And the next AIG is... (Public Edition)

Reggie Middleton's picture

I have posted this warning of Bank of America's naked swap writing
to my subscribers a few weeks ago. Since BAC is reporting this week, I
have decided to make my suspicions public. 

As many of my subscribers 
and readers know, I have caught many companies on the short side as
they imploded. One company that I did not get was American
International Group. The reason it escaped me? I was too close to it. I
have met Frank Tizzio (then president), Maurice Greenberg (then CEO and
Chairman), and a several of their upper management to collaborate on
deals, and was impressed with the way they ran their shop. Because of
this, I didn't apply the same critical, skeptical eye that I used with
the other prospects. Alas, because of such, I overlooked the
inevitable, and in retrospect, the blatantly obvious. Well, I have
learned my lesson. The lesson learned from AIG was not wasted on me,
but does seem to have been wasted on many others. With this thought in
mind, let's review the net, unhedged swap exposure of a few of our
analysis subjects. I think a few of my readers may
have their eyebrows raised. Some things are actually hiding in plain
sight. I have made this short description of what I see as Bank of
America, the naked swap dealer, available for free download, but you
must register (I made the process very quick) to get it. I know it is a
pain in the ass, but I want to be sure that the disclaimer is
acknowledged by all who access the document. Thank our litigious
society. See BAC Swap exposure_011009 BAC Swap exposure_011009 2009-10-01 10:44:45 1.02 Mb.
I need for all to know that, in my opinion, bank reporting is quite
opaque, so it is not very easy to get granular information out of it.
The conclusions drawn from this post and the accompanying downloads are
derived from BAC's publicly available documents and are the result of
me and my team's best efforts to piece the information together. For
those who do not know of me, you can reference the "who am I"section
below to see how well this process has worked in the past. 

For the sake of nostalgia, here is an old post of Bank of America's estimated ABS inventory: BAC ABS Inventory ABS Inventory 2008-02-25 06:48:09 0 bytes

I will be releasing similar analysis of other banks and insurers to subscribers over the next day or two, and then to the public a day or two before their respective earnings announcement.

 The following is the bailout AIG story as excerpted from Wikipedia and annotated the BAC way by your friendly neighborhood blogger, Reggie Middleton, in bold, italic font:

Chronology of September 2008 liquidity crisis

On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permits firms with the highest credit ratings to enter swaps
without depositing collateral with its trading counter-parties. When
its credit rating was downgraded, the company was required to post
additional collateral with its trading counter-parties, and this led to
an AIG liquidity crisis. [Here's a quick glance at Bank of
America's current rating as compared to AIG's, both before and after
their "incident". Be aware that this is not my proprietary rating
(which would be substantially lower), but that of the oh so accurate
major rating agencies
. I doubt if they have taken this naked and unhedged exposure into consideration!

Click graphics to enlarge



AIG's London unit sold credit protection in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) that had by that time declined in value.[18] [The
lower quality assets are the most likely to decrease in value
dramatically. One should keep this in mind, for BAC has written $116
billion on non-investment grade (junk) credit derivatives and $3
billion in junk total return swaps. They have hedged, but not
completely. My calculations and estimates have BAC with a carrying
value of unhedged exposure of around $32 billion and a notional
unhdeged expousre of $348 billion
]. The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85
billion, to prevent the company's collapse by enabling AIG to meet its
obligations to deliver additional collateral to its credit default swap
trading partners. [Keep in mind that BAC just gave up its
government guarantee on the JUNKY assets acquired with the Merrill
Lynch acquisition. Merrill Lynch was one of the, if not the LARGEST
writer of CDS on Wall Street! BAC also bought Countrywide, arguably the
most wretched pool of subprime and underperforming mortgage assets in
this country.
] The credit facility provided a structure to loan as much as US$85 billion, secured by the stock in AIG-owned subsidiaries, in exchange for warrants for a 79.9% equity stake, and the right to suspend dividends to previously issued common and preferred stock.[16][19][20]
AIG announced the same day that its board accepted the terms of the
Federal Reserve Bank's rescue package and secured credit facility.[21] This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier.[22][23] [Well, we shall see, since Bank of America is currently the largest bank in America. We still have time to set a new record.]

AIG's share prices had fallen over 95% to just $1.25 by September 16,
2008, from a 52-week high of $70.13. The company reported over $13.2
billion in losses in the first six months of the year.[24][25] [Well,
green shoots is a sproutin'! AIG is currently trading at $44.33. I am
at a loss as to how anyone can justify such, but hey, people are still
buying Bank of America stock as well...
] The AIG Financial Products division headed by Joseph Cassano, in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. [Hmmm!!!
BAC has written protection $2.6 trillion notional, with $348 billion
unhedged (at least according to my calculations). For those "not to use
notional nitwits", that translates to $198 billion carrying value with
$32 billion apparently unhedged or written naked - just like AIG, with
one big exception. It appears as if BAC has one the machismo contest of
"mine is bigger than yours" with AIG - congrats fellas!
] Of those securities, $57.8 billion were structured debt securities backed by subprime loans.[26] CNN named Cassano as one of the "Ten Most Wanted: Culprits" of the 2008 financial collapse in the United States.[27][Well,
Ken Lewis, the BAC CEO, is not to popular around these parts  either. I
am sure the upcoming Cuomo/congress investigations will be juiced when
they find out that BAC is doing the AIG thing, just on a much larger
Just remember who you heard it from first!

As Lehman Brothers (the largest bankruptcy in U.S. history at that time) [Hey, I warned you guys about Lehman and Bear WAY in advance, just as I am doign ow with Bank of America - "Is Lehman really a lemming in disguise?" (Thursday, 21 February 2008) - Is this the Breaking of the Bear? January 2008 - Lehman rumors may be more founded than some may have us believe Tuesday, 01 April 2008 (be sure to read through the comments, its like deja vu, all over again!) - Lehman stock, rumors and anti-rumors that support the rumors  Friday, 28 March 2008 - Funny CLO business at Lehman  Friday, 04 April 2008]
suffered a catastrophic decline in share price, investors began
comparing the types of securities held by AIG and Lehman, and found
that AIG had valued its Alt-A and sub-prime mortgage-backed securities at 1.7 to 2 times the values used by Lehman which weakened investors' confidence in AIG.[24] [If
BAC is not careful, the market may have similar misgivings on how BAC
values its credit card recievables and mortgages held in off balance
sheet trusts. See our my findings on what may lay off balance sheet - If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 3 - BAC (the bank
] On September 14, 2008, AIG announced it was considering selling its aircraft leasing division, International Lease Finance Corporation, to raise cash.[24] The Federal Reserve hired Morgan Stanley to determine if there are systemic risks to a financial failure of AIG, and asked private entities to supply short-term bridge loans to the company. In the meantime, New York regulators allowed AIG to borrow $20 billion from its subsidiaries.[28][29] [Why ask Morgan Stanley? In 2008, they were "The Riskiest Bank on the Street".
I guess it takes one to know one! I ask my readers, is one of the
biggest banks in the country that then swallows the biggest brokerage
and at the time the sickest brokerage in the country right after
swallowing the biggest and sickest mortage lender in the country a
systemic risk if it fails? I bet a lot of you guys and gals can answer
that question for a whole lot more than the government paid Morgan
Stanley. I wonder, why don't these guys ask me my opinion? NY bloggers
don't get enough respect :-)

At the stock market's opening on September 16, 2008, AIG's stock dropped 60 percent.[30]
The Federal Reserve continued to meet that day with major Wall Street
investment firms, hoping to broker a deal for a non-governmental $75
billion line of credit to the company.[31] Rating agencies Moody's and Standard and Poor downgraded AIG's credit ratings on concerns over likley continuing losses on mortgage-backed securities. [Now,
this is just simply hilarious. With friends like the credit rating
agencies, who needs enemies? Think about the fire alarm that starts to
go off just when the smoldering embers of what use to be your house
begin to cool...
How much money has AIG paid the credit ratign agencies over the last 10 years or so?
The credit rating downgrade forced the company to deliver collateral of
over $10 billion to certain creditors and CDS counter-parties.[32] [Well, we shall see what will happen with that "other" bank] The New York Times later reported that talks on Wall Street had broken down and AIG may file for bankruptcy protection on Wednesday, September 17.[33]
Just before the bailout by the US Federal Reserve, AIG former CEO
Maurice (Hank) Greenberg sent an impassioned letter to AIG CEO Robert
B. Willumstad offering his assistance in any way possible, ccing the Board of Directors. His offer was rebuffed.[34] [And why wasn't this man's assistance accepted???]

Federal Reserve bailout

On the evening of September 16, 2008, the Federal Reserve Bank's Board of Governors announced that the Federal Reserve Bank of New York had been authorized to create a 24-month credit-liquidity facility from which AIG could draw up to $85 billion. The loan was collateralized
by the assets of AIG, including its non-regulated subsidiaries and the
stock of "substantially all" of its regulated subsidiaries, and with an
interest rate of 850 basis points over the three-month London Interbank Offered Rate
(LIBOR) (i.e., LIBOR plus 8.5%). In exchange for the credit facility,
the U.S. government received warrants for a 79.9 percent equity stake
in AIG, with the right to suspend the payment of dividends to AIG
common and preferred shareholders.[16][20] The credit facility was created under the auspices of Section 13(3) of the Federal Reserve Act.[20][35][36]
AIG's board of directors announced approval of the loan transaction in
a press release the same day. The announcement did not comment on the
issuance of a warrant for 79.9% of AIG's equity, but the AIG 8-K filing
of September 18, 2008, reporting the transaction to the Securities and Exchange Commission stated that a warrant for 79.9% of AIG shares had been issued to the Board of Governors of the Federal Reserve.[16][21][37] AIG drew down US$ 28 billion of the credit-liquidity facility on September 17, 2008.[38] On September 22, 2008, AIG was removed from the Dow Jones Industrial Average.[39]
An additional $37.8 billion credit facility was established in October.
As of October 24, AIG had drawn a total of $90.3 billion from the
emergency loan, of a total $122.8 billion.[40]

Maurice Greenberg, former CEO of AIG, on September 17, 2008, characterized the bailout as a nationalization of AIG. He also stated that he was bewildered by the situation and was at a loss over how the entire situation got out of control as it did.[41] On September 17, 2008, Federal Reserve Bank chair Ben Bernanke asked Treasury Secretary Henry Paulson
join him, to call on members of Congress, to describe the need for a
congressionally authorized bailout of the nation's banking system.
Weeks later, Congress approved the Emergency Economic Stabilization Act of 2008. Bernanke said to Paulson on September 17:[42]

this soap opera gets worse. Bank of America's bailouts have totaled
$168 billionos so thus far, and we haven't even addressed the naked
swap writing issue as of yet. Then again, BAC did buyout the Merrill
Lynch loss guarantee from the government after much wrangling. I don't
think this was the wisest idea, for they very well may still need it.
Again excerpted from Wikipedia

Bank of America received US $20 billion in federal bailout from the US government through the Troubled Asset Relief Program (TARP) on 16 January 2009 and also got guarantee of US $118 billion in potential losses at the company.[45]
This was in addition to the $25 billion given to them in the Fall of
2008 through TARP. The additional payment was part of a deal with the
US government to preserve Bank of America's merger with the troubled
investment firm Merrill Lynch.[46]
Since then, members of the US Congress have expressed considerable
concern about how this money has been spent, especially since some of
the recipients have been accused of mis-using the bailout money.[47] The Bank's CEO, Ken Lewis,
was quoted as claiming "We are still lending, and we are lending far
more because of the TARP program." Members of the US House of
Representatives, however, were skeptical and quoted many anecdotes
about loan applicants (particularly small business owners) being denied
loans and credit card holders facing stiffer terms on the debt in their
card accounts.

According to a March 15, 2009 article in The New York Times, Bank of America received an additional $5.2 billion in government bailout money which was channeled through American International Group.[48]

As a result of its federal bailout and management problems, The Wall Street Journal
reported that the Bank of America is operating under a secret
“memorandum of understanding” (MOU) from the US government that
requires it to ”overhaul its board and address perceived problems with
risk and liquidity management.” With the federal action, the
institution has taken several steps, including arranging for six of its
to resign and forming a Regulatory Impact Office. Bank of America faces
several deadlines in July and August and if not met, could face harsher
penalties by federal regulators. Bank of America did not respond to The Wall Street Journal story.[49]

is exactly what I am talking about when I say these institutions CANNOT
hedge their large risks. The number 2 derivative holder in the country
(Bank of America) and the number 3 derivative holder in the country
(Goldman Sachs) had to be bailed out by the government through AIG
(another large derivative holder) when AIG had just $10 billion dollars
in collateral calls that it could not pay. AIG was the largest insurer
in the world!!! The number 1 derivative holder int eh country (JP
Morgan) needed $90 billion or so in bailout monies when its major
counterparty failed - Bear Stearns. See
Is this the Breaking of the Bear?
January 2008 for how easy that was to see coming at least 3 momths in
advance! That circle of concentrated risk is even smaller now then it
was back then. Now 5 institutions hold 97% of the notional vale and 88%
of the market value in derivatives, and they are all basically in the
same business and all basically hedge with each other. It is not a true
hedge when the other side can't pay, and history has clearly  proven
how easy it is for the other side not to be able to pay. See a sampling
of my many posts on this topic:

  1. Any objective review shows that the big banks are simply too big for the safety of this country

  2. As the markets climb on top of one big, incestuous pool of concentrated risk...

  3. The latest OCC report shows an INCREASE in derivatives risk concentration

  4. An Independent Look into JP Morgan


Additional Bailouts of 2008

On October 9, 2008, the company borrowed an additional $37.8 billion
via a second secured asset credit facility created by the Federal
Reserve Bank of New York (FRBNY).[43]
From mid September till early November, AIG's credit-default spreads
were steadily rising, implying the company was heading for default.[44]
On November 10, 2008, the U.S. Treasury announced it would purchase $40
billion in newly issued AIG senior preferred stock, under the authority
of the Emergency Economic Stabilization Act's Troubled Asset Relief Program.[45][46][47]
The FRBNY announced that it would modify the September 16th secured
credit facility; the Treasury investment would permit a reduction in
its size from $85 billion to $60 billion, and that the FRBNY would
extend the life of the facility from three to five years, and change
the interest rate from 8.5% plus the three-month London interbank offered rate (LIBOR)
for the total credit facility, to 3% plus LIBOR for funds drawn down,
and 0.75% plus LIBOR for funds not drawn, and that AIG would create two
off- balance-sheet Limited Liability Companies (LLC) to hold AIG
assets: one will act as an AIG Residential Mortgage-Backed Securities
Facility and the second to act as an AIG Collateralized Debt
Obligations Facility.[45][47]
Federal officials said the $40 billion investment would ultimately
permit the government to reduce the total exposure to AIG to $112
billion from $152 billion.[45] On December 15, 2008, the Thomas More Law Center
filed suit to challenge the Emergency Economic Stabilization Act of
2008, alleging that it unconstitutionally promotes Islamic law (Sharia)
and religion. The lawsuit was filed because AIG provides Takaful
Insurance Plans, which, according to the company, avoid investments and
transactions that are"un-Islamic".[48][49]

Counterparty Controversy

AIG was required to post additional collateral with many creditors and
counter-parties, touching off controversy when over $100 billion was
paid out to major global financial institutions that had previously
received TARP money. While this money was legally owed to the banks by AIG (under agreements made via credit default swaps
purchased from AIG by the institutions), a number of Congressmen and
media members expressed outrage that taxpayer money was going to these
banks through AIG.[50]

Had AIG been allowed to fail in a controlled manner through bankruptcy,
bondholders and derivative counterparties (major banks) would have
suffered significant losses, limiting the amount of taxpayer funds
directly used. Fed Chairman Ben Bernanke argued: "If a federal agency
had [appropriate authority] on September 16 [2008], they could have
been used to put AIG into conservatorship or receivership, unwind it
slowly, protect policyholders, and impose haircuts on creditors and
counterparties as appropriate. That outcome would have been far
preferable to the situation we find ourselves in now."[51]
The "situation" to which he is referring is that the claims of
bondholders and counterparties were paid at 100 cents on the dollar by
taxpayers, without giving taxpayers the rights to the future profits of
these institutions. In other words, the benefits went to the banks
while the taxpayers suffered the costs.

Bank of America may very well give Ben Bernanke and the American
taxpayer an opportunity to find out if we have learned our collective
lessons. With the S&P pushing 1100 while practically all of the
problems from the period illustrated above remain extant, and if
anything exacerbated (ex. counterparty and concentration risk, credit
risk and asset quality concerns, and above all, government sanctioned
opacity in reporting), I doubt so very seriously.


Who is this guy, Reggie Middleton?

When I have sounded the alarm in the past, it made sense to take
notice. Look at who has failed over the last two years, and what I have
said publicly, months before each failure. 

                                                     i.     Is this the Breaking of the Bear?:
On Sunday, 27 January 2008 I made it very clear that Bear Stearns was
in a fight for its life and was in explicit risk of failure. Most sell
side firms had a buy on this stock at $185, and it had an investment
grade rating from all of the big ratings agencies. We all know what
happened two months later.

                                                    ii.     "Is Lehman really a lemming in disguise?":
On February 20th, 2008, I made the proclamation that Lehman was hiding
significant losses on its balance sheet. We all know what happened 7
months later. It had an investment grade rating from all of the big
ratings agencies.

                                                   iii.     At the inception of this blog,
I warned about nearly all of the homebuilders as well as issuing
explicit insolvency proclamations on the monoline insurers when they
had AAA rating and were trading in the $60 dollar range. We all know
how that story ended...

1.      A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton.

2.      Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion Market Cap

3.      Follow up to the Ambac Analysis

4.      Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility

                                                  iv.     I also warned
about the more generalized life/P&C insurers when they had AAA
ratings and were thought to be healthy. They have since converted into
a bank to run to the government for TARP funds and aid. See In case you haven't forgotten, I'm still bearish on the life insurance industry and scroll down for the relevant links.

                                                   v.     The current
regional bank failures were called out in the spring of 2008 with the
advent of the Doo Doo 32 list. They shortly started dropping like
flies, with investment grade ratings. See As I see it, these 32 banks and thrifts are in deep doo-doo! and "The Doo Doo 32, revisited".
Prior to this, in 2007, I made it clear that Washington Mutual and
Countrywide were probably done for (while they had investment grade
ratings), see Yeah, Countrywide is pretty bad, but it ain't the only one at the subprime party... Comparing Countrywide to its peer.

                                                  vi.     The list of
timely and relevant warnings can actually go on for some time. As a
matter of fact, after sounding the alarm on commercial real estate
exactly two years ago, and singling out the granddaddy of all
commercial real estate failures a full year in advance (General Growth
Properties was called out and shorted on this blog in November of 2007
as a general foreclosure case while it was the 2nd largest commercial
mall owner in the country trading above $60 - with and investment grade
rating, it filed for bankruptcy a year and a half later - see If only more rich heiresses read my blog for a full chronology).


I am not hard to reach, and can be found via the contact form at BoomBustBlog.

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Gilgamesh's picture

BAC barely getting nicked on their earnings miss...  Have to wonder what would possibly matter in this market.


Also, MTG doing nicely:

NEW YORK (MarketWatch) -- MGIC Investment Corp. /quotes/comstock/13*!mtg/quotes/nls/mtg (MTG 7.32, -0.16, -2.14%) on Friday said its third-quarter loss was $518 million, compared with a loss of $115 million a year ago. The loss per share was $4.17, compared to a loss of 93 cents for the same quarter a year ago. Total revenue was $413 million, compared with $462 million. Analysts polled by FactSet Research estimated, on average, a loss of $1.45 a share and revenue of $431 million for the mortgage insurer.

Anonymous's picture

Hey guys, if the Gov. could bullshit people forever there would have never been revolutions, economic collapses, etc.
To think BBB is smarter than anyone else who has tried this before is more of an wishful thinking than reality.

Anonymous's picture

Ok all together now short BAC!

Anonymous's picture

I just want to say that I love Tyler Durden, Marla, Travis, Cornelius, Sacrilege, and all the crew at ZeroHedge
and to thank them for taking the time to run this site.

If you guys ever feel that yours is a thankless job, remember the many of us out here who deeply appreciate your hard work.


Anonymous's picture

And what exactly does Middleton do that he would be collaborating with Hank Greenberg when he was CEO of AIG? Is he Sidney Poitier's nephew as well?

Anonymous's picture

Typos and Wiki graphic do not instill confidence in the analysis.

chinaguy's picture

I've been watching the yield on BAC paper drop for the last couple of months. Lots of folks ain't scared

Miles Kendig's picture

Hey chinaguy, Dead head and I were wondering.. Where to go for a decent read in China stats?  Any assistance would be most welcome.

Anonymous's picture

it is foolish to believe that any TBTF banks will in fact fail, even though they are insolvent because the fed and the treasury will not let it happen. there is a reason why all the secondarys where successful. ben the tim have guranteed that the equity will not diminished. READ BETWEEN THE LINES PEOPLE!

Prophet of Wise's picture

Arise, follow your conductor and fear no danger. For there is nothing to fear Comrade Citizen. For we are here to help you and to protect you and your children. We only want to offer you the aid an relief which you seek. Why what possible harm could we present to you? Hm, Comrade Citizen?


Rusty Shorts's picture

I do not subscribe to, or troll for

Can someone give me a character reference for Reinhardt over at



deadhead's picture

the story is he made a correct call on one of the big legs down last sept, oct, whenever on the google finance boards. he jumped on the opportunity to create his online advisory service.

i don't subscribe but check in now and then.  he has called for at least one or two meltdowns that have yet to materialize.  seems focused on health industry, currently wellpoint.  if i was a kazillionaire, i might toss the 720 buckies at him for entertainment purposes.  i think there is a mixture of fruitcake, jim jones, and koresh in there.

and if this is you, R, how about throwing out a free 60 day trial to zh'ers and we will spread the word after that time period?

Anonymous's picture

Despite what all the pundits say, the government can only backstop losses at the big banks up to a certain point. The FED and the Treasury have been playing games to make things look better by goosing the stock market (up, up, and away!), changing mark-to-market accounting rules, securitized cash for trash swaps, printing new money, etc., etc., etc... By papering over the cracks in the foundation, Turbo Timmy and Helicopter Ben are hoping folks don't notice the damage. All the while Cramer is shouting his latest stock picks at the top of his lungs.

The real story is that the government has done nothing to prevent another black swan event from occurring. In fact, what we have now is even higher risk concentration among a smaller number of large players. When C or BAC finally goes down, it'll take the others down with them. The CDS's alone will probably kill the lot of them. And Ben won't be able to print $$$ fast enough to cover the losses.

Anonymous's picture

It's the Obamafraud market. Change we
can believe in!

deadhead's picture

99862 said: "The real story is that the government has done nothing to prevent another black swan event from occurring"

Amen, amen to that.

Is there EVER going to be a time in the usa where we step back, admit our mistake, TELL THE TRUTH, work out a reasonable plan with definitive qualitative and quantitative standards, execute the plan, accept the pain along the way, and just fix the phucking problem?

probably not.  we seem to always wait until the ember becomes a raging wall of fire and then we bring out the garden hose. 

Anonymous's picture

Q. How do I know BAC will one day go under? Probably soonish?

A. Because ever since July 14th 2007, when the first Bear Stearns hedge fund went under and the slow train of economic collapse started blowing it's horn, I have known , as many have, that some gigantic bank has to go under along the way.
But wait, that's not the smoking gun here at all. That's just part of the setup to the smoking gun. The real smoking gun
is that


and really, if you knew me, then you'd know what I know.

Bank of America WILL fail because , goddam it, that's MY bank.

Signed Lovely,

Homer 'the dog poet' Simpson

"mmm, donuts"

Leo Kolivakis's picture


Love the analysis but try toning down the self-promotion. :)

deadhead's picture

it's not an everyday thing wherein i agree with Leo, but i do on this one.

people on zh are very smart and they will subscribe based on content, not self promo.

MsCreant's picture

I think there is more connect the dots to happen here. Throw Ken Lewis under the bus, after all he ratted out Ben and Hank. With BAC this vulnerable, I say why not let them blow up! Blame Ken (which may be on the money) for it all which helps discredit Ken in court, and use a BAC blow up to distract everyone from any kind of justice. Bonus, rescue those poor victims of Ken's and use them as a way to get money to all the people they have backstopped (through the CDSs), through the ole AIG style, lets use this corpse to pump money to the rest of them.

This way they don't have to monetize under our direct scruitiny for a while.

Is that a plan or what!!!!

Miles Kendig's picture

MsCreant, you forgot the potential effects of some well placed media speculation concerning Sun Trust or some multiples of regionals to spook the general population wile your supposition played out.  Remember, Holland just test drove this to a T this past week.  This would be a well timed play to effect the discussion on audit the fed, the BBG FOIA suit and potentially FASB 157.  Remember, the keystone of the governments argument is that too mush information would cause systemic instability and lead to bank runs.  Why not put it all on Lewis/BAC and provide a prime vehicle to carry the governments water....

What have I become...

Miles Kendig's picture

Amen sister {:-

I cannot repair....

As their blade chips and shatters

Cheeky Bastard's picture


+200 fucking quadrillions for the song

simply awesome

Anonymous's picture


Did your family originate from Yorkshire?

Josey Wales's picture


Thanks for the post, I've been reading your stuff for a couple of years on and I always like your commentary.

Josey Wales

Miles Kendig's picture

BAC is being a good bitch and doing the business JPM & GS refuse to.  Was anyone stupid enough to tell BAC to do this on a monitored transmission?  Inquiring minds would like to know.

Good work Reggie.

Anonymous's picture

US laws forbids a person from spreading rumours about bank run on deposits... But, i 'll like to state this fact-The ONLY way to show how insolvent these TBTF banks are, is a massive bank run on deposits!

Its only under this scenario, these TBTF zombie banks have to liquidate or unwind their toxic impaired assets at FAIR value. Now who says MTM acctg has to be relaxed huh??

Karma on relaxing MTM acctg rule will come back to haunt these zombie banks someday, be patient...

Gd work Reggie.

Anonymous's picture

Forced unwinding of assets does not represent fair value pricing genius - but thanks for the heads up.

Anonymous's picture

Anyone who does not realize the big money banks are fundamentally insolvent and playing shell games has simply not been paying any attention for the past 12 months. Those investing their money in these companies either have supreme arrogance, adequate inside information to be able to get out before the bomb drops, or practically criminal levels of naivete about this system's ability to correct itself (but it ALWAYS works out...!). I imagine there are some of every stripe included in these shares.

Cheeky Bastard's picture

McGriffen is true. LEH could not have had a FED backstop simply because LEH was not a bank holding company;and thus had no FED or FDIC backing. GS tried not to re-define itself as long as possible, but Blankfein finally said yes when Cohn told him that they are basically fucked up if they dont. If LEH have had a FED backstop you would probably be trading its stock today. If LEH have had FED backstop Bob Diamond would buy it at the very same moment the deal was on the table, but could not do so because he had to wait for the British regulators to clear the purchase because LEH was not a bank holding company.

deadhead's picture

McGriffen is true. LEH could not have had a FED backstop simply because LEH was not a bank holding company;and thus had no FED or FDIC backing. GS tried not to re-define itself as long as possible, but Blankfein finally said yes when Cohn told him that they are basically fucked up if they dont. If LEH have had a FED backstop you would probably be trading its stock today. If LEH have had FED backstop Bob Diamond would buy it at the very same moment the deal was on the table, but could not do so because he had to wait for the British regulators to clear the purchase because LEH was not a bank holding company.

well said cheeky.

I recommend to all that you should immediately be reading "house of cards" by william cohan (sp? possibly) and "a colossal failure of common sense" which is the lehman story by insider larry mcdonald. two GREAT books on many levels. 


McGriffen's picture

CB, it's possible that Korea Development Bank could have bought em in August.  Then it's someone else's problem...woo hoo

deadhead's picture

as i recall, Korea Dev Bank just kept dicking around on it and couldn't come to a decision....

Miles Kendig's picture

I sent it it TD and he put it on the daily a while back.. 2 or 3bnUS to start, fully private...

Miles Kendig's picture

I think it quite likely that was a suckers play driven by the desire to the Korean sector to get the government behind them without impeding the private sector initiative to hide the worst action in a separate entity.

It worked.

Anonymous's picture

Reggie, your post could be improved immensely with a little editing for grammar and spelling. Sorry.

chinaguy's picture

yes spell check is a wonderful thing. The grammer check is harder LOL

McGriffen's picture

LEH did not have a FED back-stop.  Lehman's primary regulator was the SEC, which really had no power to resolve LEH's bankruptcy in a receivership.  LEH did have access to primary dealer funding alternatives, however.  Under the holdco they operated a bank, but broadly speaking not so much

LEH was not a bank.  But once they failed, MS and GS saw the "light" in converting to BHC status.  hello FED regulators, daddio

Reggie Middleton's picture

Maybe I'm wrong, but as I remember it the FEd open up its discount window to investment banks the day after Bear Stearns filed for bankruptcy. Thus, LEH did have access to the Fed window, BSC didn't. Hey, I'm not a historian, so correct me if I'm wrong.

This is also simply an academic argument over semantics. BAC is a bigger investment bank than LEH and BSC. Let's not play games here. BSC, JPM, etc. are not true commercial banks, in the traditional sense. Taking them into receivership will have broader consequences than taking BSC and LEH. Even if this was not the case, to date, how many multi-billion dollar banks have went under with customer deposits, Fed backstops, etc? it is not like having a bank having access to Fed facilities prevents it from going under.

This too big to fail theory was always bullsh*t to begin with.

Miles Kendig's picture

Reggie, my belief remains that the whole Lewis being scared for his job from Paulson & Bernanke going WOOF is a load of garbage.  BAC was in a far better position to squeeze under the so called TBTF theory and either couldn't or wouldn't.  If Lewis had the stones he would have challenged the dynamic duo to fire him and his board after he invoked the MAC.  What do you think the result would have been?

McGriffen's picture

Lewis shoulda walked but didn't, and Thain somehow escapes all of the destructive / inflicted / damaged ending to a 40-yr banking career...I still wonder if he didn't get the 'Alec Baldwin' speech from a certain movie many here should know well:

glengarry glen ross

Paulson to Lewis...3rd place is you're fired

Cheeky Bastard's picture

actually no. if that was the truth than LEH would not beg for Paulson to inject 5 billion in them in order for them to stave off the bankruptcy until the 18th when British regulators would vote for Barclay's to take them over. Fuld would simply go to Geithner and get the money, be taken over and then repay the money. But that, evidently did not happen. Also GS and MS would not become BHC, and thus a subject to Federal regulation if they could have gotten the money being a FHC. 

McGriffen's picture

Yes, largely academic in hindsight.  But it's pretty clear that BSC, LEH, MER, MS and GS were all SEC-regulated institutions whom, prior to March 2008 were not banks as defined by a state or national charter.   Because of the Primary Dealer status, indeed gained access to FED discount window (& other mechanisms) following the BSC 'acquisition' by JPM.  Still, not a bank in any FED or OCC definition.

I believe detailed analysis of regulated entities should include the caveat that not all "banks" are created equal.  Drawing distinctions between bank & non-bank charters should be made clear.

Folks might draw a conclusion, incorrectly, about FDIC funds being somehow available to LEH since it was supposed to be a 'bank'.  Which was never the case.

MsCreant's picture

Do I watch with interest, or horror?


deadhead's picture

Do I watch with interest, or horror?

both.  what will be very interesting (and sad) is the inflection point where interest turns to horror

Gunther's picture

Up to you,

what I see makes me angry.

Dr Horace Manure's picture

This is the most fascinating time of my fairly long life.

Like reading a novel, I can't stop reading and I can't wait to see how it all turns out.

Anonymous's picture

be careful what you reading. anyone with high school diploma can come up with a lot "analysis", and sell some subscription. at some point, it become totally nonsense, and lost the touch with reality. some common sense will do a lot good .

I am not saying all the big banks are healthy, and they are not. But they will not fail like a year ago either.. The market will correct some time down the road, and it could a big correction. but the Dow will not go to 400 like that wavy clown Pretcher said in his subscription either.

Anonymous's picture

i couldnt agree with you more about this stupidity. But you are wasting time. The Govt's around the world have their fiat play money and can hide things indefinitely by starting any kind of program they need to. We the people have accepted this. BAC will not fall simply because the govt will not let it fall. IT IS TOO BIG TO FAIL!!! Look at the markets, everyone knows their is no risk in financials anymore; especially the chosen 19!!! I mean come on!! they let GMAC become a bank as well as insurance companies and Amer Express!! There is no longer any downside as long as the world plays by the federal reserve and treasury rules. AS proposterous as this may seem from a logical perspective. They do not have the same rules that the rest of us have. The real problem is down the road. There will be a day of reckoning. This could be many years away. The Govt has pumped up the stock market as a bribe to accept their system. IT HAS WORKED!!!