Too Crooked to Fail - B of A - Taibbi

[Peter Lemkin]

Bank of America: Too Crooked to Fail
The bank has defrauded everyone from investors and insurers to homeowners and the unemployed. So why does the government keep bailing it out?
By Matt Taibbi
March 14, 2012 10:55 AM ET

At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.

It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.

But despite being the very definition of an unaccountable corporate villain, Bank of America is now bigger and more dangerous than ever. It controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages. By looking the other way and rewarding the bank's bad behavior with a massive government bailout, we actually allowed a huge financial company to not just grow so big that its collapse would imperil the whole economy, but to get away with any and all crimes it might commit. Too Big to Fail is one thing; it's also far too corrupt to survive.

All the government bailouts succeeded in doing was to make the bank even more prone to catastrophic failure and now that catastrophe might finally be at hand. Bank of America's share price has plunged into the single digits, and the bank faces battles in courtrooms all over America to avoid paying back the hundreds of billions it stole from everyone in sight. Its credit rating, already downgraded to a few rungs above junk status, could plummet with the next bad analyst report, causing a frenzied rush to the exits by creditors, investors and stockholders an institutional run on the bank.

They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption. Last year, the Federal Reserve allowed Bank of America to move a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. Then, in February, the Justice Department's so-called foreclosure settlement, which will supposedly provide $26 billion in relief for ripped-off homeowners, actually rewarded the bank with a legal waiver that will allow it to escape untold billions in lawsuits. And this month the Fed will release the results of its annual stress test, in which the bank will once again be permitted to perpetuate its fiction of solvency by grossly overrating the mountains of toxic loans on its books. At this point, the rescue effort is so sweeping and elaborate that it goes far beyond simply gouging the tax dollars of millions of struggling families, many of whom have already been ripped off by the bank it's making the government, and by extension all of us, full-blown accomplices to the fraud.

Anyone who wants to know what the Occupy Wall Street protests are all about need only look at the way Bank of America does business. It comes down to this: These guys are some of the very biggest assholes on Earth. They lie, cheat and steal as reflexively as addicts, they laugh at people who are suffering and don't have money, they pay themselves huge salaries with money stolen from old people and taxpayers and on top of it all, they completely suck at banking. And yet the state won't let them go out of business, no matter how much they deserve it, and it won't slap them in jail, no matter what crimes they commit. That makes them not bankers or capitalists, but a class of person that was never supposed to exist in America: royalty.

Self-appointed royalty, it's true but just as dumb and inbred as the real thing, and every bit as expensive to support. Like all royals, they reached their position in society by being relentlessly dedicated to the cause of Bigness, Unaccountability and the Worthlessness of Others. And just like royals, they spend most of their lives getting deeper in debt, and laughing every year when our taxes go to covering their whist markers. Two and a half centuries after we kicked out the British, it's really come to this?

Bank of America started out in San Francisco in 1904 as an emblem of American capitalism. Founded by a first-generation Italian-American named Amadeo Giannini it was even originally called the Bank of Italy the bank set out to serve immigrants denied credit by other banks, and it was instrumental in helping to rebuild the city after the devastating earthquake of 1906.

But like many of the truly bad ideas in history, the present-day version of Bank of America was the product of a testosterone overdose. The concept of an overmassive, acquiring-everything-in-sight, bicoastal megabank was hatched in the terminal inferiority complex of a greed-sick asshole actually two greed-sick assholes, both of them CEOs of Southern regional banks, who launched a cartoonish arms race of bank acquisitions that would ultimately turn the American business world upside down.

Read more: http://www.rollingstone.com/politics/new...z1psTKR1Wm

[Peter Lemkin]

UAN GONZALEZ: "Bank of America: Too Crooked to Fail" that's the name of the latest piece by Rolling Stone reporter Matt Taibbi chronicling the remarkable history of the rise of Bank of America and how the Bush and Obama administrations have repeatedly helped keep the financial institution alive. The government support has come despite Bank of America's long record of what Taibbi describes as defrauding, quote, "everyone from investors and insurers to homeowners and the unemployed." In 2008, Bank of America received a $45 billion taxpayer bailout, but the bank has also received billions more in what could be described as shadow bailouts. The bailouts have helped Bank of America's market share grow. It now controls more than 12 percent of the nation's deposits, as well as 17 percent of all home mortgages.

AMY GOODMAN: Last month, President Obama announced Bank of America and four other large banks had agreed to a $26 billion settlement to settle lawsuits for mortgage abuses and fraud. But new questions have arisen over how Bank of America may actually benefit from the deal because the settlement includes a legal waiver to allow banks to escape billions of dollars in lawsuits. One hedge fund manager told Matt Taibbi of Rolling Stone that Bank of America's mortgage fraud resulted in, quote, "one of the biggest reverse transfers of wealth in history from pensioners to financiers."

Well, Matt Taibbi is joining us now here in New York, contributing editor for Rolling Stone. He's the author of five books, most recently Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America. His latest article in Rolling Stone is called "Bank of America: Too Crooked to Fail."

Welcome. It's great to have you back, Matt.

MATT TAIBBI: Good morning.

AMY GOODMAN: First, tell us the history of Bank of America.

MATT TAIBBI: Bank of America grew out of the rivalry of a pair of Charlotte-based banks, First Union and NationsBank. There were a couple of executives there, Hugh McColl and Ed Crutchfield, who had this rivalry. They both wanted to be the biggest bankers in North Carolina, but they were constrained by federal laws which basically said that you couldn't own a bank in more than two states. But these regulations slowly dissipated over the '80s and the '90s, and they were allowed to go on a sort of interstate acquisitions rampage, where these two men started buying up basically every bank in the Southeast. And they were so competitive that they even had a competition over who could have the tallest skyscraper in Charlotte. McColl, would become the father of Bank of America, was asked, when he finally built the very biggest one, whether he was happy to have the tallest one, and he said, "Yes, I prefer to have the taller one." And that kind of sums up what the ethos behind Bank of America was. It was really driven by this incredibly acquisitive campaign by really one man who wanted to be the king of banking in America.

JUAN GONZALEZ: But then, of course, to be able to continue that dream, they had to change government policies, right, on bank ownership? What did they do in that area?

MATT TAIBBI: Well, originally, the first bank that they bought was actually a small bank in Florida that they managed to buy because of an obscure loophole in Florida law. There was a grandfather clause that allowed them to buy a local bank in Florida. Then there was a Supreme Court case in 1985 which essentially said that you could cross state lines and buy other banks within a designated area. Now, that decision was important, because while it allowed Bank of Americawell, actually, it was NationsBank at the time. While it allowed them to buy a series of banks in the South, it also protected them from bigger competitors in the North who weren't in their designated area. So, in other words, they could go on this acquisitive spree, but they didn't have to face the competition from the heavy hitters like Citibank, who were just a few miles north of them in New York City. So it was government protection, actually, that allowed them to do their first big expansion.

JUAN GONZALEZ: And then, right in the midst of the financial crisis in 2008, Bank of America acquires the two of now the most notorious financial institutions in the country.

MATT TAIBBI: Right, yeah. The big one was the acquisition of Countrywide. One of my sources described that as, they tried to catch a falling knife and ended up chopping both their hands and their feet off. The Bank of America executives always wanted thethey had a thriving mortgage business. They were already one of the biggest mortgage dealers in America. But they wanted to be even bigger, and nobody was bigger than Countrywide, which was the largest subprime lender in America at the time. And so, right at the moment when the mortgage market was beginning to collapse, Bank of America did two things: first they made a $2 billion investment in 2007, and then they finally kind of doubled down on their bet about six or seven months later and acquired the entire company. They thought they were getting a steal, but it ended up being completely catastrophic to the bank's fortunes, because they inherited a whole range of liabilities and future lawsuits for a lot of the criminal behavior that Countrywide had been involved in with regard to subprime mortgages.

And then they went ahead also, in that same time period, and they acquired Merrill Lynch, which was one of the most innovative, but also the riskiest, investment banks in terms of bundling and packaging mortgage-based derivatives. So they ended up this gigantic conglomerate who ruled the mortgage world at the time when the mortgage market was exploding and all of these sort of hidden criminalities and conspiracies were burbling to the surface.

AMY GOODMAN: I want to now go to the latest deal. In February, the Obama administration announced Bank of America and four other large banks had signed on to a $25 billion mortgage settlement to resolve claims over faulty foreclosures and the mishandling of requests for loan modifications. President Obama described it as a landmark settlement.

PRESIDENT BARACK OBAMA: Under the terms of this settlement, America's biggest banks, banks that were rescued by taxpayer dollars, will be required to right these wrongs. That means more than just paying a fee. These banks will put billions of dollars towards relief for families across the nation. They'll provide refinancing for borrowers that are stuck in high interest rate mortgages. They'll reduce loans for families who owe more on their homes than they're worth. And they will deliver some measure of justice for families that have already been victims of abusive practices.

AMY GOODMAN: In a recent interview with CNN, Bank of America CEO Brian Moynihan praised the mortgage settlement.

BRIAN MOYNIHAN: We have to get through the mortgage for the good of the country and move forward. Everything that moves us forward is a good thing. And so, we were trying to, with the groupthe big servicers and the administration and other peopleto work cooperatively, and we'll continue to do that, and I'm sure we'll get somewhere. But the idea is, you're trying to get to the other side, so that you can start to move forward. So, as delinquencies come down on portfolios, the number of modificationswe're over one million modifications completed. We're completing them at a faster pace than we've ever completed them. Anything that helps move that forward is good. And so, that's what we're trying to get focused on. This settlement, other things that we've done, all move it forward. Some of the refinance programs that are embedded in the settlement, some of the refinance programs embedded in the President's State of the Union address, all these are elements to move this forward. Ifthe more we move it forward, the better off we are. So, we're in favor of moving forward. And I don't think much changed, honestly, with all this.

AMY GOODMAN: That's Bank of America CEO Brian Moynihan. Matt Taibbi, talk about the deal.

MATT TAIBBI: Well, the deal is narrowly only supposed to cover a small part of the problems with the mortgages that went on during the crisis. It really only coversit's supposed to cover robo-signing. Now, what is robo-signing? Essentially, whenwhat the banks were doing is they were lending these companies like Countrywide billions of dollars to make loans all over the place to anybody with a pulse. Then they would make these billions of dollars' worth of loans. The Countrywide-type companies would sell the loans back to a big bank like Goldman Sachs or Bank of America, who in turn would chop up these loans, turn them into securities, and then sell them off to customers like unions and pension funds and foreign retirement funds all over the world. Because they weren't going to be holding on to those loans, they weren't like traditional bankers that were going to be maintaining these loans over, you know, 20 or 30 years. Because they weren't going to be doing that work, they just simply stopped doing the paperwork on these loans. It wasn't cost-effective for them. So what they were doing was they just completely stopped servicing the loans. And only when they had to foreclose would they go back and try to reconstitute that evidence. And they would just assign a bunch of sort of entry-level people to make up affidavits so that they could go to court and foreclose on people. Completely illegal. It was really a system of mass perjury. That is what this settlement is supposed to cover, strictly the fraud in that one narrow area of this process.

There are much, much bigger problems in the areas of creating loans and securitizing the loans. That's where the real fraud occurred. The real fraud was when Bank of America or some company went to a union, say, and they said, "Here's a whole bunch of mortgages we want you to buy. They're AAA-rated. They're all good." And they left out derogatory information about how bad the loans really were. That was the real fraud. That isn't covered by this settlement. But there's some ambiguity about what this settlement covers. Some people think it does cover more than the robo-signing. And if it does, if there's a waiver for more than just robo-signing, then it's an incredible giveaway to the banks. It might even be a bigger bailout than TARP.

JUAN GONZALEZ: And this is, of course, extremely important to these pension funds

MATT TAIBBI: Absolutely.

JUAN GONZALEZ: which were such huge investors, the California retirement and New York retirement funds, because they've all experienced huge losses. And now local government officials are reducing pension benefits because of the need to put in more money to these pension funds. So if they can't recover from the fraud

MATT TAIBBI: Right.

JUAN GONZALEZ: it's working people that are going to suffer in their pensions.

MATT TAIBBI: Right, right. That's what people don't understand about this mortgage crisis. Most people think of it as some, you know, airy abstraction, you know, bankers ripping off bankers. That's not what it is. It's bankers stealing from old ladies and retirees. That's what it is. They essentially went to pension funds, and they said, "Here's a whole bunch of relatively safe, you know, AAA-rated investments. AAA, that's the same as United States T-bills or, you know, the sovereign debt of Luxembourg or something like that. It just earns you a little bit more, but it's also AAA." They bought this stuff. And then, you know, a year or two later, they're looking at 30, 40, 50 percent losses. And that's just money that's coming straight out of the pockets of old people and retirees.

Now, the problem is, are they going to be able to recover any of that money from the banks? Well, with settlements like this, it just makes it that much harder for them to do that. And even though a lot of them have won settlements against these banksNew York state and New York City both won a settlement against Bank of America, $624 milliontypically, it's for pennies on the dollar. They only recover a small percentage of what they're really owed.

JUAN GONZALEZ: And Matt, your article listsit's a laundry list of illegal activities that this bank has been involved in. Could you talk about some of those cases? A ripping off of the unemployed?

MATT TAIBBI: Yeah, it's unbelievable. When I was doing this piece, I actually had to have like a cheat sheet up on my wall withthat was color-coded. Like, you know, the green was for ripping off depositors. Yellow was for ripping off institutional investors. There are so many of these different scams they were involved with.

The two that, to me, are the most incredible are municipal bid riggingBank of America a couple years ago paid a $137 million settlement, because they were caught rigging the bids for municipal bond issues in at least 88 different cases acrossI think that was 25 different states. What this means is whenever some municipalityit could be the Guam power authority or, you know, the city of Baltimorewhen they want to raise money, they have to do it through an investment bank, and they're supposed to do it through an auction process, where all the banks compete to see how much they're going to pay to get that business. Well, these banks have been systematically colluding and submitting artificially low bids, and there's usually an insider on the municipal side who kind of games the whole process. They've been systematically doing this around the country for years and essentially cheating municipalities out of hundreds of millions of dollars in revenues that they would have otherwise gotten. That's a big one.

The other big one, that's more of a recent story, is Bank of America has been accused, along with a number of other banks, of artificially suppressing LIBOR, which is the London interbank exchange rate. LIBOR is basically the exchange rate upon which all adjustable rate investment vehicles are based on: mortgages, everything. They've been

JUAN GONZALEZ: Credit cards. Credit cards

MATT TAIBBI: Credit cards, yes. And they've been artificially suppressing LIBOR so as not to pay out as much to any investor who has a LIBOR-based instrument. There's $350 trillion worth of investments are based on LIBOR. So they've been gaming the game, essentially. There's really nothing that these guys haven't been involved with.

JUAN GONZALEZ: And I asked you before about the unemployed, how they were cheating the unemployed.

MATT TAIBBI: Oh, sure, yeah. Sorry about that. Yeah. Bank of America also has a contract toin a number of states, to distribute unemployment insurance benefits. People would get a prepaid Bank of America card. And in one state, it was discovered that if the people getting the benefits didn't go to a Bank of America ATM machine, that they could pay fees as high as $10 for each time they went to either a bank or another ATM. I'm sure that's not what the state had in mind when it was trying to distribute unemployment benefits.

AMY GOODMAN: South Carolina?

MATT TAIBBI: Yeah, it was South Carolina, right.

AMY GOODMAN: What about the states and churches, Iowa, Oregon?

MATT TAIBBI: Yeah, well, a number of states, and I think it was the United Methodist Churchlook, there's a whole rangeI mean, let me just back up for a second. As part of these deals when banks were packaging mortgages, they offered a kind of guarantee to investors. They said, "Not only do we personally guarantee that these mortgages met our underwriting standards, we also agree that if any of these mortgages are defective or in default when you'reat the time of purchase, we promise to buy those mortgages back. So don't worry about it. Buy this stuff. If anything is wrong, just come back to us. We'll pay you." And a lot of these lawsuits, like the United Methodist Church, like the state of Iowa, state of Maine pension funds, they looked at the stuff that they were buying, and they found that a sizable percentage of these mortgages were defective. And they went to go get their buybacks, but suddenly Bank of America isn't answering the telephone. And that's what a lot of these lawsuits are about. They're contractually obligated to buy this stuff back, and they're just not doing it. And so, that is another thing that people are worried about they might get out of because of this foreclosure settlement and other settlements like that.

AMY GOODMAN: I want to just talk about the organizing that's taking place around Bank of America, because a few days ago we talked to labor organizer Stephen Lerner, who talked about plans for upcoming protests at the Bank of America annual shareholders meeting.

STEPHEN LERNER: In early May, Bank of America will have its meeting in Charlotte. And occupiers and community groups and environmentalists and people from all over the country are going to be coming to Charlotte. And in a way, I think we can think about it as the first convention. It's going to be the convention of regular people, of the 99 percent, who are going to be saying to Bank of America, "It's wrong that you're stealing our homes. It's wrong that you're funding coal powerthat you're funding coal. It's wrong that you're ripping off students on student debt." And I think we can really capture the imagination of the country by being at the Southern Wall StreetCharlotteand demonstrating both inside the meetings with people who have proxies, who have bought shares, and outside, that the real decisions are made in corporate boardrooms, not in Washington, and that's the place we have to be in the weeks and months ahead.

AMY GOODMAN: That's labor organizer Stephen Lerner. And, of course, the night the culmination of the Democratic convention that will nominate President Obama again for a second term, he'll be speaking in Bank of America Stadium in Charlotte.

MATT TAIBBI: That's right. That's right.

AMY GOODMAN: The Atlantic Wire wrote a piece about you and Occupy Wall Street completing each other.

MATT TAIBBI: Right.

AMY GOODMAN: But what about these grassroots actions targeting Bank of America?

MATT TAIBBI: Well, look, Occupy Wall Street, I think, over the winter, they wanted to put a specific face on some of the issues that they were talking about. You know, in the fall, I think there were a lot ofpeople had a sort of abstract conception of what they were protesting against. They wanted to say, "Let's take a specific case of a specific actor, and let's show people what these companies are really all about." And there was some discussion over what company they should pick. And the almost universal consensus of all the experts that they talked to was, "You should go for Bank of America, because they're involved in everything," you know, whether it's ripping off student loans, to the unemployed, to pensioners, to depositors. Bank of America got caught systematically overcharging its depositors by $4 billion. So they organized a series of protests. And there's a campaign afoot to try to get people to move their money out of Bank of America. And this is going to be something that I think they're going to focus on, from what I understand, for, you know, the immediate future.

JUAN GONZALEZ: And why, then, given the laundry list that you've presented of all of these illegal activities, is the government and the Obama administration not shutting this bank down, instead of continuing to prop it up with federal support?

MATT TAIBBI: Well, that's thethat's the, you know, trillion-dollar question about all of these companies, but Bank of America, in particular. There is a rationale that one can maybe see for supporting some other companies, some of these other "too big to fail" companies, because they might be functional, thriving companies with a little bit of help. Bank of America has consistently made bad decisions, in addition to all these corruptionall these activities that they've been involved with. Without government support, they would have been out of business absolutely in 2008, because of all the problems associated with Countrywide. They have needed massive government support ever since.

Just last year, they were in a very delicate situation where a number of their counterparties and creditors were concerned about the massive flow of derivatives that were on Merrill Lynch's books. They convinced Bank of America to move that stuff onto its own depository side so it would be federally insured. So now we're all on the hook for all this stuff. And that's another thing thatanother way that they've used the government to get out of their private problems. It's just there's an ongoing support of this company, and I think our administration believes that they have to support these companies at all costs.