Is Bank of America preparing for a Chapter 11?

October 24, 2011 by · Leave a Comment
Filed under: Opinion 

This Reuters story about Bank of America moving derivative contracts from their Merrill Lynch acquisition that is uninsured by the FDIC, to a main banking unit at B of A is only going to get more attention and scrutiny.  I don’t see why this would be allowed.  These are huge credit risks that Merrill agreed too or are relying on another party for that now are in a unit that would be made whole if it failed.   Bank of America has been beat up pretty bad lately, their stock hovers around $6-7 dollars a share.

One of the loose ends for B of A is the “robo-signing” problem where many key mortgage & disclosure documents were not filed as prescribed.  They are involved in lawsuit that revolve around this issue.  Some analysts have even discussed that some of these documents would of halted some of these transactions because the disclosure information was damning.

The valuations on U.S. real estate in 2007 and before, it begs to ask how we got that much capital to come into the real estate market.  It points in the direction that there was some serious rule-bending and likely law-breaking.  What is true, is that the courts will sort this out in the end.

Reuters (Christopher Whalen):

Bank of America has managed to step into the kimchee several times over the past couple of months, an achievement that only warms the hearts of crisis communications professionals.  First came the abortive settlement of $10 billion or so in put-back claims by some large investors.  The State of New York and anyone else paying attention intervened.  Settlement is now mostly muerto in political terms, although the big investors are still paying the big lawyers to soldier on in hope of forcing a settlement on all parties.  Only in New York are such things possible.

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Fannie Mae Files $15.8 Billion in Claims in Lehman Brothers Bankruptcy

November 6, 2009 by · Leave a Comment
Filed under: Legal News 

Now we are getting more information on the OTC derivative market and the different liabilities that the different players had with their counter-parties.  The more I am reading about these products (got a nice book on the subject that was written in 1993) and the more I read the more derivatives sound like insurance.

You know what that means? It means they should be regulated like an insurance product and that means the companies issuing this insurance needs strict capital requirements and their capital can only be invested in the safest financial instruments which we used to call “AAA” before the quality rating became a backroom Wall Street joke.

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U.S. bill would restrict over-the-counter (OTC) derivatives with new regulations

July 30, 2009 by · Leave a Comment
Filed under: Industry News 

This is much needed.  In no way can we have financial instruments that equal ten times the globe’s GDP and not have it under strict regulation.  The reason is because these paper contracts were used to get more leverage which is fine when everything is stable but can be a total disaster when the economy goes south or the firms that have written these go bust and causes them to go to “full performance”.

These should not be on any off-balance-sheet transaction and any company holding them should have strict capital requirements just like any other form of insurance that protect the policyholder against the institution from defaulting.  If you read a book called “The New Monetarism” it has an interesting chart that shows an inverted pyramid with real assets at the bottom and OTC derivatives at the top and that represents global liquidity.   In this chart, these derivative instruments represented 75% of all the liquidity in the system.

News (Reuters):

U.S. financial regulators would gain the power to restrict holdings of over-the-counter derivatives under legislation to be considered this fall, the chairmen of two House committees said on Thursday.

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Derivatives market trades on Sunday to cut Lehman Brothers counter-party risk

September 14, 2008 by · Leave a Comment
Filed under: Economic News 

Unprecedented, this must be a signal that things are worse than most people think.  Opening a Sunday session for Smart money to unwind  their derivative position.  This week should be a rollercoaster ride.

News Release:

Major players in the $455 trillion global derivatives market rushed Sunday to scale back exposure to a potential bankruptcy filing by investment bank Lehman Brothers in a rare emergency trading session. Trading took place as U.S. regulators and bankers were making last-ditch efforts to prevent toxic assets from ailing Lehman Brothers spilling into global markets and rupturing investor faith in the international financial system.

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