HOLY BAILOUT - Federal Reserve Now Backstopping $75 Trillion Of Bank Of America's Derivatives Trades

[Donnachaidh]

http://dailybail.com/home/holy-bailout-federal-reserve-now-backstopping-75-trillion-of.html

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.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

MORE at the link --

[OhioChick]

1. K&R n/t

[Devil_Fish]

51. K&R. If the devil has a face, he looks like these two fuckers:

[Ilsa]

55. Fucking Ken Lewis. Whose the guy from ML? I can't remember. nt

[tularetom]

63. That's John Thain CEO of Merrill Lynch

And former CEO of the NYSE. He was shitcanned from BofA by Lewis a few months after the merger after giving himself a big bonus and spending a bazillion bucks redecorating his office.

Lewis himself got the axe a few months later after his ineptness became clear as a result of the stupid decisions he made to purchase Countrywide Financial and Merrill Lynch.

[Ilsa]

76. After I posted I remembered that he was

canned, and I kept thinking "Thune", but that's a senator, I think.

Thain should be put in a hole with the others and left to rot. Thieves with licenses to steal.

[xxqqqzme]

88. really REALLY bad

facial reconstruction. You would think w/ all their billions they would opt for the best instead of going for the bargain rates.

[chervilant]

98. Yeah...

He puts the 'plastic' in plastic surgery, looking--as he does--like a mannequin...

[cyberpj]

108. OH, AND BTW...FIRED BofA EXECS GET $11M GOLDEN HANDSHAKE (ur photo reminded me)

With thanks to DUer steve2470 in the Economy Forum:

Tue Oct-18-11 04:09 PM
Original message
Fired BofA execs get $11M golden handshake
http://www.bizjournals.com/mobile/boston/news/2011/10/10/fired-bofa-execs-get-11m-handshake.html

Bank of America(NYSE: BAC) has plans to lay off tens of thousands, but at least two of the workers it’s cutting won’t have anything to complain about.

Bank of America is shelling out $11 million in severance to dismissed BofA executives Sallie L. Krawcheck and Joe L. Price. The two were dismissed Sept. 6. Krawcheck, formerly president of global wealth and investment management, will receive $6 million. Price, formerly president of global consumer and small-business banking, will receive $5 million.

The payouts were detailed in a regulatory filing posted by Bank of America Friday. The separation agreements were reached on Thursday, Oct. 6, according to the filing.

Krawcheck’s payout includes one year’s pay and benefits, equal to $850,000, plus a lump-sum payment of $5.15 million. Price is also to receive a year’s worth of pay and benefits, worth the same amount – plus $4.15 million in a lump-sum payment.

[LiberalFighter]

114. We need to make it legal to shoot those scumbags on sight.

They are jerks and should be strung up.

[DJ13]

2. That explains why their stock is up 11% today

[kentuck]

3. As a taxpayer, I do not agree to that arrangement..

And no agreement can be legal without the approval of both parties involved. Their derivatives are worthless, in my book.

[truedelphi]

40. Unfortuantely, in an oligarchy, what an individual cares about doesn't matter

Welcome to the USA, just another third world banana republic.

[Amonester]

77. It's more like "what 99% of the population cares about doesn't matter"

Isn't it so true?

[russspeakeasy]

79. Makes a person wonder why he keeps paying his taxes..

[TBF]

109. Are you in the 1% Kentuck? If not, nobody cares whether you agree with that

arrangement... and they don't care what any of the rest of us think either.

[Hell Hath No Fury]

4. And they wonder why --

people are in the streets. :eyes:

[jwirr]

80. If this goes through I predict there will be more in the streets. This is

so damn depressing - the thought that there is not much we can do to stop this. We need Glass-Steagall back and NOW.

[Nuclear Unicorn]

5. No! No! No! No! A thousand times, No!

They bought it. They should own it for whatever it is worth.

These aren't even US loans, these foreign-originated derivatives. These are loans enacted under foreign laws but the US is on the hook. I cannot believe this is allowed under US law. Oh, wait --

Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

[Katashi_itto]

6. I warned about this here weeks ago and got mocked

[Cannikin]

15. Everyone here gets mocked from time to time. It's a right of passage at DU.

[Hydra]

28. If you're being mocked here

You probably hit the nail on the head. If you say something inaccurate, someone usually posts evidence that disagrees with it.

Having had both happen to me, I'd say either keep at it or wait for the results to come in to shut up the naysayers.

The reality has a nasty way of showing up on time.

[aquart]

49. I did not see it or I would have supported you.

SURELY, we must have the right to hang them for this.

[bananas]

58. I missed it too

But found some posts:

11. Slight problem is that, with CDOs we took over we are now in the hole effectively 172 Trillion.
The whole planet makes between 7-8 trillion a year.
Now there is calls by the banking industry to recapitalize the global banking industry to the tune of 100 trillion more.
<snip>
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=5011295&mesg_id=5011329

45. There are powers out there that will make the largest amount in history
by crashing the global economy. One only has to watch the slow positioning of the heavy hitters to know something is going on.
<snip>
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=385&topic_id=619647&mesg_id=619925

[bananas]

59. Welcome to DU! nt

[MannyGoldstein]

68. Being Cassandra is not for the meek!

When we point out what *will* happen, we're *haters* or paid trolls.

When it actually *does* happen, we had unrealistic expectations.

And add a side order of people inventing things that we never actually said.

[chervilant]

105. Speaking of Cassandra...

We all know THAT classic story...

Consider Brooksley Born, the 'uppity female' who challenged the primacy of Uncle Miltie and his minions. They berated, then 'negated' her, largely because she knew whereof she spoke.

Here's what should be of concern to everyone watching with bated breath as the global economy teeters on the brink of catastrophic reordering:

{Born} once again warned about the danger of Dark Markets, now grown to $680 trillion of notional value, according to the Bank for International Settlements -- "more than 10 times the amount of the gross national product (sic) of all the countries in the world."

(emphasis mine)

Does anyone out there TRULY believe that our global economy has the combined resources to cover this ginormous financial Black Hole?! So, now, these vile cretins would have US taxpayers on the hook for these outrageous sums...

(Oh, and, just FYI, there are many, many more of us who are savvy about matters economic than Summers, Geithner and their ilk would care to acknowledge...)

[TBF]

112. A lady I very much admire -

she was one of the highest regarded partners at her law firm. But the establishment has no room for resistance whether male or female. We saw that clearly when JFK bucked ...

[woo me with science]

156. Well, a post against police brutality was just unrecced,

so you are in good company. '

The corporate tentacles run deep. :eyes:

[woo me with science]

157. .

.

[kentuck]

7. My stomach turns...

Because somehow this bailout will mean hardship for millions of Americans for the rest of their lives in this new austerity era.

[Moostache]

116. Only if they meekly accept it!

The OWS movement and others that will arise from this latest theft must hold the line and inspire the masses to depart from the corrupted system.

Two-party, unlimited money-for-access/influence politics is a living fossil.

Fortunately, we already have a great foundational document to restore a representative republic, but it appears more and more that getting to that point is going to require a complete reset of the American government - literally expelling EVERY SINGLE ONE OF THE INCUMBENTS FROM BOTH PARTIES and starting completely over - with term limits, publicly financed elections, life sentences for political subverting of the electoral system, restructuring the Senate to allow only proportional allocation of seats (minimum of 2, but extra senators for every 1,000,000 citizens of a state after that and direct election of the president by popular national vote (goodbye electoral college). We also need to return to the "Fairness Doctrine" for broadcast media - meaning that all political or talk radio and TV shows would be banned from airing only single-sided lunatics without also airing equal time for an opposing viewpoint or counter argument ---- NO MORE 24/7/365 propaganda machines masquerading as "free speech"!

I am saddened that so many in this country fail to see the true damage that is inflicted on the population when unmitigated propaganda is allowed to pollute the minds of millions without interruption. It has led directly to the hermetically sealed bubble that so many people live in today and they can't even recognize the walls of the prison they have been placed in like cattle for the slaughterhouse!

There was nothing inherently wrong with New Deal-era regulations aside from the fact that they very much prevented plutocrats and oligarchs from pillaging the system and impoverishing millions to enrich themselves. Tightly regulated and segregated banking is essential to have anything remotely fair in a capitalist economy. I have ZERO problem with people making as much money as their efforts allow provided two things happen - 1) they pay taxes in proportion to the benefits this society and its infrastructure and social stability provide - meaning a PROGRESSIVE TAXATION SYSTEM IS UNIVERSALLY APPLIED and 2) that whatever their monetary fortune may be, they are banned from using the financial advantages they enjoy from translating into power and access advantages....one man, one vote and no more!

The rhetorical question from so many on the campaign trail is always the same - "Take our country back" - but they don't REALLY mean it! They don't want to wrest power from the ruling 1% to form a more perfect union...they want to serve their paymasters and get another fix of that sweet, sweet campaign cash. Our politicians are all crack whores looking to suck that next dick for a $20 rock. This country cannot be saved until we have hard term-limits, population-proportioned representation in the Senate and money-free elections (btw the licenses to broadcast on the airwaves of the United States are granted by the FCC, meaning that come election time, those same airwave licenses could be suspended to allow for political coverage that interrupts ALL regular programming for the run up to the election...this IS done elsewhere in the CIVILIZED world...in places where the population is not so cravenly set against itself over trumped up non-issues and idiocy!)

[BrendaBrick]

8. This is probably a dumb question...

RE: "This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers." But wouldn't the EFDI (European Forum of Deposit Insurers)or maybe some other European agency(s) factor in this somehow to bear the brunt?

I googled "European equivalent to FDIC" and came up with this:

The European Forum of Deposit Insurers (EFDI) was initially established in October 2002 in Vienna by 25 Deposit Guarantee Schemes (DGSs).

Considering the EC’s growing interest in EFDI and its increasing responsibilities, EFDI decided to change its legal status and become an International Non profit Association in Belgium. EFDI became formally an INPA on the 22nd of June 2007.

EFDI now represents 56 DGSs from 41 countries of the European Area.

EFDI was originally founded because the European DGSs felt the need to convene in order to contribute to the stability of the financial systems, while promoting European co-operation in the field of deposit guarantee.
Since its very beginning, EFDI has aimed at facilitating dialogue among members as well as exchanging expertise and information on issues of mutual interest and concern.
Moreover, EFDI is also committed to:

discussing common topics;
exploring cross-border issues including improvements in co-operation between European countries;
being the liaison with non European DGS;
discussing the application of the EU Directive 94/19/EC on Deposit Guarantee Schemes;

http://www.efdi.net/aboutUs.asp

Or the IADI (International Association of Deposit Insurers) http://www.iadi.org/aboutIADI.aspx

[dkf]

37. These are likely credit default swaps on Euro bonds which have no relation to deposit insurance.

[BrendaBrick]

91. That would make sense

Thanks for your response dfk.

[KamaAina]

9. Tell me again why getting rid of Glass-Steagall was a good idea??

:grr: :banghead: :argh:

[truedelphi]

41. There's not a major bank owner out there that

Would ever want to have it back.

[Enthusiast]

52. A few people got obscenely wealthy as a result.

And we are still on the hook for their future malfeasance. Just imagine, they are still whining about the meager Dodd-Frank bill.

[Amonester]

78. That few people might probably include pol$ and lobbyi$t$ too.

It's a '$mall' world up there...

[jwirr]

82. Why don't we ask Bill Clinton?

[bvar22]

85. Tell me again why re-instating Glass-Steagall with updates...

...was a bad idea when the Democrats held the White House, the Senate, and the House? :shrug:


You will know them by their WORKS,
not by their excuses.

Solidarity99!
--------------------------------------------------------------------------------------------------------------------------------

[Enthusiast]

104. "It wouldn't have been prudent."

[Recursion]

124. Because it would have kept B of A from buying Merrill in the first place

Which would have meant a repeat of Bear and Lehman on a much larger scale.

The complaints about Glass-Steagall repeal still fundamentally miss the point that it was the investment banks, not the retail banks, that exploded.

[jmowreader]

132. It wouldn't have been possible

We needed 60 votes in the Senate and the best result we could have expected was 59--Lieberman would have voted no, and that would have been it. More realistic is 52 to 53 because there are Democrats with heavy ties to the banking industry.

[DonCoquixote]

151. held

by Blue Dogs that never intended to be liberal.

[woo me with science]

152. +1000000 nt

[Octafish]

10. And not a penny for my company.

Or city. Or state. Or school. Or public works. Or industry. Or anything, really.

[closeupready]

11. This just disgusts me.

:mad:

[librechik]

12. ...and that's just one bank

I believe I've heard figures in the 600 trillion area for the entire derivatives mkt--global gdp is
global GDP is 60 Trillion. So these guys are gambling with the emperor's cobwebs. It's nutz and we hae to get them to stop and rewind.

[CrispyQ]

13. K&R

This needs to be at the top of the greatest page.

[dmallind]

14. Silly number for shock value

That's the total face value of all derivative bets. It only matters if every single component of those securities defaults. It's the equivalent of saying State Farm is on the hook for the full face value of every insurance policy it has written. Technically true, but meaningful only if every State Farm covered house,car, and individual were completely destroyed in one event.

[Hydra]

29. That might be true normally

But the way they have the system rigged up, everything is connected. If one set of dominoes falls, it causes systemic ripples.

Put another way, this is a giant house of cards with no foundation under it other than the taxpayer bases of each country.

Instead of treating it as a house of cards though and letting it fall, we'll be put on the hook for the supposed value of it.

Remember, conventional logic is not in play. We have to save the people who are doing this in order for them to create money to hire us as workers.

Crazy, isn't it?

[truedelphi]

46. Very nice, concise and precise description of how badly we are being

"Screwn."

I especiually like your sentence - "Instead of treating it as a house of cards though and letting it fall, we'll be put on the hook for the supposed value of it."

Gotta wonder if lil Timmy's stocks went up that 11% today! (Or whoever holds his stocks for him, while he pretends he doesn't have any skin in the game.)

[Chan790]

73. I'm going to catch hell for this because as a former banker I know what I suggest.

What if FDIC simply responded "Fuck You" and refused to pay out on non-deposit funds such as these? It's not what FDIC is there for and it shouldn't be used this way. Even the Freeps would applaud that decision, it'd be like saying "Hell No!" to the mother of all TARPs. We all know how much they loved TARP.

Yes, it probably takes down FDIC entirely to do so. We'd just have to implement a new deposit-guarantor. With a decision as bipartsan as this, it wouldn't be hard to do so. There would be massive near-100% public support for it. The failbanks would fail, the stockholders get wiped, the anchor drops off the economy and away we go!

[jwirr]

86. I see what you are saying,. In Naomi Klein's book Disaster Capitalism

she talks about the small nation that said no to loans from the IMF and austerity measures and actually made it on their own.

It is time to say no to this austerity measure NOW and let it fly. Can't be much worse than what the eventual austerity will be anyhow.

One question and you are probably not going to like this: Are the Credit Unions going to go down if the private banks do? Are they a safe harbor in the event of collapse?

[Chan790]

96. I don't think so, but I can't say that for sure.

I don't know that small banks will even go down, though the big ones will get wiped out. I mean there might be a run that makes solvent banks (and CUs) go insolvent such as occurred in the depression, but that's really why it's important to quickly reinstate a new guarantor if FDIC fails.

Generally CUs would seem to be safe as they're covered by NCUA and not FDIC...but those agencies work closely together including agreements of assistance to prop each other up to prevent either from defaulting and crashing the economy. So it's possible that CUs aren't going to be any safer.

[truedelphi]

135. Plus I suspect that the same types of people now inside the Big Banks will

Migrate or (infiltrate) the CU's.

After all, there was once A Savings and Loan scandal. No reason why CU's would be impervious to malfeasance.

[riderinthestorm]

89. But the banks and stockholders are all that matters. "Public support", not so much.

Your solution presumes the PTB actually care about the public or public support. I'd say they don't. In fact, I believe they'd brazenly stick their middle finger up at anyone who dared question them as they bailed out the banksters and stockholders. Geithner, Paulson, Bernanke et al would be trotted out again with the full range of Dems and Rethugs lined up behind them solemnly proclaiming "too big to fail", "avert global economic catastrophe", and my favorite "hours away from fiscal meltdown" or some nonsense along those lines. They believe we don't understand what's happening and they can run their scam again, socialize the losses and privatize the gains.... (again).

The Robert Reichs, Elizabeth Warrens and Paul Krugmans would be vilified once again for their outrage. Perhaps, PERHAPS the OWS protesters have a clue of what's going on and could amplify their alarm but I believe it would be for naught. The major economic players are on the hunt for every last bit of cashola out there.

Howling about the FDIC going down would be terrific theatre for the right wing talking heads and I believe letting the FDIC go down (one of the few govt institutions most Americans actually understand and like) would be manipulated by the Rethugs to maximum political effect ("your savings insurance has just been wiped out by the socialist President Obama11!!!!111")

[a simple pattern]

123. Why are the banks still insured under FDIC?

They didn't pay their premiums for like ten years

[Chan790]

127. Because if they weren't...

you as a depositor would suffer a lot more than them. They pay for FDIC unwillingly, they'd love it to go away...as long as it doesn't do it while they're making a claim that they're going to benefit from.

Typically, they have to pay the premiums and in the case of a claim, they don't get any money...the protected depositors do. If it went away and wasn't replaced with anything else, under normal circumstance the only people hurt and whose confidence would be shaken would be the depositors.

[a simple pattern]

139. I just find it interesting that they're still allowed to have the FDIC sticker on the door,

and call themselves banks.

[Chan790]

141. They sent regulators around to make sure we'd put up the new stickers and took down the old ones.

After the raised the limit to $250K, sent us new stickers. About a week later, the regulator showed up to make sure we were in compliance with the law and had the right FDIC stickers and the FHA guidelines posted, that the FA's materials were clearly segregated from those of the deposit-protected accounts. We're also required to know where the FHA poster is...and the guy who hung the damned thing on the wall didn't know.

[truedelphi]

134. I'll be going off for a while to ponder on all this.

Your presenting probably great ideas. As someone who had not even herd the term 'backstop' till last night, I need to think about it, though.

[a simple pattern]

122. Agreed.

They wouldn't have set those dominoes up if they weren't going to knock them down.

[newspeak]

130. they should have just nationalized the "too big to fail"

banks!!!!!

[aquart]

50. But they don't hire us as workers. They do reward themselves with bonuses.

[jwirr]

83. And if they manage to crash the world economy with this move won't

they all come due at that point?

[dmallind]

99. If we get to that level, "backstopping" by anything would be moot

since for that to happen all economic activity would cease.

Since most of the fear here is for mortgage backed securities, it's worth noting that the GAO reports only 4.6% - and that a record - are even in default.

http://www.gao.gov/products/GAO-11-649T

[chervilant]

106. Not quite...

Derivatives are the ginormous Black Hole in the firmament of our economic galaxy. They are, quite literally, worthless.

(geez, I thought I added you to my list. gonna fix that oversight now.)

[City Lights]

16. I've really had enough.

I have been suffering from outrage fatigue on and off since 12/12/2000 and I really can't take anymore.

Fuck the banks and all those who enable them.

[SammyWinstonJack]

70. Greed is Good.

:grr:

[xxqqqzme]

92. Thank you. I thought I was

'burned out'. But that doesn't quite capture it. Outrage fatigue certainly does.

[chervilant]

148. My sentiments exactly,

AND, the precise motivation for ending my tenure as a branch manager of a bank lo these many years ago. I realized after they threw all of us (the middle managers) WAY UNDER the bus that the upper echelon in banks across the globe will always, always, always, always--have I said always enough?--always get their money.

[Eyerish]

17. K&R

[myrna minx]

18. K&R n/t

[coalition_unwilling]

19. OWS has shown us that a new world is possible. But we must first

destroy the old. It is possible to drop out of this rat race and to construct a world and economy organized to meet people's needs, not to satisfy a few people's greed.

This house of cards is set to tumble and now requires merely a few good, strong breaths to bring it down.

Are you in?

[truedelphi]

42. Ninety nine percent of all humans actually are in, though some

Don't realize it.

But of course, the crooks in power would jsut as soon have us war against Iran, and put any "dissidents" in camps before they let a real new and vibrantly green world order take place.

[coalition_unwilling]

44. "That we here highly resolve that these

dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth." Abraham Lincoln, November 19, 1863.

*********************

"We must be steadfast in our resolve, we must not waver in our conviction, we must show compassion to our enemies, we must provide justice for our brothers and sisters. We must be willing to shed our blood, to die even, for this our sacred duty." Me, October 18, 2011

[truedelphi]

47. Amen, coaliton_unwilling, Amen. n/t

[myrna minx]

53. This is why the right wing is desperate to draw the attention away from Wall Street

and direct it to Washington so it fits their long term narrative of the evil government. Well, now that we're looking squarely at the true decision makers of the destruction of our economy, this is truly terrifying for the power brokers to know that we're onto them. We've pulled away the curtain and now the American People have a new lens to view this "Too Big To Fail Again" BS and not just the assumed right wing lens. Even after the laughable "reforms" they let it happen AGAIN and they think we're fools.

[jwirr]

87. I don't think we have m much choice - when it comes down all by itself

we have no choice but to either pick up the pieces and begin over or let them enslave us further. I am in.

[banned from Kos]

20. unRec for falsehood. Only the bank's deposits are guaranteed by the FDIC

or by extension the Fed.

The Bloomberg article makes this clear:

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations.

Nowhere in the article does it say $79 trillion of derivatives are "backstopped".

[econoclast]

21. Quite correct

In a worst case scenario the FDIC would pay off the depositors ... Not the bank!

[truedelphi]

45. With what money?

Are you aware tht when one bank, Illinois Continental went down in the early eighties, the experts said the FDIC couldn't handle another six banks of that size going down?

And if Bernanke just hits the "Quantitative Easing button" once again, then what is the money worth?

Besides the above, the "backstopping" means that we the taxpayers are the ones on the hook for the 75 trillions, not the poeople who have acconts with B of A.

[girl gone mad]

125. In a worst case scenario, the deposits will be used to pay off..

the derivative counterparties, wiping out the depositors.

Then the FDIC will have to step in and bailout the depositors. Only, the FDIC can't cover $1 trillion. They'll have to go to Congress and seek a bailout.

In essence, taxpayers are now underwriting Bank of America's crappy derivatives issuance. In exchange for taking on this excess risk, taxpayers get nothing.

[girl gone mad]

22. You have a reading comprehension problem.

Bank of America transferred the derivatives from the Merrill Lynch unit to its retail bank subsidiary after Moody's downgraded the Merrill unit.

This was done at the request of BOA's counterparties, who wanted these derivatives backstopped by BOA's $1 trillon in deposits. According to the Bloomberg story, up to $53 trillion is now backstopped explicitly by the bank's $1 trillion deposits (and in effect, the FDIC).

I certainly would not keep a deposit account at Bank of America.

[banned from Kos]

23. The Bloomberg story does not say "$53T is backstopped" or you would quote it

Your paraphrasing is wildly inaccurate.

[girl gone mad]

27. You're persistently wrong, but you are persistent.

BAC Q2 derivatives exposure:

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq211.pdf

$53 Trillion, straight from the OCC.

Why would we have any reason to assume they have not transferred this full amount, as per the counterparty request? If you have evidence that anything less than the full counterparty request was granted, present this evidence.

[banned from Kos]

31. Ridiculous. You know I never doubted the existence of the derivatives

I pointed out the fact that they are not backstopped by the Fed - which is obvious.

I think you are being obtuse on purpose now. The hole you have dug is huge.

[girl gone mad]

33. Taxpayers are now the backstop via the FDIC.

The Fed allowed this move, the FDIC is upset and wants it reversed.

Here's your Bloomberg quote, by the way:

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.

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.

...

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.

The counterparties to these derivatives get paid first in the event of a wind down, ahead of depositors, leaving taxpayers to subsidize the counterparty risk for these bets. This a completely outrageous move and I'm not surprised in the least that you would attempt to defend it using your usual nutso half-assed spin.

ETA: William K Black has looked at this deal and says the worst garbage derivatives were shifted over to BAC retail.

Here's a quote from the always insightful Yves Smith:

"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."

[econoclast]

24. No reading comprehension on my side

Tho I suspect a banking comprehension issue on your end

The Depositors are now supplying the capital cushion for the derivatives book.

If I was a BoA depositor I'd be on my way to the branch right now.

[elehhhhna]

30. after the depositors money's paid out on the losses, the FDIC

must reimburse the depositors.

Rec'd to cancel the unrec

[dkf]

39. The deposits will be used to pay off the credit default swaps.

Then the FDIC will need to replace those funds.

In effect it is a backstop.

[jwirr]

90. You missed to point: they are transferring those derivatives into

insured bank accounts. See NOW they are insured.

[L0oniX]

25. Wait until this news hits the OWS groups.

[Hubert Flottz]

26. I can just smell the tar heating up across the planet already.

The tipping point gets closer every day. Soon the 98% around the world will need to bring on the feathers! :popcorn: :beer:

I'd hate to see blood in the streets all over the world, but when the super bankers push the 98% into a corner and then tease and taunt it, it is going to bite back sooner or later, with a vengeance, like never before. I never thought I'd live long enough to see the greedy pay up, but now it looks like I might still be around. Bring it on!(the edge of the envelope is bulging and nearing the popping stage, IMHO)(another massive fuck-up by the greed masters could be the trigger to the second big bang)


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[KansDem]

94. Got oil?

Oh, wotthehell! Let the blade squeak...!!!

[felix_numinous]

32. So these guys get to print their own money to benefit

themselves and make up their own rules as they go along.

If these criminals are too big to prosecute, then at some point people will have to trade amongst ourselves. Print our own currency and checks. Declare Independence from the corrupt banksters, they are in a world of their own making, and it is not sustainable anyway.

[nc4bo]

34. So sick of this crap......Sick and mad as hell. nt

[Starry Messenger]

35. k&r

[lovuian]

36. You knew this was going to happen Americans are going

to bail out the world

Depression is here and its going to be a Revolution

[FarLeftFist]

38. They're not even hiding this BS anymore! BofA will openly fuck our citizens to our faces!

[inna]

43. fucked up beyond imagination - but what is not, these days?

it's the system, not a bug.

[DeSwiss]

48. K&R

http://www.youtube.com/watch?v=g6bUUmelbyw">It All Goes Back In The Box

[Locrian]

54. holy crap

Aren't we basically talking the end of money here? I mean, if this goes nuclear, what is ANY currency worth? Aside from the gold bugs stash - this would be a meltdown of the entire world economy.

[HowHeThinks]

56. But............but..........

These companies are TOO BIG TO FAIL! :eyes: It's OK if the entire poor and middle classes disappear, but damn it, these companies just CAN'T fail. Just think of the chaos it would create for the economy. :sarcasm:

[nc4bo]

60. But if we don't make some serious changes, it would all go down anyway.

Working and middle classes keep these companies rolling in dough. Working and middle classes are being starved to death from lack of jobs, no universal healthcare, high student loan debt, credit card debt, foreclosured upon or in upside down predatory mortgages and our jobs outsourced. How are we able to purchase anything anymore?

Both of the candles are already lit.

[AzDar]

57. K & R

:kick:

[Recursion]

61. The Fed doesn't use taxpayer money

I still don't know where people get that idea.

[KurtNYC]

64. FDIC is involved here

that's apparently why they did it.

But I say since a corporation is a person then the limit for a corporation should be $100,000 in federal deposit insurance.

[Recursion]

66. They're moving some non-proprietary derivatives trading to the retail unit

This is, incidentally, the first time since the repeal of Glass-Steagall that a bank has actually done this (and they still can't move their proprietary desk to the retail unit). So, as I read it, fair enough, in a repeat of 2008 this does put FDIC on the hook (it's not that the derivatives desk gets FDIC funding, but if it flames out and takes the lest of the retail unit with it, the FDIC will have to cover their retail account losses). The FDIC wouldn't pay back the derivatives account holders, but those accounts do bring additional risk to the ordinary checking account holders.

[katty]

119. yup, let the retailer=main street PAY AGAIN&AGAIN&AGAIN

[jwirr]

101. The Fed is in favor of this but they are not the ones the money comes

from. The FDIC is the one that will have to pay and it is a taxpayer supported government agency.

[Recursion]

103. The Fed involvement is the window, which they'll only do to the retail arm

BoA will say there's a firewall, but bondholders won't give a damn when they know there's FDIC backing, which makes your point.

Actually, though I was being dismissive above, this is troubling to me because it's the first time I'm aware of that a post Glass-Steagall-repeal retail bank has actually done this (the alternative, of the mostly now-non-existent investment banks opening retail accounts, never materialized). In the immediate crisis the repeal was a good thing, because B of A could step in and by Merrill Lynch; but yes it's a problem that they're trying this now.

[girl gone mad]

142. Taxpayers backstop the Fed.

FRNs and the Fed's electronic deposits, etc., would be worthless if people didn't pay taxes so the point you are trying to make is an intellectually dishonest one.

[Recursion]

143. I make the opposite point

That taxes and payments as we do them now would be meaningless without the Fed's significant backing of its own private money. As an empirical question we don't really know since the two came into being together; I leave the ontology to the economic philosophers.

[girl gone mad]

146. You are wrong.

The Federal Reserve holds well under $3 Trillion in assets. What gives the Fed's assets (mostly Treasuries) and every other dollar-based asset its worth is the power of the government to collect taxes.

Federal Reserve notes are backed only by the "full faith and credit of the U.S. government," which means they are backed by the government's ability to levy taxes.

If our government loses its ability to collect taxes, the Fed's assets become worthless.

[Javaman]

62. Sitting on the beach, it suddenly got dark...

the person next to me asked, "Cloud?" I responded, "no, tsunami".

[econoclast]

65. Ball is in the depositors' court now

If I was a BoA depositor I'd be on my way to the branch right now. BoA is asking the depositors to provide the capital cushion for the derivatives book. I have no idea what that book looks like (and neither does anyone else outside BoA). Hell, if it is chock-a-block with things that are winners if Greece Ireland et al default I might even LIKE the derivatives book. But because I don't know that, and they won't tell me (I'm sure) I'd be headed for the exit.

Any depositor who sits still for this is complicit in the outcome. If the thing turns to shit, then the FDIC will pay off the depositors. A classic case of moral hazard. Depositors might put up with this because they are insured by FDIC ( up to 200,000? 250,000? )

But if this transpires the depositors share the blame.

[Drale]

67. You know I don't think I would feel as angry about these bailouts if only

the Banks where not acting likes such dicks toward their customers.

[AllyCat]

69. How does this happen? Oh yeah, money changers at the helm

God, I HATE these people! What on earth can/do we do with this kind of information??? How do we get people to understand and join the 99% with their hearts?

[kentuck]

71. What a great time to break up the banks!

Those parts that cannot survive will simply go under. Anybody have any better ideas?

[dotymed]

72. IMO. the B of A knows that their banks are in big trouble.

They will not be able to retain depositors, especially with their $5 monthly charge that their customers have to pay in order to access their own money. They know they are going down the tube.

By putting their casino debts in U S banks they are covering their ass for foreign casino debt, at the expense of the American citizens. We have an FDIC, controlled and monitored by them and their paid politicians.

This will save them billion$ (at least) when their "house of cards" inevitably crashes. They will not be held liable to pay back anyone, the FDIC (us) will. This will allow them to keep all (or most) of their blood money, while crippling (again) America's economy.

I really believe (and it is the PNAC and repub goal) that the America government has (finally) been targeted as the next economy to ruin while they are able to keep their(?) money. Of course, until they had the Glass-Steagall act repealed, they could not do this. They invested a few million dollars in politicians and viola, they are now able to destroy us financially.

There is NO difference between the economy and the government in America. The terms are interchangeable.

[sulphurdunn]

74. I need to be sure I understand this.

If I'm not mistaken, the American taxpayers are backstopping BOA liabilities in excess of five times the entire GDP of the United States, and that's just for BOA. If that's true, its insane and someone needs to be swabbing toilets in a maximum security federal penitentiary forever, and these debts need to remain private liabilities even if the sky falls.

[econoclast]

95. It's not good...but not as bad as that

The FDIC insures DEPOSITORS up to something like 250,000 per accountholder

So the FDIC Would be on the hook for that and nothing more even in a worst case scenario. The FDIC insures the deposits not the bank.

Other points. The giant multiple trillion dollar number is hokum. It is the "notional value" of the derivatives NOT the potential risk. Easy example. Options are derivatives. Suppose I buy a call option on 1,000,000 Greek bonds. I think I'll profit if Greece doesn't default. I pay 1,000 dollars for the option. OK. What is my risk? The 1,000 I paid for the option. If the market doesn't go my way the options expire worthless and I lost 1,000 dollars. But what is the @notional value " of this derivative contract ? 1,000,000. The value of the securities underlying the derivative.

So the "notional value" is really a meaningless number that conveys ZERO information about the actual risk.

Which is not to say the risk is small. We just don't know and the "notional value" number dies nothing to make the picture any clearer.

[sulphurdunn]

126. Thanks

That was very informative.

[stockholmer]

75. to all the bullshit Federal Reserve apologists/dupes out there... a big " I TOLD YOU SO"

The Fed is privately owned and controlled, all so-called public accountability is a pure fucking sham, and, along with the bankster's IMF, World Bank, other central banks in the world (ECB, BoE, BoC, BIS, etc etc) plus the straight-up private banks, they will chattel enslave you and you nations with multi-generational debt in perpetuity. Then they will systematically kill you, in mutliple quant-scientifically design max-profit extraction matrices of full spectrum dominance. This is meant quite literally, if we do not destroy them, they will destroy us on every possible level.

[Safetykitten]

81. Agree. But there is always an excuse. Look for "but those things you are backstopping are...

safe".

Really, they are!

[Aerows]

110. No, REALLY, they are ...!

I can't even say that with a straight face.

Why would they even need to be moving them after Merrill's downgrade (which would be the first tip off that they are crap) to be covered by the FDIC if they weren't a gigantic stinking pile that they know are on the verge of imploding (which is the second tip off that they are crap - they want to hurry up and get something that will cover them before they crater)? It would almost be funny if it didn't have such horrific consequences.

[Aerows]

84. Wait for the hand waving

by economists while they declare "We didn't see this one coming - nobody could have imagined that these Merrill Lynch derivatives were *that* toxic, and that the taxpayers would be on the hook for the $75 T because they are insured by the FDIC!"

They are all colluding to get rid of $600 Trillion in derivatives. That's approximates 10 years worth of the GDP of every single country on the planet. Take a wild guess what will happen when they crater.

How on Earth can we stop this? The "Masters of the Universe" are TRYING to destroy the economy.

[flamingdem]

93. Off with their heads nt

[kestrel91316]

97. Ditch BofA. They need to be allowed to fail. And these transfers need to be reversed.

[WinkyDink]

100. Oh, this must be because the Federal Reserve is a govt institution, beholden to the citizenry & not

to private banks!

Bwahahahahaha!

[freethought]

102. 75 Trillion!?

Is there even than much money in the world?

[econoclast]

111. As I said above ...

The FDIC insures DEPOSITORS up to something like 250,000 per accountholder

So the FDIC Would be on the hook for that and nothing more even in a worst case scenario. The FDIC insures the deposits not the bank. Which is still a big number, but not 70 trillion.

Other points. The giant multiple trillion dollar number is hokum. It is the "notional value" of the derivatives NOT the potential risk. Easy example. Options are derivatives. Suppose I buy a call option on 1,000,000 Greek bonds. I think I'll profit if Greece doesn't default. I pay 1,000 dollars for the option. OK. What is my risk? The 1,000 I paid for the option. If the market doesn't go my way the options expire worthless and I lost 1,000 dollars. But what is the @notional value " of this derivative contract ? 1,000,000. The value of the securities underlying the derivative.

So the "notional value" is really a meaningless number that conveys ZERO information about the actual risk.

Which is not to say the risk is small. We just don't know and the "notional value" number does nothing to make the picture any clearer.

[banned from Kos]

121. You are exactly right of course. But a good Conspiracy Theory travels 1000x

faster than the boring truth.

[RegieRocker]

140. Oh great it's only going to be 37 trillion what a relief!

:rofl:

[econoclast]

144. quick peek at Google

tells me that BofA total deposits are 818 billion. Of course no all of those are insured. FDIC insures up to 250,000 per accountholder ( I think )

Still a very big number, but not 75 trillion ... or even 37 trillion.

[RegieRocker]

145. Can you say Derivatives?

[econoclast]

147. OK this was easy to find

According to the FDIC, as of 30Jun2011, Bof A had total deposits of 1.060 trillion.

Of that total 51.73% are insured deposits....which according to my calculator is 548.3 billion in insured deposits.

To the real, maximum risk to the FDIC is 548.3 billion. And this is if BofA just went POOF .... with absolutely zero recoveries by the FDIC in a winddown. As I said, certainly a very big number, but not 75 trillion.

But really, the ball is in the depositors' court. If the depositors sit still for this ... they are complicit. By staying at BofA they are saying in effect "we are happy to provide the capital to support the derivatives book."

BUT, in a classic case of Moral Hazard ... they are happy to provide the capital BECAUSE they are insured by the FDIC.

Me - I'd be headed for the exit if I was a depositor. I have no idea what the derivatives book looks like ... and I have no way of finding out. So .... given the way this was thrust upon the depositors .... I'd take my business elsewhere.

[Yavin4]

149. You, Nor I, Nor Anyone Else Knows The True Cost of BofA's Liabilities

Because derivatives ar largely hidden from public scrutiny. For example, if BofA sold a CDS on bonds from a French bank, and that French bank owns Greek debt, then that French bank loses money on Greek debt, then BofA would have to pay out on that CDS if the French bank falls.

So, yes, the $75 trillion is a notional value, and it may be far less. However, we don't know the full extent of BofA's liabilities.

[TBF]

107. Did I not say that Greece is simply foreshadowing of what will happen here?

nt

[Aerows]

113. Even the right is against this

This is going to be the tipping point, hopefully, enough of the remaining sane people on the right, the left and in the middle will stand up and say "NO WAY". This is asking for economic disaster.

[benld74]

115. Federal Reserve Now Backstabbing American Taxpayers Once Again!

[Fuddnik]

117. The looting continues.

Where's that list that includes banking "reform" again?

[katty]

118. Fed Protecting?! hah! I think not!! ...result of no safety: OWS

[izquierdista]

120. Where is Oliver North when you need him?

This whole problem could be solved by the superhero Oliver North with his trusty paper shredder. Collect up all those derivatives, feed them into the shredder and recycle them into toilet paper.

[ut oh]

128. I'm thinking that the banks need to be backed by the CEO's

since they're the one's fleecing the system and their bonuses are mind bogglingly large...

[newspeak]

129. and everyone of those damn repug candidates

want deregulation. They're talking about rescinding serbain-oxley which was passed after enron did their creative accounting, that left about 27000 employees with no job or 401k and screwed california. They also want to rescind the tepid dodd-frank bill.

These repug candidates are insane because they keep wanting to do the same thing over and over and hoping for a different result.

Enron hurt thousands of americans and now wall street has hurt millions of people all over the world.

This whole corrupt, immoral greedfest makes me sick. :puke:

and they keep talking about the fairy tale free market. Such absolute fekkin BS, when you have global corporations that are apparently now too big to fail, but have the capacity to cause a whole hell lot of damage to people with little or no consequences.

[Celebration]

131. everybody needs to get their money OUT of these institutions

BEFORE they use it to pay off their derivative holding buddies.

[Fire Walk With Me]

133. Just say NO!

[RegieRocker]

136. Lay down and take it like a good citizen!

:sarcasm:

[a2liberal]

137. K&R (n/t)

[Blue Owl]

138. Wow -- what a fuckin' DEAL-I-O!

:sarcasm:

[elocs]

150. K

[woo me with science]

153. K&R

We have to eat them before they eat us.

[sarcasmo]

154. The Bankers and Wall street crowd run this country, they will never be allowed to fail.

[The Northerner]

155. What a damned shame this is! n/t

Perhaps B of A & the other banks should've been forced into bankruptcy in 2008.

[woo me with science]

158. They will continue until we stop them.

K&R

[burrowowl]

159. KICK!

GOD DAMN B OF A. Nationalize the FED already!