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)
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.
Blouise, http://livewire.talkingpointsmemo.com/updates/1669 Anti-union law repeal likely in Ohio. Voters wish they had Strickland back, but Kasich has three more years.
Nice update anon nurse. I had not heard anything about them.
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)
Elaine,
Great update!
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’.
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.
“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….)
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.
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.
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.”
“This isn’t economics, it’s an ongoing criminal enterprise facilitated by the elected co-conspirators.” -Lottakatz
Correct.
anon nurse, excellent articles/links. Thanks.
This isn’t economics, it’s an ongoing criminal enterprise facilitated by the elected co-conspirators.
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.
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)
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.
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)
Yep, Blouise, I’m with rafflaw… You’ll find it.
Blouise,
I bet you will find the article.