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Felix Salmon Explains Why Lawsuits Are Flying At Banks Who Turned Crap Into Triple AAA (Mortgage Mess TV)

Video:  Felix Salmon says investment banks face massive legal risk due to the way they built their mortgage bonds.  He explains EXACTLY how banks built these bonds - with lies and cover-ups every step of the way.

This is a very, very good clip.  Great explanation, excellent detail, and it runs only 2 minutes.  Don't skip the last 30 seconds and Salmon's conclusion.

Story background:

80% of Citigroup's mortgages were defective

Chris Whalen Explains Foreclosures, Loan Put Backs & Bank Risk

David Faber: Mortgage Put-Backs Don't Require Fraud Just Inaccuracy


Salmon writes:

I’ve been getting a lot of good feedback about my post yesterday on the way in which just about every major investment bank in the world might have huge legal risk surrounding the way that they built their mortgage bonds. The stock market in general might be relatively sanguine about the mortgage mess, but bank stocks are falling, and I suspect that the worst is yet to come. Certainly the tail risk to the banking industry as a whole is as high as it’s been since TARP was first unveiled.


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Reader Comments (10)

Nation's Biggest Banks Each Hold over $20B in Foreclosures: Report

Oct 24, 2010 at 4:42 AM | Registered CommenterDailyBail
from the report above:

Among all U.S. banks, JPMorgan Chase has the largest volume of mortgages in foreclosure or foreclosed with $21.7 billion. On top of that, the company has $43.4 billion more in mortgages past due.

Compared to JPMorgan, Bank of America has a somewhat smaller volume of foreclosures — $20.3 billion — but it has a larger pipeline of past-due mortgages at $54.6 billion.

Wells Fargo’s foreclosures come to $20.5 billion, with $48 billion in overdue home loans. According to Weiss, including all foreclosed and delinquent categories, Bank of America has the largest volume of bad mortgages among U.S. banks, with $74.9 billion, while Wells Fargo has the second largest with $68.6 billion.
Oct 24, 2010 at 9:34 AM | Registered CommenterDr. Pitchfork
more from the report:

Weiss found that Wells Fargo has the greatest exposure to bad mortgages in proportion to its capital. For each dollar of Tier 1 Capital, the bank has 75.4 cents in bad mortgages, or a ratio of 75.4 percent.

The equivalent ratios for JPMorgan Chase, Bank of America, and SunTrust are 66.8 percent, 66 percent, and 57.6 percent, respectively.
Pitchfork here. These banks have loan-loss reserves that could protect their capital from these losses, but this quarter most big banks were reducing their loan-loss reserves (just to make earnings estimates?).

JPM has c 3B in loan-loss reserves, but they have 21B in foreclosure, plus 54B in delinquency. The losses on these must amount to at least the amount they have in reserves. Unless Weiss's numbers are wrong, that's going to be ugly.
Oct 24, 2010 at 9:45 AM | Registered CommenterDr. Pitchfork
pitch...yes, ugly...
Oct 24, 2010 at 4:29 PM | Registered CommenterDailyBail
I should add that those losses will not all come in the same quarter, and the banks will have a chance to add to loan-loss provisions over time, but only by reducing their earnings. Still... those are HUGE numbers Weiss is reporting. If banks start reporting net losses, it could get ugly fast. One can Hope. [insert snarky Obama reference here]
Oct 24, 2010 at 4:43 PM | Registered CommenterDr. Pitchfork
Dr. P...Will it cost us millions or billions? Um, don't ask Joe Biden, Pelosi or Obama. All three have a problem conceptualizing big numbers. Man oh man if Palin made that mistake (snarky remark done by Z).
Oct 24, 2010 at 4:51 PM | Unregistered CommenterZ
Good call. Pelosi's stimulus package saved what, 400 MILLION jobs? Must have been Chinese ones because we've only got about half that many in the work force.
Oct 24, 2010 at 5:02 PM | Registered CommenterDr. Pitchfork
OH, and I don't expect it to cost US a friggin' dime. (Please, O Lord, let us revolt if they try to bail them out again.)
Oct 24, 2010 at 5:03 PM | Registered CommenterDr. Pitchfork
that's the subject of a post for monday pitch,...how to say 'no' when they come begging in 2011...
Oct 25, 2010 at 6:00 AM | Registered CommenterDailyBail
I wanted to bring this story back up again for any readers who might have missed it.
Feb 22, 2012 at 10:05 PM | Unregistered Commenterjohn

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