Bank of America & The Great Derivatives Transfer

Submitted by Elaine Magliaro, Guest Blogger

In an article titled Another Weapon for OWS: Pull Your Money Out of BofA, Matt Taibbi wrote that “when it comes to commercial banking, Bank of America is as bad as it gets.” He said he believed the markets seemed to agree as the bank had a credit downgrade recently “to just above junk status.”

He continued: The only reason the bank is not rated even lower than that is that it is Too Big To Fail. The whole world knows that if Bank of America implodes – whether because of the vast number of fraud suits it faces for mortgage securitization practices, or because of the time bomb of toxic assets on its balance sheets – the U.S. government will probably step in to one degree or another and save it.

After the credit downgrade in September, Bloomberg reported that Bank of America “moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits…” Taibbi said the transfer involved trillions of dollars in risky derivatives contracts.

According to 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.

Here’s how Ryan Chittum explained it in the Columbia Review of Journalism: Bank of America moved risky insurance contracts to a taxpayer-insured company, ostensibly to save money. The FDIC, which would now be on the hook for losses if the derivatives collapse, is not happy, and the move raises more questions about the health of Bank of America, which has already seen its market value sliced in half this year.

Kirsten Pittman reported in The Charlotte Observer that more than a dozen Democratic members of Congress are concerned about the reported transfer “of financial instruments from Merrill Lynch into the bank’s deposit-taking arm”—which they say “could put taxpayers on the hook for big losses – three years after the bank received billions in bailouts from the federal government.” The Congressmen wrote to federal regulators to ask why they allowed the movement of derivatives into the retail bank, which has deposits that are insured by the FDIC. In a statement, Rep. Brad Miller of North Carolina said, “This kind of transaction raises many issues of obvious public concern. If the bank subsidiary failed, innocent taxpayers could end up paying off exotic derivatives.”

William Black, a professor of economics and law at the University of Missouri-Kansas City and a former bank regulator, said, “The concern is that there is always an enormous temptation to dump the losers on the insured institution. We should have fairly tight restrictions on that.”

So much for financial reform. Just three years ago, Bank of America received $45 billion in bailout money during the financial crisis. It doesn’t seem that much has changed since 2008, does it?

Edited to Add:

SOURCES

BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit (Bloomberg)

Bloomberg Eyes Bank of America’s Derivatives Move (Columbia Review of Journalism)

Another Weapon for OWS: Pull Your Money Out of BofA (Matt Taibbi)

Bank of America derivatives transfer is criticized by Democrats in Congress (The Charlotte Observer/McClatchy)

106 thoughts on “Bank of America & The Great Derivatives Transfer

  1. The FDIC, which would now be on the hook for losses if the derivatives collapse, is not happy, and the move raises more questions about the health of Bank of America

    It raises even more questions about the health of the federal government because it has no immunity to the diseases of big banks.

    Little wonder that the people seem psychologically prepared for a military takeover.

  2. Why the FDIC is Upset With Bank of America’s Derivatives Transfer Despite Dodd-Frank
    Daily Kos
    11/2/2011
    http://www.dailykos.com/story/2011/11/02/1032356/-Why-the-FDIC-is-Upset-With-Bank-of-Americas-Derivatives-Transfer-Despite-Dodd-Frank

    Excerpt:
    Also, this diary explains why the FDIC is pissed at The Federal Reserve for allowing Bank of America (BOA or BofA) to transfer into BofA’s banking unit all the junk derivatives BOA acquired when they bought Merrill Lynch . As you may recall, the FDIC insures BOA’s depositors against losses as the result of any potential insolvency of bankruptcy.

    Under the Bankruptcy Reform Act of 2005, Derivatives’ Counter-parties were given a preference over all other creditors and customers of a Financial Institution (including FDIC insured depositors). Bank of America recently moved all of their Merill Lynch Derivatives to their Banking Unit, causing the FDIC to object that this move subjects them to potential risk that they would become insolvent should BofA file for Bankruptcy. Yet supposedly, the provisions in the Bankruptcy Reform Act of 2005 that gave Counter-parties these special priorities over regular depositors was overridden by Dodd-Frank’s financial reforms. Some diarists have argued that the FDIC can step in under Dodd-Frank and place the Bank of America into a receivership outside of the Bankruptcy Court’s jurisdiction, thus protecting American taxpayers from bailing out BOA and its derivatives counter-parties again.

    So what’s FDIC’s beef with what Bank of America did in transferring likely trillions of dollars of junk derivatives from Merill Lynch to their banking unit? Can’t they just ride Dodds-Frank to the rescue of BOA’s depositors (and the FDIC’s own reserves) in the event BOA files for Chapter 11? Well, as with most issues, the devil is in the details, and the details of an FDIC receivership under the rules established by the Dodd-Frank reform legislation are devilish indeed.

    For starters, the FDIC does not have the sole right to prevent BOA or any other Too Big To Fail Bank from using the Bankruptcy Code to prefer payment to derivatives’ counter-parties before making FDIC insured depositors whole.

  3. Bank of America Derivatives Transfer Draws Lawmaker Scrutiny
    Bloomberg Businessweek
    November 01, 2011
    http://www.businessweek.com/news/2011-11-01/bank-of-america-derivatives-transfer-draws-lawmaker-scrutiny.html

    Excerpt:
    Eighteen lawmakers signed onto letters from Representative Brad Miller and Senator Sherrod Brown seeking information about whether agencies consulted on the transfer considered the potential impact on the bank’s health and customer accounts.

    “Because of the favored treatment of derivative contracts in receivership, it appears highly likely that losses on derivatives would result in losses to insured deposits ultimately borne by taxpayers,” Miller wrote in his letter, which was signed by eight House Democrats. The transfers were first reported by Bloomberg News on Oct. 18.

    Democratic lawmakers, many of whom sought Dodd-Frank Act amendments to wall off banks’ customer deposits from risky businesses such as derivatives trading, are pressing the Financial Stability Oversight Council for information on its role and oversight of the transaction

  4. William Black, a professor of economics and law at the University of Missouri-Kansas City and a former bank regulator, said, “The concern is that there is always an enormous temptation to dump the losers on the insured institution. We should have fairly tight restrictions on that.”

    So much for financial reform. Just three years ago, Bank of America received $45 billion in bailout money during the financial crisis. It doesn’t seem that much has changed since 2008, does it?

    Excellent article…..Not much has changed….except the greedy get greedier….

  5. Those poor, poor bankers! Forced to commit fraud to make yacht money for upper management! Oh, the horror!

    Great article, Elaine.

  6. why do people glamourize pirates? why do they think they are anything but the creepy crooks that they are?

    they are not nice….

  7. Elaine,

    I’m with others–this is a timely, well researched post. Thanks!

    The one thing that irks me about all the reporters is they fail to ask who forced the FDIC to do this. This action contradicts that fiduciary duty of the FDIC. If they were forced to do it, who made them?

  8. The FDIC is getting used here and the financial world understands it. If Dodd-Frank does give them the authority to put BOA under receivership, what are they waiting for? Fail the bastards.

  9. Elaine,

    Sherrod Brown sent out emails to constituents as he was preparing to take this action … he keeps us informed.

    Here’s a video and transcript of an interview Bill Moyers did with William Black, a bank regulator from the 1980’s and author of the book, “The Best Way to Rob a Bank Is to Own One.” He lays it out quite nicely and like with most criminal activity … it’s not all that complicated. Look for the term ” Liars’ Loans” in the transcript.

    Excerpt:

    “BILL MOYERS: How do they (CEO’s) get away with it? I mean, what about their own checks and balances in the company? What about their accounting divisions?

    WILLIAM K. BLACK: All of those checks and balances report to the CEO, so if the CEO goes bad, all of the checks and balances are easily overcome.: …”

    http://www.pbs.org/moyers/journal/04032009/watch.html

  10. Thanks, Blouise. The picture of Black talking to Moyers refreshed my memory. I’ve seen him interviewed on TV before. I’ve heard about his book–but haven’t read it. I think I’ll get a copy of it.

  11. It’s not clear to me why the FDIC can’t”just say no” to the transfer of these derivatives to an entity whose deposits it is required to insure. Doesn’t the FDIC have any control over BofA? What consideration did BofA receive for assuming this liabilty? You can’t just transfer liabilities between entities without the recipient receiving fair equivalent value. Something doesn’t sound right here.

  12. Elaine,

    I”m appealing to your knowledge of articles written on this matter … the other day I read an article (I think it was in the NYTimes) about the bank fraud being so deep throughout all 50 states and almost every foreign country that investigating it would cause a world-wide collapse of all financial markets.

    It was an interesting article and I failed to bookmark it. I have spent the last hour trying to find it … does it ring a bell with you?

  13. Blouise,

    Do you delete “history” links? If not, maybe you could still locate it. (I’d like to read it, of course…)

  14. anon nurse,

    Sadly, yes … the security stuff my friend set up on my computer deletes everything the second I close my browser … and then washes & bleaches (7 passes). It’s a good security system but I have to remember to bookmark anything I want to keep … which I forgot to do this time.

    It was an article about the Obama administration, the widespread and deeply embedded bank fraud in every state and the ramifications on the financial markets of a full investigation.

    It was not a pro-Obama piece.

    There were many points raised in that article which I know everyone would find interesting but without the article to source and to refresh my memory, I’m hesitant to write about it.

  15. http://www.salon.com/2011/10/30/the_importance_of_protests/singleton/

    Sunday, Oct 30, 2011
    The importance of protests
    By Glenn Greenwald

    Excerpt:

    I’ve focused on these protests, there is one passage that I’ve repeatedly thought about from this genuinely important May, 2009 article in The Atlantic by Simon Johnson, the former chief economist of the IMF. That article is entitled “The Quiet Coup” — referring to the oligarchy that Johnson argues has replaced American democracy — and, as his primary evidence, Johnson describes how America’s reaction to the 2008 financial crisis was virtually indistinguishable from those he witnessed first-hand in corrupt, “emerging market” oligarchies of the past when they faced severe financial distress:

    Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. . . .

    Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large. . . .

    In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets) . . . .But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them. (end of excerpt)

  16. This isn’t the article I’m looking for but it was similar to this Taibbi piece from Aug. 24. The article I’m looking for detailed more of the losses similar to the state pension fund of Florida loss of $62 billion that Taibbi mentions in his piece.

    http://www.rollingstone.com/politics/blogs/taibblog/obama-goes-all-out-for-dirty-banker-deal-20110824

    This bank/mortgage fraud is unbelievably huge and if all were successfully prosecuted in every state and convicted, we would have to construct a whole new prison system to incarcerate them.

  17. http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/

    The Quiet Coup

    “The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

    By Simon Johnson

    May 2009

    Excerpt:

    Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

    The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

    Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

    The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late. (end excerpt)

  18. Blouise
    @ 12:17 pm
    … the other day I read an article (I think it was in the NYTimes) about the bank fraud being so deep throughout all 50 states and almost every foreign country that investigating it would cause a world-wide collapse of all financial markets.
    ———-

    That is why some banks are too big to fail and why some amount of the bailout went to overseas institutions that were in trouble due to their relationship with US banks. That article seems familiar to me but maybe not, it’s actually a common sense conclusion to the information now available to people if they want to keep up with the story.

    This further abuse of the baning system is interesting on a couple of fronts: it reveals that nothing has been done to curb abusive banking practices by Washington and it begs a pretty simple question. What difference does it make which column a banks losing investments get shunted into if the attitude (or engineered reality) is still that some banks are too big to fail? Ultimately the taxpayer will bear the recapitalization cost because bailouts (of many kinds) aren’t off the table.

    I’m a ‘Nationalize the B%#*&^%#’ advocate personally but apparently, based on Elaine M’s posting @8:05 am, Dodd-Franks actually throws the pubic investors – taxpayers – under the bus in any receivership situation! How convenient is that? Well, if you’re attempting to keep others in the industry that are investing in the the crap being traded by the failing bank, both domestic and foreign, it works well enough because you really don’t want to start pulling any frayed thread for fear that the whole garment just unravels. It’s another form of bail out at the taxpayers expense though.

    This same old, same old isn’t over by any means. And it’s no more of an accident now than it was. This, and what I believe is coming, is just the sequel.

  19. anon nurse, excellent articles/links. Thanks.

    This isn’t economics, it’s an ongoing criminal enterprise facilitated by the elected co-conspirators.

  20. “This isn’t economics, it’s an ongoing criminal enterprise facilitated by the elected co-conspirators.” -Lottakatz

    Correct.

  21. anon nurse
    1, November 6, 2011 at 2:31 pm
    “This isn’t economics, it’s an ongoing criminal enterprise facilitated by the elected co-conspirators.” -Lottakatz

    Correct.

    I agree and if I may add a quote from Woosty on another of today’s threads … “what that will not ‘get’ them is anything but a toxic dead zone that they can never hide from or be safe in.”

  22. Blouise,

    Sorry I couldn’t be of more help finding that article. Today I’m babysitting my three-month-old granddaughter, a cat, and a frisky Yellow Lab–who escaped from my daughter’s house. Fortunately, I caught and captured him in a neighbor’s yard a few minutes ago.

  23. Elaine,
    Last weekend we sat for the Boys and I just got back inside from running in the woods with our Yellow Lab, Buster. He needed the run so that he doesn’t take off on us!! Good luck with that cat and dog combo. I am sure it is worth it to spend time with your granddaughter.

  24. “This isn’t economics, it’s an ongoing criminal enterprise facilitated by the elected co-conspirators.” -Lottakatz
    ———————————————-
    so, is this racketteering? cause it sure looks like a racket to me….(obviously this is coming from not a lawyer….)

  25. Have you read this article by Matt Taibbi? It was published in the March 3, 2011 issue of Rolling Stone.

    Why Isn’t Wall Street in Jail?
    Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them
    http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216

    Excerpt:
    Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

    “Everything’s fucked up, and nobody goes to jail,” he said. “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”

    I put down my notebook. “Just that?”

    “That’s right,” he said, signaling to the waitress for the check. “Everything’s fucked up, and nobody goes to jail. You can end the piece right there.”

    Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

    The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

    Invasion of the Home Snatchers

    Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”

    To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”

    But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

    Just ask the people who tried to do the right thing.

  26. Woosty=^..^: “so, is this racketteering?”
    ———

    Actually, as a non-lawyer, it seems to me that it is, ‘specially when some of them were sending emails to each other saying’ ‘We’re selling crap’.

  27. A little OT… Banks catering to the super wealthy.. with psychologists on staff…

    http://www.huffingtonpost.com/2011/11/06/abbot-downing-wells-fargo_n_1078513.html

    Abbot Downing, Wells Fargo’s Bank For Super Rich, Opening In Chicago
    Abbot Downing Chicago

    First Posted: 11/6/11

    Excerpt:

    Wells Fargo & Co.’s new bank for the super rich is set to open in Chicago, targeting households with $50 million or more to invest.

    Abbott Downing is named after a 19th century custom carriage builder who catered to the wealthy, according to UPI. The firm has $27.5 billion in client assets and about 300 people on staff — including psychologists and staff dedicated to building family genealogies, the Chicago Sun-Times reports.

    “Abbot Downing goes beyond traditional wealth planning analysis by focusing on clients’ values, goals and vision,” James Steiner, who will run Abbot Downing, said in a statement. “Our advisors and Family Dynamics consultants focus not only on traditional wealth planning, such as cash flow, investments and wealth transfer, but also on human dimensions, such as family legacy, governance, leadership transition, family education and risk management.”

    The brand will reportedly be launched in April 2012. Aside from an office in Chicago, they will also be opening in San Francisco, Los Angeles, Scottsdale, Denver, Houston, Minneapolis, Philadelphia, Charlotte, Winston-Salem, Raleigh, Naples, Jacksonville and Palm Beach.

    The announcement comes as banks are increasingly desperate to increase revenues after new regulations put a stop to some fees they were charging average customers and small businesses. (end excerpt)

  28. Bank Of America Derivatives Timebomb Shows System Is Corrupt To The Core
    http://problembanklist.com/bank-of-america-derivatives-timebomb-shows-system-is-corrupt-to-the-core-0426/

    Excerpt:
    The Federal Reserve recently allowed Bank of America to move its massive derivative positions from the bank holding company to its banking subsidiary which is an FDIC insured depository institution. By allowing this transfer, the Federal Reserve has allowed Bank of America to shift the risk of loss on speculative derivative contracts from the non-bank affiliate. A failure of Bank of America could result in huge losses for the FDIC which would ultimately be passed on to the taxpayers.

    The most noteworthy aspects of this remarkable event include the following:

    – The disclosure of the derivatives transfer to Bank of America’s FDIC insured depository was apparently leaked by the FDIC which opposed the move due to the huge amount of risk being transfered to the FDIC and bank depositors.

    – In allowing the transfer, the Federal Reserve apparently violated Section 23A of the Federal Reserve Act which was supposed to keep the risks of investment banking activities at the bank holding company level.

    – The notional value of the Bank of America derivative contracts is $75 trillion. The request for the derivatives transfer was initiated by counterparties of the contracts with Bank of America who were alarmed over the credit downgrade of Bank of America.

    – The transfer of the derivatives from Bank of America’s holding company to the FDIC insured depository institution has received remarkably little mainstream press coverage. The quick approval by regulators at the Federal Reserve to protect the bank holding company indicates that the Federal Reserve is corrupt to the core and more interested in protecting the banks than the American public.

  29. Not with a Bang, but a Whimper: Bank of America’s Death Rattle
    By William K. Black
    http://neweconomicperspectives.blogspot.com/2011/10/not-with-bang-but-whimper-bank-of.html

    Excerpt:

    Ken Lewis’ “Scorched Earth” Campaign against B of A’s Shareholders

    Acquiring Countrywide: the High Cost of CEO Adolescence

    During this crisis, Ken Lewis went on a buying spree designed to allow him to brag that his was not simply bigger, but the biggest. Bank of America’s holding company – BAC – became the acquirer of last resort. Lewis began his war on BAC’s shareholders by ordering an artillery salvo on BAC’s own position. What better way was there to destroy shareholder value than purchasing the most notorious lender in the world – Countrywide. Countrywide was in the midst of a death spiral. The FDIC would soon have been forced to pay an acquirer tens of billions of dollars to induce it to take on Countrywide’s nearly limitless contingent liabilities and toxic assets. Even an FDIC-assisted acquisition would have been a grave mistake. Acquiring thousands of Countrywide employees whose primary mission was to make fraudulent and toxic loans was an inelegant form of financial suicide. It also revealed the negligible value Lewis placed on ethics and reputation.

    But Lewis did not wait to acquire Countrywide with FDIC assistance. He feared that a rival would acquire it first and win the CEO bragging contest about who had the biggest, baddest bank. His acquisition of Countrywide destroyed hundreds of billions of dollars of shareholder value and led to massive foreclosure fraud by what were now B of A employees.

    But there are two truly scary parts of the story of B of A’s acquisition of Countrywide that have received far too little attention. B of A claims that it conducted extensive due diligence before acquiring Countrywide and discovered only minor problems. If that claim is true, then B of A has been doomed for years regardless of whether it acquired Countrywide. The proposed acquisition of Countrywide was huge and exceptionally controversial even within B of A. Countrywide was notorious for its fraudulent loans. There were numerous lawsuits and former employees explaining how these frauds worked.

    B of A is really “Nations Bank” (formerly named NCNB). When Nations Bank acquired B of A (the San Francisco based bank), the North Carolina management took complete control. The North Carolina management decided that “Bank of America” was the better brand name, so it adopted that name. The key point to understand is that Nations/NCNB was created through a large series of aggressive mergers, so the bank had exceptional experience in conducting due diligence of targets for acquisition and it would have sent its top team to investigate Countrywide given its size and notoriety. The acquisition of Countrywide did not have to be consummated exceptionally quickly. Indeed, the deal had an “out” that allowed B of A to back out of the deal if conditions changed in an adverse manner (which they obviously did). If B of A employees conducted extensive due diligence of Countrywide and could not discover its obvious, endemic frauds, abuses, and subverted systems then they are incompetent. Indeed, that word is too bloodless a term to describe how worthless the due diligence team would have had to have been. Given the many acquisitions the due diligence team vetted, B of A would have been doomed because it would have routinely been taken to the cleaners in those earlier deals.

    That scenario, the one B of A presents, is not credible. It is far more likely that B of A’s senior management made it clear to the head of the due diligence review that the deal was going to be done and that his or her report should support that conclusion. This alternative explanation fits well with B of A’s actual decision-making. Countrywide’s (and B of A’s) reported financial condition fell sharply after the deal was signed. Lewis certainly knew that B of A’s actual financial condition was much worse than its reported financial condition and had every reason to believe that this difference would be even worse at Countrywide given its reputation for making fraudulent loans. B of A could have exercised its option to withdraw from the deal and saved vast amounts of money. Lewis, however, refused to do so. CEOs do not care only about money. Ego is a powerful driver of conduct, and CEOs can be obsessed with status, hierarchy, and power. Of course, Lewis knew he could walk away wealthy after becoming a engine of mass destruction of B of A shareholder value, so he could indulge his ego in a manner common to adolescent males.

  30. SwM,

    Yep … all that work has been worth it … we marched, we beat drums, we did petitions, we went to court … every hurdle the teabaggers put in front of us, we jumped. We might even be able to beat Issues 1 & 3 but 2 is gonna go down big.

    The polling shows if Ohio voters could do it over again they’d reelect Ted Strickland by a 55-37 margin over Kasich. Teabaggers are very unpopular and not admitting to Tea Party association … they want to be called republicans now … ;)

  31. Blouise & rafflaw,

    I returned home from my day of babysitting less than an hour ago. My husband, daughter, and son-in-law went to see the Patriots today. I got to play with my granddaughter–which I’d much rather do than go to a football game.

    *****

    raff,

    Jack behaved himself once I got him back into the house after his great escape.

  32. SwM,

    Interesting side note … I talked to a group of original Tea Partyers … they are all Ron Paul supporters and resented like hell the co-opting of their “special” name by the “republican born-agains” (their wording, not mine). They are quite happy to have the fundies out and to get back their “Tea Party”. They aren’t the least bit interested in the abortion discussion or faith-based bullshit. They want to talk taxes and ending the wars.

  33. Elaine,

    I tried to watch the Ravens/Steelers game this afternoon and got bored so I talked to my granddaughter via our iPads. She has a new kitten and had to show me every little thing she and kitty do together. It was special.

  34. Off screen and in the background I could hear my son-in-law repeating the new mantra … “Now be gentle … no, no, don’t pick kitty up that way …” over and over and over and ….

  35. Blouise,

    I’m glad you had an enjoyable day communicating with your granddaughter. I had an enjoyable day too. Julia’s other grandmother joined me for lunch and we had an opportunity to visit with each other for a few hours.

  36. 2008 Redux: Taxpayers to help bailout Merrill Lynch and Bank of America
    Kenneth Schortgen Jr, Finance Examiner
    http://www.examiner.com/finance-examiner-in-national/2008-redux-taxpayers-to-help-bailout-merrill-lynch-and-bank-of-america

    Without regulatory permission, Bank of American on October 18th has moved potentially trillions of dollars worth of European derivatives into their depository arm to give it access to the Fed window, and backstopping by the FDIC and US taxpayers.

    This move by Bank of America and its investment arm, Merrill Lynch, is an attempt to remain solvent, and hope for a bailout of its failed investments by the Fed and Treasury Department as the banking crisis in Europe threatens their balance sheets.

    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. – Daily Bail

    Bank of America is not the only financial institution attempting to use the taxpayers as a backstop to protect their potential losses, as according to Bloomberg, JP Morgan is also moving up to $79 Trillion in European backed derivatives to where they will be guarnteed by the FED, and the FDIC.

    It appears that the banks are relying on the Too Big To Fail mentality of the Teasury Department, and the legislators in Washington to have little choice but to institute a bailout of massive proportions should these derivatives be called in for Euro failures. Only this time, the cost would be 10 times the amount taxpayers spent bailing out institutions during the 2008 credit crisis.

    For the American people, these moves by Bank of America and JP Morgan should be severe warnings to just how bad the global credit crisis is becoming, and the potential for over $100 trillion in derivatives to be thrust on the US taxpayers. It is ironic that Merril Lynch once again is the center of controversy for too big to fail, but this time, there may not be enough dollars in circulation to save the banks should the worst case scenario come to pass.

  37. HOLY BAILOUT – Federal Reserve Now Backstopping $75 Trillion Of Bank Of America’s Derivatives Trades
    http://dailybail.com/home/holy-bailout-federal-reserve-now-backstopping-75-trillion-of.html

    Excerpt:
    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.

  38. Casey to Federal Bank Regulators: Must Ensure Risky Behavior by Banks Does Not Threaten Taxpayers

    Questions in Light of Bank of America Move of Risky Derivatives to Taxpayer-backed Banking Unit
    http://casey.senate.gov/newsroom/press/release/?id=f0126479-ae29-45be-83b8-3e79399f943e

    Excerpt:
    October 27, 2011

    The Honorable Ben S. Bernanke
    Chairman
    Board of Governors of the Federal Reserve

    The Honorable Martin J. Gruenberg
    Acting Chairman
    Federal Deposit Insurance Corporation

    Mr. John G. Walsh
    Acting Comptroller of the Currency
    Administrator of National Banks

    Dear Chairman Bernanke, Acting Chairman Gruenberg, and Acting Comptroller Walsh:

    Section 23A of the Federal Reserve Act restricts transactions between banks and their nonbank affiliates, placing limits on the amount of each transaction relative to a bank’s capital and prohibiting purchases of certain “low-quality” assets.[1] The primary purposes of section 23A are protecting federally insured banks from riskier activities conducted by nonbank affiliates and preventing nonbank affiliates from benefitting from the subsidies provided by the federal safety net through the FDIC’s coverage of insured deposits.[2] Congress sought to reinforce these principles in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), by restricting banks and their affiliates from engaging in proprietary trading or investing in private equity and hedge funds, while also requiring banks to move certain derivatives activities to their non-bank affiliates.[3] The Dodd-Frank Act provides the Federal Deposit Insurance Corporation (FDIC) with authority as of July 21, 2012, to unilaterally reject any 23A exemption request from an insured depository institution.[4]

    In the depths of the financial crisis, Goldman Sachs and Morgan Stanley converted to bank holding companies, in large part so as to participate in Federal Reserve programs designed to support them, including the Federal Reserve’s discount window. When the Federal Reserve granted a 23A exemption to Goldman Sachs Bank in 2009, Goldman moved its multi-purpose derivatives dealer into its insured bank affiliate. Likewise, Morgan Stanley converted to a bank holding company, and received a 23A exemption for its derivatives business. And JPMorgan Chase Bank, N.A., currently holds 99 percent of the notional derivatives of JPMorgan Chase & Co.[5] These actions signal a troubling policy shift that has weakened limitations on insured banks engaging in risky activities and significantly expanded the federal safety net.[6]

    We write today regarding recent reports that Bank of America Corporation, the nation’s largest bank holding company by assets, has elected to transfer a substantial portion of its derivatives business from its broker-dealer affiliate Merrill Lynch & Company, Inc., to Bank of America, N.A. – the nation’s second largest bank by deposits. As of June 30, 2011, the insured bank held $53 trillion in derivatives, an increase of $14.85 trillion – or 39 percent – from its holding prior to the purchase of Merrill Lynch.[7] We are concerned because the reported transactions appear to violate the principles established in Section 23A of the Federal Reserve Act, and reinforced by Sections 619 and 716 of the Dodd-Frank Act, particularly “prevent[ing] the undue diversion of funds into speculative operations.”[8]

    At a time when systemically important banks are increasing their capital relative to their credit risk, these transfers are having the effect of increasing Bank of America, N.A.’s credit risk relative to capital. Section 11 of the Federal Deposit Insurance Act provides derivatives counterparties with the ability to terminate, liquidate, or accelerate their derivatives claims. However, derivatives contracts generally are not subject to enforcement by the receiver.[9] As a result of this provision, the FDIC Deposit Insurance Fund – and ultimately, the U.S. taxpayer – could be required to backstop the insured bank’s derivatives losses in the event that the bank’s capital cushion proves inadequate. These potentially risky, largely over-the-counter, transactions are now being directly backstopped by the FDIC’s Deposit Insurance Fund – and ultimately the United States Treasury. This provides an additional safety net subsidy for one of the biggest derivatives dealers that is contrary to not only the principles, and potentially the strictures, of the Dodd-Frank Act, but also the original intent of the Federal Reserve Act and the Federal Deposit Insurance Act.

    With respect to the recent actions by certain Federal banking regulators to waive restrictions or otherwise permit the largest institutions to put depositors and taxpayers at risk for the banks’ derivatives trading losses, we would like the regulators to answer the following questions:

    – What supervisory policies of the Federal banking agencies are implicated by the establishment of a large derivatives trading operation within an insured depository institution?

    – What was the policy basis for the decision by the Federal Reserve and the institution’s primary Federal banking regulator to allow large firms to put their derivatives trading operations in their insured depository institutions?

    – What is your understanding of why insured depository institutions have asked their primary Federal banking regulator to allow their insured depository institutions to house their derivatives trading operations?
    What was the justification for allowing the transfer of derivatives trading operations, and what factors did you evaluate in making those decisions?

    – What risks arise to the insured depository institution as a result of having the derivatives business principally operated out of it?

    – Given the extremely large size of the derivatives trading operations of some banks relative to their other business operations, could losses in a derivatives trading operation threaten the solvency of those insured depository institutions?

    – What efforts are being undertaken by the FDIC to ensure that, depositors, the Deposit Insurance Fund, and taxpayers are not put at any additional risk?

    – Has the FDIC considered adjusting its risk-adjusted premiums to reflect any additional risk, and if not, why not?

    Because taxpayers may be exposed to losses to the Deposit Insurance Fund arising from certain regulatory exemptions for the transfer of Merrill Lynch’s derivatives transactions to Bank of America, N.A., it is also important to know:

    – What are the amount, composition, quality, counterparty identity, and credit exposure of the derivative contracts transferred from Merrill Lynch to Bank of America, N.A.?

    – Is it your understanding that the reported transfers were requested by Merrill Lynch’s counterparties?

    – Do the reported transfers require Bank of America to obtain an exemption from Section 23A?

    – Has Bank of America sought an exemption from Section 23A?

    – If Bank of America has sought an exemption, what was the proffered rationale? Do you agree with this rationale?

    – Have you granted, or do you expect to grant, Bank of America an exemption from Section 23A? If so, why?

    – Have regulators accepted the living will submitted by Bank of America, pursuant to Section 165 of the Dodd-Frank Act?

    – If a 23A exemption has been granted by the Federal Reserve, please provide any relevant written records, including interagency communications, concerning the granting of the exemption.

    Bank holding companies are intended to serve as a source of strength to their subsidiaries.[10] Unfortunately, as former FDIC Chairman Sheila Bair has noted, “[d]uring the crisis, FDIC-insured subsidiary banks became the source of strength both to the holding companies and holding company affiliates.”[11] Congress, regulators, and other interested parties should take all necessary steps to ensure that these events do not repeat themselves.

    We look forward to hearing your agencies’ respective views on this issue. Given the sensitive nature of these developments, we would request your responses by November 11th, 2011. Thank you for your prompt attention to this important matter.

    Sincerely,

    Sherrod Brown
    United States Senator

    Carl Levin
    United States Senator

    Jeff Merkley
    United States Senator

    Mark Begich
    United States Senator

    Richard Blumenthal
    United States Senator

    Tom Harkin
    United States Senator

    Robert P. Casey, Jr.
    United States Senator

    Bill Nelson
    United States Senator

    Sheldon Whitehouse
    United States Senator

    Maria Cantwell

    United States Senator

    Cc: The Honorable Timothy Geithner, Secretary, United States Department of the Treasury

  39. It’s not Tim’s “worst nightmare”, he’s part of the group instigating it!

    All these actions, here and abroad, have something in common. They are a means to transfer ever more wealth to the very top. Tim Geithner is pushing for austerity and bank bail outs in Europe so that GS and all the other big players will be paid out in full for their gambling losses. Bailing out troubled banks will not help the vast majority of people. It will hurt us!

    Too much of our newz is simply propaganda. In the BOA story, here is what actual reporting would look like. First, there would be a full and accurate accounting of the situation. We are pretty much getting that. This story is a little large to ignore! Here’s what information were not getting answered.

    1. Who specifically “forced” the FDIC to not do it’s job? Was the FDIC really forced, or did they do this willingly because they are part of the “Inside Job”. Has the FDIC been stacked in favor of the banks by “regulatory capture”. Who are the people that made the decision? What are their ties to Wall Street? Why aren’t they making a transparent account of why they acted as they did?

    Who specifically at the FED wanted this done? What is his or her name and ties to Wall Street? Is there some reason that person or persons from the FED will not come forward and lay out their “reasoning”? I don’t think this qualifies as a “state secret” and both the FED and FDIC claim it’s not illegal, so why the reluctance to explain the what and why (also who) of their actions?

    Inquiring mind want to know!

  40. That’s great news Elaine. Hope they get an answer. I really wish, in the meantime, someone in the press would go after this story and not drop it until everything is exposed!!!

  41. Jill,

    Did you watch the William Black video? Evidently, the FDIC didn’t give permission for this transfer–it was the FED. It’s been reported that FDIC leaked the story.

  42. I didn’t watch that video by him. I had seen another on RN and thought it was the same one. I just watched it now. That interview begins to address some questions. I hope Black is correct in speculating that someone in FDIC leaked it on behalf of the people. Whoever did, good for them!!! More leaks!!!!

    So we need to know what happened at the FED. Who specifically discussed the matter? Should these people be under indictment by the DOJ? How did ML accumulate 75 trillion in “assets” during a repression (depression)? Who are these well connected people? What is the nature of their connection to the govt.? We the people, deserve answers!

  43. I don’t know if anyone has posted this link and if so, I apologize for reposting, but this is interesting as people responded to the news about ATM fee ( now dropped because of consumer reaction) but this latest news about the transfers the FED permitted has increased people’s fear as to the safety of their savings accounts in the Wall Street Banks. Our local community bank is experiencing a real surge in transfers of savings accounts to their bank.

    http://news.firedoglake.com/2011/11/04/credit-union-membership-skyrockets-650000-new-members-since-september-29/

  44. Bank of America Trying To Stick Taxpayers With A $74 Trillion Bill By Moving Derivatives Into FDIC-Insured Accounts
    76 comments
    By Susie Madrak
    http://crooksandliars.com/susie-madrak/bank-america-trying-stick-taxpayers-7

    Excerpt:
    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.

  45. Former Financial Regulator William Black: Occupy Wall Street A Counter to White-Collar Fraud
    Democracy Now
    October 19, 2011

    Note: Black is a white collar criminologist.

    Summary:
    Broadcasting on the road from Kansas City, Missouri, we’re joined by William Black, a white-collar criminologist, former financial regulator, and author of “The Best Way to Rob a Bank is to Own One.” Black teaches economics and law at the University of Missouri-Kansas City and recently took part in Occupy Kansas City. “If you look [at the Occupy protests], not just nationwide, but worldwide, you will see some pretty consistent themes developing,” Black says. “Those themes include: we have to deal with the systemically dangerous institutions, the 20 biggest banks that the administration is saying are ticking time bombs, that as soon as one of them fails, we go back into a global crisis. We should fix that. There’s no reason to have institutions that large. That’s a theme. That accountability is a theme, that we should put these felons in prison… That we should get jobs now, and that we should deal with the foreclosure crisis. So those are four very common themes that you can see in virtually any of these protest sites… I think, over time, you won’t necessarily have some grand written agenda, but you’ll have, as I say, increasing consensus. And it’s a very broad consensus.”

    Excerpt:
    AMY GOODMAN: We are on the road in Kansas City, Missouri, in front of a live audience of public television broadcasters at NETA, the National Educational Telecommunications Association conference. Kansas City is known for its barbecues, blues and boulevards. It’s where Republican presidential [candidate] Herman Cain was chair of the Kansas City Federal Reserve Bank.

    It’s also known as the home of the Hallmark Company, the largest manufacturer of greeting cards in the United States. However, those greeting cards are not likely to contain the words of a former resident of this area, the famed African-American poet Langston Hughes. He was born in Joplin, Missouri, but spent most of his childhood in nearby Lawrence, Kansas. In his 1951 poem “Harlem,” Hughes asked a simple question: “What happens to a dream deferred?” Well, let’s listen to Langston Hughes in his own voice.

    LANGSTON HUGHES: What happens to a dream deferred?
    Does it dry up
    like a raisin in the sun?
    Or fester like a sore —
    And then run?
    Does it stink like rotten meat?
    Or crust and sugar over —
    like a syrupy sweet?

    Maybe it just sags
    like a heavy load.

    Or does it explode?

    AMY GOODMAN: That’s Missouri native Langston Hughes. “Or does it explode?” As protesters with Occupy Kansas City join in solidarity with protesters across the country and around the world, Langston Hughes may finally have his answer.

    Well, our first guest is one of the many people who have participated in Occupy Kansas City. William Black is a white-collar criminologist, former financial regulator, worked in the Reagan administration, and is author of The Best Way to Rob a Bank is to Own One. He is associate professor of economics and law at the University of Missouri-Kansas City.

    William Black, welcome to Democracy Now!, as we broadcast here in Kansas City.

    WILLIAM BLACK: Thank you so much.

    AMY GOODMAN: It’s very good to have you with us. What does it mean to be a white-collar criminologist?

    WILLIAM BLACK: It means Rodney Dangerfield: we get no respect. Virtually all the funding goes to blue-collar. Virtually all the resources go to it. So it’s a thin group of folks that look at the most elite criminals who cause most of the property and most of the physical damage in the world.

    AMY GOODMAN: What do you think has to happen now? And what does this have to do with the Occupy Wall Street protests that have expanded here in Kansas City and across the globe? There are more than a thousand demonstrations that have been held in the last weeks.

    WILLIAM BLACK: Well, we have companion problems. We’ve got to stop this dynamic that’s producing recurrent, intensifying crises. I mean, this one has devastated the nation. The next one would probably be equivalent to the Great Depression. And part of that answer—but only part of it—is to hold the folks accountable, especially the most elite, who caused this crisis. And they did it through fraud, and they did it through fraud in what we call the “C-suites” —the CEOs, the COOs — so, the absolute top.

    AMY GOODMAN: What do you mean by fraud?

    WILLIAM BLACK: Well, I mean just what we say in the law: fraud is when you use deceit to steal something from someone. And so, the essence of fraud is, I get you to trust me, and then I betray that trust for gain. And as a result, there’s no more effective acid against destroying trust than fraud, particularly at the elite levels. And when you destroy trust, you destroy economies, families, democracies.

    AMY GOODMAN: Now, you worked in the Reagan administration. Explain the trajectory of how we have fallen so far. Where do you feel it began?

    WILLIAM BLACK: Well, it’s, you know, quite remarkable. It actually, of course, begins in the Carter administration with very substantial deregulation, although I would say of a better sort. I mean, most people don’t think trucking should be heavily regulated, and that’s the type of thing he deregulated. By the Reagan administration, they were—deregulate everything, at the worst possible circumstances, when you had no one looking. And the result was a disaster. It was the savings and loan crisis, at least the second phase of it. And if it had not been contained, it would have been at least a trillion-dollar crisis.

    It was contained despite the Reagan administration, and despite a lot of prominent Democrats, as well, who were very heavily in the same camp. So we acted against the wishes of the administration, against the wishes—a majority of the House co-sponsored a resolution saying don’t reregulate—the Keating Five—many people remember those five senators—most of the media, what the political scientists considered the third most powerful trade association in America. And by the way, that’s why I have a message of hope. If we could succeed in those circumstances, it’s far easier to succeed now.

    AMY GOODMAN: And how would these powerful financial entities be held accountable? What exactly should happen?

    WILLIAM BLACK: It all starts with the regulators, which is why it’s all not started here, because we have, of course, the wrecking crew, Bush’s wrecking crew, what Tom Frank called them, in charge, and they stopped making criminal referrals. So our agency, in the savings and loan crisis, made over 10,000 criminal referrals to the FBI. That same agency, in this crisis, made zero criminal referrals. If you don’t get people pointing the way and pointing to the top of the organization, you don’t get effective prosecutions. So, in the peak of the savings and loan crisis, we had a thousand FBI agents. This crisis has losses 70 times larger than the savings and loan crisis. And the savings and loan crisis, when it happened, was considered the largest financial scandal in U.S. history. So we’re now 70 times worse. And as recently as 2007, we had 120 FBI agents—one-eighth as many FBI agents for a crisis 70 times larger. And they looked not at the big folks, but almost exclusively at the little folks.

    AMY GOODMAN: William Black, you mentioned Bush’s wrecking crew, but we live in the time of President Obama.

    WILLIAM BLACK: And we’ve been living for some years in the time of President Obama, and he has done absolutely nothing to reestablish the criminal referral process. And as a result, there are virtually no prosecutions of any elites.

    When people tell you this crisis couldn’t have been stopped—I’ll give you two simple things. First, these liars’ loans that caused this crisis—and it’s overwhelmingly lenders that put the lie in liars’ loans—they were big in 1990 and 1991. We killed them by regular regulatory means and stopped a crisis for a decade. Our successors—I mean, how hard is it to figure out that something called a “liar’s loan” shouldn’t be allowed? This was not tough.

    The second thing is, the FBI warned, in open testimony in the House of Representatives, picked up by the national media, in September 2004, that there was an epidemic of mortgage fraud and predicted it would cause a financial crisis—their exact words. And the regulators did nothing, because you had the Alan Greenspans of the world and the Harvey Pitts of the world, who were selected because they were the leading opponents of effective regulation in America. Well, you know, you create a self-fulfilling prophecy of regulatory failure, and then turn around and say, “Well, you can’t trust the government. It fails.”

    http://www.democracynow.org/2011/10/19/former_financial_regulator_william_black_occupy

  46. MF Global had quite a few of the smartest men in the financial industry managing their assets. They also had access to the ultimate insider info, because their CEO, Jon Corzine, was a Federal Reserve Bankster insider. So, how could so many of the nation’s brightest make such boneheaded decisions?

    Once again I want to emphasize that for every loser in the financial derivatives market, there is an equal and opposite winner, making tons of cash.

    Since 70% of the 1500 trillion dollar derivatives market is bets against interest rates going up or down, one would think that the former Chairman of Goldman Sachs would have some kind of clue on what the banksters were doing with interest rates. Some would argue that the loss of $40 billion dollars was a huge mistake. I would argue that there are no mistakes when it comes to the Satanic Psychopaths!

  47. Craig,

    “I would argue that there are no mistakes when it comes to the Satanic Psychopaths!”

    That is hilarious! I don’t believe in accidents either!!!

  48. Off Topic:

    Wall Street Transaction Tax Would Raise $350 Billion
    http://www.huffingtonpost.com/2011/11/07/wall-street-transaction-tax-revenue_n_1080493.html

    Excerpt:
    WASHINGTON — A minuscule tax on financial transactions proposed by congressional Democrats would raise more than $350 billion over the next nine years, according to an analysis by the Joint Tax Committee, a nonpartisan congressional scorekeeping panel.

    The analysis was sent Monday to the offices of Sen. Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-Ore.), the lawmakers who proposed the tax, and provided to The Huffington Post.

    The Wall Street Trading and Speculators Tax Act would impose a tax of 0.03 percent on financial transactions, meaning that longterm investors would barely notice it, but traders who move rapidly in and out of positions would feel its sting and, the authors hope, reduce the volume of their speculation in response.

    The European Union is pressing forward with a financial transaction tax, though it is encountering some resistance from the United Kingdom, the financial center of Europe.

    In order to be effective, the tax would need to be implemented in most major industrial countries where trading is done.

    Some believe that the global nature of the Occupy Wall Street movement will boost the chances of the transaction tax being signed into law. While the movement has been criticized for lacking specific demands, protesters have voiced their support for a “meaningful” tax being placed on Wall Street trading.

  49. Also Off Topic:

    Credit Suisse To Disclose Names Of U.S. Clients Suspected Of Tax Evasion
    http://www.huffingtonpost.com/2011/11/08/credit-suisse-us-clients-tax-evasion_n_1081453.html

    Excerpt:
    Reuters
    Credit Suisse AG, Switzerland’s second-largest bank, has begun notifying certain U.S. clients suspected of offshore tax evasion that it intends to turn over their names to the Internal Revenue Service, with the help of Swiss tax authorities.

    Credit Suisse’s notification by letter, a copy of which was obtained on Monday by Reuters, says the handover of names and account details will take place following a recent formal request for the information by the IRS.

    The move by Credit Suisse to disclose American client names and account information is the latest twist in a showdown between Switzerland and the United States over the battered tradition of Swiss bank secrecy.

    U.S. authorities, who suspect tens of thousands of wealthy Americans of evading billions of dollars in taxes through Swiss private banks in recent years, are conducting a widening criminal investigation into scores of Swiss banks, including Credit Suisse.

  50. Too Big To Fail Casino Banks Make $518 Billion Bet On PIIGS Sovereign Debt
    http://problembanklist.com/to-big-to-fail-casino-banks-make-billion-bet-on-piigs-sovereign-debt-0430/

    Excerpt:
    The “Too Big To Fail Banks” are at it again, making huge speculative bets on the odds of sovereign default by Portugal, Italy, Ireland, Greece and Spain. The costly lessons of the derivatives debacle of 2008 have apparently been forgotten.

    In 2008, the Too Big To Fail banks bought massive amounts of credit default swaps (CDS) to protect themselves from loss on their huge holdings of subprime mortgages. By purchasing CDS from institutions such as insurance giant AIG, the banks were able to convince regulators that their net exposure to losses on holdings of toxic mortgage instruments was minimal. So how did that work out?

    As the mortgage market collapsed in 2008, AIG’s payoff liability on the CDS it wrote soared. AIG was forced to post additional collateral with counterparties as its credit rating was downgraded and the company faced collapse. If AIG had been allowed to collapse, the too big to fail banks who thought they were hedged, would have instead faced losses in the hundreds of billions. The failure of AIG would have resulted in huge losses to the banks and AIG bondholders.

    Instead of being allowed to fail, AIG was bailed out by both the U.S. Treasury and the Federal Reserve who agreed to a financial commitment of up to $182 billion. The final amount lent or invested to bail out AIG by the Treasury and the Fed ultimately totaled $140 billion. AIG still owes the U.S. Treasury almost $50 billion according to propublica.org which tracks the cost of taxpayer financed bailouts.

    It wasn’t until a year and a half later that the full truth about the AIG bailout was revealed. In January 2010, the NY Fed was forced to release documents showing that over $100 billion of the taxpayer bailout funds given to AIG were transferred to major financial institutions such as Goldman Sachs, Deutsche Bank and Merrill Lynch to make them whole on credit default swaps with AIG.

    Federal Reserve Chairman Ben Bernanke, commenting on the AIG bailout, made the specious argument that the AIG bailout was necessary since the Feds had no authority to close AIG. “If a federal agency had (appropriate authority) on September 16, (2008), they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now.”

    AIG further infuriated taxpayers by sending its executives to a posh California retreat one week after the bailout, at a cost of almost $500,000. In early 2009, mere months after the bailout, AIG had the audacity to announce bonuses of $450 million for its financial unit and company wide bonuses totaling $1.2 billion.

  51. BoA Dumps $75 Trillion In Derivatives On Taxpayers, Super Committee Looks Away. Seize BoA Now.
    http://www.dailykos.com/story/2011/11/08/1034201/–BoA-Dumps-$75-Trillion-In-Derivatives-On-Taxpayers,-Super-Committee-Looks-Away

    Excerpt:
    It’s real money, especially since “Bank of America Deathwatch” financial pundits have multiplied on the web and it has become a bit of a geek guessing game. When will BoA finally tank? And when it tanks, the question becomes, who will walk away with all their money, and who will be left holding the bag? The deal just snuck through with the Federal Reserve’s, and implicitly, Congress’s approval insures Wall Street casino gambler’s debts by moving them into accounts meant for penny-pinching grandmas.

    Citing Bloomberg, financial commentator Avery Goodman tells us:

    Even if we net out the notional value of the derivatives involved, down to the net potential obligation, the amount is so large that the United States could not hope to pay it off without a major dollar devaluation, if a major contingency actually occurred and a large part of the derivatives were triggered.
    A bailout for one company’s most irresponsible investors triggering a major dollar devaluation? This is the kind of thing that starts revolutions.

    Goodman reports:

    Bank of America (BAC) has shifted about $22 trillion worth of derivative obligations from Merrill Lynch and the BAC holding company to the FDIC insured retail deposit division. Along with this information came the revelation that the FDIC insured unit was already stuffed with $53 trillion worth of these potentially toxic obligations, making a total of $75 trillion.
    Without going too far into bewildering financial jargon, it’s like this: Your wildest son is asking you to co-sign for a debt. If he can’t make his payments, you are on the hook. How much is the debt? He doesn’t know. Just sign on the dotted line.

    Meanwhile the “super committee” is looking for a trillion or so dollars in hits to everything, including Social Security and Medicare/Medicaid, to keep the budget from going any more out of whack. It’s urgent, they say, for us to stop spending like drunken sailors. But at the same time they just whipped out a pen and signed for junior, crossing their fingers that something won’t happen which is almost inevitable.

  52. The GDP of the US is around 15 trillion. This obligation alone is multiples of that. I would also add that this should put to rest the idea that financial speculation is a “jobs creator”.

    This is another inside job. Those involved, all of them, need to exposed and jailed.

  53. Elaine,

    I know they won’t be jailed by the current group of lackeys. These are the people who have already committed financial crimes. They remain at large to do even more harm. I am articulating what should happen. These people have brought down our economy, hell they are in progress for destroying the world economy.

    It is just like the police state. It’s time to take a stand. We the people are the only hope of holding these banksters to account.

    One purpose I had in pointed out our GDP is the impossibility of these crimes going on forever. This system, devised by the criminals, will reach its own end. It is not sustainable. It’s a matter of will it reach its own end leaving behind complete devastation of the earth and it’s creatures or will we make a stand on behalf of this planet and all it’s creatures?

    To do nothing is to consent to the destruction of everything of value in life.

  54. Financial Industry Collects The Most Government Tax Subsidies
    A new Citizens for Tax Justice report detailing how little corporations pay in federal corporate income tax also noted that financial firms receive the highest percentage of federal tax subsidies, collecting nearly 17 percent of the tax largesse that the government hands out. The largest single recipient of federal tax subsidies over the last three years was mega-bank Wells Fargo.

    Check out the chart at the following link:
    http://thinkprogress.org/economy/2011/11/07/363234/financial-tax-subsidies/

  55. Elaine,

    Looked at the list from your link and couldn’t decide where to stick Christmas trees. (anybody who thinks this 15 cent tax won’t be passed on to consumers is not thinking clearly)

  56. BofA Says Regulators May Limit Transfer of Merrill Contracts
    By Hugh Son – Nov 11, 2011
    Bloomberg
    http://www.bloomberg.com/news/2011-11-11/bofa-says-regulators-may-limit-transfer-of-merrill-derivatives.html

    Excerpt:
    Bank of America Corp. (BAC) may be prevented by regulators from shifting derivatives contracts into the books of a deposit-taking unit, potentially forcing the lender to hand over more collateral to counterparties.

    The lender has designated the retail-deposit unit, Bank of America NA, as the new counterparty on some Merrill Lynch contracts after the company’s credit ratings were cut in September, it said last week in a filing. The Federal Reserve and Federal Deposit Insurance Corp. have disagreed over the moves, and they are now discussing whether to allow future transfers, according to people with knowledge of the matter.

    “Our ability to substitute or make changes to these agreements to meet counterparties’ requests may be subject to certain limitations, including counterparty willingness, regulatory limitations on naming Bank of America NA as the new counterparty, and the type or amount of collateral required,” the lender wrote in the quarterly regulatory filing.

    At stake for Bank of America is the power to curb billions of dollars in collateral payments to counterparties that could be required after a credit-rating downgrade. The company, which has lost more than half its market value this year amid rising expenses from soured mortgages, is vulnerable to further rating cuts, the bank said in the Nov. 3 regulatory filing.

    Limits on moving contracts from Merrill Lynch to the deposit unit could “adversely affect” results, the Charlotte, North Carolina-based bank said in the filing. The transfers lower collateral obligations because the retail unit still has a higher rating than the Merrill Lynch subsidiary after the Sept. 21 downgrades from Moody’s Investors Service.

    Shifting Risk

    “It’s a game of ‘move the risk,’” said Mark Williams, a former Federal Reserve examiner who lectures on financial-risk management at Boston University. “It makes sense for Bank of America, but the broader implication is that it makes the retail operations potentially riskier. If there is another downgrade, you have the possibility of falling off a credit cliff.”
    The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, people familiar with its position said Oct. 18. The FDIC, which would have to pay depositors in a failure, objected, the people said.

    The other two major ratings firms, Standard & Poor’s and Fitch Ratings, are re-evaluating Bank of America and may also cut its credit grades, the lender said in the quarterly filing. The full scope of damage from a credit-rating downgrade is “inherently uncertain” because it depends upon the behavior of counterparties and customers, the bank said.

  57. I made a video protest recently for my blog. It is quite funny even if you are pro-megabank. I called my credit card’s customer service line to do some negotiating. Having a bit of leverage, I thought it presented a great opportunity to mess with them a little and make a few points about the unfairness of the credit card lending system. Since it’s a protest at home, I called it my kitchen counterstrike against Bank of America. I think you might enjoy it. http://www.ragingwisdom.com/?p=508

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