occupying wall street - will it do any good

[Bill Wiltrack]

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October 21, 2011 07:00 AM
Bank of America Trying To Stick Taxpayers With A $74 Trillion Bill By Moving Derivatives Into FDIC-Insured Accounts

By Susie Madrak




And this is why we've been screaming about regulating derivatives! I kind of think that the Occupy movement is going to have something to say about this corporate sleight of hand that came to light earlier this week. Do they really think we're going to look the other way and let them stick us with a $74 trillion bill -- just to let good old "too big to fail" Bank of America off the hook? I don't think so:

If you have any doubt that Bank of America is in trouble, this development should settle it. I’m late to this important story broken [...] by Bob Ivry of Bloomberg, but both Bill Black (who I interviewed just now) and I see this as a desperate (or at the very best, remarkably inept) move by Bank of America’s management.

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.

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. 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 indeposit 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.







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[chaz wyman]

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In 1929 this little thingy happened to the world.



You might want to read-up on this major economic event. Oh wait a minute...you're an economic expert.


Ouzo has the same effect upon me. Can't remember a damn thing.

Just for clarification, are you a Communist, a Socialist, or somewhere in between?

Bill need not answer you this query, as you have no understanding of these terms.
Your appreciation of political orientation is worse than your understanding of US foreign policy.

[Bill Wiltrack]

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Thank you Chaz.




As for me, all I know is that I know nothing, for when I don't know what justice is, I'll hardly know whether it is a kind of virtue or not, or whether a person who has it is happy or unhappy.
~~~ Socrates ~~~
As Quoted by Plato
Republic



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[chaz wyman]

I think this image sums up the moronic media coverage of the Occupy movement......



These protestors are just mindless fools who don't have a single thought in their heads!!!! - Obviously!

[Ron de Weijze]

[Pluto]

Great cartoon, Chaz.

[bobevenson]

Great cartoon, Chaz.

It's not a great cartoon, it's not even a good cartoon, it's simply a cartoon that illustrates the economic ignorance of the person submitting it.

[Bill Wiltrack]

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[bobevenson]

I've got a great idea. When you show a cartoon, why don't you make some sort of comment on exactly what the point is (that is, if it actually has a point).

[chaz wyman]

I've got a great idea. When you show a cartoon, why don't you make some sort of comment on exactly what the point is (that is, if it actually has a point).

Wy don't you use your imagination?

[bobevenson]

I've got a great idea. When you show a cartoon, why don't you make some sort of comment on exactly what the point is (that is, if it actually has a point).

Wy don't you use your imagination?

Jesus Christ, any fool can throw up pictures, cartoons and newspaper articles like Bill Wiltrack does without so much as a comment or explanation. When you say, "Why don't you use your imagination," all you're doing is encouraging that idiot, but then, birds of a feather flock together, right?

[chaz wyman]

I've got a great idea. When you show a cartoon, why don't you make some sort of comment on exactly what the point is (that is, if it actually has a point).

Wy don't you use your imagination?

Jesus Christ, any fool can throw up pictures, cartoons and newspaper articles like Bill Wiltrack does without so much as a comment or explanation. When you say, "Why don't you use your imagination," all you're doing is encouraging that idiot, but then, birds of a feather flock together, right?

Bill might not be the greatest genius on earth, but he has a clearer idea of the role of his own country in the world than you are capable of.

[Arising_uk]

Over here I'm at a bit of a loss to understand why the stock exchange is open and St. Pauls's not. When did it become occupy St. Pauls?

[chaz wyman]

Over here I'm at a bit of a loss to understand why the stock exchange is open and St. Pauls's not. When did it become occupy St. Pauls?

Because the Xian establishment can't make up its mind whether to be nice or naughty.
I image what has happened is that someone nice said poor things come and camp here with our protection and then someone naughty has been told of by the government and is now closing St. Pauls to make a point.

[Kayla]

As much as i sympathize with the Occupy wall Street people their problem is that they are full of shit

when they go on about how the top 1% does not pay taxes that is simply wrong just as saying that moon is made of green cheese is wrong, it totally destroys whatever credibility they haev and obscures anything valid they have to say

The top 1% pays more than 1% of the taxes. that does not mean that they should not pay more taxes after all if you make a million a year an extra 5% tax will affect you a lot less than if you make ten thousand a year

but if you start with bullshit no one is going to listen