Forum Post: Bank of America Dumping Merrill Lynch Dividends In Retail Bank; Lead-up to Next Major Bailout
Posted 12 years ago on Oct. 20, 2011, 1:18 p.m. EST by ryanscottsarver
(0)
from Queens, NY
This content is user submitted and not an official statement
I presume you guys know about this, but if you don't,
This gets into some opaque banking terminology, so let me break down what this means to everyone.
A derivative is a contract that pays out if a certain event happens (hence its value derives from something else) much like insurance. You can imagine that your health insurance is an "illness/trauma derivative" that pays out if you suffer illness or medical trauma, but costs you money if you don't.
What happened here is that Bank of America signed onto contracts that they didn't expect to have to all pay out. Maybe they were signed eight years ago when Greek default seemed like a distant, implausible prospect. I don't know what the contracts are, or how many of them balance each other out (Banks often try to avoid the speculative aspect of derivatives by signing contracts in both directions; derivative A pays out $100 if event X does happen but costs $100 if it doesn't, derivative B pays out $100 if X doesn't happen but costs $100 if it does. The bank is merely the entity that arranges the contract, so it collects a small administrative fee for this, then doesn't worry about whether X happens or not. This only balances out if you can find buyers on both sides of the bet, however.)
Now, since they're afraid that too many of their derivative contracts aren't balancing out, or perhaps that events they thought were opposites turned out not to be, they may not have the money to cover all the payouts. Their solution is to move these contracts into the retail banking division--the division that has all the money you've put in your checking or savings accounts. So, the plan is to use your savings to pay out the derivatives, claim that the retail bank is bankrupt, force the FDIC to pay you back, and thereby stick the taxpayers with the bill for saving the umbrella company at the top of the Bank of America corporate structure.
Even if you're part of a credit union, this will affect you, because you are also a taxpayer.
I think they passed a bailout law as part of the wall street reform package. I am not for sure but i think i read that somewhere.
The Fed actually supports this too! For them it is always- Heads I win, tails you loose.
"Their solution is to move these contracts into the retail banking division--the division that has all the money you've put in your checking or savings accounts. So, the plan is to use your savings to pay out the derivatives, claim that the retail bank is bankrupt, force the FDIC to pay you back, and thereby stick the taxpayers with the bill for saving the umbrella company at the top of the Bank of America corporate structure."
And this is not the only bank that has severe problems with European exposure,
Freakin' financial terrorists willing to blow up the economy and destroy everything in sight for their own selfish greed:
WHY AREN'T THESE MOTHERFUCKERS ON DEATH ROW BY NOW?????
Derivatives exposure for the 4 TBTF banks is at 600 trillion. about 10X the freakin' world GDP. A financial nuclear winter waiting to happen at any moment.
Bullshiter Obama talkin' about this? NAAAAAAAAAAA who could be bothered. Does the son of a bitch even care?
The clown parade on the Republican side? God spare us.
Not a single freakin' word during the debates on any of this. CNN is criminally complicit.
We are doomed man.
start telling you're representatives what will happen if they vote for another bailout.
please send this to teap party people, their forums, etc
I am in a credit union. Am I safe from losing my savings?
No, your savings are fine. But you will have to pay through your tax dollars to pay the insured bad securities.
WOW Thanks Ryan great scoop! I'm learning a lot on this forum, while dodging all the trolls!
Corporate welfare is alive and prospering in America. But hey, your Social Security is on the chopping block.
Banking Motto "Capitalize the gains and Socialize the risks"