Bill Black on potential Bank of America derivatives losses

In the video below, Bill Black discusses the issues he raised in a recent post about Bank of America’s accounting activities. At issue is the effect of its shift of assets from the holding company to its FDIC-insured subsidiary. Overall, Bank of America owns derivative assets with a notional value of $75 trillion. The Federal Reserve authorised this accounting manoeuvre despite FDIC objections. If Bank of America were to fail, this action will put the deposit-taking institution at much greater risk.

  1. Scott says

    The TPTB’s long-term plan is to make BAC a sink hole for unrealized losses in the large financial institutions and to keep these shenanigans hidden (as best as possible) when BAC is forced into bankruptcy. The operating model has already been tested with AIG.

  2. David Lazarus says

    The FDIC should withdraw protection of depositors from Bank of America. If its potential liabilities are boosted by what is an accounting scam there is no way that the public would stand for another bail out. It is so egregious that the pressure for arrests of big Wall Street names will be inevitable.

  3. fresno dan says

    I imagine if the Federal Reserve saw BoA sticking kittens in blenders, it would first make another 6,702,123, quadbazillion dollars avaiable to BoA, and than suspend any laws, rules, or regulations about sticking kittens in blenders…

    I have to say, I just find it astounding the enabling the Fed does to keep inept institutions going…

  4. KevinTren says

    At 3:06 Bill makes the comment [paraphrased], “$75 Trillion which is basically larger than the world’s economy.”

    The comment is false on it’s face. Entirely. That’s like saying the painting is greater than the painter. Not possible.

    The back door subsidy is when BAC [and the rest of the oligarchy] borrow(s) from the Fed at .25% – the Federal Funds Rate and deploys those borrowed funds to purchase 10 year T-bills at 2.17% and makes the spread of 1.92% in between with NO risk. This is like me borrowing from you the reader and giving you 1% on your money and lending it back to you at almost 3%. Great deal for me – sucks for you and that ‘sucks’ is the “Ross Perot sound” heard through the economy.

    1. David Lazarus says

      Well the World economy is around $60 trillion annually, so is less than the potential liability of BAC derivatives of $75 trillion. Though much could net off, but even so the potential losses could be much larger than the capital of the bank.

      I agree with you about the back door subsidy. That should end. It is not the only subsidy that they are getting. The banks have had account rule changes that have significantly improved their balance sheets and the end the 0.25 cost of funds does not mean that the banks have kept their lending rates low, they have increased their margins as well.

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