This page has been archived and commenting is disabled.
Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the American Taxpayer
Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers.
Yves Smith notes:
If you have any doubt that Bank of America is going down, this development should settle it …. Both [professor of economics and law, and former head S&L prosecutor] Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.
The short form via Bloomberg:
Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…
Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.
That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.
Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.
And remember, as we have indicated, there are some “derivatives” that should be eliminated, period. We’ve written repeatedly about credit default swaps, which have virtually no legitimate economic uses (no one was complaining about the illiquidity of corporate bonds prior to the introduction of CDS; this was not a perceived need among investors). They are an inherently defective product, since there is no way to margin adequately for “jump to default” risk and have the product be viable economically. CDS are systematically underpriced insurance, with insurers guaranteed to go bust periodically, as AIG and the monolines demonstrated. [Background.]
The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.
This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. [Background.] So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.
But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.
The FDIC is understandably ripshit. Again from Bloomberg:
The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.
Well OF COURSE BofA is gonna try to take the position this is kosher, but the FDIC can and must reject this brazen move. But this is a bit of a fait accompli,and I have NO doubt BofA and the craven, corrupt Fed will argue that moving the derivatives back will upset the markets. Well too bad, maybe it’s time banks learn they can no longer run roughshod over regulators. And if BofA is at that much risk that it can’t survive undoing this brazen move, that would seem to be prima facie evidence that a Dodd Frank resolution is in order.
Bill Black said that the Bloomberg editors toned down his remarks considerably. He said, “Any competent regulator would respond: “No, Hell NO!” It’s time that the public also say no, and loudly, to this new scheme to loot taxpayers and save a criminally destructive bank.
Professor Black provided a “bottom line” summary in a separate email:
1.The bank holding company (BAC) is moving troubled assets held by an entity not insured by the public (Merrill Lynch) to the Bank of America, which is insured by the public
2. The banking rules are designed to prevent that because they are designed to protect the FDIC insurance fund (which the Treasury guarantees)
3. Any marginally competent regulator would say “No, Hell NO!”
4. The Fed, reportedly, is saying “Sure, no worries” by allowing the sale of an affiliate’s troubled assets to B of A
5. This is a really good “natural experiment” that allows us to test whether the Fed is protects the public or the uninsured and systemically dangerous institutions (the bank holding companies (BHCs))
6. We are all shocked, shocked [sarcasm] that Bernanke responded to the experiment by choosing to protect the BHC at the expense of the public.
Karl Denninger writes:
STAND UP TO THE COUP
So let’s see what we have here.
Bank customer initiates a swap position with Bank. In doing so they intentionally accept the credit risk of the institution they trade with.
Later they get antsy about perhaps not getting paid. Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.
This effectively makes the depositor the “guarantor” of the swap ex-post-facto.
That the regulators are allowing this is an outrage.
If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.
Bank of America has repeatedly become insolvent due to fraud and risky bets, and repeatedly been bailed out by the government and American people. The government and banks are engineering an age of permanent bailouts for this insolvent, criminal bank (and the other too big to fails). Remember, this is the same bank that is refusing to let people close their accounts.
This is yet another joint effort by Washington and Wall Street to screw the American people, and to trample on the rule of law.
The American people will be stuck in nightmare of a never-ending depression (yes, we are currently in a depression) and fascism (or socialism, if you prefer that term) unless we stand up to the overly-powerful Fed and the too big to fail banks.
»
- advertisements -
+1... Freddie
"I do mind... the Dude minds. This will not stand, ya know, this aggression will not stand, man."
We don't need banks, banks need us.
Well said MLH... but actually there's nothing really wrong with the banks... it's the casino's residing within that must be eradicated.
Should OWS ever decide to settle on a specific demand, I believe we've found it!
Unfortunately, big money does not trust small banks and credit unions. They will never withdraw money from these big banks as they know that they are TBTF.
Big money depositors are locked. Small depositors are either clueless or do not care to move money in small banks and loose the credit card back-up issued by those banks.
The TBTF have a lock. So even if many small depositors bail out, it will not break them.
Oracle of Kypseli
Short term, moving into CU's makes sense(just to make a point), but,it really doesn't matter in the end game.
The same SCREWED up Depositors Ins backs them ALL.
AND both are broker than a deaddik dog.
ALL of this is going to be piled onto US.
TIme to face it, unless someone with HUGE NADS steps up, the USD is 100% for sure going down.
As far as Bof A not allowing their customers to close their acccounts I call BS,people do not have go into a B of A branch,bank.
They can transfer their accounts, via phone. IF B of A has shut down their online systems,then in essence they have stolen their depositors funds.
And they say Europe is worse off than we are?.
Gimme a break.
Not entirely true -- some states are considering pulling money out of the TBTJ and creating their own banks as did North Dakota many years ago. Some of those pension funds are pretty big.
Dennenger already commented? Now I know I am late to the party....
Bernanke is the world's greatest con-artist, or the world's worst banker....or make that the world's greatest banking con-artist...
BAC is going down in flames....
They may make it to $10/share on a dead Bernanke bounce, but the only cover Bernanke has are dollar swaps to Europe, his gold reserves, and his Ivy league pedigree.
By March '12, BAC will be on the outs, and so will the dollar. Yes that's right, that thing Bernanke issues hand over fist....unless he wants gold to be $3300, which, based on how "little" he cares about his 14k tonnes (I am being facetious), seems likely.
It will be interesting to see how the captured MSM spins this, even as the internet goes ape shit crazy over this corruption.
This is really "in your face" America.
No need to spin it, just Ron Paul it. (Ignore it)
Instead you'll see a story about a kid who lost her teddy bear and found it again.
'Bernanke is from the Ivy league' is all they need to remind everyone to keep the middle class transfixed on maintaining the status quo.
and if anyone still thinks the Fed works for them; see above. Fed = Bank = Fed
George?? are you sure that they are not trying to dump $53 Trillion on "We the Sheepish Consumer Tax Payers"?
I am just sayin..
that billions sounds a lil lite in the britches.
God Bless You and Yours George as Always!
Well technically it would be theft of $1 trillion as that's what BOA has in deposits.
So it's $100s of billions. The entire $53 trillion cannot be backstopped by the FDIC where the money will be looted from after initially looted from depositers.
how much is actual loss, 0.25%? what's the formula?
when you say actual?
do you mean what could be lost based on the numbers they provide?
or..
do you mean what will be actually lost? in real terms? in real dollars?
or..
do you mean what could you actually short (synthetic or other wise) for real gains verse precived losses?
I mean.. seriously throw me a rope, what the fuck are you trying to say?
I will tell you plainly.. you are new. and that means you fight.
what's the current market value of these derivative products?
and in the event of systemic failure, how much would be needed to bailout the counterparties of said products?
that appears to be none of our business, just
be prepared to put the tab on your children's
stack of un payable bills. perhaps they will feed
us and our children if we learn to grovel in
harmony like the fine t.v. people we are entertained
by?
that is, they will tell us what we owe when they
decide just how much they want to steal; and no
sooner. patience is a virtue.
hand banksters a blank check? that is fubar'ed. why wern't we told about it back in '08? financial regulators must be held accountable, non-disclosure is akin to treason, the youth didn't sign up for this shti it's fcukken serious fubar fcuked. ;[
you must be really, really new..
Read this..
http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817
Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.
That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
If you dont go back and read everything that Matt has written, then you should go to huffington post and stay there.
By Matt Taibbi
August 17, 2011 8:00 AM ETTo quote the occupy movement "That's fucked up dude."
Sorry but I came up with that one before there ever was an occupy movement.
That pretty well sums things up, excellent article. And if we are going to do something about it all, what we are talking about here is revolution. Good, I say it's about time. We'll be in print and on the streets in November. American Spring will come in March and follow through to November. Don't forget to vote, because the ballot box will be the battlefield.
get a clue.
It only takes $26 to hack voting machineI've given up on the ballot box.
Vote Our Every Incumbent in Sight, Regardless of Party
We have seen the work of the "professional" politician... Bribe taking, treasonous, pocket lining, Wall Street toady, corporate shill, douche bags screwing the real tax payers...
It is time to fire every incumbent and elect citizen representatives.. and if they fuck up and sell out.. we will vote them out in 2 years and keep voting them out until we affect real change...
Not Bullshit Barry change (is in your pocket)...
About the whole "ballot box being the battlefield" thing - maybe... maybe not.
This is, as it were, preparing the battlefield for a bankruptcy. Get out while you can.
All together now...Bank Run
Yeah..they better run..
How in the #uck can this be allowed?
Who in the fuck is going to stop it?
Andrew Jackson....oh damn, he dead.
Let's raise a Andrew Jackson zombie to fight the zombie banks! Ol' Hickory to the rescue!
Speaking of zombies, I just found this helpful page.
http://www.westlakehardware.com/help/zombies
While were waiting on the biotechnology to do that, why don't we exhume Alexander Hamilton from Trinity Church graveyard and shoot him again?
Hamilton IMO was a traitor and a foreign agent. He should have died in the revolutionary war.
Well, dying for a cause doesn't make it right, or noble. And as Yoda said: "Wars not make one great."
Thank God for Yoda, lest all hope be lost.
Oh Jeezuz. Even Matt Taibbi, and who knows how to fucking spell his name correctly, "I've been down to "Occupy Wall Street" twice now, and I love it."
Hamilton contra Jackson contra central bank (aka FED), get it?
Ahhh...never mind. What's the frickin' point. I feel like the depressed robot from Hitchhiker's Guide To The Galaxy.
Damn. Nobody got the joke. Trinity Chruch (where Alexander Hamilton is buried) is just a stone's throw from Wall Street. He was shot in a duel.
+1 Aaron Burr?
"Who in the fuck is going to stop it?"
#OWS
LOL, good one. So far 99% of the demands of the so-called 99% are for more socialism.
For more info, google "Rothbard welfare warfare state."
Until they stop supporting the beast, it will devour them all. The idea that it can work in their interests is just the bait in the trap.
Speaking of trap, have you looked at who owns Zuccotti Park? This whole thing is a setup.
Barney Frank is at the bottom of this..... Or on the top.... Ah you know what I mean
He talks like a catcher.
Smedley Butler....and The Business Plot;)
Kitty Harriman....and the cookie plot ;)
B of A saved the day by agreeing to buy out Countrywide. That's what all these derivitives are from. They helped the FED out, and the country, and now it is time for the country and the FED to step in and help them back. The Fed will print what is needed, then default on itself - causing no harm at all. These people know what they are doing. This is a win win situation, and no criminal activity has transpired. God Bless Rebbi Bernanke. Shalom - goyim!
That has to be the dumbest comment I have ever seen @ ZeroHedge.
(Probably works for BAC.)