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
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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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Oct 23, 2010 at 8:25 PM
Reader Comments (10)
http://globalresearch.ca/index.php?context=va&aid=21586
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.
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.
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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.