I could barely suppress a laugh when reading about Bank of America CEO Brian Moynihan begging Tim Geithner to settle the foreclosure fraud issue so they can get out from under their liability. As Yves Smith points out, if Tim Geithner had the power to get Bank of America out of their mess, he surely would have done it by now, before their stock dipped 36% in the last three weeks. Geithner simply doesn’t have jurisdiction over state courts, where many judges are simply not going to allow foreclosures when standing to foreclose cannot be proven (Moynihan apparently distinguished on a conference call between “states where foreclosure can take place” and “states where foreclosure is going through very slowly,” and he might as well have been distinguishing between states that respect the rule of law and states that don’t). Geithner may try, but he cannot compel Attorneys General in both parties to settle for pennies on the dollar and relinquish all of their liability for consumer protection violations and fraud upon state courts. He cannot influence investors who see a giant meal ticket in the form of forcing big banks to repurchase faulty mortgage backed securities. If there was a magic bullet in this debacle, it would already have been fired.

The problem is enough AGs are proceeding with mortgage lawsuits against banks so as to render that advantage moot. New York’s Eric Schneiderman is moving ahead in a very systematic way, and Delaware’s Beau Biden seems to be moving in concert. Massachusetts’ Martha Coakley is also pushing ahead, albeit on different mortgage issues. Nevada’s Catherine Masto has a major anti-Countrywide suit outstanding that she has no intention of dropping. Kamala Harris in California has nibbled at some foreclosure related issues and may proceed on a broader basis. Colorado’s John Suthers is apparently also likely not to participate in the settlement, which means he may file litigation.

Moreover, any state AG settlement does not restrict private parties’ rights to sue. It won’t stop the $10+ billion AIG action against Countrywide, nor will it bar the various private efforts to derail BofA’s $8.5 billion mortgage settlement. And it will not stop borrowers from using chain of title issues to fight foreclosures.

Best part of this article was learning in the last line that Lawrence DiRita, a former spokesman for Donald Rumsfeld, now flaks for Bank of America. Poetic.

So having figured out that the Feds cannot come riding to the rescue with another back-door bailout, Bank of America has settled on Plan B. They’ve decided to smear the AGs who are doing their job.

And they’re doing it in a very roundabout way. They’ve trotted out Kathryn Wylde, the President of the Partnership for New York City, to attack Eric Schneiderman for his intervention in the Bank of America settlement with investors over mortgage backed securities. Wylde is going to bat for BofA as well as the Bank of New York Mellon, the trustee for the MBS in the settlement. And she is actually arguing that Schneiderman, by defending the rights of investors and seeking the truth on out and out securitization fraud, is threatening the existence of the financial sector in New York City. No, really.

A BNY Mellon spokesman told me the bank didn’t want to comment on the broader implications of the AG’s filing, but directed me to Kathryn Wylde, CEO of the Partnership for New York City, a business development non-profit. She said that the AG’s “careless action” hurts New York’s standing as a financial center.

“It’s disappointing from the standpoint of the business community that the AG would make a fraud accusation against a major financial institution — in the press,” she told me. “And to not have any consultation with the institution? The bank was blindsided by what appears to be an outrageous charge.” (The AG’s press office didn’t respond to my request of comment.)

BNYM DIRECTED the reporter to Wylde, incidentally. Wylde has done this before, back in November 2009, arguing that breaking up big banks would hurt New York City. This would be outrageous enough on its own. But Wylde happens to sit on the board of directors for the New York Federal Reserve (sub. reqd.).

So you have a board member for an federal overseer of banks on Wall Street (Wylde claims that the NY Fed “serves no regulatory function,” which is just absolutely not true) attacking a state regulator for stepping into a settlement where he has found massive fraud in a preliminary investigation. She’s taking up for BNYM, which the NY Fed oversees, against the state Attorney General. This is just a classic case of regulatory capture.

There’s almost no way this is not coordinated. Wylde is pretty powerful in New York circles, I understand, and she’s raising fears of a slowdown to New York City’s main economic engine to stall regulatory oversight. The banks must continue looting, the story goes, or they’ll stop creating jobs in Manhattan. I don’t think Schneiderman is likely to fold under this attempt at pressure, especially because the evidence keeps moving in his favor, rather than the other way. The New York Post, of all papers, has a damning story on this today.

In a staggering 92 percent of the claims brought by creditors asserting the right to foreclose against bankrupt families in New York City and the close-in suburbs, banks and mortgage servicers couldn’t prove they had the right to kick the families out on the street, a three-month probe by The Post has shown [...]

The Post dug through more than 150 Chapter 13 bankruptcy filings from June 2010 in New York’s Eastern and Southern federal court districts — covering the five boroughs, Long Island and nearby northern counties including Westchester–in search of local foreclosure or pre-foreclosure cases. We then put together a random sample of 40 cases where creditors such as banks — but more often loan servicers — filed proofs of claim for first mortgage debt.

The research unearthed claims riddled with robosigners, suspiciousdocuments and outrageous fees. And in a stunning 37 out of 40 cases, The Post discovered a broken chain of title from the original lender to the company now making claim against a local family for its home and thousands of dollars in questionable fees.

This is essentially the same investigation that Abigail Field undertook for Fortune a couple months ago. The New York freakin’ Post now joins Fortune in having done more of an investigation into foreclosure fraud than the 50-state foreclosure fraud task force.

But some of the AGs who believe in their job description are starting to catch up here. And try as the elites and oligarchs might to stop them, a tipping point is being reached where the public may understand just how much the mortgage industry wrecked the system of private property in this country.

UPDATE: Clearing up something from up above – Wylde specifically claimed that the board of directors of the NY Fed serves no regulatory function, not that the NY Fed itself doesn’t. She’s on solid ground with that statement, which I misinterpreted. It hardly negates the position she’s put herself into with this attack. There is such a thing as appearance of impropriety. And Wylde has played this game before, equating any regulatory effort on a bank to destroying New York City. And that’s not in any way above board.