Sunday, December 25, 2005

My oppostion to Bank of America's request to the SEC to keep my proposal off the proxy.

above photo-- copywrite 2005--Mark Klein. All rights reserved.

(Below is my response to Bank of America's request to the SEC for a "no action letter" to block my shareholder proposal from appearing on the proxy ballot for a shareholder vote at the next annual meeting. The SEC should decide the dispute by the end of January, 2006. SEC 14a-8 (www.sec.gov) are the rules governing shareholder proposals.)
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Bank of America’s request for a no action letter is without merit because the proposal clearly falls within the purview SEC Staff Bulletin 14C (CF) exception to the ordinary business exclusion (14a-8(I)(7) because the proposal focuses on “sufficiently significant social policy issues…(which) transcend the day-to-day business matters.” Also, the proposal is not false and misleading.

To remove even the slightest scintilla of doubt as to the plain meaning of the shareholder proposal statement the “no” following “except as required by law” should be removed. (page 6--no action request letter)

"To protect and enhance the health and general welfare of children and adults the shareholders recommend BANK OF AMERICA not issue first mortgage home loans, except as required by law, greater than four times the borrower’s gross income."

I own Bank of America shares. I am a very seasoned, successful stock market investor for my own and family accounts, a licensed physician, and board certified psychiatrist with considerable rteal estate investment experience. Hence I am fully qualified to render an informed opinion on all the issues the raised in the shareholder proposal.

This proposal, a nonbinding recommendation, addresses the most critical issue facing American society today. Home prices have reached the point in my opinion where the level of indebtedness required to finance purchases undermines family stability and impairs the physical and mental health of parents and children.

Down here on Planet Earth housing costs are usually people’s greatest expense.

In addition to my investment experience as a physician and psychiatrist I’m fully qualified offer an expert opinion on the consequences of financial stresses on family stability, and its secondary medical consequences on adults and children when people are forced to work too many hours to meet their expenses.

REBUTTAL OF THE BANK’S ARGUMENTS 1-6
(commencing at bottom page 6)

ARGUMENTS 1-2:

In my opinion the housing price inflation is driven by unsound lending practices, commonly referred to as non-conforming mortgages. While the term technically refers to Fannie Mae and Freddie Mac mortgage securitization guidelines, the general public understands it as extremely generous credit offers which can jeopardize borrowers’ ability to repay should the economy slow, or property prices stabilize or decline. Googling “non conforming mortgages” today returned about 38,400 responses!!! Very evident from sampling the responses the general public understands non-conforming mortgages and its potential adverse consequences as I do.

Given the inherent illiquidity of real estate the availability of credit rather than other factors such as demand, desirability of home ownership, etc. is the primary determinant of price.

Bank of America either is either fooling itself, doesn’t understand the linkages between interest rates and the loan terms offered borrowers, or is hoodwinking the SEC with the argument interest rates are primary determinants of housing demand and prices. That would be true without non-conforming mortgages. But with them lenders can significantly decouple home prices from interest rate changes. That’s why loans today are often today advertised in terms of the monthly payment rather than the interest rate.

I think Bank of America knows exactly what it’s doing with non-conforming mortgages. It just doesn’t want the SEC to allow me to spill the beans to a sophisticated audience of shareholders and hopefully thereafter to the public.

ARGUMENT 3:

I am entitled to express the opinion “(t)he most pernicious non-conforming mortgage loan practice is issuing first mortgage loans in excess of four times the borrower’s gross income. I believe loans above that level are imprudent for the borrower and unsound for the lender.”
The bank adopted the standard totalitarian government argument because some shareholders may be unfamiliar with the mortgage securities industry no one should be allowed to vote on my proposal.

In my opinion most people understand personal gross income to mean the total from all sources before taxes. To believe otherwise is to believe people smart enough to buy Bank of America shares never filled out a 1040!

I reject the bank’s assumption the shareholders can‘t think for themselves.

ARGUMENTS 4 & 5:

I’m fully qualified offer an expert opinion on the consequences of financial stresses on family stability, and its secondary medical consequences on adults and children when people are forced to work too many hours to meet their expenses.

Home prices have reached the point in my opinion where the level of indebtedness required to finance purchases undermines family stability and impairs the physical and mental health of parents and children.

ARGUMENT 6:

I take strong exception to the assertion I am impugning the character of the directors and management. I was speaking only for myself about the moral standards I use to judge appropriate investments. Of course, it my hope more people would identify with my practices. Given John Dean called President Bush a “traitor” in the last election campaign, the Bank of America is being extraordinarily thin skinned.

I am not impugning the board or management by asserting Bank of America ought to display better corporate citizenship by curbing mortgage practices I believe unsound, and damaging to individuals and nation’s welfare. Just because Treasury Department and Federal Reserve policy allow them doesn’t mean Bank of America need blindly follow along.

For some time I have persistently and publicly criticized the underlying credit policies driving the housing price inflation. The attachments speak for themselves.

Unsound mortgage lending policies created a Potemkin Village sense of prosperity which underlies this very disturbing excerpt from this 12/1/05 New York Times article on the effects for Long Island young adults of the housing price inflation.


"We're the baby boomers who worked and played the system as best we could, but things are getting worse for this next generation, ratcheting up to where it is almost impossible," said Vilma Nuzio of Bellmore, who runs a church program for the needy.Her five children are grown now, but despite their college educations and seemingly decent salaries, Mrs. Nuzio said they cannot afford their own homes on Long Island. One son has already departed for North Carolina, and her other children are living with roommates...The younger generation's difficulty with the cost of living is reflected in another survey finding. Forty five percent reported rooming with others, primarily relatives, up sharply from 31 percent the year before."

If there was ever a shareholder proposal of significant social policy value, this is it!

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