bank of america declared winner in taxpayer TKO, ken lewis still not fired
In the tradition of the old SNL catch phrase popularized by Chevy Chase: "Generalissimo Francisco Franco is Still Dead", we humbly submit that Bank of America CEO Ken Lewis is still not fired. In other news, you gave Lewis a bunch of cash yesterday and offered up a particulary tasty asset guarantee. Take the Saturday morning click ride to see just how generous you were with the terms of the deal.
The details are out and the numbers are in-line with what had been floated the past few days: an emergency $20 billion cash injection from you through the Treasury, and an additional insurance agreement, also offered by you, through the Treasury, the Fed and the FDIC that guarantees $118 billion of some of the prettiest assets you've ever seen.
This is an outrage of course, but different in some ways from the help that you have already given to Citi, both in form and function. The headline figure of $20 billion is the same, but in the case of Bank of America, your cash gift and asset guarantee were required as a result of their whirlwind purchase of Merril Lynch just a few short months ago. In other words, you gave a bailout to Bank of America for an investment they made last quarter. Gone are the days when it would take years or even decades for large investments to turn sour on shareholders. Also seemingly forgotten are the days when only a company's shareholders would be held responsible for that company's mistakes. Now, YOU are responsible for any mistakes as long as the firm in question is deemed by Paulson and Bernanke to be 'vital to the nation's financial interest'.
A double dose from the WSJ here and here.
Here's a story we did on these issues earlier this week. And another one. And one more with some feeling this time.
Here's Yves take over at Naked Capitalism.
And finally i am linking to a piece Mish did on Bank of America earlier in the week. As usual, he takes a relaxing look at the bailout drama as it unfolds.
See Also:
Ken Lewis Wants More of Your Money...Banc of America Part Deux
Banc of America Jealous that Citi Was Getting All Hank's Attention
Henry Blodget Wants Ken Lewis' Head on a Platter...Preferably Warm
Jan 17, 2009 at 1:08 PM
Reader Comments (9)
As much as i dont like the idea of MY tax money being spent for bailing out companies that will never be paying me back directly i still support this bailout. Although Bank of America has willingly purchased Countrywide and Merrill Lynch with one goal in mind: showing a profit for their shareholders, B.O.A has done this country a service. Now hear me out,
Bank of America has not shown a loss in 17 years, they have been aquiring small companies in the last decade, and have made many good aquisitions, most of which are not hurting their balance sheet. The two "worse" acquistions that they have made were in the past 12 months, Countrywide and Merrill. However, these acquisitions were vital to this nation for many reasons:
1. they have saved many jobs by taking over operations that had they have failed, we would've had thousands of people lose their jobs, and these people would have been claiming unemployment, which would have also cost ME money through my taxt, now i agree it may have not amounted to $700bln but it would have been drawn for at least six months and would have generated nothing back into the Govt account. the Govt would have lost a tremendous amoutn on their Income Tax Revenue, and also would have not gotten any of preffered shares that BOA issued at a fixed rate 8-9% annualy.
2. Furthermore, the panic that a collapse of Merril would create nationaly and globaly would have been devastating. it would affect anyone and everyone, from investors lost of confidence in the system which would create the market to plummet (recall the monday of Lehmans Bankruptcy filing) which as a result would adversely affect the price of almost every company listed on NYSE and any other exchange worldwide, and lets not forget how many of the average W2 and anyotehr form of income employees have their 401k, IRA, 403, and anyothe pension is mostly invested in the form of stocks. these people's life savings, or hopes for a good retirement would vanish overnight or amount to almost nothing from a pandominum that a company of the caliber of Merrill can cause, or better yet imagine the collapse that BOA would cause on this economy... more than 300k jobs would be lost, investors confidence would amount to nearly zero, i think it is needless to say how devasting it would be...
3. here is an article i found on Bloomberg, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=amKa.CEquE0E, yes BOA agreed to purchase Merrill in September without the assistance of our tax money, however when they realized in December that Merrill's results are worse they were planning on backing out from the deal, and maybe not even need any assistance, however, the US pushed them to continue with the aquistion for the fear of the panic that a collapse of Merrill would cause and probably cement our transition into a depression far worse than the one in the 30's...
4. maybe this "bad bank" will finally help unfreeze this credit market, lowere interest rates and stimulate borrowing and get this economy back on track (obviously with smarter lending guidlines, no more 106% finanicng bullshit)
now with all this in mind, as much as i dont like the idea of MY money going to help companies that i have no tangible benefit with, i can understand the importance of these bailouts, and their longterm and intangible benefit that they will result for this country's future and my future.
PS i am not a shareholder of BOA or MER or any of the financials...
@ big...
i read your post closely and while i appreciate your sincerity, i don't agree that allowing ML to fail would be a disaster...it wouldn't be pretty by any means but our system would survive...
consider the alternative...taxpayers pour billions of new equity into a zombie bank that will NOT make any new loans with theiir capital but rather choose to hunker down and try to ride out the storm...
i would be much more willing for my tax dollars to be put into a NEW bank...one without bad loans already on their books...
thanks for your comment
Agree (mostly) with Big. The government encouraged the Merrill acquisition and should therefore support the integration needs. When bofa was made aware in dec that merrill was going to write down $15 - $20BN rather than the much smaller numbers that were anticipated KL considered backing out of the deal, but was again encouraged to pursue the shotgun year end close and was rewarded with the promise of more money. So, while i do not think the KL will be able to navigate this disaster with grace and ease (and thain is not making it any easier, driving out key merrill mgmt in his attempt to seize KL's job) i think that the additional cash is necessary and deserved. and now hte gvmt is the largest shareholder of the 2nd largest bank. incredible ha
I just found your site through TechCrunch. Someone mentioned it in the comments section of an iphone story. I like it. I like that you have no advertising. lol
I am a single mother with 2 young sons and I work in the tech industry in california. Our state is facing a large budget shortfall this year and we have been asking Washington to bail us out and I think it's wrong. The politicians in our state would rather look to Washington to cover our budget shortfall than actually look at the reasons for our shortfall. Yes, revenues are down this year becaue of the slowdown, but the true issue is bloated stae budgets, and health care and pension benefits that have been promised to public workers.
In vallejo which filed for bakruptcy in 2008, there were 42 police and firefighters earning in excess of $200k per year. Are you kidding me? For public employees, this is unreal. And these employees will receive 90% of their salary in the form of a pension for every year for the rest of their lives. And we, the taxpayers of california have to pay for their excesssice packages.
And if Washington just bails out all these states that are in trouble, then these states will never be forced to cutback their spending. And these bloated state salaries and pensions well never be corrected.
It makes me very upset when I think about.
I just found your site through TechCrunch. Someone mentioned it in the comments section of an iphone story. I like it. I like that you have no advertising. lol
I am a single mother with 2 young sons and I work in the tech industry in california. Our state is facing a large budget shortfall this year and we have been asking Washington to bail us out and I think it's wrong. The politicians in our state would rather look to Washington to cover our budget shortfall than actually look at the reasons for our shortfall. Yes, revenues are down this year becaue of the slowdown, but the true issue is bloated stae budgets, and health care and pension benefits that have been promised to public workers.
In vallejo which filed for bakruptcy in 2008, there were 42 police and firefighters earning in excess of $200k per year. Are you kidding me? For public employees, this is unreal. And these employees will receive 90% of their salary in the form of a pension for every year for the rest of their lives. And we, the taxpayers of california have to pay for their excesssice packages.
And if Washington just bails out all these states that are in trouble, then these states will never be forced to cutback their spending. And these bloated state salaries and pensions well never be corrected.
It makes me very upset when I think about.
I wonder why the Feds can get an 8% dividend from BAC, but my old man is lucky to get 3% for a CD.
Would be nice if the Feds were busier orchestrating private capital to perform these bailouts on the same dividend payout terms.
Hawk
As for BAC's purchase of Countrywide (and associated losses) - they have only seen the tip of the iceberg. It is common knowledge (at least to Realtors, Lenders, Title companies and the like) that Countrywide made tons of crazy 1% loans. I would not be surprised if 99% of these loans go to foreclosure within the next year or two. Instead of trusting Mr. Liar-Loan Angelo, BAC should have picked up the phone and called a few real estate offices. SHAME on them! They deserve what they get.
@Mr. Big
i had some more time and so i wanted to respond further...i think some of the bailouts have been necessary as well...there are so many bailouts of so many industries that each one needs to be debated on its own merits...
the airlines have been getting help for years and i'm ok with that...it's usually just a few billion every few years since 911 and we need functional air travel so it passes the smell test...
this bank stuff is super iffy though...it's shadier than hell...i'll give you the example i haven't written about yet but really pisses me off...AIG...it's a friggin' black hole so far...around 150 billion at last check...and AIG was NOT originally going to be saved..we kept saying no and no until their final night before declaring bankruptcy and suddenly we decide to save them..
it turns out that goldman sachs had used AIG to hedge over 300 billion of their asets...so if AIG went then goldman would lose $50 billion it paid AIG in insurance payments on those assets...
and on the first day of the AIG conservatorship, goldman got a 37$ billion dollar check from AIG/the taxpayer...and since has gotten the remaining $13 billion...then friggin' hedge funds who also used AIG to insure their assets have gotten about $40 billion of our money...and european banks and other us banks have received the remaining $60 billion in payouts from AIG/the taxpayer...
but debate is good...there are reasons to save certain companies...i agree with this...it's the money to bank of america, aig, goldman, citi, that really bothers me...
i don't mind re-capitalizing the relatively good banks at all..pnc has gotten a bunch of cash and i'm cool with that..as well as US bank and many others that were in pretty good shape...
but citi is a never ending black hole of stupidity and so is bank of america..their buys of countrywide and merril lynch have proven to be the dumbest bank purchases ever except for countrywide's earlier purchase of golden west financial at the peak of the sub-prime bubble...the stupid buys the stupid i guess...and they bought both of them this year for inflated prices...
bank of america played a bad hand and lost..and it should fail...let wells fargo benefit from the fact that they didn't act foolishly...BofA assets could be sold to the highest bidder...just like with wachovia...it could have happened pretty smoothly...wachovia changeover was seemless...
i just think that citi and BofA were so poorly manged that they should suffer the consequences...
anyway...keep hanging out...i am going to have an interview with larry flynt and joe francis soon about their satirical request for a porn bailout...i need your brain on the site...so keep coming by...thanks
Lewis is a punk who would not last a week without his gubmint backstop. He's a first-class jerk in person.