Bank of America Secretly Asking Congress for a Banking Industry Bailout

Posted February 25th, 2008 by LionandLamb

Source: NYTimes

$739 Billion Worth of Toxic Waste Subprime Loans Threaten Entire System

A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted.

In practice, taxpayers would almost certainly view such a move as a bailout. If lawmakers and the Bush administration agreed to this step, it could be on a scale similar to the government’s $200 billion bailout of the savings and loan industry in the 1990s. The arguments against a bailout are powerful. It would mostly benefit banks and Wall Street firms that earned huge fees by packaging trillions of dollars in risky mortgages, often without documenting the incomes of borrowers and often turning a blind eye to clear fraud by borrowers or mortgage brokers.

A rescue would also create a “moral hazard,” many experts contend, by encouraging banks and home buyers to take outsize risks in the future, in the expectation of another government bailout if things go wrong again.

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For the Whole Story go here: http://www.nytimes.com/20...

This is simply unbelievable. We cannot let this happen and calls to congress are in order .

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Hey guys (Devon in particular)

On February 27th, 2008 treblecliff says:

I've been following all the financial strings for awhile.

I have read several gold-seek writers, Bob Chapman, Captain Cook and others espousing that "as banks fail they will call in their loans so pay them off now." Jim Sinclair, on the other hand, says to have enough GLD to cover your debt. What do they think will happen after banks call in their loans? Clearly, the majority of Americans cannot pay off their debt in full. Are we going to debtor prison? Will banks fail and we have no "system" with which to pay it off? What do you think? I know the new bankruptcy laws say we cannot discharge credit card debt. Any idea of what this means for us ultimately? Imprisonment?

Since we are in unchartered territory I can't figure out if there is wisdom in paying off debt (if one has the cash to do so) and then consequently having no cash to pay rent and/or at least food if one loses their job.

Recently a few writers are floating that as financial armageddon ensues and protests rise, Martial law would be imposed together with price controls - I also am not sure what this would mean. There are no follow-up explanations on price controls. Because I follow GLD manipulation on Bill Murphy's website, that perhaps the government might also declare GLD off-limits and effectively use force majeur to extricate the banks Goldman/JP from an enormous 500,000+ GLD and SLV short futures position which otherwise would kill them off as GLD continues to rise.

I hope some of this makes sense. I don't know who else to ask.
Thanks for any input.

When we bought our home,

On February 25th, 2008 ColdFusion says:

When we bought our home, before we even made our first loan payment, we got a letter to let us know that our loan had been purchased by CountryWide (not the original lender).

Our payments didn't change. Our interest rate didn't change. Nothing at 'our end' of the transaction changed except for who we make the check out to each month.

So less than 30 days after we agreed to contract a loan with the original lender, we ended up with a different one.

Maybe they lost our original loan papers in the process heheh.

One could hope...

On February 25th, 2008 Devon_Saunders says:

I got a check from countrywide years ago... they ~forgot~ to release my note, I noticed next tax cycle... that isn't legal...

A family lawyer sent me a check eventually for $5,800.

They seem to run into misplacing stuff a LOT.

A counter-viewpoint on the Bailout

On February 25th, 2008 Devon_Saunders says:

From Mish.. I think he sums it up nicely

http://globaleconomicanal...

Tho I personally don't agree with his deflation ideas.

Good Article

On February 25th, 2008 Susan says:

"Ellen Seidman, a former director of the Office of Thrift Supervision and now a senior fellow at the moderate-to-liberal New America Foundation, said the government’s first challenge is to buy mortgages at their true current value. If the government overpaid or became caught by an even further decline in the market value of its mortgages, taxpayers would indeed be bailing out both the industry and imprudent home buyers."

But if it is a good we need to become imprudent buyers or we lose on two fronts instead of just one.

VISA for sale

On February 25th, 2008 Ivor schwartzporsche says:

'Not sure if off-topic but I read that the banks who own VISA are going to float VISA on the stock market. They need money! Desperate times means desperate measures I s'pose. Maybe bank branches should sell sandwiches, soft drinks, cigarettes, etc to cover the overheads?

'I always think of all you canvassors and precinct leaders at the front line.
Good luck out there &Thank you. It's appreciated'.-fip -U.K

Here's a link

On February 25th, 2008 gardeniabee says:

Yes, this on BBC this morning about VISA http://news.bbc.co.uk/2/h...

Gwen Kraft

"Personal Liberty & Personal Responsibility" -- Dr. Ron Paul

"A hero is someone who understands the responsibility that comes with his freedom." -- Bob Dylan

And another...

On February 25th, 2008 Devon_Saunders says:

http://www.bloomberg.com/...

Yes, jumping into the stock market right now is great timing!

<./sarcasm>

I know little about finance - but does this mean if I use VISA

On February 25th, 2008 missdavenport says:

...as my only credit card that I should get something like a MasterCard do you think? =(
________________________

*** God bless Ron Paul ***
* Ron Paul For President *

Nah

On February 25th, 2008 Devon_Saunders says:

Keep it.. if they raise the rates on you, cut it up.. if they go bankrupt, you're fine anyways....lol

=) okay thanks...

On February 25th, 2008 missdavenport says:

*** God bless Ron Paul ***
* Ron Paul For President *

We the People - SAY NO!

On February 25th, 2008 FreedomFighter says:

I'll be writing my congressman(servant) and senators(sr. servants) today. Please do the same. Make it clear. NO BAILOUT. We have 30,000 un-sold homes in my market that these people can afford and move into. Other markets have even more. Be sure to attach a copy of the NYT article.

Wait till this little trick gets public

On February 25th, 2008 NJforRP says:

http://www.bloomberg.com/...

Some have been able to stop foreclosure, AND stop mortgage payments, by making the bank produce the mortgage note in court.

Appears the banking industry can't find the loan paperwork, as they get packaged, bought and sold so many times. Judges have suspended foreclosure until the bank produces the note, and they are having a hard time finding the paperwork.

Once this little item circles the legal community, without a federal bailout, the banks are failing. Can see the "I can stop foreclosure" lawyer commercials already.

Not only did they get nothing down loans, they may end up with "no payment" houses for years.

I love it...

On February 27th, 2008 jeffking says:

force the banks to prove you owe them. They need certain docs to foreclose on you. Call their bluff. They don't want the damn property anyway. Isn't this a great country?

I have a buddy who interviewed for a bank job in Florida. They told him that the regulators told the bank to stop appraising the value of the properties underlying troubled real estate loans. Don't ask, don't tell. The level of the unknown in the financial system is truly incredible...only in America.

Sorry to bring this up again

On February 25th, 2008 JohnGalt300 says:

Fortune Favors the Bold

But this does stink of a Rothschild scheme. I would encourage people to read about their history. It's tough to get through all the conspiracy and racist nonsense, but it's worth it to understand the financial system.

Pitchfork and torch

On February 25th, 2008 xciteful says:

Pitchfork and torch time?

And bankers wonder why people hate them. It's always the same types of characters lying, cheating, scamming and bilking the public and then asking
for a freaking HANDOUT.

It's called CORPORATE WELFARE.

This is exactly the kind of

On February 25th, 2008 Moobi says:

This is exactly the kind of thing I'm reading about in G. Edward Griffin's The Creature from Jekyll Island right now. It's absolutely mind-boggling the twisted logic they use to get away with this stuff.
_________________________
Moobi
www.CentralIllinois4RonPa...

"In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution." -- Thomas Jefferson

Dirty Rotten Scoundrels

On February 25th, 2008 Susan says:

Okay, if I'm reading this right this would be terribly UNFAIR to those who a) didn't get in over their heads b) put significant capital down on their home.

"To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates"

That would be an outrage in that, on the tax payer dime, it FORGIVES DEBT ABOVE MARKET VALUE! That means punishes those who have lost a ton of money (like me) but, put so much savings down or have worked hard to pay off the mortgage as fast as possible.

So a self-interested individual

On February 25th, 2008 paul4won says:

that has not trashed their precious "credit score" should quickly run out and take out the biggest home equity loan they can, right? I need to QUICKLY get in over my head to avoid being screwed by this? While I am at it, I might as well max out a couple of credit cards, and buy a couple brand new rigs on what do they do now, 70 month loans or some crap? If the middle class is America's most endangered species, I may as well dive into poverty with all the debt I can muster, right? F*@king conscience. I really wish I had the stomach to do it.

Fight It

On February 25th, 2008 Susan says:

Obviously we will have to fight this. It's as unfair as amnesty. Amnesty is a reward for illegal behavior and this would be a reward for irresponsible behavior.

they created the money with the stroke of their pen...

On February 27th, 2008 jeffking says:

how about another stroke of the pen that simply forgives the excess debt, instead of the tax payers making the banks whole? The problem is the banks, along with the burden of underwater loans to struggling borrowers, need liquidity to meet mandated reserve requirements in order to continue lending and keep the economy afloat. So they want the govt to create a market for the crap that investors wont touch. Sure its amnesty...but it'll happen cuz we are on the Titanic and the deckchairs are sliding.

Banks like BofA

On February 25th, 2008 ILUVRON2008 says:

do not lend out risky mortgages. Thats why the sub-prime industry grew to epic proportions. I think the net effect of this whole mess coupled with the downward trend of the Real Estate Market and Home Values are causing many homeowners, even with good mortgages to now have upside down loans.

Previously known as DCALIFANO

I always wondered WHY banks

On February 25th, 2008 momto7 says:

I always wondered WHY banks would write these loans. Greed maybe..but all these banks at the same time? I think there is more to the story.

http://www.nypost.com/sev...

""A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities."
"Perhaps the greatest scandal of the mortgage crisis is that it is a direct result of an intentional loosening of underwriting standards - done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.
At the crisis' core are loans that were made with virtually nonexistent underwriting standards - no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment"
"From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards - at the behest of community groups and "progressive" political forces."

Its simple...

On February 25th, 2008 jeffking says:

The only unique way banks make money is lending "reserves" at interest based on their depositors' money. They make loans. They won't write bad ones if they have to keep them on their books, if they are reliant on actual repayment to make money. But, if a bank can make a loan and sell it at a reasonable return the next day the worry about repayment is gone.

A bank then will write as many loans as humanly possible to maximize the return. I worked for a bank and during the high tide of the mortgage boom the biggest problem was finding ways to write loans quicker, do more loans, everyday. Without repercussions from bad loans, there are no underwriting standards.

CRA??? Um, no. It was Wall Street, with the regulators in their back pockets (de-regulation! let the market work!), creating confusing packages of crap loans and selling them to gullible, clueless investors. Its an old, old story...that replays over and over again. The current credit crunch is a direct result of those investments being so confusing that noone even knows where they buried the crap or whose investments are infected...noone trusts anything or anyone, so the market has just seized and everyone's investments are hurt.

"community groups and "progressive" political forces", total ny post, rupert murdoch, propaganda bullshit. Power, greed, delusion, and un-accountability...as it always is and always will be.

Here is some great

On February 25th, 2008 morlhzd says:

Here is some great commentary on/about this article --

http://globaleconomicanal...

(I've actually been reading the above blog for a while - found out today that the author is also a Paul supporter)

If anyone is going to lose

On February 25th, 2008 john2k says:

If anyone is going to lose money over Bank of America lending out too much money at too high of a risk it definitely should not be the taxpayers.

Where is the Keating Five when you really need them!!!

On February 24th, 2008 sleepdog says:

McCandidate!

Time to go negative.
http://i108.photobucket.c...

who owns bank of america

On February 24th, 2008 portableman says:

I think i heard sometime back reported, on the brainwasher that it had been bought by chinese investers.

who owns BofA???

On February 25th, 2008 Jdayh says:

It is the vatican, or AKA lucifer,,,, hahahah,,, not really funny

Are there any mortgage companies safe?

On February 24th, 2008 jshowell says:

There's gotta be one bank that didn't do these horrible loans.

:)

On February 24th, 2008 sentinel says:

Not much of a secret anymore is it ? SHHHHHH!!

It isn't just the BofA. The daily parade of news in the

On February 24th, 2008 austrianschool says:

financial community shows that, with the interpendencies of one institution on another, that they all stand to fail. It is a question only of time, not of result. The collapse of the bond market is still over the horizon, but the distance is not yet accurately known. Bond insurers are trying to get cash in order to keep their ratings from dropping. The Auction Rate Securities market is having one heck of a time finding any buyers these days. It is open to question as to whether or not the system will be in serious collapse (of a kind that will be obvious to everyday folks) prior to the coming election. When that happens, we will not need to worry about such things as foreign policy. That will be determined for us and it won't involve ballot boxes or Mr. McCain's itch for foreign military adventures.

Interesting how BOA

On February 24th, 2008 speakthetruth says:

buys Countrywide (one of the largest mortage lenders) and then goes to the government to bail them out. These guys are crooks. I had already decided to move my account to a credit union when we move next month, but it is clear that I will never do business with BOA again.

Can you believe this nonsense from BofA!!!

On February 24th, 2008 Sapphira says:

"This used to be a government of checks and balances. Now it's all checks and no balances." (Gracie Allen for President 1940)

Think I could Solicit Congress to

On February 24th, 2008 brainon4u2 says:

forgive my Federal Income taxes due this year? Are any of them better than I am? Should we pay for bad decisions of the banks and people living way beyond their means?

If we got rid of the FIT those people could afford to keep their homes and the rest of us would benefit also. NOW, that would be a win-win!

Otherwise, the majority of us, again, pay for the irresponsibility of a few.