TEXT OF INTERVIEW
JEREMY HOBSON: Now to the ongoing mortgage documentation issue that's causing a lot of concern about some of the nation's biggest banks. We hear this morning that the FBI is looking into whether criminal laws were broken by banks that may not have complied with documentation requirements when ownership of mortgages was transferred. Dan Greenhaus is chief Market Economist at Miller Tabac. He joins us live from New York, good morning, Dan.
DAN GREENHAUS: Good morning. How are you?
HOBSON: Very good, thank you. The reason, Dan, that many people are concerned about this issue is that if banks end up having to buy back a lot of mortgages and mortgage backed securities that they thought they had sold that we could end up in another financial crisis. What's your take on how this story and how it's unfolding and how big a problem this could be?
GREENHAUS: Well, certainly in a worst case scenario event it could be quite damaging to several of the larger banks, Bank of America being the name that's mentioned most frequently right now.
GREENHAUS: And in those types of situations you're talking about a loss of somewhere around $30- to $90- billion depending on who's doing the estimates. But it's important to remember that this is not a loss that will be taken in one fell swoop, that would require $90 billion in equity or capital injections, but rather a multi-quarter or multi-year process. That certainly hurts the banks and hurts earnings, but maybe isn't necessarily a crippling event.
HOBSON: It's not enough to bring them to their knees.
GREENHAUS: Well, in some cases it might be, and I would defer specific bank analysts on which banks that would be, but I think whenever you hear $50-, $60-, $70- billion as a potential loss scenario it is quite large and would require in many respects the banks to tap the capital markets.
HOBSON: And briefly, Dan, Washington is obviously in a tricky situation here. They want to make sure that they are being tough on banks that broke the law, but they don't want to put the financial system in jeopardy again. What's your take on their role?
GREENHAUS: Well I mean of course if laws were broken, as tax players, in many respects that saved some of these banks, we want to find out the extent of the law breaking and the damage that would ensue, but at the same time we have to balance that against the fact that a lot of these banks are not in the healthiest position and pushing them to the brink of bankruptcy or over the brink isn't necessarily in the immediate sense in the nation's best interest. But at the end of the day, if laws were broken then laws were broken.
HOBSON: Alright Dan Greenhaus, thanks so much.
GREENHAUS: Great, thank you.
HOBSON: Dan Greenhaus is chief Market Economist at Miller Tabac.