First, let’s be clear. This two billion dollars is a buyback of loans that were sold to other firms as good investments when in fact they were missing paperwork or had more serious problems. This case settles a small portion of the “handful,” the “tiny proportion” of loans in which there were mistakes that everybody was assuring us was the case six months ago. Well, there are hundreds of thousands of these loans. They border on or are loans based on deception and fraud.

This payout doesn’t make much sense. Bank of American shares actually went up after the agreement was announced. So, we have to figure they were expecting it to be much worse or suffered anxiety over the uncertainty.

What really surprises me was that Wikileaks is supposed to dump a ton of Bank of America files on the web and the opposition negotiators didn’t wait for it. I would have thought that the release of the documents would have put Bank of America in a poorer negotiating position while quite possibly providing new insights into the loans themselves.

I hate it when public financial events don’t make any sense. I hate it because it doesn’t make sense only because I don’t know some of the players or the deals. In a year or two, I’ll probably have some insight into what happened but by then it will make no difference in what has become “ancient” history.

James Pilant

From CBS Money Watch –

Bank of America Corp. will take an approximately $2 billion charge in its fourth quarter as it settles buyback claims on home loans sold to Fannie Mae and Freddie Mac.

The deals with Fannie Mae and Freddie Mac are tied to Countrywide Financial Corp. residential mortgage loans. Bank of America bought Countrywide in July 2008.