December 6, 2010

WAIT, ARE YOU SAYING IT ISN'T ALL THE FAULT OF ACORN AND THE UNDESERVING POOR?:

WikiLeaks' Wall Street Bombshell (Charlie Gasparino, 12/06/10, Daily Beast)

While Bank of America is telling reporters that it has investigated a possible document leak and hasn't found any, one source who claims to have read some of the documents held by WikiLeaks confirms that they do in fact involve Bank of America. Adding to the mystery, however, this source says that they found it difficult to determine just what they mean. Given that Wall Street's straightforward business—buying and selling, borrowing and lending—now requires a math Ph.D. to understand, this shouldn't be too shocking. (The bank itself is so big and convoluted, insiders there admit, that a leak could have easily slipped by corporate security, despite the official denials.)

Still, while it appears virtually impossible for Assange to have the kind of dirt on Bank of America that caused such tumult for the diplomatic world—what kind of revelations, short of murder, would shock the world about Wall Street anymore?—speculation about it is still causing billions of dollars in damage.

Last week, when news of the possible WikiLeak attack first broke, shares of Bank of America fell more than 10 percent. It recovered later in the week, first after I reported on the Fox Business Network that BofA didn't have an "indication" of a WikiLeaks attack, and then after Goldman Sachs made positive comments about the performance of the entire banking sector.

But Wall Street traders understood that one potential "unknown" is very well known. Specifically, BofA's relationship with Countrywide Financial, the troubled "subprime" lender BofA purchased in early 2008. At the time, it looked like such a good deal: The financial crisis had yet to peak, Countrywide remained a major player in the mortgage lending market, and was expected to recover along with the economy.

But the economy, as we're all aware, didn't recover, and many of Countrywide's mortgages, focused on the least creditworthy borrowers, have fallen into default. And here's the problem for Bank of America: Its mortgage origination business, like the rest of that industry, probably witnessed rampant fraud during the bubble years. Banks made loans to borrowers without proper documentation of employment and other pertinent information. Since Countrywide focused on the low end of the market, the so-called subprime market where people who borrowed money have lousy credit histories, it's only logical to assume many of those loans were at least risky, if not made fraudulently.

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Posted by Orrin Judd at December 6, 2010 6:07 PM
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