| Philia |
Oct 20, 2011 03:14 PM |
BofA and JPM move up to $100 TRILLION in derivatives to FDIC-insured accounts
Are you prepared to be angry yet?
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Without regulatory permission, Bank of American on October 18th has moved potentially trillions of dollars worth of European derivatives into their depository arm to give it access to the Fed window, and backstopping by the FDIC and US taxpayers.
This move by Bank of America and its investment arm, Merrill Lynch, is an attempt to remain solvent, and hope for a bailout of its failed investments by the Fed and Treasury Department as the banking crisis in Europe threatens their balance sheets.
This story from Bloomberg just hit the wires this morning. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.
This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to "give relief" to the bank holding company, which is under heavy pressure. – Daily Bail
Bank of America is not the only financial institution attempting to use the taxpayers as a backstop to protect their potential losses, as according to Bloomberg, JP Morgan is also moving up to $79 Trillion in European backed derivatives to where they will be guarnteed by the FED, and the FDIC.
It appears that the banks are relying on the Too Big To Fail mentality of the Teasury Department, and the legislators in Washington to have little choice but to institute a bailout of massive proportions should these derivatives be called in for Euro failures. Only this time, the cost would be 10 times the amount taxpayers spent bailing out institutions during the 2008 credit crisis.
For the American people, these moves by Bank of America and JP Morgan should be severe warnings to just how bad the global credit crisis is becoming, and the potential for over $100 trillion in derivatives to be thrust on the US taxpayers. It is ironic that Merril Lynch once again is the center of controversy for too big to fail, but this time, there may not be enough dollars in circulation to save the banks should the worst case scenario come to pass.
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2008 Redux: Taxpayers to help bailout Merrill Lynch and Bank of America - National Finance Examiner | Examiner.com
Also an article from bloomberg and Naked Capitalism
BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit - Bloomberg
Bank of America Deathwatch: Moves Risky Derivatives from Holding Company to Taxpayer-Backstopped Depository ? naked capitalism
So essentially this is what "End the Fed" means? :\ This is from another poster.
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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. 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.
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Right now, I'm extremely pissed that CNN is not having a full blown coverage on this. This is just disgusting and more people need to understand what Occupy is really about. All its concerned with right now is fucking Gadhafi and oil, this country is really debasing its own people. :\ |
