Bailout of BofA

by g a p Wed Oct 19, 2011 9:33 pm

HOLY BAILOUT - Federal Reserve Now Backstopping $75 Trillion Of Bank Of America's Derivatives Trades
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. This means that the investment
bank's European derivatives exposure is now backstopped by U.S.
taxpayers. 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.