Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the Ame

[dd2003]

Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers.

Yves Smith notes:

If you have any doubt that Bank of America is going down, this development should settle it …. Both Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.



http://www.zerohedge.com/contributed/federal-reserve-and-bank-america-initiate-coup-dump-hundreds-billions-dollars-losses-ame

http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html

[FarCenter]

1. That was the whole idea behind the Merrill Lynch shotgun wedding presided over by Treasury

Merrill Lynch was going down if it couldn't find a more solvent merger partner.

So the US Government arranged for the Merrill Lynch - Bank of America merger.

[Raster]

2. And we, the taxpaying citizens, will pick up the bill.

Wall Street is like a coked-up fratboy that flew down to Atlantic City and spent all of next semester's tuition on gambling and hookers, and now needs someone to cover his losses.

[DCKit]

3. Sounds and smells like a naked fraud.

Yet they claim to have no freakin' clue why OWS exists.

[enough]

4. k&r (nt)

[econoclast]

5. Ball is now in the BoA depositors' court

From the ZeroHedge article :
-----
This effectively makes the depositor the “guarantor” of the swap ex-post-facto.
 
That the regulators are allowing this is an outrage.
 
If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.
-----

If I was a BoA depositor I'd be on my way to the branch right now. BoA is asking the depositors to provide the capital cushion for the derivatives book. I have no idea what that book looks like (and neither does anyone else outside BoA). Hell, if it is chock-a-block with things that are winners if Greece Ireland et al default I might even LIKE the derivatives book. But because I don't know that, and they won't tell me (I'm sure) I'd be headed for the exit.

Any depositor who sits still for this is complicit in the outcome. If the thing turns to shit, then the FDIC will pay off the depositors. A classic case of moral hazard. Depositors might put up with this because they are insured by FDIC ( up to 200,000? 250,000? )

But if this transpires the depositors share the blame.