On Monday, Bank of America (BofA) stocks briefly traded for under $5. Yes, you could buy a share of BofA for less than the noxious debit card fee they tried to force down your throat.
BofA is massive, with assets equivalent to 15 percent of U.S. GDP. So why is it trading for the price of a latte?
Because Wall Street's dirty little secret is that BofA is a zombie bank. Now the reek is getting too strong to ignore.
In 2008-2009, BofA publicly took $45 billion in TARP bailout funds and secretly took another $91 billion in emergency Federal Reserve loans. According to Bloomberg News, it made $1.5 billion in profits off of those loans. Yet, several analysts predict that BofA is woefully short of capital reserves.
A recent study by NYU's Stern School of Business ranks BofA as the most systemically risky firm in the United States. These analysts use public information and focus on the capital shortfall that would be experienced by the bank in the event of another crisis. BofA's weak condition means it is in a position to "create or extend" such a crisis.
As if this were not enough, recent news reports indicate that BofA is trying to move $22 trillion in derivatives out of its Merrill Lynch subsidiary into its FDIC-insured bank. The Fed favors the move (naturally). The FDIC, which provides insurance to depositors if a bank fails, does not.
In this pile of derivatives could be all sorts of problems, including bad European debt, the same kind of debt that brought down Jon Corzine's derivatives firm, MF Global. Taxpayers don't backstop MF Global. We do backstop BofA through the FDIC and the Fed.
While public rage focused on the $700 billion TARP bailout bill at the height of the crisis, we have learned that far more went out the door from the Fed to aid the big banks. The Center for Media and Democracy tallies the bailout at $4.7 trillion under 35 federal programs. Bloomberg News puts the number closer to $7.7 trillion in loans plus guarantees, which generated $13 billion in profits for the banks.
With European Union countries teetering on the verge of default and no resolution in sight, the U.S. government needs to take decisive action to prevent another bailout of a major American firm -- a move sure to generate explosive controversy in an election year.
When President Obama signed the Dodd-Frank Wall Street reform bill in 2010, he promised: "It will end taxpayer bailouts of Wall Street firms."
Yet, the "resolution authority" included in the Dodd-Frank Wall Street reform bill requires a joint decision by a group of bank regulators to break up a systemically risky institution. Unfortunately, bank regulators like Tim Geithner and Ben Bernanke, strongly prefer zero accountability and unlimited bailouts.
While some on Wall Street frame the financial crisis as events of the distant past, the 99% understand that the crisis hasn't ended for millions of Americans out of work. It hasn't ended for small businesses who can't get credit. It hasn't ended for the millions of Americans facing foreclosure. And now we learn that a new bailout of BofA could be in the works.
We learned from Ron Suskind's new book Confidence Men that President Obama ordered the breakup of Citibank at the height of the crisis, but was stonewalled by Tim Geithner. The president's instincts were good. Now he has an opportunity for a redo.
Most Americans have had it with bailouts of the big banks on Wall Street when so little has been done for Main Street.
Banks that are "too big to fail" are too big to exist.
Tell President Obama it's time to break up Bank of America before it breaks us.
Richard (RJ) Eskow: That $335 Million BofA Settlement: The Good, the Bad, and the Very Ugly
Robert Greenwald: Why Jamie Dimon Just Doesn't Get It
Richard Barrington: Bank Outlook 2012: Six Trends to Watch
Regarding BoA and Too-Big-to-Fail, the root causes here are deep, yet simple:
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
--Henry Ford
A little info never hurt, for "understanding" as Henry Ford calls it.
I have found the award-winning documentary film, "The Secret of Oz" to provide honest, eye-opening discussion of the root cause and (very importantly) solutions to our nation's problems. Precisely the info the "fat cat" 1% from Wall Street want the 99% Main Streeters to remain ignorant of.
The Secret of Oz: http://www.youtube.com/watch?v=swkq2E8mswI (Winner, Best Docu of 2010)
I've also found excellent further resources to open eyes are: (1) Ellen Hodgson Brown recent and popular book “Web of Debt”, (2) the earlier “Creature from Jekyll Island” by G. Edward Griffin, and (3) the book that first probed: “Secrets of the Federal Reserve” by Eustace Mullins. The third one's the true eye-opener...
The Oz film and Ellen Hodgson Brown are noteworthy in proposing solutions. Readers, please educate yourself.
Thank you, and Enjoy!
The fact is a bank is "too big to fail" based on its share of the banking market as a whole, no matter if the entire market goes down (which you are right it has). Its about its proportionate size, not just its market size. You have to judge the banks against each other (because they are in a unique business with unique risks to the entire system) not against other publically traded companies or against the market as a whole. You can't tell me that after BofA acquired the nation's largest mortgage originator (or after Chase acquired Wamu and Wells Fargo acquired Wachovia), it is somehow smaller than it was before or less of a risk to the entire system. Your argument simply doesn't make sense because you are relying only on stock market price and ignoring assets and market share.
You keep contradicting yourself, first you say Bof A is going down on its own and won't need a bailout but you also point out that Warren Buffett just loaned it money at 6% and in your words "he doesn't lend money to failing companies." Well which is it? is BofA going down on its own or is it doing just fine with the help of Warren Buffett? Wall St says "sell" but Warren Buffett says "buy"?
Now I realize my comments here seem "other-worldly", and in a sense they are. But look at this: http://scottkenan.blogspot.com/2011/11/just-how-bizarre-is-kenan-really.html .
Also please be advised that when the Kenans got the bulk of their money when Henry Flagler left nearly his entire estate to his last wife, Mary Lily Kenan Flager of Wilmington and Kenansville, NC, the New York Times reported she was the wealthiest woman on earth. Not many years later when our government RIGHTLY broke up the Standard Oil Trust she still owned the same proportion of each derivative stock. Within ONE YEAR during the Depression, those stocks doubled in value, making Mary Lily TWICE as rich as the richest woman in the world.
In any case, if Bank of America is broken up -- the Kenan Family of Charitable Trusts will hopefully profit (at least over where their value stands today).
See more on my blog. Index on right, below link to my memoir of having worked for playwright Tennessee Williams: http://scottkenan.blogspot.com .
Succeed and keep all the money you want... Make BAD bets to the tune of trillions, go bankrupt, and go to jail for whatever crimes you have committed. These bankers are no less that financial terrorists in our own country, gutting it for their own personal gain.
These slap on the wrist fees make an absolute MOCKERY of our justice system.
BREAK UP BofA!