Buffet is swimming in more Bank of America cross currents than an ocean salmon fighting his way up the Rogue River to spawn.
Buffet's announcement today of a $5B investment in preferred shares of BOA is a monumental event in a raucous day on the stock market. Despite the gyrations today, partly on European news and party positioning for Bernanke's speech tomorrow, Buffet's actions should have near term favorable implications for BOA, bank stocks in general, the stock market in general, and as all boats are lifted and affluent consumers step up to the Christmas season, the re-election of Obama--and the pressures on Ben Bernanke.
Bernanke has just had a FATWA issued against him by PIMCO. "No more Quantitative Easing, Ben, on fear of the death of your reputation and perhaps worse if you travel to Texas." As the stock market, as opposed to the bond market, has been trying to intimidate Bernanke all week ahead of his speech tomorrow in Jackson Hole, Wyoming, the little personal relief rally offered Ben by Buffet is probably welcome news. In other words, Ben won't have to do QE3 in order to protect the stock market.
Buffet's investment comes at a time when BOA's future is uncertain by virtue of the attempts to settle grievances from the mortgage loan crisis in the global deal being proffered by 50 state Attorneys General, the Obama administration and Ms. Kyle, the board member of the Fed who supposedly represents the public, along with the New York Fed.
Enter Eric Schneiderman, Attorney General, N.Y. Schneiderman, who was just kicked off the Settlement Committee, has just filed to block a settlement regarding Countrywide of 8.5B, which is separate from the overall settlement, engineered by BNY Mellon. Additionally, Scheiderman has countersued BNY Mellon in what is a far reaching event in and of itself not to mention it possibly undermines the global settlement of which BOA is a part.
In an interview today on Bloomberg radio, Chris Whalen, a name on the Street, argued that Judge Kapnick has a very heavy responsibility. Schneiderman has directly accused an MBS trustee, MBY Mellon, of fraud. What is at stake, according to Whalen, are the securities laws of New York state, which underpin the entire financial industry in N.Y. What's more, Whalen broached the subject of whether the eventual outcome of real litigation against BOA, instead of a sweet heart deal, could bring down the bank as we know it. In other words, bankruptcy and reorganization. I assume all of this has been figured into Buffet's calculations, after all he once bet on the possibility of earth quakes in California.
I still believe in fantasy, particularly one where I swim upstream to breed and leave the planet knowing that wrongs have been righted:
The judge blocks the 8.5 Countrywide settlement.
Schneiderman wins the suit against BNY Mellon
The BOA files bankruptcy.
BOA's morgage operations are sold to Wilbur Ross who receives a loan from the Fed to straighten the mess out and clear the mortgages.
Obama gets re-elected because he continued to receive contributions from people like me instead of the Wall St. types he is romancing with the global settlement on mortgages.
As for Buffet, he breaks even and eats an ice cream cone from DQ.