Matt Taibbi discusses his recent article, Bank of America: Too Crooked to Fail, on Democracy Now, March 22, 2012. Video with review.

[Loose transcription of interview on March 22, 2012 on Democracy Now]

In his new article, “Bank of America: Too Crooked to Fail,” Rolling Stone reporter Matt Taibbi describes how the Bush and Obama administrations have repeatedly helped keep Bank of America alive, propping it up with a $45 billion taxpayer bailout in 2008 as well as providing it with billions in “shadow bailouts” since then, despite Bank of America’s long record of what Taibbi describes as defrauding, quote, “everyone from investors and insurers to homeowners and the unemployed.”  Taibbi also recounts how fraudulent practices by Bank of America and other companies ravaged pension funds.  One hedge fund manager told Matt Taibbi of Rolling Stone that Bank of America’s mortgage fraud resulted in, quote, “one of the biggest reverse transfers of wealth in history — from pensioners to financiers.”  “Most people think of [the mortgage crisis] as some airy abstraction — you know, bankers ripping off bankers,” Taibbi says. “That’s not what it is. It’s bankers stealing from old ladies and retirees.”    

In February, the Obama administration announced Bank of America and four other large banks had signed on to a $25 billion mortgage settlement to resolve claims over faulty foreclosures and the mishandling of requests for loan modifications. President Obama described it as a landmark settlement. But is the settlement for the benefit of those scammed or the scammers?

The deal is narrowly only supposed to cover a small part of the problems with the mortgages that went on during the crisis. It is only supposed to cover robo-signing.  Robo-signing is the practice of a bank employee signing thousands of documents and affidavits without verifying the information contained in the document or affidavit.   Rather than actually reviewing the individual details of each case, robo-signers assume the paperwork to be correct and sign it automatically, like robots.

The banks were lending billions of dollars to companies like Countrywide to make loans all over the place to anybody with a pulse.  After these mortgage companies made these billions of dollars’ worth of loans, these Countrywide-type companies would then sell the loans back to a big bank like Goldman Sachs or Bank of America, who in turn would chop up these loans, turn them into securities, and ultimately sell them off to customers like unions and pension funds and foreign retirement funds all over the world. Because they were not like traditional bankers who would hold onto and service these loans over 20 to 30 years, they just simply stopped doing the paperwork on these loans. It was not cost-effective for them. Essentially they just completely stopped servicing the loans.  Only when they had to foreclose would they go back and try to reconstitute that evidence.  They would just assign a bunch of sort of entry-level people to make up affidavits so that they could go to court and foreclose on people. Of course, this was completely illegal. It was really a system of mass perjury. That is what this $25 billion settlement is supposed to cover, strictly the fraud in that one narrow area of this process. 

There are much, much bigger problems in the areas of creating loans and securitizing the loans. That’s where the real fraud occurred. The real fraud was when Bank of America or some company went to a union and said, for instance, “Here’s a whole bunch of mortgages we want you to buy. They’re AAA-rated. They’re all good.” And they left out derogatory information about how bad the loans really were. That was the real fraud. That supposedly is not covered by this settlement. But there’s some ambiguity about what this settlement covers. Some people think it does cover more than the robo-signing. And if it does, if there is a waiver for more than just robo-signing, then it would be an incredible giveaway to the banks. It might even be a bigger bailout than TARP. 

And this is, of course, extremely important to these pension funds, which were such huge investors, the California retirement and New York retirement funds, because they have all experienced huge losses. And now local government officials are reducing pension benefits because of the need to put in more money to these pension funds. So if they cannot recover from the fraud, it’s working people that are going to suffer in their pensions. 

That is what people don’t understand about this mortgage crisis. Most people think of it as some airy abstraction, bankers ripping off bankers. That is not what it is. It is bankers stealing from old ladies and retirees. That is what it is. They essentially went to pension funds, and they said, “Here’s a whole bunch of relatively safe, AAA-rated investments. AAA, that’s the same quality as United States T-bills or the sovereign debt of Luxembourg or something like that. It just earns you a little bit more, but it’s also AAA.” They bought this stuff. And then, a year or two later, they were looking at 30, 40, 50 percent losses. And that’s just money that’s coming straight out of the pockets of old people and retirees. 

Now, the problem is, are they going to be able to recover any of that money from the banks? With settlements like this, it just makes it that much harder for them to do that. And even though a lot of them have won settlements against these banks—New York State and New York City both won a settlement against Bank of America, $624 million—typically, it’s for pennies on the dollar. They only recover a small percentage of what they’re really owed. 

Matt Taibbi’s article contains a laundry list of illegal activities that Bank of America has been involved in, including a ripping off of the unemployed.  He asserts that there were a number of different scams they were involved with. 

According to him, one of the two most incredible scams involves municipal bid rigging.  In fact, Bank of America a couple years ago paid a $137 million settlement, because they were caught rigging the bids for municipal bond issues in at least 88 different cases across  25 different states. What this means is whenever some municipality, such as the City of Baltimore, wants to raise money, it would have to do it through an investment bank, and it is supposed to do it through an auction process, where all the banks compete to see how much they’re going to pay to get that business. Well, these banks have been systematically colluding and submitting artificially low bids, and there’s usually an insider on the municipal side who kind of games the whole process. They’ve been systematically doing this around the country for years and essentially cheating municipalities out of hundreds of millions of dollars in revenues that they would have otherwise gotten. That’s a big one. 

The other big one, that’s more of a recent story, is Bank of America has been accused, along with a number of other banks, of artificially suppressing LIBOR, which is the London interbank exchange rate. LIBOR is basically the exchange rate upon which all adjustable rate investment vehicles are based on: mortgages, credit cards, everything. They’ve been artificially suppressing LIBOR so as not to pay out as much to any investor who has a LIBOR-based instrument. There’s $350 trillion worth of investments are based on LIBOR. So they’ve been gaming the game, essentially. There’s really nothing that these guys haven’t been involved with. 

As mentioned above, Bank of America was cheating the unemployed.  The bank has a contract in a number of states to distribute unemployment insurance benefits. People would get a prepaid Bank of America card.  In South Carolina, it was discovered that if the people getting the benefits did not go to a Bank of America ATM machine, that they could pay fees as high as $10 for each time they went to either a bank or another ATM. 

And other states, like Iowa and Oregon, and churches, like the United Methodist Church, are experiencing similar issues with Bank of America.  When the banks were packaging mortgages, they offered a kind of guarantee to investors. They said, “Not only do we personally guarantee that these mortgages met our underwriting standards, we also agree that if any of these mortgages are defective or in default … at the time of purchase, we promise to buy those mortgages back. So don’t worry about it. Buy this stuff. If anything is wrong, just come back to us. We’ll pay you.” And a lot of these lawsuits, like the United Methodist Church, like the State of Iowa, State of Maine pension funds, they looked at the stuff that they were buying, and they found that a sizable percentage of these mortgages were defective. And they went to go get their buybacks, but suddenly Bank of America is not answering the telephone. And that is what a lot of these lawsuits are about. They are contractually obligated to buy this stuff back, and they are just not doing it. And so, that is another thing that people are worried about they might get out of because of this foreclosure settlement and other settlements like that. 

Occupy Wall Street, over the winter, wanted to put a specific face on some of the issues that they were talking about. You know, in the fall, people had a sort of abstract conception of what they were protesting against. They wanted to say, “Let’s take a specific case of a specific actor, and let’s show people what these companies are really all about.” And there was some discussion over what company they should pick. And the almost universal consensus of all the experts that they talked to was, “You should go for Bank of America, because they’re involved in everything,” you know, whether it’s ripping off student loans, to the unemployed, to pensioners, to depositors. Bank of America got caught systematically overcharging its depositors by $4 billion. So they organized a series of protests. And there’s a campaign afoot to try to get people to move their money out of Bank of America. And this is going to be something that they’re going to focus on for the immediate future. 

Given the laundry list of all of these illegal activities, the trillion-dollar question is why is the government and the Obama administration not shutting this bank down, instead of continuing to prop it up with federal support? 

There is a rationale that one can maybe see for supporting some other companies, some of these other “too big to fail” companies, because they might be functional, thriving companies with a little bit of help. Bank of America has consistently made bad decisions, in addition to all these corruption—all these activities that they’ve been involved with. Without government support, they would have been out of business absolutely in 2008, because of all the problems associated with Countrywide. They have needed massive government support ever since. 

Just last year, they were in a very delicate situation where a number of their counterparties and creditors were concerned about the massive flow of derivatives that were on Merrill Lynch’s books. They convinced Bank of America to move that stuff onto its own depository side so it would be federally insured. So now we’re all on the hook for all this stuff. And that’s another thing that—another way that they’ve used the government to get out of their private problems. It’s just there’s an ongoing support of this company, and I think our administration believes that they have to support these companies at all costs.

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