Yesterday, Bank of America fired off one of their biggest settlements yet, spending $2.4 billion to quiet claims with investors over their purchase of Merrill Lynch.

As Lehman Brothers failed in September 2008, Bank of America agreed to buy Merrill Lynch. But in the weeks after that agreement, the bank tried unsuccessfully to scrap the deal. Merrill Lynch generated more than $15 billion of losses and its executives agreed to award employees up to $5.8 billion of bonuses.

Bank of America’s shareholders voted to approve the deal in December 2008. After the merger closed, Bank of America shares fell sharply, and investors sued, saying Merrill’s losses and bonuses should have been disclosed before the vote.

Bank of America denied the lawsuit’s allegations, but CEO Brian Moynihan said the bank agreed to settle to remove uncertainty and put the case behind it.

This was outright securities fraud, and I’m more than surprised that the investors plaintiffs, led by public pension funds in Ohio and Texas, accepted this. BofA clearly withheld information from their shareholders that caused a material loss; the stock is down 2/3 since the Merrill deal, even while the bank returned to profitability (though not this quarter, as we’ll see). But the investors had little leverage. The SEC should have been all over this, but they settled over the acquisition in 2009, in a settlement so bad that the judge made them rework it. In the end, the SEC got just $150 million for their settlement, and the fact that the investors got 16 times as much should truly embarrass them.

Incidentally, Ken Lewis was specifically sued in this case and would have been personally liable for withholding information, but BofA will cover his costs in the settlement, so he won’t have to pay a dime.

This is just the latest in a long line of settlements BofA has managed to negotiate over a string of fraudulent and abusive activity since 2009. In all, BofA has paid out over $29 billion, including the $11.8 billion in cash penalties and “credits” from the foreclosure fraud settlement. The other big number included in that, the $8.5 billion settlement with mortgage backed securities holders for repurchases, hasn’t been finalized yet. But it’s clear that Bank of America has become a waystation for abused parties to take out settlement money, rather than a lender allocating capital efficiently. And of course, given the inadequacy of these settlements, the real cost of Bank of America’s practices in the economy are much, much higher.

In fact, between this settlement, some tax charges and litigation expenses (none of that $29 billion includes legal fees), BofA expects to book a loss for the third quarter, years after the end of the financial crisis. While Merrill Lynch at least provided investment banking revenue, that acquisition and the Countrywide acquisition have been extremely problematic for the bank. Countrywide in particular has been the main cause for a loss in BofA’s mortgage business of $35 billion.

If it weren’t for a massive sell-off of assets and a government lifeline, there would not be a Bank of America today. And policymakers should ask themselves why they propped up a zombie bank so it could pay off its legal exposure and not much else.

Here’s your Friday evening edition of the news:

International Developments

❖ African Union “forces have launched a beach assault and taken control of parts of Kismayo, the last major stronghold of Somalia’s Islamist militants”, in an effort “to wrest control of the country for the new UN-backed president.”

❖ “Syrian rebels in ‘decisive battle for Aleppo’ as regime hits back in capital: Syrian rebels in Aleppo reach Kurdish PKK areas, allied to regime, while summary executions are reported in Damascus.”

❖ US and NATO troops are resuming “joint operations with Afghan forces”, halted because of recent killings by Afghan troops of US and NATO soldiers.

❖ Although they peaked in 2010, then decreased a bit, the number of “enemy-initiated attacks” in Afghanistan remained fairly constant between 2011 and 2012. Nonetheless, insurgent attacks increased by 1000, and homemade bomb attacks from 475 to 625 between July 2009 and July 2012.

❖ President Obama and Israeli Prime Minister Benjamin Netanyahu talked on the phone today, during which the “President reaffirmed his and our country’s unshakeable commitment to Israel’s security”. Mitt Romney intends to call Netanyahu next, perhaps because Netanyahu seems to have shifted toward Obama and away from Romney.

❖ In case you missed it, in his speech before the UN, Egyptian President Mohamed Morsi urged the body “to consider cracking down on expression that defames religions”.

International Finance

❖ Why’d the price of a barrel of oil jump $1.50 overnight on June 30, 2009? Because a senior broker of PVM Oil Futures, one Steve Perkins, “had managed to spend $520 million on oil futures contracts throughout the night”–during which he’d had a “drunken blackout”. Perkins was fined 72,000 pounds and “had his trading license revoked for five years”.

Money Matters USA

❖ The mortgage settlement “looks to be every bit as bad as cynics predicted.” An “acceptable level of theft” is allowable (nothing will be done in 1% of wrongful foreclosure cases); document fraud is unaddressed; much oversight function has been contracted out with “troubling conflicts of interest”; etc.

❖ Bank of America and CitiMortgage are trying a rent-back program announced in 2009 by Fannie Mae to help overwhelmed homeowners. If all the requirements are met (e.g., renting the home for an agreed-upon time period), homeowners give up the deed to their property and the lender, in turn, forgives the outstanding debt and promises not to foreclose. Bank of America has about 2,500 such arrangements, CitiMortgage about 500.

❖ Bank of America is shelling out $2.4billion to settle a 2009 class action lawsuit brought by investors over its acquisition of Merrill Lynch. More here.

❖ US Treasury Secretary Timothy Geithner wants the Financial Stability Oversight Council to start regulating money-market mutual funds just in case the Securities and Exchange Commission doesn’t “act in a timely and effective manner”.

Politics USA

❖ Bill Moyers’ teevee show this weekend will focus on ALEC (American Legislative Exchange Council).

❖ Seems President Obama will not entertain any “proposal to eliminate the home mortgage interest deduction”.

❖ Emptywheel has more on yesterday’s story about Mitt Romney and US torture policy.

❖ Mitt Romney’s counting on getting VA voters’ attention with a campaign about Lyme Disease?

❖ In the on-going will-they-or-won’t-they contest, the Princeton Election Consortium’s Phil Wang says, at this point, the Democrats just might re-take the House.

❖ A TSA security officer who ripped off more than $800,000 worth of stuff from air line passengers for 4 years, says it was “easy” since there is “lax oversight and tip-offs from TSA colleagues”. More than 400 TSA security officers have been fired for theft.

❖ Nakoula Basseley Nakoula of “Innocence of Muslims” film fame is now being held without bond in Los Angeles, CA. No bail; flight risk.

Health, Homelessness & Hunger

❖ AARP (American Association of Retired Persons) has an on-line petition available, telling Jim Lehrer to include a question about Medicare and Social Security in the presidential debate on October 3rd.

❖ 1.3 million Veterans Administration claims were filed in 2011, with 890,000 still pending. Vietnam veterans constitute nearly 1/3 of all new claims, while Iraq-Afghanistan vets constitute another 1/3, though the latter typically claim 9-10 disorders or injuries compared to 6 for their Vietnam counterparts. Costs are skyrocketing. The silver bullet? A new training regimen, a team approach to complex claims, and a new computerized system. Meanwhile, sick and disabled vets are waiting up to 2 years to get their claims processed.

❖ The Grand Canyon Institute studied the situation and it seems AZ could miss out on $1.2 billion in savings and 20,000 new jobs over the next 4 years, if it doesn’t participate in the Medicaid expansion program.

The War on Women

❖ Aetna Life Insurance Co has been fined $1.5 million by the MO Department of Insurance for “among other things, providing coverage for contraceptives without allowing employers to opt out and routinely providing coverage for elective abortions.”

❖ MO Republican candidate for the Senate Todd “Legitimate Rape” Akin seems to think it’s hunky-dory for employers to pay women less than men.

Working for A Living

❖ “An Ingham County [MI] judge on Friday struck down a requirement that long-term state employees contribute 4 percent of their pay to stay in a defined benefit pension plan as opposed to switching to a 401(d)-style system.” Republican Gov. Rick Snyder will no doubt appeal.

❖ Campbell Soup is closing its plant in Sacramento, CA by July 2013, eliminating 700 jobs. There are no plans to move the plant elsewhere. 70 workers in a Campbell spice plant in South Plainfield, NJ will also be losing their jobs as that plant closes in March 2013.

❖ 39% of likely voters polled say the CA public pension reform measure was “about right” while 18% said it “went too far”. Only 26% thought it didn’t “go far enough”, and 17% had no opinion.

❖ In a recent article results from statistical studies seemed to support the thesis that “seniority rules for teachers (the ‘last in, first out’ rule for layoffs) hurt student achievement”, a reason to dislike teachers’ unions. Mike Paarlberg, however, shows how the studies cited, did not support such conclusions.

Heads Up!

❖ 92 protestors in Grant Park in Chicago, IL last October had charges against them dismissed by a Cook County judge yesterday who ruled the city curfew law under which they had been arrested “violated their constitutional right to free assembly.”

❖ Austin, TX “violated the First Amendment of the US Constitution when it banned Occupy protestors from attending demonstrations in a public park” back in October of last year, according to a federal judge.

❖ There’s a call to Surround Congress in Madrid, Rome, Berlin, Brussels and Lisbon on September 29th.

Planet Earth News

❖ Sustainability in Prisons gets prisoners involved in rescuing imperiled species. Two men in Washington’s Cedar Creek Corrections Center–for robberies–have now raised 250 Oregon spotted frogs in the prison yard. A previous inmate-participant has almost finished his Ph.D. in molecular biology and a current one looks forward to pursuing degrees in bioengineering.

❖ Why our water bills keep going up-Up-UP: paying off bonds for repairs and upgrades; increases in energy, chemical, security costs, and even increases in pensions and health care for employees. The article concentrates on municipalities around the US and doesn’t look at the impact on overall costs of water consumed by businesses (including agribusiness), however.

❖ The Department of Energy’s Weatherization Assistance Program is a big success. Goal: weatherize 600,000 homes by the end of 2012. Achievement: 1 million homes have been weatherized already. Requirement: Household income equal to or less than 200% of poverty, though priority is given to those families with children or where the homeowner is elderly or disabled.

Break Time

❖ Is there a Nepetelactone addict in your home?

Everybody get on the commodity speculation train.

A federal judge today threw out the Dodd-Frank provision that empowered the Commodity Futures Trading Commission to set position limits on commodity trading. Judge Robert Wilkins said in his ruling that the CFTC did not prove the necessity of position limits to curb runaway speculation, and that the law itself did not “constitute a clear and unambiguous mandate to set position limits, as the Commission argues.”

Here’s the punchline: Judge Wilkins was appointed by President Obama in 2010.

CFTC already set the position limits, and they were weeks from going into effect in the oil, grain, coffee, gold and other markets, 28 in all. At the time, Sens. Bernie Sanders, Maria Cantwell and others called it weak. Under CFTC’s rule, a single speculator could still hold as much as 25% of all deliverable oil supply in any given month. But now there will be no rule at all, unless CFTC can come up with a better rationale. Judge Wilkins sent the rule back to the CFTC for “further consideration.” But this, of course, is how Wall Street rules get watered down. The initial rule wasn’t all that effective, and yet the industry managed to litigate that away. Any substitute would have to be even more compromised to avoid the ire of the judge. And at that point it becomes close to meaningless.

This was actually somewhat expected since back when Judge Wilkins first heard the case in February. It nevertheless comes as a blow to those who want to curb speculation in the commodity markets, which has been held responsible by analysts for a host of price spikes in oil and food.

The lawyer representing the industry trade groups, particularly the odious International Swaps and Derivatives Association and the just as odious Securities Industry and Financial Markets Association, in this case? Eugene Scalia, Nino’s kid.

I have a couple reactions. First, from Rep. Maxine Waters, poised to become the Democratic ranking member on the Financial Services Committee.

The CFTC’s rules are critical to protecting American consumers from increasing fuel prices, which are partly the result of excessive speculation.  Once again, special interests were able to delay and derail a key provision in Wall Street Reform that would protect the public.  I urge the CFTC to persist on a position limits rulemaking after conducting the further analysis recommended by the court.

And now the statement from Robert Weissman, the President of Public Citizen:

Excessive speculation on oil and other commodity markets is driving up prices for consumers. Goldman Sachs has suggested that speculation increases the price of a gallon of gas by 65 to 70 cents. Exxon CEO Rex Tillerson has said that speculation has maintained oil prices a third above what they would otherwise be [...]

The court held that Dodd-Frank did not, as the CFTC had concluded, establish an unambiguous requirement that the agency set position limits, notwithstanding briefs filed by many of the key drafters of the legislation explaining that the intent of the law was to require the CFTC to issue position limits.

The winners and losers from this ruling are clear: Wall Street wins, consumers lose.

This is the key point, you have a judge rewriting the intent of the framers of the law to suggest that they didn’t imply what they said they implied.

No word yet from CFTC if they plan to appeal.