Monday, October 24, 2011

B of A Just Moved 75-Trillion Dollars In Risky Debt To The Tax Payers

I was reading the Humboldt Herald where they were talking about having a municipal bank and all the pros and cons but this post from Skippy just had to be shared.

skippy says:
This should be on everyone’s radar:
Potential losses on Bank of America’s massive $75 trillion book of risky derivative contracts has just been dumped onto the FDIC by the Federal Reserve.
HERE’s the short story, one you’ll certainly be hearing more of in the coming weeks:
BANK of America has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits– leaving taxpayers on the hook should things go sour. The Federal Reserve and Federal Deposit Insurance Corp., the two regulatory agencies overseeing the move, disagree over the transfers. The Federal Reserve said it favors moving the derivatives. The FDIC, which would have to pay off depositors in the event of a bank failure, is objecting. Bank of America, however, doesn’t believe it needs any regulatory approval whatsoever.
THERE are no losses– yet. Some analysts feel the company is preparing for bankruptcy. Bank of America stock, currently at $6.47, has been tanking for some time losing 50% of its share value in the past year alone. It has $1.04 trillion in actual deposits.
FIRST leaked by Bloomberg news this week, the originally secretive deal is now out in the open. Writing recently in the Rolling Stone magazine: ‘Occupy Wall Street—Washington Still Doesn’t Get It,’ Matt Taibbi noted:
“(BY) shifting… derivatives contracts onto its own federally-insured balance sheet… an irresponsible debtor, Bank of America, is keeping a loan shark from breaking its legs by getting his rich parents to co-sign his loan. The parents in this metaphor would be the FDIC. The FDIC naturally is not pleased with this development, but the Fed, the supreme banking regulator, is apparently encouraging this move. Here’s how Bloomberg characterized this move: ‘ In short, the Fed’s priorities seem to lie with protecting the bank-holding company from losses at Merrill, even if that means greater risks for the FDIC’s insurance fund.’
“AGAIN and again, the Fed proves it has no appetite for allowing Wall Street to eat its own pain, and continually encourages banks to stick the government with its losses and bad assets. This move will allow Bank of America to keep a Band-Aid over its disastrous financial situation far longer than it would be able to in a genuinely free market. People should be outraged at this development.”
THIS IS big news, folks, and we should be outraged. Is Bank of America Too Big to Fail?


  1. Bend over americans. Thought you'd already taken it in the shorts, didn't you? Let the market decide who takes it and who doesn't, right? Can you say 'bail out'?

    Well, I guess all americans have to take it. Unless you had bet on BofA dumping trillions of the bad loan juju on you. If you did make that bet, you will make gazillions. Or if you are a BankofA exec with a 4xquarterly mega-bonus for being so clever. Ain't capitalism great? Lets fight to keep this system, eh?

  2. Thanks, Tom. Readers can search ‘Bank of America derivatives’ and find out for themselves that the above column is quite accurate. It’s neither an overreach nor an exaggeration.

    But, exactly what were those derivatives? What are they worth? Why is the FDIC so adverse to this transfer? Why is the Fed pleased with it? We don’t have a clue. No one is saying a thing. Bank of America won't discuss it. The regulators are staying officially mum. Should someone— a congressman— start asking those involved questions about this transaction? It's one thing to be mum. It's another to be mum— or dishonest-- on the taxpayer's dime.

    One other small detail to keep in mind, courtesy of the SF Chronicle:

    It’s not as if the FDIC's deposit-insurance fund is flush with cash. It finally turned positive last June, when it finished with $3.9 billion of net assets, after seven consecutive quarters of negative balances. A surprise failure by even one community bank could easily wipe out that tiny surplus.

    The FDIC has only 3.9 billion in assets? Yoiks. Coupled with the above, this just doesn’t sound very good, now does it?

  3. Thom Hartmann said that another bank and maybe more were going to get in on this to the tune of 150-trillion dollars of risk transferred from the private sector onto the public sector. If this isn't proof that capitalism will destroy itself if we don't tell it how to behave, I don't know what is?


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