muses of the moment

September 4, 2011

US suing banks?

Filed under: The Banking Crisis — totallygroovygirlfriday @ 1:35 am

So, groovygirl has a raised eyebrow regarding this recent news that the US government is suing the major banks over mortgage securities. This just doesn’t sound right. Don’t get me wrong, gg thinks the big banks should be sued, but since when does the government suddenly decide to grow a pair?

Groovygirl is thinking a couple of things:

First, BAC just had that settlement with their major investors (that the government is trying to halt). It could be that the government wants to make sure that they get their cut before all the assets go to litigation settlements. A valid concern. This will eventually happen and will kill all the banks.

Second, it could be that the banks want the government to step in. The government can negotiate a settlement for everyone involved and order all other criminal or civil cases dismissed. The banks might think they have better control of the outcome in that type of negotiation rather than 1000 large lawsuits from global investors. If the banks think they will not get another bailout, they may think this is the next best option to try to save their asses. Or at least keep the legal expenses down on their balances sheets for a while longer.

Third, the government wants the banks to do something else, like take a haircut on mortgages or restructure or reorganize. And this will be leverage to make them do it.

So, although in the next 10 years, gg believes legal costs will end up bankrupting all major banks and force consolidations. Right now, we may just have another scam going on.

We shall see.

Regardless, just more re-arranging of deck chairs. The global banking system is broken.

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