Question about Bank of America's balance sheet and its toxic assets

[steve2470]

I keep hearing about all the toxic assets on BOA's balance sheet. I took accounting in college and also finance, and maybe I daydreamed through this class.

I know that eventually, BOA either has to "collect" on those mortgages or dispose of them somehow.

Ignorant question: Why can't BOA have a horrible quarter and just "write off" all those toxic assets in one fell swoop ? Yes, that quarter of their financial year would be really bad for the investors but it would all be over. I must not understand how difficult it is to dispose of those toxic assets. I know a percentage of those mortgages could be paid off, but my information so far is that it is abysmally low due to Countrywide's predatory lending practices.

I bank there but I could care less if they live or die. I can always find another bank or credit union. I've just been curious. Thanks for your time.

[steve2470]

1. if anyone cares, here's an article on some of their options:

http://www.latimes.com/business/realestate/la-fi-moynihan-speech-20110913,0,854386.story

As I said, I could care less if they live or die. I'm only asking an academic question.

[xchrom]

2. There are no assets in the 'toxic assets'.

& it's enough to bring the company down - which is what should happen.

[dixiegrrrrl]

4. Good article this am on BOA current condition and issues:

http://www.latimes.com/business/realestate/la-fi-moynihan-speech-20110913,0,854386.story

[dixiegrrrrl]

3. They cannot dispose of them somehow.

The accounting you took in college is not the accounting that banks use these days.

The mortgages have been held, on the balance sheet, as having full value.
Remember all that resistance to "mark to market" a few years back?
When the banks all started "securitizing" the mortgages, they made up their mortgage bonds from pools of mortgages they KNEW were faulty, but sold them as good.

the collapsing mortgage market and the foreclosure fraud has now exposed both lies.
Yet, protected by our banker backed government, the banks STILL refuse an honest accounting of their assets, and are not criminally prosecuted for fraud.
In truth, they are all insolvent. Their own CDS blew them up.

Many people have refused to bank with dishonest banks.

[steve2470]

5. based on what we know about BOA, does that article lay out all the options ?

Do they have to go bankrupt or just be bought out by Chase or another bank ?

[dixiegrrrrl]

6. The third option, that they are trying to do, is dump the debt and live another day.

But right now all the banks worldwide are neck deep in debt, and unwilling to buy more.
Esp with Greece threatening default, which will really screw the global banks.

As the article says, BOA is trying to spin off ( sell) the CountryWide mortgage albatross it bought.
Dunno who would be willing to buy it, tho.

[DCKit]

7. Didn't Fannie Mae just (quietly) buy $4.7 ($47?) billion of BoA's toxic assets for $500 million? nt

[dixiegrrrrl]

8. The "value" ( cough cough ) was 73 billion.

According to a story on Aug, 10.....WSJ

"The deal, finalized last Friday, will deliver the rights to process and collect payments on a pool of 400,000 loans with an unpaid principal balance of $73 billion, people familiar with the deal said. The purchase price is more than $500 million, one of these people said."

In reality, the Daily Bail says it was a backdoor bailout, and explains why, here:

"Although the $500 million is a paper loss to BofA, in that the rights were "originally worth more," it looks like BofA is still getting a good deal because the portfolio's "value is expected to deteriorate further."

In fact, the deal is worth much more than $500 million to BofA, because getting rid of those servicing rights lifts a huge cost burden off BofA's shoulders. And if securitized loans are involved, which they most likely are, the sale also limits the BofA's potential liability to investors for its current servicing violations. Finally, the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to "deteriorate further," the goal of the intervention can only be to fix Bank of America's capital structure, which is easier for the government to do if it overpays for the rights.

In short, purchasing these servicing rights was another Troubled Asset Relief Program."

http://dailybail.com/home/bank-of-americas-backdoor-bailout-dumping-mortgage-trash-ont.html

[vets74]

9. We need detail on how much of this is Countrywide's mess.

Recall, guys, that BofA was the designated fall guy to step in and intercept the pending Countrywide collapse.

That move was done as a favor to FDIC and The Fed. And to the economy generally.

Now, BofA is looking at the Mad Hatter problem with faked documents, MERS (or is that MRSA ?), and decks of cards that want to go dancing. It's crazy over there. BofA had no idea they were taking over a criminal enterprise.

[dixiegrrrrl]

11. "BofA had no idea they were taking over a criminal enterprise."

:rofl: :rofl:


riiiight.....

I suggest you do a bit of reading up on BOA's own criminal enterprise in mortgages, which was going on before they inhaled Countrywide.

[DCKit]

22. Glad to be corrected by you any day of the year.

Really though, that much? Disgusting.

[DCKit]

23. Being fact-checked by you is always a pleasure.

I try to be reasonable, then you come up with the real numbers.

[Yavin4]

10. It's Called Counter Party Risk

BOA's toxic assets have counter parties to them in the form of CDS. So, if BOA writes off the mortgages, like you suggested, whomever holds the CDS on them would have to pay up, and they won't be able to. This would set off a chain of massive defaults across the globe.

[steve2470]

12. Thank you for explaining that, sincerely.

I knew there was a reason they didn't just write them all off in one fell swoop.

[Yavin4]

14. "Taking a Bath"

That's what you were thinking right. Yeah, that's old school, pre-Larry-Summers-Bob-Rubin era. In the old days, companies could just write off bad debts and keep on moving.

Today, because of derivatives, debt entangles multiple parties. So, when one goes down, it's like a dominos effect.

[steve2470]

15. Yea I was thinking old school.

I'm glad I come to DU to get better educated. I knew about credit default swaps and derivatives but still don't totally understand them.

[Hawkowl]

16. NOBODY fully understands CDS

How can anyone understand an imaginary, criminal, scheme based upon fraud and lies? CDS's should be outlawed.

[bemildred]

18. There is nothing to understand.

They are based in mathematical formalisms whose sole real intent is to mask fraud, to sell nothing as though it were something and get away with it.

[vets74]

19. Credit Default Swap =EQUALS= An insurance policy on bond interest payments

The odd thing, these insurance policies are placed outside state-level insurance law.

-- No reserve capital requirements are made on the CDS issuers. All other insurance policies in the United States are backed with insurance company reserves.

-- CDS issuers are not required to be licensed as insurance companies.

-- Ratings for CDS instruments have a troubled history. Outright bribery in the form of 10-times-normal fee payments went out to Fitch, S&P, and Moody's for these insurance policy's underlying incoming-revenue-stream mortgage packets. Those rating bribery payments went on for at least 4 years -- pushing total the number of "AAA" Rated assets up from 2,500 to 4,000.

Wonderful people. Pillars of the community. Republican organized crimesters all.........

[Yavin4]

20. And You Don't Have to Even Own The Asset In Order To Get A CDS on it

It's like buying fire insurance on your neighbor's house, and then giving their toddler matches to play with.

[vets74]

24. Yes, indeed. No state insurance regulator would allow these pension fund scams.

These "credit default swap" contracts were invented specifically to leverage bribery-driven creation of "AAA" financial instruments. The Goldman, Sachs and Credit Suisse criminals set up multicompany criminal enterprises. These RICO-eligible enterprises paid 10-times the normal rating fees to Fitch, S&P and Moodys. The number of "AAA" instruments was run up from 2,500 in 2003 to 4,000 in 2008.

Yes, these are insurance contracts.

Yes, insurance regulators require reserves to cover losses.

Yes, insurance regulators require use of standard terminology for contracts.

Yes, the Grand Wizard of Slime Larry Summers ran the enabling legislation through the Clinton Administration.

Yes, state regulators were taken out of the loop -- eliminating reserve requirements and abrogating common law fraud (so it is claimed.)

Yes, there was no need for a Grand Wizard of Slime on the Republican side. They are the All Slimes.

Pension funds for unions and employee groups were jacked for trillion of dollars.

If this il furto di panka (पङ्क) had happened in the 1930s -- during the shooting wars between industrialists and unions -- the major news items would not involve much talk. Guns and large bombs, more like it.

[zippytheplatypus]

13. plus beyond that writeoffs would collapse property values for everyone else n/t

[Turbineguy]

17. A lot of former Countrywide people should be in jail.

And B of A should not have bought Countrywide. Too late now.

As a wise Chinese Philosopher might say: "Man with small penis should not run big bank."

[Yavin4]

21. Imagine Stealing $600 Million

then negotiating your "punishment" with the police for $67 million.

Angelo Mozilo did just that.