Bill Black: Not with a Bang, but a Whimper: Bank of America’s Death Rattle

[marmar]

Not with a Bang, but a Whimper: Bank of America’s Death Rattle
By William K. Black


Bob Ivry, Hugh Son and Christine Harper have written an article that needs to be read by everyone interested in the financial crisis. The article (available http://mobile.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit?category=%2F">here) is entitled: BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit. The thrust of their story is that Bank of America’s holding company, BAC, has directed the transfer of a large number of troubled financial derivatives from its Merrill Lynch subsidiary to the federally insured bank Bank of America (BofA). The story reports that the Federal Reserve supported the transfer and the Federal Deposit Insurance Corporation (FDIC) opposed it. Yves Smith of Naked Capitalism has written an appropriately blistering attack on this outrageous action, which puts the public at substantially increased risk of loss.

I write to add some context, point out additional areas of inappropriate actions, and add a regulatory perspective gained from dealing with analogous efforts by holding companies to foist dangerous affiliate transactions on insured depositories. I’ll begin by adding some historical context to explain how B of A got into this maze of affiliate conflicts.


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. ...........(more)

The complete piece is at: http://neweconomicperspectives.blogspot.com/2011/10/not-with-bang-but-whimper-bank-of.html

[Old and In the Way]

1. Will they get away with this accounting gimmick?

Looks like the taxpayer is being set-up for yet another bailout.

[msongs]

2. our corporate prostitute policiticians will bail out B of A yet again nt

[chill_wind]

3. He's got a good plug in there for Yves Smith's piece and a request for reporters:

"Third, reread the Bloomberg column and wrap your mind around the size of Merrill Lynch’s derivatives positions. Next, consider that Merrill is only one, shrinking player in derivatives. Finally, reread Yves’ column in Naked Capitalism where she explains (correctly) that many derivatives cannot be used safely. Add to that my point about how they can be used to create a “sure thing” of record fictional profits, record compensation, and catastrophic losses. This is particularly true about credit default swaps (CDS) because of the grotesque accounting treatment that typically involves no allowances for future losses. (FASB: you must fix this urgently or you will allow a “perfect crime.”). It is insane that we did not pass a one sentence law repealing the Commodities Futures Modernization Act of 2000. Between the SDIs, the massive, sometimes inherently unsafe and largely opaque financial derivatives, the appointment, retention, and promotion of failed anti-regulators, and the continuing ability of elite control frauds to loot with impunity we are inviting recurrent, intensifying crises.

I’ll close with a suggestion and request to reporters. Please find out who within the Fed approved this deal and the exact composition of the assets and liabilities that were transferred."


K & R!

[girl gone mad]

4. In my view, no one should be keeping deposits in this bank.

And absolutely not above the FDIC insured limit.

[ladywnch]

5. we've been trying to refi our mortgage and get out from under BoA

for months now. And we didn't even go to BoA to begin with. We were one of the unfortunate Countrywide clients. It's taken us years to get to a position where we could even qualify for a refi.

I wonder if they'll crash before our closing is complete?!

[Fuddnik]

6. Note that BAC had strong "earnings" this quarter.

That should allow them to get out of Dodge with some hefty bonuses before the meltdown.