[Debate] The Timing of the Schneiderman Attack

[Riaz K Tayob]

  The Timing of the Schneiderman Attack

Posted on August 24, 2011 
<http://www.emptywheel.net/2011/08/24/the-timing-of-the-schneiderman-attack/>by 
emptywheel <http://www.emptywheel.net/author/emptywheel/>

I find this article 
<http://www.salon.com/news/us_economy/index.html?story=/tech/htww/2011/08/24/how_gloomy_should_we_be_on_the_economy> 
odd for the way it mentions nothing of Bank of America's attempts to 
game the legal system to stay in business, much less Tom Miller, Shaun 
Donovan, and Kathryn Wylde's increasing attacks on Eric Schneiderman. 
Because his conclusion: that BoA may go under and if it does it may take 
the economy with it, explains why everyone just intensified their 
attacks on Schneiderman.

The article, by Tom Leonard, purports to weigh the prospect of economic 
chaos. On the plus side, Leonard looks at prospects China might not be 
as bad as some people have been thinking, the promise of QE3, and news 
that small banks may be returning to health. On the negative, he notes 
that manufacturing and housing continue to decline.

But none of that matters, Leonard suggests, as much as the fate of Bank 
of America.

But the most perplexing economic risk factor of all may be the case of 
the embattled Bank of America, which found itself at the center of a 
swirl of rumors on Tuesday. How Bank of America fares in the days to 
come could tell us more about the future of the U.S. economy than any 
other single factor.

And on that count, Leonard writes, we have reason to worry. He looks at 
Bank of America's desperate attempts 
<http://www.businessinsider.com/bank-of-america-henry-blodget-2011-8> 
yesterday to refute the analysis 
<http://www.businessinsider.com/bank-of-americas-stock-collapse-2011-8> 
of Henry Blodget, who said BoA is probably worth $100 to $200 billion 
less than it claims to be--potentially, that is, insolvent.

A big part of Blodget's analysis rests on this Zero Hedge argument 
<http://www.zerohedge.com/news/visualizing-how-bank-americas-reserve-accounting-errors-are-one-giant-subprime-cdo> 
(though I saw the graphic at Ritholtz's site first), which in turn notes 
that the key analyst 
<http://www.zerohedge.com/article/brian-lin-next-incarnation-joe-cassano>--who 
happens to be a former Merrill Lynch employee--who thinks BoA can get 
away with just $8-11 billion to clean up what it will owe investors for 
the shitpile it (and Countrywide) sold them basically just took BoA's 
estimates about the quality of the shitpile *rather than looking at the 
underlying files*. Zero Hedge quotes from a filing the Federal Home Loan 
Banks filed last month in NY (the bold is ZH's; the screaming red 
highlighting is mine):

**To get from $61.3 billion to a "reasonable" settlement range of $8.8 
to $11 billion, Mr. Lin made two more assumptions. *He assumed that only 
36% of loans that go into default will have breached Countrywide's 
representations and warranties about the quality of its underwriting*. 
*That assumption is difficult to understand*. Mr. Lin did not do any 
independent analysis of this assumption. Instead, he simply adopted Bank 
of America's estimates of this percentage, which in turn appear to have 
been based on a completely different portfolio of loans that were 
subject to the underwriting standards imposed by Fannie Mae and Freddie 
Mac. Moreover, *Mr. Lin's assumption is inconsistent with widely 
publicized reports by professional loan auditors that even Countrywide 
loans that are merely delinquent (that is, behind on payments but not 
yet in default) have a "breach rate" of well over 60% and often as high 
as 90%.*

So to recap: Leonard says we should be worried because if this analysis 
is correct--if BoA is actually insolvent--it'll take the economy down.

Now, I'll set aside for the moment the underlying analysis Leonard 
does--his take that BoA's continued existence is more important than the 
manufacturing decline and continued housing depression. And I recognize 
that he posted this last night before the news that Eric Schneiderman 
got kicked out of Tom Miller's tree house 
<http://www.emptywheel.net/2011/08/23/playing-survivor-with-homeowners-future/> 
broke widely.

But even without last night's news, you can't separate the ongoing 
pressure on Schneiderman from the underlying issue--whether the analysis 
which BoA used, which depended on their own internal review of 
completely incomparable files, to declare themselves solvent is valid.

Because what Schneiderman is insisting on doing, both in the $8.5 
billion proposed securitization settlement and the $20 billion proposed 
servicing settlement, is to try to look at the files.

Schneiderman is insisting on doing the analysis that BoA's handpicked 
analyst didn't do.

Now what do you suppose it means that BoA's surrogates have gotten so 
angry and panicked and, well, dickish, as Schneiderman continues to 
insist on actually looking at BoA's books before making a settlement 
with them? And do you really think it's a coinkydink that increasing 
numbers of Wall Street vultures are raising doubts about what's in those 
books at precisely the time Obama's surrogates are increasing pressure 
on Schneiderman to drop the legal efforts to do so?

I think the timing tells us everything we need to know about the quality 
of BoA's analysis. The only question, really, is whether they'll be able 
to abuse the legal system so as to continue to hide that reality.

Update: Schneiderman just sent out email vowing to continue 
<http://www.thealbanyproject.com/diary/9570/schneiderman-wont-back-down-vows-full-investigation-into-banks>:

You might have been following the latest developments related to the 
national settlement of the mortgage probe, including this story in 
today's Huffington Post about our tough fight for a comprehensive 
resolution to this crisis.

Let me tell you directly: I am deeply committed to pursuing a full 
investigation into the misconduct that led to the collapse of America's 
housing market, and to seeking a resolution that gives homeowners 
meaningful relief, allows the housing market to begin to recover, and 
gets our economy moving again.

Our ongoing investigation into the housing crisis cannot be shut down to 
accommodate efforts to settle quickly and give banks and others broad 
immunity from further legal action. If you have any thoughts or concerns 
about this critical issue, please contact me at 1-800-771-7755, or send 
a message via Facebook or Twitter.

Thank you for your support,

Eric T. Schneiderman

This entry was posted in Economics 
<http://www.emptywheel.net/category/economics/>, Financial Fraud 
<http://www.emptywheel.net/category/financial-fraud/> and tagged Eric 
Schneiderman <http://www.emptywheel.net/tag/eric-schneiderman/>, Kathryn 
Wylde <http://www.emptywheel.net/tag/kathryn-wylde/>, Shaun Donovan 
<http://www.emptywheel.net/tag/shaun-donovan/>, Tom Miller 
<http://www.emptywheel.net/tag/tom-miller/> by emptywheel 
<http://www.emptywheel.net/author/emptywheel/>. Bookmark the permalink 
<http://www.emptywheel.net/2011/08/24/the-timing-of-the-schneiderman-attack/>. 


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