Beyond The Pale

I was going to write about this yesterday but got sidetracked by the CFTC stuff. I could not wait any longer to post it because, frankly, this story is far more important.

First, a little background. In 2008, Bank of America (which was already struggling based upon its nonsensical purchase of Countrywide Financial) was coerced by The Fed into purchasing Merrill Lynch. Merrill, that bastion of U.S. investment banking, private banking and retail financial services had been essentially run into the ground by its previous CEO, Stan O'Neal, and its current CEO, John Thain. Merrill's potential derivative and Credit Default Swap (CDS) losses were staggeringly high and the firm was on the verge of imploding.

{CDS Primer: A credit default swap is exactly as the name implies. It's an insurance policy that a creditor purchases against the default risk of the debtor. For example, Party A carried default risk of Party B because Party A owns some of Party B's bonds. To insure against default of Party B, Party A buys a CDS from Merrill Lynch at a price that isn't even close to reflecting the true risk being passed on to Merrill. If Party A has $100,000,000 in Party B's bonds and then B defaults, A loses its $100MM. However, Merrill is so confident of B's financial strength that they take on the entire $100MM in potential liability, often for just a paltry 2-3% premium. So, Party A pays $3MM to insure their default risk through an unregulated insurance policy, issued by Merrill Lynch. Merrill now is on the hook for the entire $100MM should Party B default.}

In walk The Bernank, Paulson and Geithner with a plan: Have BoA buy Merrill! It should have been clear to everyone paying attention at the time that this would never work. TPTB were only trying to buy time in a desperate attempt at holding the current system together. Well....time is up! 

The counterparties to Merrill's $53,000,000,000,000 (yes, that's $53T!) in CDS are getting antsy that they'll never get paid for their side of the "bets". So, to shore up the impression that BoA will be able to pay off any of the losing CDS bets, BoA has transferred the liability of the CDS from their Merrill subsidiary to their regular, U.S. banking subsidiary. By doing this, BoA has essentially pledged as collateral the $1,000,000,000,000 (yes, that's $1T!) in retail deposits it currently has on its books. 

So, if just 2% of Merrill's CDS exposure gets "exposed", the $1T in regular, average Joe savings accounts that BoA holds will get wiped out. Of course, all banking accounts at BoA are "insured" by the FDIC. And just who is the FDIC? The federal government. And how will the federal government come up with $1T in new money to reimburse the BoA depositors? Well, I think you know the answer to that one. (By all means, listen to that fool Gartman and sell all of your gold and silver right now!)

That this blatant criminal action is allowed by the Fed should come as no surprise. It was their idea for BoA to buy Merrill in the first place! Of course they're going to look the other way and stick the taxpayer with the bill. What would you expect them to do?

So, first up, here's a link to the Bloomberg summary from yesterday. Written with the usual, MSM flair:

http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html

For a more complete summary, I defer to the "George Washington Blog" that you can find through ZH. I don't subscribe to all of "George's" theories and often I find his posts to be a bit hyperbolic. Not is this case, however:

http://www.zerohedge.com/contributed/federal-reserve-and-bank-america-initiate-coup-dump-hundreds-billions-dollars-losses-ame 

The current financial system and, by extension, global geo-political stability hangs by a thread. Sadly, it no longer seems a question of "IF". It has become a matter of "WHEN". Please continue to prepare as the process of the coming "reset" is wholly unpredictable and dangerous. An ancient Chinese proverb suggests "may you be blessed to live in interesting times". Some blessing. In the end, we'll find that the true blessing had been to live in peace and solitude, instead.   TF

288 Comments

treefrog's picture

b of a

fwiw,

i had a b of a account about twelve years ago.  worst customer service i have ever encountered.   never again.  good riddance.  scum. 

MIDDIE's picture

THANKS AND GOOD MORNING

Thats a lot of "Ts!"

RaRaRasputin's picture

Turd!

Prepared accordingly Turd & apart from more phyzz silver (which I ordered another batch of today following your wise recommendation yesterday) my plans are now complete.

Thanks to all the community with providing me the information to keep my family as safe as is possible in these fast approaching 'interesting' times

RaRa

R man J's picture

No worries...

The US Treasury will take care of it. The FED has a printing press and will help them.

Just another story that will counterintuitively drive down the price of gold. Just like the Swiss Franc devaluation, French bank crisis, Euro printing and Pound printing...

Mudsharkbytes's picture

Not a proverb or a blessing

I have only ever seen the phrase "may you live in interesting times" referred to as an ancient Chinese curse.

btw: "Fifth".

I could sure use a fifth too.

taoJones's picture

re: help with homework - UPDATE

A while back I asked for help with a project for a small town business initiative.

Sadly, and perhaps not surprisingly, the town's chamber of commerce wasn't keen on my idea, in spite of my effort to get people to start thinking about real money vs fiat currency and the benefits it would provide...

I even set up a website for the project! crying

Since many of you, directly & indirectly, provided excellent material for it, I thought it only appropriate to give you the URL, so you can peruse it in your spare time... perhaps it might be of benefit to someone who is interested in doing something similar...

cheers & thanks...

http://meafordMoney.com

Eric Original's picture

Sorry if I'm late...

Sorry if this has already been discussed, but I'm way behind on things this morning.

  • Stocks not doing much
  • Gold not doing much
  • Gold stocks getting creamed
  • WTF?
Vypuero's picture

I think it is considered a "curse"

The "May you live in interesting times" proverb, that is

Chumbawamba's picture

Some blessing. In the end,

Some blessing. In the end, we'll find that the true blessing had been to live in peace and solitude, instead.

But you'll miss out on all the excitement!

BTW, FDIC = private corporation (just like FRB, IRS, etc.)

-Chumblez.

Dr G's picture

Yet another thing that we can

Yet another thing that we can thank the wonderful Blythe for...credit default swaps!

LividDebtormanShow's picture

The last rule of Monopoly

"If the Bank runs out of money, the banker may issue as much as needed by writing on any ordinary piece of paper." Sound familiar?

Fortinbras's picture

@ Shill re: RWM

Hey Shill - how do you play your inverses, straight up or with options?  Also, do you choose RWM over TWM because of the leveraging?

I have played with SKF, TWM and EEV a LOT over the last few months.

Thanks.

Chumbawamba's picture

May I offer some constructive

May I offer some constructive criticism?  You have a page entitled, "What is Meaford Money?"  That page then proceeds to not answer that question.

[ Meant in reply to http://www.tfmetalsreport.com/comment/73618#comment-73618 ]

-Chumblez.

RaptorKarl's picture

FDIC = Funded by insurance paid by other banks

Not trying to say the whole mess above isn't ridiculous, it is. But let's be intellectually honest about where this bailout will come from. 

Green Lantern's picture

@taojones

Good work! That's really trying to bring change.   You are courageous ahead of your time.  Not only protecting yourself, but helping others.  That's being a real Turd:)  Someday soon the people of  Meaford will realize it!

ewc58's picture

Ok, now 3 for 3

On scooping Big Hat on the monster JPM, Citi, and BOA stories in the past week.

Dude, very nice background. On a story that was posted in Town yesterday. You might consider a shout out now and then to any who try to help you get key info out to your readers so that you don't also have to worry about that, too.

Early delivery of the most important and impactful stories here is one of the things that helps distinguish your Brand.

You're the Straw That Stirs the Drink here, no doubt about it. Just don't overlook the role ice cubes play in making it the truly superior cocktail it is.

exiledbear's picture

Print, Baby, Print

That's all I have to say.

R man J's picture

Dr G?

I do remember reading somewhere that Blythe had a lot to do with unleashing CDSs on an unsuspecting world.  Let me join in on the hyperbole and ask what kind of paranormal forces are assisting her?

TPaine's picture

F U BoA. DIAF

F U BoA. DIAF

artaud23's picture

Kudos!

This is one of the scariest financial stories I have heard lately. People need to be aware of this blatent scam. Thanks for posting this. I hope more people will see it!

The FDIC has about $60b... what happens if they get hosed with this? Answer, nationwide bank runs.

cris's picture

As if we needed more reason to move our money...

I think that  most do not realize just how vulnerable the banks really are.

How is that??

They are dependent on our participation.

If we remove our money from the banks, we starve the beast, as it were.

When we the people see such blatant examples of the system simply not playing by the rules and making new rules up, the ONLY answer is to leave the game.

http://www.msnbc.msn.com/id/44951203/ns/business-consumer_news/

mcbryde's picture

Greek default effect on markets

I need this to be spelt out to me.... It should be obvious, but I need to see it in writing.

When Greece finally defaults [and when other countries will later as well] what will be the initial short term market response? I always thought the precious metals would rise on such news, but it always amazes me that the money goes into the reserve currency [USD] and US treasuries.

Is this what will happen? Will HUI drop with PMs.... will the stock market fall??

Thanks

John

Laurens1778's picture

Some FDIC insurance coverage is unlimited

Also thanks to the Dodd-Frank Bill, FDIC Insurance coverage on non-interest bearing accounts is unlimited through 2012 - from the FDIC website:

On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions.  The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities.

http://www.fdic.gov/deposit/deposits/changes.html

joe rocker's picture

What kind of account is

What kind of account is non-interest bearing?  Savings, CDs, checking, they all pay interest.  Is this a special account?

mcbryde's picture

why miners are getting creamed today

As action in the miners often foretell action in the PMs, I can only guess that mining stocks sense trouble ahead as a result of the new ruling on position limits...

- JPM saving themselves by bringing down the price of silver and gold.  

GDX down 4% today, whereas nothing else seems to be anywhere near that.

Zachy D's picture

BANK OF AMERICA

Thank you Turd, guess I'm not being silly after all.

DanH's picture

Another great post Turd -

Another great post Turd - thank you for educating me almost daily!

Laurens1778's picture

non-interest bearing account defined

A noninterest-bearing transaction account is a deposit account where interest is neither accrued nor paid; depositors are permitted to make an unlimited number of transfers and withdrawals; and the bank does not reserve the right to require advance notice of an intended withdrawal.  

Please note that Money Market Deposit Accounts (MMDAs) and Negotiable Order of Withdrawal (NOW) accounts are not eligible for this unlimited insurance coverage, regardless of the interest rate, even if no interest is paid on the account.  

http://www.fdic.gov/deposit/deposits/changes.html

ewc58's picture

James Turk on KWN yesterday

I haven't had a chance to hear it yet. Probably already posted, here it is again for anyone else who wants to listen:

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/10/18_James_Turk_files/James%20Turk%2010%3A18%3A2011.mp3

artaud23's picture

Dumb Question redux:

I asked about this late last night but got no responses. Does anybody know if JPM or anyone else for that matter could skirt the pos limits by purchasing a miner and transftering their short positions to the entity as a 'legitimate hedge?' This is not at all that much different than BofA's action here. 

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