Death Star Economics



BofA sued for $1bn+, Spain drowns in mortgage chaos

British GDP rose 1% from the second quarter, attributing 0.3% of national income to the Olympics and Paralympics. After Reuters reported yesterday that Germany was being sucked into the black hole of European economic performance at last, this could change the UK’s position in EU crisis negotiations. read article

The US government is suing Bank of America for at least $1bn in damages for selling mortgages of questionable, and more importantly misrepresented, quality to government organizations Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Any damages paid would go towards the 2008 bailout balance sheet of the two organization. The sales in question were facilitated by Countrywide Financial Corporation, which was acquired by Bank of America in 2008 for $4.1bn. According to WSJ:

The government is suing Bank of America under the Federal False Claims Act, which has become a popular tool for prosecutors seeking to hold banks accountable for alleged mortgage misdeeds and calls for triple damages when the government can show taxpayers were ripped off.

As sensationalist and public as the prosecution already is, it was probably fuelled by yesterday’s verdicts in the insider trading cases against SocGen’s Jerome Kerviel and McKinsey’s Rajat Gupta. Kerviel was sentences to three years and a fine of almost €5bn in France, while Gupta was sentenced to two year and a fine of $5bn.

In other news, Santander’s Q3 profits fell to 94% due to write-downs of bad Spanish property loans. Santander’s current exposure to bad loans in the Spanish real estate market remains 65%. read article

Spain’s effort to set up a bad bank, holding around €90bn in toxic real estate assets, seems to failing as well, because the bank would be too big to function. Those banks who would have a stake in said bad bank are already running on government support, making the whole business model less flexible.

The aim is to place soured real estate loans and other assets in the vehicle for as long as 15 years in the hope that, once cleansed of bad property bets, banks can resume lending and reactivate an economy mired in its second recession since 2009.

But the appetite for Spanish debt, financing by debt, financed by debt, financed by debt, seems low for some reason, increasing the risk of losses handed down to the tax payerread article

So long.


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One Response

  1. […] Spanish government is preoccupied with setting up a bad bank, so bad, in fact, that it might be too big and bad to function. Spain’s rescue fund FROB said the new facility, called SAREB (Sociedad de Gestión de […]

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