Defendants systematically failed to fully evaluate the loans, largely ignored the defects that their limited review did uncover, and kept investors in the dark about both the inadequacy of their review procedures and the defects in the underlying loans.The office of New York Attorney General Eric Schneiderman • Discussing the fraud lawsuit filed against JPMorgan on Monday, regarding defective loans backing securities which allegedly cost their investors billions of dollars. The lawsuit involves a firm which was owned by Bear Stearns, which JPMorgan purchased in 2008 amidst the financial crisis. (JPMorgan would like to emphasize that the charges are “historic” in nature.) The lawsuit is the first action by the the Residential Mortgage-Backed Securities Working Group, a task force which is basically going back and taking on the faults that caused the financial crisis — years after the fact.
$2.43 bil. the cost of a legal settlement between Bank of America and shareholders source
This time the piper pays: A group of shareholders and investors alleged that Bank of America misled them in 2008 regarding the institutional health of Merrill Lynch, prior to its acquisition by BofA, hiding huge losses mounting on the floundering bank’s record. This is the largest class-action settlement to emerge from the financial crisis, and there’s a reason if companies seem so eager to settle – doing so can limit further action that might be taken by attorneys general, in this case New York AG Eric Schneiderman.
It is the worst deal in the history of American finance. Hands down.UNC-Charlotte finance professor Tony Plath • Discussing Bank of America’s buyout of Countrywide four years ago, which made the company one of the biggest mortgage lenders in the world just as the market was going bust. Gotta love the timing. The company has lost roughly $40 billion (and counting) on the deal, and its stock price, which once neared $40, closed at roughly $8 at the end of Friday trading. But on the other hand, perhaps it wasn’t all bad for the economy — see, the deal put Countrywide in the hands of another company which was slightly less likely to fail. While the deal was clearly a bad move for Bank of America, the economy might not have recovered as easily if Countrywide totally crashed and burned.
These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.Securities and Exchange Commission enforcement division director Robert Khuzami • Discussing the civil fraud charges that the SEC filed against six former top execs at Fannie Mae and Freddie Mac, charges that came about due to alleged misrepresentation of investors’ exposure to the subprime mortgage crisis. Lawyers for the six officials claim that the executives acted in the best interests of investors despite the allegations otherwise.
We must make it very clear to people that the current problem, namely of excessive debt built up over decades, cannot be solved in one blow, with things like euro bonds or debt restructurings that will suddenly make everything okay. No, this will be a long, hard path, but one that is right for the future of Europe.German Chancellor Angela Merkel • Arguing, amidst much jeering from leftist opposition parties, that Europe needs to change the way it approaches its growing debt crisis. Merkel argues for long-term fundamental change. “I’m convinced that this crisis, if a great crisis of the western world is to be avoided,” she said, “cannot be fought with a ‘carry on’ attitude. We need a fundamental rethink.” Merkel is facing a parliamentary vote later this month that could prove a great threat to her power, and her party is sinking in the polls right now. She suffered a setback earlier in the day after a court put strict limitations requiring her to get approval from lawmakers to grant future bailout aid to other European countries. source (via • follow)
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» This is both the largest consumer protection fine ever levied by the Fed and the first time the institution has punished a bank for nudging customers into subprime loans. There’s more to come, too; in addition to the fine, the order also “requires that Wells Fargo compensate affected borrowers,” although it’s unclear how this will work. It’s better than nothing, but $85 million just seems a bit low; as a point of comparison, the bank made $2.5 billion in the first three months of 2010 alone.
Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing.Sen. Carl Levin • Offering an assessment of a report that his subcommittee, which is searching for the causes of the financial crisis, released about the crisis. The report singles out Goldman Sachs, calling it a “case study” for the conflicts of interest that abound around Wall Street — specifically for betting against the very subprime mortgage packages it was selling. Levin also wants to bring perjury charges against Goldman’s CEO, Lloyd Blankfein, for his testimony in Congress last year. In other words, someone has watched “Inside Job.” The stock market is down on the news of the 600-page report. source (via • follow)