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 Oct 20, 2010 8:42AM

thestreetBy 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.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


Click here to follow Cramer's trades for his Charitable Trust.


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Oct 20, 2010 12:32PM
It's when banks, bankers and low-lives like Mozillo get away with things like they stand accused of that kills my confidence in the US Banking system. I reject the notion that somehow we are supposed to look the other way at the behaviors that got us to this point for the benefit of the economy. People are losing their homes, presumably because of their behavior. What are bankers reaping from this fiasco? Nothing, bigger bonuses, slaps on the wrist, endorsements from the likes of Cramer, saying lets leave them be so we can get back on track. Back on track to where? This same story 5 - 10 years down the road?
Oct 20, 2010 11:54AM
I think B of A and all the banks are probably guilty.  But I can not say that for sure.  So Mr. Cramer, you are right.  That is why we have a legal system. 
Oct 20, 2010 2:37PM
Cramer once again spouting off about something that he has no expertise in.  Why shouldn't B of A and all the other big banks have to buy back the fraudulent loans they sold??  I am not talking about all the loans, just the ones that were clearly fraudulent, "stated income" did not mean "made up income".  I have been a mortgage broker for over 12 years and did not do any stated income loans or any Fannie/Freddie loans, but I constantly lost customers to other companies and banks that were writing these loans and I know they were fraudulent because I had the verified income.
Oct 20, 2010 12:57PM
Cramer,  If I remember correctly you were quite the cheerleader when all this was going on.  As far as I'm concerned you have about as much of a credit problem as the banks have.
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