Bloomberg interviewed Harvey Miller, who is regularly described as the dean of the bankruptcy bar in the US. Miller handled the Lehman bankruptcy and is thus well positioned to opine on whether Bank of America might put Countrywide into bankruptcy.
You’ll notice that Miller studiously avoids saying anything terribly definitive. But he also makes clear that a BK filing for Countrywide would open up a shitstorm of litigation and has the potential to have serious adverse consequences for Bank of America. Oh, and it otherwise might not work as planned. It’s also interesting just as a matter of curiosity to see one of the prominent figures in the crisis perform.
From Bloomberg (hat tip Lisa Epstein):
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Since neither finance nor BK law are my background, perhaps I misunderstood the last part of the interview. My take on the last section was that BoA is using BK as a threat (or else hostage) to get waivers from liability.
In other words, “we’re *so* guilty that if the shit storm of liability claims is unleashed against all the leverage we did at 30:1+ odds, the entire economy will crater for five generations.”
Wasn’t BoA supposed to meet with the AGs today? Is it instead threatening to BK Countrywide as part of it’s legal strategy?
What did I miss here…?
That was exactly my thought. It’s the same strategy the sherrif employed in “Blazing Saddles.”
http://www.youtube.com/watch?v=upvZdVK913I
(from 2:40 onwards)
When Mel Brooks writes it, it’s funny. When BofA actually does it, it’s terrorism by too-big-to-fail banksters.
What about at the end of the interview when Miller said he wasn’t certain that Countrywide even was a systemically important financial institution, that it could be outside of Dodd-Frank? I wondered if he was signaling that that’s an ambulance he’d follow?
It sounds like BOA has moved assets from Countrywide to BOA. Seems to be it would be very difficult to take Countrywide BK without taking BOA down also. Sounds like a fraudulent conveyance to me. Of course I am not an attorney but have been involved with such things.
I’ve thought and argued that too. It looks like BofA stripped assets out of Countrywide shortly after the deal closed. Really unwise given all the obvious litigation risk (I wrote about it when the deal closed, it was friggin’ obvious). So they are plenty vulnerable. And the AIG putback suit against BofA has a long section saying why BofA is on the hook as well as Countrywide.
You could read Miller’s remark as being general, that people will litigate regardless of the merits (true) but here there is good reason to think any argument re BofA being liable would get a serious hearing. And that vitiates the advantage of putting Countrywide into BK.
I don’t know if this matters, but I had American Broker’s Conduit as originator. I sent a few payments to AHMSI servicer and then heard that ABC and AHMSI went BK. Allegedly, my loan was then transferred to Countrywide and I paid CW for awhile. Then I was informed that I was to pay Bank of America. 6 months later I was told I would make payments to BAC. One month ago I was told any payments should be made to BANA. What kind of game are they playing?
As an aside, I’m also wondering how assets in an active BK case (ABC and AHMSI) were transferred without permission of the trustee overseeing the case. I believe this was a CH7 and not a CH11 (an 11 is where they could have acted as their own trustee). Something is definitely rotten in Denmark.
Yves, that was the first thing that came to my mind – the AIG lawsuit and the allegations regarding BofA’s liability for Countrywide. There is no way BofA gets out clean on this one.
why isn’t mozilo in jail?
A quick read of the headline made me think the US had declared bankruptcy. It seemed odd the Indexes had ignored that.
When a bank the size of BofA tries to aquire Fleet, or MBNA, or when a bank the size of NB tries to buy a bank the size of BofA; can we all just agree, at least going forward, that it’s a bad idea? Has any legislation been passed to prevent this in the future?
no, because then Deutsche Credit Suisse Royal Barclays CCI of EurAsia would be able to destroy every american bank in international markets.
A bankruptcy filing for Countrywide would make BOA the target of a fraudulent conveyance lawsuit.
Sam Zell’s buyout of Tribune Co. provoked a fc lawsuit now in its third (?) year of litigation. That suit appears to have benefitted only the lawyers so far.
The unemployment rate for lawyers stands at 2.1%
and the median salary is 45k on a 100k debt load.
Cheap investment… the average family debt load today is also about $100K on top of close to 24% overall unemployment (according to shadowstats.com). Overall it looks to me like being a lawyer relative to other occupations is a very safe bet in today’s economy.
Is that with a mortgage?
Most lawsuits work that way: they tend, at the end of the day, to only benefit the lawyers. It’s one of the fundamental flaws of our system…
A quick slash of Occam’s Razor … and we get to the simpler conclusion that the BofA execs might be such dim bulbs that they actually truely believe that BK’ing Countrywide really *is* the solution to all their problems.
I have not read the bonds of BOA but usually bonds say that the BK of a subsidiary also puts the parent into BK. Another issue there.
The people who gained the most from the housing crisis, after those who already pocketed millions in the beginning are lawyers.
They are milking everyone. They are making out like criminals in the mediation process or the modification process as they garner no liability as conduit between banks and borrowers. The freely charge thousands of dollars to spend 30 minutes listening to bank BS and then if the bank tells anyone they don’t qualify for a modification and they can then re apply the lawyers count it as a success. Fraudulently claiming nearly 100% success rates in states where mediation is an option. The percentage of resolution from mediation is minute but lawyers are claim success in the high 90% ranges.
When will we hear the outrage over this ? The banks and the lawyers are in bed together on this both benefit from kicking the can down the road.
The banks ignore borrowers and they lawyers claim high success, people wanting to get a modification pay the lawyers 2 or 3000 a POP just to get the bank to pay attention and banks retain local lawyers and have no one with authority to sit in on mediation. It is a treadmill that is powered by banks delays and lawyer fees for no service.
It is ridiculous.
And OF COURSE Bank of America is holding the country hostage over its liability. I have been saying this until my face turned blue the past two years.
the longer we are in recession, the longer we are in a housing downturn the worse it will be for the country. Politicians know this and don’t want to lose their gravy train of money from the banks, the love the money. EVEryone knows sooner or later those fighting the banks as individuals will come to a point of having to move on for themselves or their families as they figure out being strung along by government BS and Bank BS is just to feed the lawyers and twist the arm of the public into caving once again to the banks just as they did with tarp. Free money to the bankers with just enough sugar on top to allow the lawyers to pile on and make their share while screwing those that deserve the most help….and those that have been betrayed by the system and the government after years of hard work.
Bank of America has a wing in the white house and in congress and our politicians are so cowardly that they wouldn’t say shit if they had a mouthful. Tea Party, dems and republicans all have so much in their mouth but have we heard a peep from them on this, or a peep to follow through and prosecute the banks criminals and they lawyer criminals? NO NOT A word. Have we heard anything from state reps or local reps against banksters and lawyers as they profligate? NO …..We are no longer by or of the people we are by or of the banksters and it is ruining the very fabric of our country.
Harvey Miller has the greatest sense of timing ever. When Weil’s bankruptcy practice goes into the dooldrums during the bubble he exists to Greenhill to reap millions as an MD. A couple of months before the bubble pops poof, back to Weil for a multi billion dollar bankruptcy fee time. Boom.
“Its a threat”
an expression of intention to inflict evil, injury, or damage.
My layman’s opinion is that they are and will remain to be tied together. If anyone decides to BK only Cwide it will the government acting to protect the system — just as they did by twisting arms to have Cwide acquired in the first place.
Pardon my simplistic analysis, but as an engineer, I will plead ignorance to details of BK law, and instead use a simpler analogy:
Zombie TBTF banks are a run away train. Feeding them more fuel (money) is not slowing them down (if anything it sped them up). Legal barriers aside, we are running out of time to stop these before they crash into Grand Central Station and make a bit of a mess.
And can somebody please tell Goldman Sachs that they’re wasting money on the ad campaign?
Ever time I see their ads, it just peals away the scab and pisses me off all over again.
Ditto.
The more of those ads I see, the more my scorn increases.
“peals away the scab” — love it, I hear the Wall Street bell clang = screaming pain
My mind was whipsawed from one mystery to the next, and none inspired confidence…
mk says:
“why isn’t mozilo in jail?”
It’s an energy thing. If you put the Masters of the Universe in jail politicians would have to expend energy courting a whole new bunch of thieves for their funding to stay in power.
That is why it is my firm belief that those bought congress critters will memorialize the MERS mess in the blink of an eye when the shit really starts hitting the fan.
POOF! Nothing to see here. A minor oversight. Move on now…..
IMHO if it was reasonably possible to do that it would already have been done. But land title issues are pretty much an inherently state matter. So it’s going to take buying a whole mess o’ state legislatures to do it. State legislators are generally cheaper, but there’s a whole lot more of ’em to buy.
Every time I hear the Stars and Stripes anthem I smell the sweet fragrance of bananas. It must be the anthem of The Banana Republic I smell.
Transcript for the video impaired:
I thought banks could not technically become bankrupt.
I was under the same impression Joe. I thought banks had some sort of inherit protection from bankruptcy. I guess this is not the case?