Beyond The Pale

288
Wed, Oct 19, 2011 - 10:27am

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:

https://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:

https://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

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  288 Comments

treefrog
Oct 19, 2011 - 10:35am

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
Oct 19, 2011 - 10:36am

THANKS AND GOOD MORNING

Thats a lot of "Ts!"

RaRaRasputin
Oct 19, 2011 - 10:39am

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
Oct 19, 2011 - 10:41am

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...

taoJones
Oct 19, 2011 - 10:48am

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!

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...

https://meafordMoney.com

Mudsharkbytes
Oct 19, 2011 - 10:49am

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.

Eric Original
Oct 19, 2011 - 10:50am

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
Oct 19, 2011 - 10:51am

I think it is considered a "curse"

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

Chumbawamba
Oct 19, 2011 - 10:58am

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
Oct 19, 2011 - 10:59am

Yet another thing that we can

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

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Subscribe or login to read all comments.

Contribute

Donate Shop

Get Your Subscriber Benefits

Private iTunes feed for all TF Metals Report podcasts, and access to Vault member forum discussions!

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

Forum Discussion

by Solsson, 2 hours 53 min ago
by Pete, 6 hours 46 min ago
by SteveW, 7 hours 28 min ago
by Phoenix79, Oct 17, 2019 - 6:28pm
by NW VIEW, Oct 17, 2019 - 4:40pm
randomness