So, B of A and the $5.00 debit card

[ZenGum]

So, while everyone is arguing about five bucks here and there, it seems B of A is positioning to pillage the treasury. Again. Or maybe not. I'm not absolutely sure.

This article from Bloomberg describes the situation quite dryly - disagrement bewteen different regulators about B of A transferring huge amounts of derivatives (you know, the highly volatile toys financiers love to play with) from the investment bank to the retail bank.

But I learned of that from this article from "The daily bail" (partisan, one sided, but not necesarily false). Their interpretation:

This story from Bloomberg just hit the wires this morning. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to "give relief" to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

This is a recipe for Armageddon. Bernanke is absolutely insane. No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks. His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.

Even Bloomberg is not positive about this.

I don't properly understand all this, but it seems the banks are attempting another round of privatise-the-profit, socialise-the-loss; on a much larger scale than last time. This is in the several tens of trillions of dollars range.

Suppose BofA announces, hey Washington, pony up three trillion or everyone loses their savings....

This was the whole point of the Glass-Stegal act (The American Banking act of 1933) - to separate retail banks from riskier invetment banks to prevent 1929-33 style crashes. That act was repealed in '99, disaster rapidly followed. The system was band-aided, but now the banks are trying to game the system.


What was that someone was saying about credit unions?