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Bank of America In Trouble?
It looks like Bank of America might have started circling the drain before the Occupy movement even had a chance to launch its campaign against the company. For weeks now there have been ominous signs of trouble at the bank, and yesterday we heard yet another dark piece of news.
Photo: Reuters / Chris Keane / Landov
Last year, there was an uproar when Bank of America announced a plan to slap customers with a monthly $5 fee for debit card usage. The bank eventually backed off that plan when the public and some politicians cried foul.
Now it seems the company is going to try to put a new package on the same crappy idea and sell it again. This time, the plan is to add charges that range from $6 to $25 a month. From an MSNBC report:
Pilot programs in Arizona, Georgia and Massachusetts are experimenting with charging $6 to $9 a month for what’s called an “Essentials” account. Other account options being tested in those states carry monthly charges of $9, $12, $15 and $25, but give customers opportunities to avoid the payments by maintaining minimum balances, using a credit card or taking a mortgage with Bank of America, according to an internal memo cited by the [Wall Street] Journal.
It’s a very bad sign that a bank is in a desperate cash crunch when it tries repeatedly to gouge its customers. David Trainer, an analyst for Market Watch, a WSJ publication, wrote that the new fees are a sign of series trouble at BAC. He writes:
In my opinion, there are four actions taken by financial services that signal the company is headed to serious trouble.
1. Management shake-up and major layoffs - lots of layoffs over the past year
2. Exploiting accounting rules to boost earnings - SFAS 159
3. Drawing down reserves to boost earnings: to the tune of $13.3 billion in 2011 and 2012
4. Bilking customers with new fees: tried it before and trying it again
Bank of America has taken all four steps. Bilking customers with new fees is a desperate measure of last resort because it requires exploiting the one asset the bank has left, namely its customers.
Trainer in an earlier column urged investors to dump Bank of America for a number of reasons, but mostly because he had reservations about some of the numbers in the bank’s most recent SEC filing.
According to him, the bank aggressively exploited a new accounting rule called SFAS no. 159, which allows companies to enables banks to “artificially boost earnings when the value of their own debt declines.” In other words, BAC was able to artificially re-state earnings when its own credit quality went into the tank.
Trainer also believes that Bank of America’s recent rise in share price is based on a series of impossible, pie-in-the-sky expectations, including “20% annual revenue growth for 18 years.”
All of this comes on the heels of an announcement that Fannie Mae was cutting off Bank of America, news that itself came after Bank of America, in its annual report, had earlier announced that it would no longer sell loans to Fannie Mae. Basically, Bank of America tried to quit Fannie Mae before it got fired. It seems Bank of America in the last quarter of 2011 was slower even than usual in honoring repurchase requests, yet another sign of a cash crunch.
Why does all of this matter to the rest of America? Because what happens with Bank of America will be an important litmus test going forward for how we deal with any Too-Big-To-Fail behemoth that gets itself into trouble. We’ve already seen that the recent foreclosure deal was a huge boon to Bank of America – it spared it from the uncertainty of a generation of robosigning suits.
But what happens if Bank of America is still headed for bankruptcy? Helping the bank avoid a few lawsuits is one thing, and allowing it to move its dangerously toxic derivatives portfolio onto the federally-insured side of the company is another. But a full-blown crash of this firm would require a massive bailout. What will the Obama administration do if faced with that dilemma? One way or another, it will be a momentous decision.
44 Comments so far
Show AllToo big to fail and too connected to jail. Fascism works like that.
Nice one!
good one
more than likely the Fed Reserve will backstop any losses by BAC -
heck lately the Fed has been purchasing 90% of all long term T Bills..... total insanity.
the main cost will be Inflation.....
Blah, blah, blah, funny how the dollar is getting stronger on world markets.
complete BS - maybe against failing euro nations -
the dollar is so strong(not) that many countries are starting to buy and sell OIL in currencies other than the US Dollar - which used to be the currency for oil trade......
but you already knew that didn"t you greg......
Why not actually look at facts. It's not that difficult. The dollar is moving up. You, Ron Paul, and Glenn Beck think alike. That should tell us something.
the dollar is moving up....
in regards to what?
other nearly bankrupt currencies?
how about in regards to commodities?
and these FACTS you mention? where the hell are they?
your posts are usually insulting and decidedly NOT filled with facts.....
I'm not your research assistant.
Greg R., Looks to me like you are just here to incite the regulars of CD. Why don't you move on your way- and LET the door hit you on the ass, as you leave.
What you are is full of shit - you make a claim that's total bs and provide no facts only insults -
Then when asked for the facts that prove your point you can't deliver - its actually quite pathetic - but unfortunately par for the course -
All signs point to you being a troll - insult, lie, change the topic, claim facts that have no basis in reality, don't answer questions etc etc
Trollish behavior and frankly it just makes you look stupid.
So are you talking commodities or currency exchanges? Obviously currency which means you really don't even understand the issue.
Part of the dollar's strength comes from fear of European problems, and a flight to safety in US treasury bonds. That "strength" doesn't prevent other forms of inflation, such as sky high oil and other commodity prices which are being run up by speculators using all the easy money from the Fed as their purse. A weaker dollar could make those problems much worse, but they're still bad right now as it is ...
the carcass of amerika is twitching in its death throes
10 years of wars for israel have done its job and soon the banking sector will be gone
then its fema camps and nwo for the good ole usa
and obummer will teleprompt read his way right through it
In a weird way, I feel sorry for Obama. Only a decade ago he was settling neighborhood disputes in Chicago . Then through incredible luck (his opponents) and excellent timing, he rose to the most powerful position in the world. He may be just WAY over his head.
Nationalization is the only good option when these banks get too big to fail and can do such damage.
Obama is not to be pitied. He stacked his cabinet with the very people who caused/stole and set up the big bank heist. Hell, most of them worked for the banks that created this mess.
He knew full well what he was getting in to and what he was EXPECTED to do for all his campaign money.
He lied.
This is the best scam ever played on the American people. We were tired of stupid Bush who started 2 wars, gave the rich tax breaks, ect. So TPTB ran smart Obama who started at least 4 or more wars on countries that were no threat to us. That is a war crime, btw.
He extended the tax cuts, has murdered millions with his drones.
Is helping to dismantle SS.
And people think he is playing chess.
Truly. It gave them immunity. And bailouts. Biggest disappointment in our lifetimes to see this sold-out leadership, actions designed every time for the monied and burdening his popular base and even his party-first with lies and then with his negotiations and “settlements.” Conscience trumps. And then there is war-evermore...
He's a coward who wants to be liked. His job is to pretend he's in charge. The sad thing is he could be in charge enough to make real change because the country is ready for the change he promised and more. Also Israel owns the Congress. Universal top quality medical care for citizens, paid for by the government is good enough for Israel.
"The sad thing is he could be in charge enough to make real change because the country is ready for the change he promised and more."
After the various assassinations in the 1960's, it would take a brave person to lead such a program ...
So what's the point? Obama had noble intentions and then, upon taking office, a change of heart when he realized he might be in grave danger? LMAO
He played the world. First, he didn't uphold his oath and protect the Constitution by prosecuting the outgoing regime. That was the first good whiff of political rot. Then he dumped the economic advisers that got him into office and, in keeping with political convention, replaced them with the long-serving cadre of banksters who've been actually running the nation for decades+.
So within the opening 100 days of office, Oshama proved to everyone that he he was a charlatan but few noticed. We should have been choking on the stench by this point. Instead, most kept the faith and enjoyed the chicness of brand Obama all the same.
But before all that, before Obama ever got into office, we know how politics goes. It's just the marketing of ideas to convince the masses to accept a certain form of slavery in exchange for perceived, though often illusory, benefits. Were we honestly thinking it could be some other way? Again, LMAO.
The solution is the same this year as it was in 2008, bankruptcy.The 4 year interim means that it will just cost USAn taxpayers more now than it would have then. The taxpayers are subsidizing BAC AND OTHERS, by paying the interest on their INTEREST BEARING COUNTERFEIT DEBTS, with the FORCED CONTRIBUTIONS, withholding taxes, by taxing labor to fund the CommuFascist Capitalist Corporate Welfare Kings. The CommuFascist Welfare Kings wage war against labor, biting the hand that feeds them through the Wall St., Wash., DC, Axis of Evil, a criminal conspiracy that has declared war on the World including the USAn's who are forced to fund the war by the Criminal Conspiracy against those whom pay for it and don't complain, protest, demonstrate or otherwise. This is referred to as being "niggerized", by Cornel West, a black man, philosophy professor, who declares that,POTUS Obomnable/Borg[to resist is futile] is orchestrating the "niggerization" of USAn's which is for the public not to protest, complain, or demonstrate against the government, to assert their Constitutional rights and instead capitulate to the abuse, murder, theft, lies of the USG propaganda trumpeted through its propaganda arm of the MSM.
That’s how it feels.
Banks in Japan have spent the last twenty years pretending to not be broke. This stuff just drags on forever. Yes, things will come to a head, just don't hold your breath.
Why is it that energy usage in Japan has increased for the last 10 years. This is a sign of increased production, not less.
Energy increases reflect an increase in manufacturing related activity. This increase is not indicative of financial institutional health.
We need Michael Hudson to explain a little monetary theory to the USA. We have no need for the big banks or the federal reserve, but we use them to print money and we pay them interest to do what our government could do by itself. Total insanity to have a system designed to force the economy of the entire country through the hands of a few super wealthy, greedy people. Then we socialize their losses.
This is a Rube Goldberg scheme of the highest order only surpassed only by the Rube Goldberg scheme of the USA. A Rube Goldberg scheme, the Fed, operating in the Rube Goldberg scheme of the entire USA.
It's rule by a criminal mob, pure and simple ...
Bank of America is the most prominent corporate temple in its hometown of Charlotte, North Carolina where
All of the democrats are going for their gushing putrilage of a "convention."
While the vile deviance of too big to fail is showing signs of decay, the democrats will go to Charlotte as proof of the party's devotion to it.
So many so-called progressives,
so little integrity.
Why would a full blown crash of BOA require a massive bailout? And what do you mean by bailout? Why not let them die? Let real estate prices drop again, let derivative bets implode again, and start some real reform. Let taxpayers decide if they want to borrow more money for billionaire bankers and war or if they want to try to salvage an American economy that is reality based and faces the real problems of fossil fuels and war.
Yes! That's the critical question. Taibbi writes: "...a full-blown crash of this firm would require a massive bailout. What will the Obama administration do if faced with that dilemma?"
First, we know with absolute certainty what Obama will do. Why do commentators like Taibbi continue to perpetuate the myth of Obama's good faith intentions? He'll talk about fat cats with his trademark faux sincerity and then do their bidding exactly.
But indeed, why would it require a massive bailout? This also perpetuates fear of the bankster-terrorists' extortionist threat, "if we go down, we're taking all of our American hostages with us."
But resolving a failed bank is not letting it die. Taking a bankrupt bank into receivership does not mean locking the doors and boarding up the windows, as Romney's Bane [sic] Capital did with factories it exported to China for salve labor.
No, what happens instead is that all upper-level predators are removed (and prosecuted as warranted (or in a just world, simply taken out and shot)), while productive middle management and staff are all retained under public management. Workers keep their jobs, ATMs still work, regular depositors are insured, but stock and bondholders, on the other hand, as well as speculators like Buffet and predators like Romney are SOL.
That's how the "free" market is supposed to work. It's the equivalent of setting off a neutron bomb in the penthouse only, to fumigate the parasites, while preserving essential public infrastructure. The institution remains and is restructured as a public utility as it should be, to serve the real economy.
Thanks for the clarity.
As I understand it, the problem is that the FDIC does not have the funds even to cover B of A insured deposits. And that was before the derivative movement from Merrill Lynch into B of A, which would allow the derivative holders to sue in bankruptcy court ahead of depositors or the FDIC for whatever little money is left in B of A in a bankruptcy. As a result, if depositors are to recover their deposits via the FDIC, a bailout of FDIC would be necessary first, which may be part of what Taibbi is talking about. Since the amounts are huge, it's hard to see where the FDIC would get the funds, unless the Fed simply steps in, and prints the money for the FDIC with no strings attached.
If true, the above is a very good reason to get any deposits out of B of A. Otherwise, a depositor may be at the mercy of the DC political games that would erupt over B of A's carcass, not a comfortable spot ...
Lets remember that Greece had developed a plan to pay off it's debt when suddenly they found another pile of offbook debts that rendered the original plan moot and ushered in massive austerity.
This may well be the very same scam - at the very least it's financial terrorism.
Current us debt 15+ trillion
From bloomberg -"Bank of America doesn’t hold derivatives in its deposit-taking arm to the degree that major competitors do, said Dubrowski. The firm held about $53 trillion, or 71 percent of the company’s total derivatives, in a deposit unit as of June 30, according to data compiled by the Comptroller of the Currency. That compares with a JPMorgan Chase & Co. deposit- taking entity, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives."
Bank of America - 53 trillion
Jp Morgue - 79 trillion
There is No Way these amounts can ever be paid off if - even at 10%.
Imagine an economic crash taking out either or both of these bansk that are actually Already bankrupt - and an overnight doubling of our national debt -
Bye bye america as we know it -
"as has been said - debts that can't be repaid - won't be repaid - then bye bye retirement funds, pensions, and the cascading bankruptcy of Corp after Corp -
Let's remember that these banks are so highly leveraged that a 4% loss will bankrupt them without a bailout....
Hey - but the dollars strong - No Worries!
"Bank of America - 53 trillion
Jp Morgue - 79 trillion
There is No Way these amounts can ever be paid off if - even at 10%.
Imagine an economic crash taking out either or both of these bansk that are actually Already bankrupt - and an overnight doubling of our national debt -
Bye bye america as we know it - "
If the full amount of derivative debt were bailed out and paid, yes, it would leave the USA hopelessly under water, worse than Greece or Ireland now. However, what the 2005 bankruptcy law already guarantees is that these derivative holders have first claim on any remaining bank assets if B of A goes bankrupt. That means they can drain off any remaining depositor money before FDIC gets it, altho' that would amount to a lot less than 1 trillion probably. That means the FDIC must assume the full insured deposits amount. Nothing would be left to reduce that amount, and while that's a lot less than 53 trillion, as I understand it, it is over one trillion. That's bad enough, and it has to be dealt with even if Washington refuses any additional bailout relief at all for B of A, unless the 2005 law is waived somehow, or the derivative transfer from Merrill is blocked. And even then, the remaining deposits on hand might be quite small, unable to reduce that 1 trillion+ FDIC obligation very much ...
Is all of that debt..what Europe is owing? As well as our pension fund? Just wondering if this isn’t really the USA Bank?
"It’s a very bad sign that a bank is in a desperate cash crunch when it tries repeatedly to gouge its customers"
No Matt. It's a trend in Merka, which should be easy to spot. This korporate trend is a race to gouge Merkans simply because everyone is doing it, because the pilot runs were successful, because if Merkans swallow the costs of permanent wars of choice, and swallow permanent tripling of the cost of transport, tripling of the cost of education, quintupling of the cost of healthcare, etc, etc, etc, they are sure to accept a tripling of the cost of banking and everything else, ehh? Isn't it important that the people be able to spot trends?
"Blah, blah, blah, funny how the dollar is getting stronger on world markets.."
The only reason for that is that it is the best of the worse.
If you want to tout bad currencies that are the moment holding their own, look at the Euro. So, your thinking is faulty.
The Euro is over $1.30 against the dollar and it shouldn't be over $1.20 in a real world.. Not one based on a to big to fail back drop.
This isn't about economic factors determining a currencies strength.. This is about 'to big to fail ! '.
The to big to fail factor is distorting the markets.
.
Add B of A troubles to the growing list of potential October surprises. An Israeli strike on Iran is on the list. $5.00 gasoline gets peoples attention and is on the list. Then there is the big unknown. Alfred E. Neuman had the right prospective. "What, me worry?"
I've noticed in the past year another sneaky tactic used by Bank of America... This regards its automatic payment menu. They change the menu so that unsuspecting customers will suddenly find that the bank has failed to withdraw the full amount as requested and has drawn out only the minimum payment. By the time the customer discovers this, interest charges have been added and if you call to try to get it straightened out you will be talking with an intransigent (read borderline rude) customer rep in the online banking unit who will insist that its your mistake and not their problem. I don't know of any other credit card lender who consistently uses blockbuster tactics to keep you in line -- most of them bend willingly to accommodate -- not Bank of America. Bank of America is the only credit card company I've ever paid interest to and it always comes about through the above shady tactics. These are not large amounts -- at most $15/year -- but if you multiply that by hundreds of thousands of customers, it's not a small sum. So my advice: if you have other options, stop using BofA credit cards altogether.
matt taibbi,
love seeing you work man! i was just watching you on olbermann earlier, and love what you are constantly working towards. keep up the progressive action. the world would be a better place with more people like you in it.
sincerely,
chris in az
Follow the links in Matt Taibbi's article. The FED has tasked FDIC with "insuring" BoA's mere 75 trillion dollars in derivatives? This is five years of US GDP. So, first, the above move by the FED is some kind of stupid joke that I don't understand. Could the FDIC in any dream or nightmare come up with even a weeney one trillion?
More importantly, I take it if BoA's "risky" derivatives, (translation: very very bad) start to unwind and cascade down, that must mean no American can buy food, clothing, houses, sodas, crackerjacks, nail polish, wingdings or any other purchasable for five years in order to "bail out" this one bank? Ans: No, its more like nothing forever since the other leveraged assholes will collapse too.
[One thing I DO get. The banks and financials couldn't resist the lure of both extreme leverage --at least 30 to 1--- and therefore leveraged most everything, including already leveraged (thus impossible to 'regulate’) derivatives.]
But look at the bright side: They only leveraged "everything" in terms of annual output at 5 to 1. Oh. But that's just BoA.
Someone bring me into the nightmare of the 21st century and explain how this is actually going to play out. Matt? Any thoughts? I realize I placed this in a context of GDP instead of “total US assets.” Maybe we could just ship CA & TX (a red and a blue for balance) along with the inhabitants thereof to China?
As someone pointed out even at a complete bankruptcy the derivative bill will be much lower -
As was explained it allows the derivitive holder to jump to the front of the line leaving a trillion or so in FDIC insured losses which the FDIC can't pay.
The stockholders woud be wiped out destroying pensions and may other funds - BAC bondholders wouldbe also wiped out....
Since most of these companies are Also highly leveraged - a 4% loss would effectively bankrupt these companies.....
So lose BAC and the losses would bankrupt numerous other companies cascading to further companies being bankrupted.....
It may well the domino that breaks open already broken system....
Nationalize the Fed Reserve and have the USA start printing it's own money instead of letting a criminal cabal run monetary policy for the benefit a very very small criminal elite.....
For you sopranos fans out there - remember the sporting goods store owner who got into debt and had to go get a 'loan' from the sopranos? How did that work out for him?
The interest ate him alive while all the assets went out the back door - leaving him worse off than if he'd simply shuttered the doors in the 1st place.
About the same as the current monetary system is going to work out for the average bottom 99.9%.
For heaven's sake folks...what are you waiting for? Take your money to a credit union and be considered a person and not just an account number. Fool me once, shame on you...fool me twice, shame on me!