank of America to settle, Bank of America executives probably approve of the action.

Since the Federal Reserve demanded a bond buyback, they will lend Bank of America money at cheap/free interest rates to finance the buyback. Now, the fraudulent bonds are on Bank of America's books, where nobody will ask questions. Years later, other earnings will offset the loss. Bank of America will quietly write off the loss due to this fraud.

Summarizing my conspiracy theory:

  1. Bank of America sold the same mortgage in multiple CDOs.
  2. The bondholders realize they were cheated, and are suing.
  3. The full extent of the fraud hasn't been publicly exposed yet.
  4. Rather than have a trial and discovery, Bank of America *MUST* settle.
  5. If Bank of America rolled over without a fight, that would be suspicious. Therefore, the Federal Reserve is pressuring them to settle. That gives them an out.
  6. The Federal Reserve will loan Bank of America money at cheap/free rates (less than 1%) to finance the bond buyback.
  7. Over time, there will be a bailout via inflation. If you lend someone money at 1%, while true inflation is 20%-30%+, that's a stealth bailout.
  8. Federal Reserve insiders can lend as much money as they want to whoever they want, without any public disclosure.
  9. Bank of America will keep the bonds on their books for the face amount, or do a swap/sale with the Federal Reserve.
  10. Once Bank of America buys back the bonds, there won't be any creditors asking annoying questions. They can cover it up.
  11. Years later, the bonds are quietly written off as losses. Other earnings will offset the loss.
Am I sure this is true? Can I prove it? Of course not. These two stories are incredibly suspicious.

Were Bank of America (and other banks) running a mortgage bond Ponzi scam? Were they selling mortgages multiple times, and using the proceeds of one sale to pay interest on the others? If it is true, the banksters would be very eager to cover it up.

These two stories are incredibly suspicious.

1 comment:

Scott said...

This is the only financial news site worth reading. Compared to FSKRG, the Economist is Highlights for Children.

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