Matt Taibbi writes about Bank of America:
The government’s patronage of the bank was never clearer than in recent weeks, when B of A quietly decided to move trillions of dollars (trillions, not billions) in risky Merrill Lynch derivatives contracts off Merrill’s books and onto the books of the parent/retail arm, Bank of America.
This decision was done at the behest of counterparties to those transactions, who wanted those contracts placed under the aegis of Bank of America, whose deposits are insured by the FDIC. The move was made, according to reports, so that Bank of America could avoid posting $3.3 billion in collateral to satisfy the company’s creditors. In other words, Bank of America just got You the Taxpayer to co-sign as much as $53 trillion worth of dicey derivative contracts.
The FDIC wasn’t pleased by the move, but the Fed apparently encouraged it. Bloomberg, citing people with “direct knowledge” of the deals, reported that,
The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.
So the primary regulator of the banking industry is encouraging a functionally insolvent megabank to respond to a credit downgrade by pushing its most explosively risky holdings onto the laps of the taxpayer. This is lunacy…. Remember that story about the Chinese man who had a world-record 33-pound tumor removed from his face? This would be like treating that patient by removing the tumor and surgically attaching it to the face of a new patient, in this case the U.S. taxpayer.
Too big to fail. Our megacorporate citizens go first-class all the way. The rest of us are second-class citizens at best.