Another goddam bailout

worth posting in full...

david dayen posting at firedoglake...

Bank of America announced a way for them to make it look like they made a $6.2 billion profit in the last quarter. The “profit” came mostly from an accounting trick and the sale of their stake in a Chinese bank, part of their downsizing strategy. But they had lower revenue and income in their credit card, real estate and investment banking businesses, which is pretty much their entire business. If you add up the accounting gains totaling $6.2 billion and the net on the sale of the bank, you’d see that the bank lost $1.4 billion last quarter.

The market shrugged off the gimmicks, and at this point BofA is up 10% on the day. But I think that actually has a lot more to do with this:

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.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. 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.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”

This has been described as another bailout, and it’s not hard to see why. The derivatives go into the insured institution, protecting the counter-parties, and they would be paid off in the event of a failure. Notice that the counter-parties themselves are managing the process, requesting that their bets get implicit government backing. The notional value on these derivatives trades is $75 trillion, with a T. This includes their European derivatives exposure. And according to Bloomberg, JPMorgan Chase has already done this.

When the FDIC is screaming bloody murder and the Federal Reserve reassures that an action is perfectly legitimate and should cause no concern, watch your wallet.

i am so utterly sick of money being thrown at goddam, worthless, too-big-to-fail banks... it's enough to gag a maggot... this is the shit the ows folks (and me) are pissed about...

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The big bankers would have been beaten as a political force

james galbraith obviously will win no points with our handlers by telling the truth...

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail -- with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

[...]

[I]n a crisis, you need new people. You must be able to attack past administrations, and override old decisions, without directly crossing those who made them.

President Obama didn’t see this. Or perhaps, he didn’t want to see it. His presidential campaign was, after all, from the beginning financed from Wall Street. He chose his team, knowing exactly who they were. And this tells us what we need to know, about who he really is.

gosh... seems like decapitating the bankers would have been one of the most valuable things obama could have possibly done and what a wonderful opportunity he had - and blew it...!

here's a noteworthy galbraith quote...

Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle-class utopia. Instead, predation has become the dominant feature — a system wherein the rich have come to feast on decaying systems built for the middle class. The predatory class is not the whole of the wealthy; it may be opposed by many others of similar wealth. But it is the defining feature, the leading force. And its agents are in full control of the government under which we live.

the defining feature...? yep... the leading force...? yep... in full control...? yep, yep and yep...

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Three big banks now hold $3 of every $10 on deposit in the U.S. while the little fish continue to die off

the "too big to fail" banks are, gosh and golly sports fans, now even BIGGER thanks to the strategy pursued by those who supposedly have the common good of the citizenry at heart... HA...!

check the stats in the last paragraph...

When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.

The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

leapin' lizards, batman...! that essentially means that you and i are now officially wholly-owned subsidiaries of the banksters...

meanwhile, the smaller fish continue to die off...

Regulators seized 45 firms during the first half of the year. In the past two months they have closed 36 more, including regional powerhouses Colonial Bank of Alabama and Guaranty Bank of Texas. The FDIC said Thursday that it counted 416 banks at risk of failing as of the end of June, a 36 percent increase from the first quarter. As with the cost of failures, the number was the highest since the early 1990s, when regulators were dealing with the aftermath of the savings and loan crisis and excessive lending for commercial development.

In recent quarters, the failures have forced the FDIC to spend more money than it collects. Banks use money from depositors to make loans. As a result, when a bank fails, much of the depositors' money is no longer in the vaults, and some of it is tied up in loans that will never be repaid. The FDIC was created by Congress to replace the missing money -- up to $250,000 in each account, under current rules.

The insurance fund held $45.2 billion at the end of June 2008. It held $13 billion at the end of March. The agency has warned that the balance could reach zero by the end of the year.

oh, but never fear... between you and i and our deep pockets, the treasury can always print more money to hand out...

Should the FDIC need even more money, the agency can borrow from the Treasury Department, then repay the government with fees collected from banks in years to come.

and what about the economic recovery that all the punditocracy is crowing about...? not so much...

[I]n an indication that the industry has not turned the corner, the share of troubled loans increased even more quickly. A trend that began with distressed mortgage lending has long since spread to other categories including credit card lending, loans to small businesses, and -- now deteriorating most rapidly -- loans for commercial real estate development.

kinda warms your heart, doesn't it...? in the mad dash of our controllers and handlers to preserve the status quo - the status quo of the super-rich and powerful elites, that is - we've ended up not only preserving the status quo, we've significantly bolstered it... heckuva job, tim... heckuva job, ben... heckuva job, larry... heckuva job, hank...

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The economy - from the disastrous to the obscene

financial meltdown still lurks...

Wall Street’s biggest banks may be roaring back to life, but trouble still lurks in corners of the financial industry that remain plagued by a legacy of bad investments.

On Friday, Colonial BancGroup, a large lender that rode the excesses of the nation’s real estate boom, was seized by federal regulators, making it the largest bank failure of 2009 and one of the most costly since the collapse of IndyMac Bancorp last year.

Regulators simultaneously brokered a rapid sale of its branches and deposits to BB&T Corporation of North Carolina, a regional bank that has emerged from the financial crisis as one of the industry’s strongest players. The failure is expected to cost the Federal Deposit Insurance Corporation about $2.8 billion.

Regulators also closed four other small banks on Friday in Pennsylvania, Nevada and Arizona, bringing the total number of bank failures to 77 this year. Banking analysts say that the number of failures could easily reach several hundred in the next 18 months as rising commercial real estate losses take their toll.

while obscene bonus payouts fly in formation with taxpayer bailouts...

Senior Obama administration officials were wrestling on Friday with how to handle an explosive executive pay issue involving two traders’ compensation package of nearly $130 million that Citigroup says is exempt from government review.

Citigroup’s decision leaves top White House and Treasury Department officials unable to do much about some of the highest-paid employees at the deeply troubled bank just two months after the administration announced, with great fanfare, the appointment of an official to crack down on lucrative payouts at companies that have become wards of the state.

On Friday, Citigroup, which is facing a government deadline, submitted the pay packages for its 25 senior executives and highest-paid employees. People involved in that process said Citi advised the Treasury that an energy trader named Andrew J. Hall, due $98 million, was exempt from federal review, and so was a second unidentified trader who received more than $30 million.

Mr. Hall, 58, and the other trader were paid under an employment contract signed last October, said a person briefed on the contract who was granted anonymity because of not being authorized to disclose the information. That was before a law went into effect instructing the Treasury secretary, Timothy F. Geithner, to examine the pay packages of top executives at companies that received exceptional bailout assistance from the government.

a $98M pay package...?!?! unbelievable...!

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Warren Buffett - "Were it not for government bailouts ... many of his company’s stock holdings would have been wiped out"

so much for the legendary "oracle of omaha"...

from rolfe winkler, blogging at reuters...

A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.

To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee.

Without FDIC’s debt guarantee program, even impregnable Goldman would have collapsed.

And this excludes the emergency, opaque lending facilities from the Federal Reserve that also helped rescue the big banks. Without all these bailouts, the financial system would have been forced to recapitalize itself.

Banks that couldn’t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder’s equity. With $7 billion at stake, Buffett is one of the biggest of these shareholders.

He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.

a mitigating view from raw story...

To be fair, his holding company, Berkshire Hathaway, has received no government aid. In fact, Berkshire became a major lender in the wake of frozen US credit markets, injecting $5 billion into General Electric, Goldman Sachs and even motorcycle-maker Harley Davidson at hefty interest rates.

the lesson here...? the super-rich can pretty much do what they want and say what they want and still take comfort in the thought that they will only continue to get richer no matter what...

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37 bank failures since 2000, 24 since 2003, 9 in 2008

from the federal deposit insurance corporation via atrios...

[B]anks which have failed since October 1, 2000

Bank Name Closing Date Updated Date The Columbian Bank and Trust, Topeka, KS August 22, 2008 August 22, 2008 First Priority Bank, Bradenton, FL August 1, 2008 August 1, 2008 First Heritage Bank, NA, Newport Beach, CA July 25, 2008 July 25, 2008 First National Bank of Nevada, Reno, NV July 25, 2008 July 25, 2008 IndyMac Bank, Pasadena, CA July 11, 2008 July 11, 2008 First Integrity Bank, NA, Staples, MN May 30, 2008 July 25, 2008 ANB Financial, NA, Bentonville, AR May 9, 2008 July 25, 2008 Hume Bank, Hume, MO March 7, 2008 July 25, 2008 Douglass National Bank, Kansas City, MO January 25, 2008 July 25, 2008 Miami Valley Bank, Lakeview, OH October 4, 2007 July 25, 2008 NetBank, Alpharetta, GA September 28, 2007 July 25, 2008 Metropolitan Savings Bank, Pittsburgh, PA February 2, 2007 July 25, 2008 Bank of Ephraim, Ephraim, UT June 25, 2004 April 9, 2008 Reliance Bank, White Plains, NY March 19, 2004 April 9, 2008 Guaranty National Bank of Tallahassee, Tallahassee, FL March 12, 2004 July 25, 2008 Dollar Savings Bank, Newark, NJ February 14, 2004 April 9, 2008 Pulaski Savings Bank, Philadelphia, PA November 14, 2003 July 22, 2005 The First National Bank of Blanchardville, Blanchardville, WI May 9, 2003 July 25, 2008 Southern Pacific Bank, Torrance, CA February 7, 2003 July 25, 2008 The Farmers Bank of Cheneyville, Cheneyville, LA December 17, 2002 October 20, 2004 The Bank of Alamo, Alamo, TN November 8, 2002 March 18, 2005 AmTrade International Bank of Georgia, Atlanta, GA September 30, 2002 September 11, 2006 AmTrade International Bank of Georgia, Atlanta, GA Spanish Version September 30, 2002 September 11, 2006 Universal Federal Savings Bank, Chicago, IL June 27, 2002 April 9, 2008 Connecticut Bank of Commerce, Stamford, CT June 26, 2002 July 25, 2008 New Century Bank, Shelby Township, MI March 28, 2002 March 18, 2005 Net 1st National Bank, Boca Raton, FL March 1, 2002 April 9, 2008 NextBank, N.A., Phoenix, AZ February 7, 2002 July 25, 2008 Oakwood Deposit Bank Company, Oakwood, OH February 1, 2002 July 25, 2008 Bank of Sierra Blanca, Sierra Blanca, TX January 18, 2002 November 6, 2003 Hamilton Bank, N.A., Miami, FL Spanish Version January 11, 2002 July 25, 2008 Sinclair National Bank, Gravette, AR September 7, 2001 February 10, 2004 Superior Bank, FSB, Hinsdale, IL July 27, 2001 July 25, 2008 The Malta National Bank, Malta, OH May 3, 2001 November 18, 2002 First Alliance Bank & Trust Company, Manchester, NH February 2, 2001 February 18, 2003 National State Bank of Metropolis, Metropolis, IL December 14, 2000 March 17, 2005 Bank of Honolulu, Honolulu, HI October 13, 2000 March 17, 2005

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When the first one falls, stand back...!

bank failures are comin'... bet on it...

from the wsj...

The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen.

The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

[...]

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

(thanks to calculated risk via atrios...)

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