Cross-posted from The Masses:
|“Nyah, nyah, nyah, nyah! Told you so!”|
The sociopolitical organism known as Capitalism appears to be coming apart at the seams. In a move designed to further the enslave Americans to the will of the debt overlords, Bank of America has shifted more than $53 trillion (yes, trillion; no that was not a typo) worth of potentially toxic derivatives out of their unprotected investment bank and into their retail bank where it will be covered by the FDIC in the event the economy goes pear-shaped again.
Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…
Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.
That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.
Oh. My. Fucking. God… Yves Smith is appalled…
This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.
How can this possibly be allowed to happen??? Where are the regulators? Oh, that’s right!
|“Regulators? REGULATORS? We don’t need no steenkin’ REGULATORS!”|
The irony? It’ll be the capitalists and not the protestors in the streets who put the final stake in the heart of the vampire squid known as capitalism. Irony, anyone?