8 Things You Should Know About the New Lawsuit Against the Banks That Torpedoed the Economy
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And “Tyler Durden” at Zero Hedge thinks it could be even bigger:
“Alternatively, using generic cumulative loss thresholds of around 45% based on Fitch estimates for 2005-2007 vintages, and applying a conservative 60% loss severity to defective loans, implies $25.8 billion loans are defective, with total Bank of America umbrella losses of $15.5 billion.
This is virtually the entire worth of the company's stake in the China Construction bank. And this is to settle just with the FHFA alone!”
In other words: this is a big mess for all of the banks named, a potential long-lasting expensive legal battle, but for Bank of America, teetering on the edge of disaster already, it could wind up pushing them over. Rep. Miller argued that the potential collapse of Bank of America, though, was not a good reason to stop the lawsuit going forward. “I know that there would be a great sense of injustice if they were given a pass on their legal liabilities on that basis,” he said. “Every small business in America knows if they have harmed someone they'll get sued for it and they'll have to pay.”
And Forbes noted, “An analyst from the other side of the Hudson River said that Bank of America may very well prove that no bank is too big to fail.”
2. Opening door for more lawsuits
Whatever happens with the FHFA's lawsuits—whether they're settled or litigated—there's every potential here for private lawsuits against the same banks to follow. The FHFA snuck in right under the deadline for the statute of limitations, and this could spur other investors to try to recoup losses. For troubled banks like Bank of America or RBS, this could be a chain reaction difficult to recover from.
3. Banks declare total war...against Democrats
Which leads us to point number three: who's going to be the target of the banksters' ire at finding themselves the target of government lawsuits?
You guessed it: Democrats.
Ben White at Politico's Morning Money column wrote that banks are considering “Total War,” saying:
“M.M. hears that instead of contemplating settlements of the FHFA mortgage-backed securities lawsuits, big banks and their attorneys are more likely to pursue what insiders describe as an all out war strategy in which they go after Fannie Mae and Freddie Mac (and by default their Democratic supporters) in a scorched earth strategy to show the GSE’s took an active role in creating the very securities they are now suing the banks over.”
You can see the talking points already in several of the business press pieces on this story, which blame the subprime mortgage mess on lawsuits to prevent discrimination against poor people (usually people of color, who faced housing discrimination for oh, most of US history) or on Fannie and Freddie's lending itself.
Never mind that those arguments leave out the responsibility of the big banks to, you know, not commit fraud. Bad mortgages on their own would not have caused the current economic crisis. The securitization of that mortgage debt combined with speculation drove up the price of housing; the decline in real wages led more and more people to borrow against the value of their homes. Systematic attacks on the little wealth that most working people had by a small handful of ultra-wealthy suits on Wall Street and around the world created the crisis, not the desire of low-income folks to maybe have a nice house to pass on to their kids.
But as we see so often, the argument from the banksters and their apologists in politics will be that we all should have known better, that Fannie and Freddie were “sophisticated investors” and should have been able to foresee that bankers were lying to them.