HOLY BAILOUT - Fed Reserve Backstopping $75 Trillion Of Bank Of America's Derivatives

Discussion in 'Wall St. News' started by THE-BEAKER, Oct 19, 2011.


    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.


  2. yeah Bernanke is insane, he is a financial George Bush (his former boss) , a criminal by incompetence
  3. If they pull this off, it will lead to massive inflation.
  4. you think the tea party or ows is going to allow this? Wall streets goose is cooked, the days of easy living are over for them. The one thing they both agree on is no bailouts of wall st. They only need help once a decade or so but that bridge is been burned. Time to see what the invisible hand will do. Might end up with a new way of doing things.
  5. Hzeham


    that's what you get with FED in charge


    Ron Paul 2012!!

    I just do not understand how so many people still bank of with Bank of America?

    The next lehman, the next bear stearns.

    Bank of America = Treason
  7. And somehow the republicans will find a way to blame the working man for this. But hey, let's deregulate the whole thing. After all, they have proven themselves to be completely trustworthy and fully capable of governing themselves. This is what happens when you don't have a single indictment 3 years after the fact of the biggest financial fraud in the history of man. It's a free pass for all financial criminals that occupy the boardrooms of America.
  8. Bob111


    green shoots! XLF is leading again +1.09%
  9. piezoe


    79 Trillion? Are you sure about that? Lets see now, if I combine the 75 T from BAC with the 79T from JPM I get something like $154 Trillion. Hmmm. :D
  10. It's mostly swaps. So the notional is a little dumb. If you are short a swap to me for 1Bn in notional and I am short another swap to you for 1Bn in notional then the amount is 2Bn, but the real risk is much much less. It's only the difference between the fixed and floating. So if you go bankrupt, I am really out that difference on one leg less what I am making on the other leg (most of it nets).

    The real advantage to BAC is that they can get a lower cost of funding which will help them make more money (especially if they can't find other uses for those deposits).
    #10     Oct 19, 2011