HOLY BAILOUT - Federal Reserve Now Backstopping $75 Trillion Of Bank Of America's Derivatives Trades
UPDATE - Chcek out regulator William Black's blistering reaction to this story HERE.
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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.
This is a recipe for Armageddon. Bernanke is absolutely insane. No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks. His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.
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Bloomberg
Excerpt:
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.
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. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.
“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”
Moody’s Downgrade
The Moody’s downgrade spurred some of Merrill’s partners to ask that contracts be moved to the retail unit, which has a higher credit rating, according to people familiar with the transactions. Transferring derivatives also can help the parent company minimize the collateral it must post on contracts and the potential costs to terminate trades after Moody’s decision, said a person familiar with the matter.
Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.
U.S. Bailouts
Bank of America benefited from two injections of U.S. bailout funds during the financial crisis. The first, in 2008, included $15 billion for the bank and $10 billion for Merrill, which the bank had agreed to buy. The second round of $20 billion came in January 2009 after Merrill’s losses in its final quarter as an independent firm surpassed $15 billion, raising doubts about the bank’s stability if the takeover proceeded. The U.S. also offered to guarantee $118 billion of assets held by the combined company, mostly at Merrill.
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 $79 trillion of notional derivatives, the OCC data show.
Moving derivatives contracts between units of a bank holding company is limited under Section 23A of the Federal Reserve Act, which is designed to prevent a lender’s affiliates from benefiting from its federal subsidy and to protect the bank from excessive risk originating at the non-bank affiliate, said Saule T. Omarova, a law professor at the University of North Carolina at Chapel Hill School of Law.
“Congress doesn’t want a bank’s FDIC insurance and access to the Fed discount window to somehow benefit an affiliate, so they created a firewall,” Omarova said. The discount window has been open to banks as the lender of last resort since 1914.
Continue reading at Bloomberg...
Related stories:
Oct 19, 2011 at 4:38 PM
Reader Comments (107)
Here are some of the places linking:
http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=30300369&l=0&r=0&s=ATC&t=LIST
http://www.infowars.com/holy-bailout-federal-reserve-now-backstopping-75-trillion-in-bank-of-americas-derivatives/
http://www.dasgelbeforum.de.org/forum_entry.php?id=237303 (Germany)
http://maxkeiser.com/2011/10/18/this-is-a-direct-transfer-of-risk-to-the-taxpayer-done-by-the-bank-without-approval-by-regulators-and-without-public-input/
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x2141081
http://www.davidicke.com/headlines/54886-federal-reserve-now-backstopping-75-trillion-of-bank-of-americas-derivatives-trades
http://www.dailypaul.com/183521/holy-bailout-federal-reserve-now-backstopping-75-trillion-of-bank-of-americas-derivatives-trades
http://www.abovetopsecret.com/forum/thread765816/pg1
http://www.lewrockwell.com/blog/lewrw/archives/96965.html
http://www.drudge.com/
http://www.dailykos.com/story/2011/10/19/1027927/-VERY-VERY-IMPORTANT-STORY-(many-of-you-missed)?via=siderec
http://www.dailykos.com/story/2011/10/18/1027712/-Im-NOT-Paying-for-this-$H!T?via=blog_728901
Thanks to everyone who linked. Let's keep it going, and get this out to millions of people.
These Amish bankers obviously have genetic predisposition to greed and corruption and it freely flows in their veins. Ah, but they aren't Amish? Ah, they aren't Muslim either? Ah, but they are financial terrorists by any name or ethnicity.
There is this absolutely a commonality of cronyism and easy money in this gang of thieves whether it be BIS, Wall Street, IMF, WB, Fed, etc that needs investigated just as their supposedly is in international terrorism. They have a special clique and most of us are not invited. The OWS crowd understands this and may yet force change for the better down the throat of the oligarchs that own our government. Let's hope.
Let the whole goddamned bag of crap fall to pieces so that we may form a more perfect union (without communistic, economically clueless democrats who love nothing more than big tyrannical governments.)
Burn ... Burn .... Burn
I really would appreciate a plain english explanation of the frightening consequences of letting these greedy f*ckers go down the tubes and straight to ruin. Thanks in advance for your patience, and, hopefully, simple language.
Jail the criminals who preyed on us all and collapsed the world economy because of their greed! Stand UP maybe for the FIRST time in your life while ~SO~ many people are fighting your fight in your absence!! 'Occupy' won't end because they offer trivial sacrifices to sate the masses. THEY are speaking a ~REAL~ language of "Change" I fear casualties before it's over. ALL Politicians and MOST ALL MEDIA is "OWNED" by corporations who deliver the message and create the laws via money-funnels. The worst is to come before the best can have its day and life realized!
No.....it's NOT insane if your true portfolio/aim is to destroy the US (and Europe) in preparation for global government.
There are many nasty superlatives to describe what's being shoved down our collective throats, but "insane" isn't the most accurate since they know exactly what they're doing/causing. Insanity isn't so rational in terms of planned actions.
Invasion imminent. Weaken the financial - military systems as first priority....
Fatten the people with sufferance, make them fresh for harvest.
....
Perhaps more people will become aware the BOG apparently has a practice of hiding money due the government---a criminal act IMHO. Ref. RIP OFF BY THE FEDERAL RESERVE, http://www.scribd.com/doc/49040689
See article titled “Lehman Credit-Swap Auction Sets Payout of 91.38 Cents" and the link below:
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=ainXunmcK3kw
http://www.zerohedge.com/news/its-baaack-ft-deutschland-pronounces-deutsche-marks-return-sets-eurdem-exchange-rate-195
Maybe BAC (among others) got a head's up.
This is frightening to watch, though, knowing that the same foxes are still in the henhouse...
"Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates."
Unfortunately, John Curran has got it wrong. The constitution does not say that "Only congress has the authority to coin money and regulate its value." It only says that, "The Congress shall have Power to coin Money, regulate the Value thereof..." It is a world of difference. This does not mean that we should not abolish the FED, but good luck trying. We would do better to create new alternative currencies.
Check out http://gradido.net for one system and process for doing so.
Rob Wheeler
Or all of the above.
Duh! Lets see here!
T.A.R.P., the 16 trillion the FED gave the Banks both foreign and domestic with no oversight, no investigation or prosecution of fraud and other serious crimes by criminals directly responsible for the largest economic collapse in U.S. history, a Supreme Court that gives corporations the ability to buy the White House and the U.S. Congress. The revolving door between government and big business, a supposedly democratic sitting government that completely ignores the will of the people.
Of course the US Gov't totally complicit!
I think we are living with the results of a major criminal conspiracy involving Wall Street, the FED, major domestic and multinational corporate interests and the U.S. Government. They're all crooked and they're all involved. No matter how many protest nothing will change, if the truth were to be exposed they're all going to jail and they know it. That won't happen without a fight.
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." -- Thomas Jefferson
"To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical."
-- Thomas Jefferson
Thomas Jefferson said in 1802:
"I believe that banking institutions are more dangerous to our liberties than standing armies.
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered."
http://occupytogethermovement.org/2011/another-bailout-federal-reserve-now-backstopping-75-trillion-of-bank-of-americas-derivatives-trades/
See for yourself:
http://www.youtube.com/watch?v=EhsBkxy4zQU
Cain is an idiot.
The FRBNY handled $8.4 trillion from the auctions of Treasury securities in 2010 which included a minimum of $1.4 trillion and a maximum of $8.4 trillion in profit that was hidden from Congress? Hiding money from the government is a crime. Why are they not prosecuted ?? Ref. RIP OFF BY THE FED, revised; http://www.scribd.com/doc/49040689
The Skull and Bones crew has been performing acts of piracy for the English crown since William of Orange was drop kicked off the throne. Blackbeard, Bluebeard, Henry Morgan, Howard Taft, John Kerry, George Bush 41&43, etc., all pirates for the Britannia alliance. Who led the construction of the Fukushima plant, the WTCs I,II, and 7 to self-destruct (deaths no issue), who oversaw the Chicago Sears tower to self-destruct(Check it out kids. Loaded with thermite, top to bottom), who built the Maconda prospect oil wells until they finally reached the 90,000psi reservoir which they knew would instantly destroy the rig once the reservoir was accessed? My family is builders. You still have not figured out who that small hostile force that has been attacking your very place of grazing is. At election time, you voted like you were taking a dump behind a tree on a camping trip. Now this diseased, infected piece of nastiness is going to follow and haunt you to your grave unless you can dispose of it properly. And it is fouling MY action. But don't expect it to sit still for you. When you catch an octopus, you go for the head.
After starting at '0' results on yahoo! search engine two years ago, I reached as high as 116,300,000 search results by entering "Howard T. Lewis III". I think I am really getting to this major source of woe. Glad to be in your presence, HTLIII
Without a code like that in place, things will be unbelievably worse.
The oil reservoir at the Maconda Prospect in the GOM holds pressures above 80,000 psi, and the circle jerkers running Halliburton and BP knew the inadequate apparatus being used to gain access to this reservoir would not be able to control it once contact was made. Other factors such as the unstable formation consisting of layers of shale, limestone, salt, and other noncohesive substrate, guaranteed the numerous failures of the drilling rig and attempts to bond the casing to the formation walls. These ongoing, ignored problems foretold of inevitable disaster. Still, the convicted felons to be (I can hope, can't I) continued drilling and fired it up before the final cement had dried. KABOOM! Like stupid children blowing up ant nests, only immediately killing 11 people while giving many thousands more skin lesions and cancers, and fouling the GOM and beyond. Obama, the Manchurian candidate, let them off and granted further oil drilling rights to BP in the GOM, even though the above mentioned well still has not been sealed up and is spewing huge amounts of crude oil into the gulf. Any other questions? This, along with the less complex Wall Street looting, is concerted with the same beneficiary in mind, with Japan and the U.S. being destroyed as the top industrial bases.
These sick puppies have got to go, and I resent the greedy and stupid American public wanting to keep them as pets. As well as the American sheeple mewling in front of the TV set.
The banks should be closed down - the are an utter disgrace and a moral and ethical corruption. The two plastic numpties in the picture look like aliens.
I remember in CA when I was just a kid how some American college students burned Bank of America store fronts. I suspect if this economic catastrophe were to happen, nearly every BofA would be torched by anger Americans across the country. The stage of apathy would no longer exists in most American lives. Martial law would likely be declared in America, and law enforcement will have killed many of the angry citizens across America.
While this is something I certainly never hope will ever happen, there would be a positive side of such a tragedy should it befall the American taxpayer. It would be the major catalyst forl change in America. There is no doubt that hundreds of thousands, adding up to millions of Americans across the land in every state would not take this kind of irresponsibility by the banks and our Government with apathy as in the past. History shawdows itself, and there are cycles to nations, and change will be coming for America due to the economic distortions being created by the fatcats in DC.
That change will be expedited as the distortions of evil within our system become more apparent and appauling to everyone across the landscape. This kind of catastrophe would be a beacon of such evil distortion. In China, the justice system would execute the leaders and CEO's responsible for causing such public hardship with a bullet to the head in probably less than 24 hours. Talk about expedient, and dishing out ultimate responsibility for one's actions. In America we have shown during Bush with Hank Paulson, and Obama with Timmy Gr that we reward such individuals. Therefore, their behavior will never change, and they will only be emboldened to take larger risks in the future, if this does not trigger an event of change. So, if this isn't the event that triggers American anger, there will be a future event that does. It will be inevitable as the system will not correct the distortions it is creating.
Sadly, George Bush lacked the intelligence and the courage of Andrew Jackson to break the banks! Not surprising as I truly believe that no American leader coming out of the D's and R's will be a real independent thinker, or a real leader. They will all be simple figure heads of the parties of the broken Government system that now exist and will always exist until Americans wake up.
Raphael G. is "Crazy", perhaps not in the conventional sense. You see, Raphael G. is under the spell of "the meek shall inherit the earth", and the problem with that is simple... the meek have nothing until the warriors capture it for him. I am not an avid bible reader, but does it not say that there is "A time to love, and a time to hate; a time of war, and a time of peace."
Our own government has given us this time to war, by taking our homes, and crushing our dreams, but will we? Have we the backbone for it, or has the fluoride made us all so docile that we will not take our country back?....
And what are they, our government representatives? They are foreign agents..."All these US attorneys work for Interpol. That’s not my opinion, I can prove it. I’ve got a copy of the head of the United States attorney’s office. He’s got an oath filed with Interpol. That makes him an unregistered foreign agent. What they’ve done is expatriated from the United States so you’re dealing with unregistered foreign agents under Title 22, Section 686. 686 is one and I think it’s 286 of Title 22 and it says that all foreign agents have to be registered. That’s why they don’t have an oath of office. That’s why they can’t produce one. You ask them for their oath of office, they don’t have one. They have one but they don’t produce it because it’s with the International Monetary Fund. That’s who they’re working for, the International Monetary Fund. "... Given that, who would you turn too? Our, so called, representatives have gone far beyond selling us out;
http://blogcritics.org/politics/article/congress-has-sold-us-out-to/
What is left? Anyone going to court to settle a foreclosure suit brought by the BIG BANKS (no better than big pharm) are subject to the whims (not the laws) of the presiding judge, bought and paid for by the banking system. For a judge to deny your countrymen/women their homes is, in itself, an act of treason... just as the bail-out was. Now we the people pay for homes owned by the bank. Why? Let the people, most of whom are taxpayers, have their home... IT HAS BEEN PAID FOR! Many times over: 1) Bailout 2) Mortgage Insurance 3) The home owners payments, which were put towards interest first [what happened to usery laws?] making sure the banks got what they wanted first. What do usery laws say today?
http://www.usurylaw.com/state/
Shall we just flip a coin?
Phil D