Fed's case against B of A is weak
The lawsuit won't go to trial, but it undermines much-needed confidence in the American banking system.
By Jim Cramer, TheStreet
If you think Bank of America (BAC) is going to buy back those bonds, even if the Fed's involved, then you might as well forget the rule of law. Lots of bonds were issued, bought and sold by everyone during this period, and, believe me, the ones that BAC or its Countrywide unit packaged were no worse and most likely better than others.
I think that it is a way to get a little something back and that maybe, down the line, BAC will settle for some dollar amount that is probably not yet reserved but will be.
What bothers me about this is that, once again, it is the flipside of this administration and this era. Everyone at the Fed knows that once we hear the New York Fed is involved in the lawsuit, the government is no longer a neutral arbiter. The banks are bad. The banks knew everything was bad. The buyers of the bonds were good. They were innocent and did nothing wrong and did their own due diligence, but everything was fraudulent. In short, the buyers were snookered by crooks who committed real fraud against them and are going to have to spend some serious time in prison for what they did.
If that were true, though, why didn't they put Angelo Mozillo, the man in charge of Countrywide before Bank of America bought it, in jail? Why didn't they convict the man responsible for fraud and throw away the key? They got him to pay money and admit that he misled people. But is there a soul who has studied this case who thought it was an easy charge to put him in jail? And, yes, I think it matters that he didn't go to prison and will be dispositive if this BAC case ever gets to a trial -- which I am confident it won't.
I will grant you this about the lawsuit: Nothing could have been more poorly timed. It is almost as if someone set out to wreck Bank of America -- and with it take a further whack at the confidence of the American banking system.
I have yet to read an article about getting the economy going that doesn't start with the notion that it can't happen until confidence returns. We keep looking to the government to help build that confidence.
Instead, a branch of the government sues the nation's largest bank for fraud, knowing that if it wins the lawsuit BAC could be reduced to another Citigroup (C).
Fortunately, there are laws. Fortunately, there are judges. Fortunately, there are documents that will show that the case isn't strong.
In the interim, though, just more pain. As usual.
At the time of publication, Cramer was long Bank of America.
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