He’s Got the Whole World in His Hands
- Joshua M Brown
- August 24th, 2011
Which direction are the bank stocks ($XLF) headed? The answer is in the hands of one man. The lone holdout among the state AGs who has refused to cow to Obama’s “suggestion” of a mass-settlement in the mortgage/securitization case.
The action in the bank sector is a big part of the market’s tone these days, so I suggest getting yourself up to speed on this thing.
Matt Taibbi‘s got a fairly fact-driven post on the settlement all the banks (and Federal officials) are hoping to negotiate today:
This deal will also submarine efforts by both defrauded investors in MBS and unfairly foreclosed-upon homeowners and borrowers to obtain any kind of relief in the civil court system. The AGs initially talked about $20 billion as a settlement number, money that would “toward loan modifications and possibly counseling for homeowners,” as Gretchen Morgenson reported the other day.
The banks, however, apparently “balked” at paying that sum, and no doubt it will end up being a lesser amount when the deal is finally done.
To give you an indication of how absurdly small a number even $20 billion is relative to the sums of money the banks made unloading worthless crap subprime assets on foreigners, pension funds and other unsuspecting suckers around the world, consider this: in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.
So this deal being cooked up is the ultimate Papal indulgence. By the time that $20 billion (if it even ends up being that high) gets divvied up between all the major players, the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup , will be safely reduced to a single painful but eminently survivable one-time line item for all the major perpetrators.
But New York’s Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks don’t have a deal. They need the certainty of having all 50 states and the federal government on board, or else it’s not worth paying anybody off. To quote the immortal Tony Montana, “How do I know you’re the last cop I’m gonna have to grease?” They need all the dirty cops on board, or else the whole enterprise is FUBAR.
If there’s no deal, then everyone in bankland may have to scramble for more capital to satisfy The Street that they can withstand the lawsuits.
The question is, will Schneiderman stand up to the peer pressure or will he agree to throw in on one big deal…the near future of the XLF bank index (and possibly the market) will depend on which way he goes.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.