Can We Prevent a $100 Billion+ BoA Taxpayer Ripoff?
This story is astonishing. I can’t believe I am seeing it happen right now.
Bank of America Deathwatch: Moves Risky Derivatives from Holding Company to Taxpayer-Backstopped Depositors
This is a taxpayer ripoff, pure and simple. If the counterparties need a bailout, let them do it above board. Don’t give out FDIC money to derivative counterparties.
As Yves points out – why not just post more collateral?
We were ripped off when the feds bailed out AIG’s derivative counterparties. There was no reason to do this – we can and should have been far more agressive in the negotiations with these people.
(I also suspect that Hank Paulson acted in a criminal manner. He was CEO of Goldman during the time when these trades were being created, and this division was a major profit center for Goldie. He knew. )
[Update: beowulf points out its actually even worse than we thought in a comment over at Naked Capitalism.
ITS WORSE THAN EVEN WORSE THAN THAT. In January, the Federal Circuit Court of Appeals ruled in Slattery v US that FDIC obligations are also direct Tsy obligations. Congress doesn’t even have to vote on it, FDIC creditors may now elect to file suit at their local US District Court against FDIC or in in DC at the Court of Federal Claims against Tsy directly. Geithner might have to mint those platinum coins after all.
Because the majority rules that the FDIC is not a NAFI, the United States is now directly liable for the FDIC’s contractual commitments. Mr. Slattery and future plaintiffs like him can now sue the United States in the Court of Federal Claims… The FDIC, however, has no statutory obligation to reimburse the government for any damages paid out of the Judgment Fund. Accordingly, from this date forth, taxpayers, not the FDIC, shall bear the burden of the FDIC’s contractual commitments… the majority has by judicial fiat created a more direct bailout than the 1989 Congressional bailout of the savings and loan industry