The following information comes from one of those fringe type places. The indications of trouble for Bank of America have been around for a long, long time now, but those indications are really getting more intense now. The rumored potential imminent collapse of Bank of America would come as now surprise to anyone who has suffered through the futility of working with Bank of America. The arrogance, the lack of respect, the total failure of rational and reasonable business judgment has become synonymous with Bank of America…not too hard to imagine that they may not pull out of this nosedive…and now for the details:
I have had many subscribers emailing me asking about the stock value of Bank of America going into “freefall” mode. As of Monday BAC was down another 8% and is now trading below 6.50. I touched upon BofA in the latest Friday Road Trip and here’s what I was discussing:
Bank of America’s Backdoor TARP
https://themancommon.blogspot.com/2011/08/bank-of-americas-backdoor-bailout.html
But there’s a much larger situation unfolding at the moment with the slow implosion of Bank of America and it has to do with the VERY Shaky Derivative Complex. You know…those pesky “Weapons of Mass Financial Destruction” that Warren Buffett likes to play with these days.
As of the last US Office of the Comptroller of the Currency release for the first quarter of 2011 Bank of America was participating in DERIVATIVES with a notional value of…
$52,504,829,000,000
That means they were on one side or the other of a “side bet” totaling over $52 Trillion. Win or lose that’s A LOT of money to play with for a bank with total assets of only $1.4T and a market cap of $62B. I would say that Bank of America would fall into that “catch all” category of so many banks these days...”Too big to fail…but too big to save!”
I’m not saying that this $52T in derivatives will all fail but if only a small portion of them do (lets’ say 1% or $520B) it will set off Buffett’s chain reaction much like a NUCLEAR REACTION!
For those who don’t think the Good Guys have the power to take down the entire Global Financial System I, uncharacteristically, would have to agree with you…but it looks like they won’t have to:
THE BAD GUYS ARE DOING IT FOR US!!!
MY ADVICE: Stay in your bunkers for the remainder of the year!
May the Road you choose be the Right Road.
Bix Weir
Failure is a key component of capitalism. You can’t get away from that fact, no matter how big the bailout. Sooner or later mismanaged banks and financial institutions must fail. The role of a capitalist government should be to ensure an orderly bankruptcy of mismanaged institutions, not prop them up with bailouts. Purging the economy of the mismanaged financial sector is the first step to restarting our economy. Next is to prosecute the offenders that caused this catastrophe. And restore the Glass-Steagall Act of 1933 to separate ordinary business and personal banking from the Wall-Street casino world of derivatives and other weapons of economic mass destruction.
$52T notational isn’t the same as the net position. It might be $26T on one side and $26T on the other (albeit different instruments) where the net amount is $0 (unlikely), but it’s not accurate to portray it as a $52T bet. Not that I think it’s not a massive risk (counterparty, etc.), but it’s important for credibility’s sake to describe it accurately.