Bloomberg News to join Occupation Movement? This is from the Columbia Journalism Review which quotes Bloomberg News regarding B of A’s moving the derivates acquired in the Merrill Lynch deal to the FDIC insured deposit company Bank of America.
“At base, the question here is why is Bank of America only now moving these derivatives to its depositary institution and why the Fed is willing to help it do so, despite the fact that its own rules are designed to prevent it.
“(Yves) Smith and (Bill) Black say that this move smacks of ‘desperation’ on the part of Bank of America. If so, it does for the Fed too, which Bloomberg says wants ‘to give relief to the bank holding company.’”
If and when the Justice Department takes “dramatic action” against Wall Street Bull*** Brokers, many think that Countrywide Mortgage, and therefore, B of A, will be the center of attention. The company was seriously mismanaged for years by Ken Lewis. Here’s more from Bill Black:
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.
And from Forbes.com: Since 2001 when Ken Lewis became CEO, Bank of America “has become a black hole. Shareholders have choked down an 80% fall in stock price since mid-September, and taxpayers are on the hook for $45 billion in cash injections and another $98 billion in backstop guarantees. How could it all have gone so wrong so fast for Lewis? Why did someone groomed to take over a great commercial bank, who was feted by American Banker magazine in 2008 as banker of the year and who was widely seen as a savior in September when he swooped in to buy Merrill Lynch, make a deal like that one for Merrill? Could anyone ever have predicted that Lewis would find himself fighting an almost certainly losing battle for his job?”
This is part of the legacy of the derivatives market that Alan Greenspan did so much to promote during his tenure. As usual, the purveyors of this product would like to transfer the risk of those instruments to the taxpayers. Fortunately, there are voices against this, even in the banking and securities industry.
This “shared risk” theory worked fine, until those risk became liabilities in late 2008. The real estate market collapse spread throughout the economy; then the credit markets which couldn’t acquire cash to loan; then the manufacturers and retailers, and so on, as the current “recession” became a fact of life instead of a temporary downturn.
If we are to have some sort of accountability in the future from the banking industry, then these dubious “assets” (which often became toxic) should be the first to be scrutinized. There is very little difference between the fraudulent loans that led to the 2008 collapse and the use of artificial “assets” like derivatives. When the taxpayers are expected to underwrite the losses for these gimmicks, they should also know how they are being used as leverage by “Too Big To Fail” banks like Bank of America.