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Archive for the ‘Bank of America’ Category

You peasants:  STHU.

Clawback Risk:  Here It Comes!

I hate it when I’m right….. especially about things like this.

MF Global’s burned commodity customers turned their ire from Jon Corzine to Jamie Dimon yesterday after MF’s creditor committee, led by Dimon’s JPMorgan Chase, objected to a plan to distribute $2.1 billion to customers who have seen their accounts frozen since Halloween.

In a Manhattan bankruptcy court filing, the creditors committee, which also includes Bank of America and hedge fund Elliott Management, said they want more assurances that the $2.1 billion is not their money.

Among their requests: They want customers to agree in writing that the money they receive could be clawed back.

Got it?

Even if it turns out that your funds as a customer were stolen through a rank violation of the segregation that is supposed to be in place, JP Morgan and Bank of America, among others, want to be able to claw back your money should their claims against the bankrupt entity prove up.

So much for the alleged “separation” that the entire premise of brokerages rest upon — that your free cash and margin deposits are yours and are not “investments” in the underlying business of the firm you are choosing to trade with.

If you think this risk doesn’t apply to you and you’re in the market in any way, shape or form you’re quite-simply wrong.

This sort of demand by creditors, incidentally, that allegedly-segregated funds be downgraded ex-post-facto to that of a simple creditor is an outrage.

It is my considered opinion that the firms who make such arguments, and their executives, deserve to be dismantled.

“Once you have their money, never give it back.”

Ferengi, First Rule of Acquisition

Here is a white paper that suggests that JP Morgan and Bank of America are trying to subordinate the customers’ claims to their stolen funds and keep them in a pool of money to be distributed to the creditors by the Trustee, without any representation for the customers.  This is said to be the cause of the confusion and delay in the return of the funds.

There are also claims, not substantiated as far as I can tell, that the positions and assets that were taken from customers were liquidated in a manner so as to maximize the gains to other market participants with advantageous knowledge of those positions.  That is a serious charge that I don’t quite understand. I hope the regulators will look into the transfer of customers assets and exactly how they were treated.

I hope that the regulators and the Justice Department can sort this out quickly, and prevent any further loss of confidence in the exchanges and financial system on the part of their customers.

I think it is fair to say that this entire situation has been handled badly.   Some of the early suggestions that customers would have to take haircuts to ‘share’ the loss with each other, that the funds would be frozen for years, and the general secrecy that has blanketed this has contributed greatly to the anxiety felt by the more aware among investing public at large.

This is of concern even to those who have no funds involved in this, and have nothing to gain or lose from it personally. It should give a chill feeling to all customers, as it seems to be a shocking breach of fiduciary responsibility. It is not wise to wait until one’s own funds and assets are confiscated before asking questions and demanding answers.

As someone else has said, if a brokerage can take customer funds and assets at will, and use them for their own undisclosed speculation, and defy all guarantees, and neither they nor their accomplices are held accountable, then nothing is safe.

This white paper is obviously being told from the perspective of the customers and their attorneys.

I would be interested to hear the story or the party who received the customer assets. But as far as I know, they are silent, and their very identity remains a carefully guarded secret.

WHITE PAPER:
Background, Impacts & Solutions to MF Global’s Demise
By John L. Roe & James L. Koutoulas, Esq.
November 10, 2011

The failure of MF Global has wide ranging consequences for the American economy and its bankruptcy is being handled in a manner that is making these consequences much worse than they need to be. The freezing of customer segregated funds is having a chilling effect on global financial markets. It also has a less obvious but significant impact on the day-to-day operations of farmers, mining operators, ranchers, and other commodity consumers and producers…

In fact, the only person served by the current bankruptcy process is the Trustee who has already submitted bills to the MF Global estate at $891/hour for his time and an average of approximately $500/hour for his staff. This is the same Trustee that spent 3 years working on the Lehman bankruptcy and billed the estate over $160 million dollars despite not returning any customer funds.

If this bankruptcy is managed the same way as Lehman’s, it will be the end of the United States as a viable jurisdiction for commodity trading. Congress should use whatever power it has to prevent this from happening…

By subordinating customers with collateral in segregated funds to creditors of MF Global’s estate, the Trustee is essentially making the creditors the beneficiary of a criminal act. If MF Global comingled segregated funds with corporate assets, it was a criminal act. Paying such a creditor’s claim with a portion of those comingled funds would make them a beneficiary of that crime.

Paying JP Morgan with an Iowa farmer’s money is not only morally and legally wrong, it risks the future of the American economic model. Who would want to hold a commodities account in the United States ever again? Considering the MF Global’s clients have no representation on the creditors committee, but the big banks do (like JP Morgan and Bank of America), that is exactly what will happen without intervention.

Industry groups and regulators argue that the commodities trading industry is able to function with lighter regulations than securities trading because customer accounts are segregated from firm assets. However, in the MF Global case, there is $633M in these segregated client funds that are unaccounted for, either due to sloppy accounting or nefarious activity conducted by the firm. This has resulted in a compromise of the integrity of the segregated accounts system, and a complication of the bankruptcy proceeding by involving a number of parties with little to no experience in commodities.

The bankruptcy process has been delegated to SIPC, the securities insurance regulator, after it petitioned the bankruptcy court to begin a liquidation proceeding of MF Global’s broker-dealer. SIPC stands for “Securities Investor Protection Corporation.” It was created by the Securities Investment Protection Act of 1970 and was designed to protect owners of securities in a similar way to how the FDIC protects bank depositors. However, the vast majority of customer assets affected by this bankruptcy are NOT securities, rather they are cash and commodity futures contracts, and SIPC’s attorneys have limited experience with commodity futures contracts. Despite the fact that about 11.6% of the segregated funds have yet to be accounted for, 88.4% have been. There is no reason, whatsoever, that these funds should not be immediately released to their rightful owners.

Read the rest of this White Paper here.

Jesse’s Café Américain

Hell hath frozen.  This article is a MUST-READ! ‘He has a right to speak,’ said the cop to the banker.’

Like most bullies, the banks are cowards. They talk a big game, but if confronted with their crimes, they run for cover and go whining to “mommy.”

Today, I walked up and down a sidewalk, in front of a branch of Chase and a branch of BofA. I handed out about 250 flyers during lunch hour.

They panicked and called their private security people, then more private security and finally the cops. That’s when they found out that they didn’t have a leg to stand on.

A dedicated leftist (he’s posting on Kos, right?) trumps The So-Called “Tea Party” AGAIN.

Where are you folks?  Why aren’t you in front of these banks?

Oh, that’s right — you stand for The Constitution and they didn’t break any laws, right?

Except for all the ones they have admitted to under oath — or where someone other than a bankster went to jail, like:

• Jefferson County Alabama

• Money laundering for Mexican drug cartels.

• Intentionally and knowingly peddling crap loans

• Filing over 100,000 known perjured affidavits

• And selling crap CDOs as “good investments.”

And that’s just a “quick list” of a few examples, and by no means is exhaustive.  Every one of those is a criminal act by the way, ranging from fraud to perjury to knowingly assisting in a criminal enterprise that has been buying guns and planes to run drugs with.

So where is the insistence on the “Rule of Law”?  You know, the one you want to enforce when it comes to “One man, one woman” with marriage?  Or “no gays in the military”?  Or, for that matter, The Second Amendment?

Ah, I get it.  The rule of law only matters when it applies to a particular thing you like.  The rest of the time, it doesn’t count at all.  In fact, you’ll willfully close your eyes and ignore the lawbreaking when your buddy does it; the screaming only commences when your political enemy is a participant.

My objection, ladies and gentlemen, is that this is no different than what the Democrats do.  “Health Care reform” anyone?  The Rule of Law will be enforced to make you buy health insurance, but not to protect your right to own and bear a firearm or to choose NOT to engage in commerce.

No difference here folks.  The so-called “Tea Party” is a black-sharpie marker 10 Commandments serial violator just as are the die-hard liberals on the left.

But to see someone actually engage in First Amendment speech in front of a bank and document it on The Daily Kos, which is about as far removed from my political views as one could be and still manage to find the points on the vector within the orbit of Mars, well, that’s remarkable.

What’s disgusting is that this story appeared on The Daily Kos before it appeared on a Tea Party-affiliated web site.

Pack it up or reform folks, because as things stand here and now you’ve no right to use the visage and memory of Sam Adams.

….and it’s depositors.  There’s not enough attention being paid to the shift of Bank of America’s CDS (credit default swap) portfolio from its uninsured investments to its FDIC insured commercial banking account.  In plain language this means if Bank of America goes bankrupt (and this is practically assured at this point), YOU the depositors are second in line behind approximately $50 TRILLION in CDS.  It means that those investors of CDS will be paid by the FDIC before YOU are.  In order to make it even possible for the FDIC to pay those investors, they will have to use taxpayer funds.   So far, this is just Bank of America, but since this required absolutely no public disclosure or discussion, nor did your Member of Congress get to vote on this, how long will it be before the rest of the banks leveraged up to their eyeballs do the exact same thing?  The best way to describe the overall concept is:  Taxation Without Representation.

Are we having fun yet?

Just listen to Reggie Middleton from BoomBustBlog explain our situation:

Yes, we’ve all been bamboozled, that’s for sure.  We’re also being raped and robbed.

Many people are furious that the Federal Reserve and Bank of America have initiated a coup to dump billions of dollars of losses on the American people (and see this).

Many are suggesting that the “Occupy” protesters rally to stop this robbery.

One of the top stories currently on Reddit (one of the top social media sites), is:

OWS and 99%: Please pay attention to this and stop it from happening (BofA and Fed socializing losses)

I understand that the Occupy protesters are, in fact, currently debating making a statement on this theft.

Currently, there are two competing draft statements. This one is from someone very savvy on understanding how the average American thinks:

A portion of the 53 trillion dollars of derivatives (yes that’s with a t, about the size of the entire global economy) transferred to Bank of America’s parent company from Merrill Lynch in 2008 has recently been transferred to Bank of America.

Derivatives contracts in a bank are paid before anyone else gets paid.

Therefore, these derivatives contracts would be paid before depositors receive their money. These people just cut in front of you.

It’s very simple, the reason that banks and trading houses were originally separated was to prevent this sort of thing. What’s really going to happen is that the government is going to end up bailing out the FDIC … so this will end up being a government bailout.

You’ll end up getting shafted, either by derivatives holders cutting in front of you or by your having to bail out the FDIC so it can bail out banks depositors. Either way, this is yet another instance of looting by the big banks and big government.

Just say no … don’t let this stand.

And this one is from two people who are experts on the technical issues involved:

We denounce Bank of America’s transfer of high risk derivatives to its federally insured accounts. This is yet another example of systemically dangerous institutions, big banks like BofA and JPM, once again attempting to shift potentially substantial losses onto the backs of hardworking Americans. The fact that the Federal Reserve supports this action demonstrates Ben Bernanke’s complicity and/or gross incompetence in supporting the Wall Street elite at the expense of tax paying citizens.

Updates as they develop …

George Washington for ZeroHedge

Is It Time To Close Down Bank of America?

This is precisely the sort of arbitrage that ought to lead people straight to a nice date with Bubba:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

So let’s see what we have here.

Bank customer initiates a swap position with Bank.  In doing so they intentionally accept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid.  Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the “guarantor” of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Incidentally, the amount of exposure in question is unknown but Bank of America has some $53 trillion in total derivative exposure (out of $75 trillion in total between it and Merrill, which is also a subsidiary of the holding company.)

Of course we do not know how much was shifted and BAC won’t comment on the record — but this sort of movement of liabilities should be flatly prohibited as the counterparty in question accepted the risk of the entity they traded with originally when the transaction was first initiated.  That the firm’s ratings have deteriorated and thus it may be required to post additional capital against these positions by those counterparties does not justify shifting the risk to depositors simply so the bank can avoid posting collateral against a deteriorating credit picture, which for all intents and purposes shifts the risk to the taxpayer since the FDIC has a line of credit at Treasury.  Never mind that posting that collateral should not materially impair operations.

After all the firm does have an excellent capital ratio.  Why they said so just this morning!

I can think of a handful of rather bemusing (and some not-very-funny) possibilities along the line of “speck into a snowball” issues that may arise in time on this deal, but for now I’ll sit with a wry smile and see what develops since at this point I have nothing to go on other than conjecture.  Feel free to speculate yourself in the comment section if you’d like… after all that’s exactly what Bank of America openly invited when they refused to document exactly what was moved, in what amounts, what the actual net exposure is and why the step was taken.

We need to rename Bank of America DAFFY DUCK!

Karl Denninger

*************************************************************************

Adding to Karl’s analysis, from the Bloomberg article cited:

In 2009, the Fed granted Section 23A exemptions to the banking arms of Ally Financial Inc., HSBC Holdings Plc, Fifth Third Bancorp, ING Groep NV, General Electric Co., Northern Trust Corp., CIT Group Inc., Morgan Stanley and Goldman Sachs Group Inc., among others, according to letters posted on the Fed’s website.

Anyone remember those 23A Letter exemptions?  We wrote about those extensively back in 2008.  These letters basically allowed the banks to run two sets of books.  One set was on the record, meaning that was from where tier 1 capital ratios (among other things) were derived, and another set of books that no one got to see and were not counted in tier 1 capital.  Guess what’s on the hidden set of books?  If you guessed a bunch of defaulted or defaulting debt, you’d win the prize.  So, what is being run here is a massive accounting fraud; one that would make Arthur Andersen of Enron notoriety look like angels.

They’re using depositors’ money to backstop their bad loans and the government made it LEGAL for them to do so.   These aren’t just bad mortgages either, these are various and sundry toxic products with which BAC and other big Wall Street banks were playing hot-potato for nearly a decade.  Most homeowners have taken their loss; they’ve been foreclosed upon or will be in the near future, but where are the losses to the banks for their purposeful and intentional selling of mortgages to people who couldn’t pay?!  Those losses have all been shifted to the taxpayer and since that apparently, wasn’t adequate, they have now shifted it to THEIR DEPOSITORS!  One set of laws for them and another set for us.

Tell me again why Glass-Steagall was repealed?  Oh yeah, the banks didn’t want it; so, Congress obliged.  Why hasn’t anyone on EITHER side of the aisle proposed an immediate reinstatement of Glass-Steagall?  Same reason.  Banks don’t want it and they pay Congress to make sure they won’t get it.

So, to summarize for those in the cheap seats, Bank of America is essentially holding a gun to the heads of their depositors and daring anyone to screw with them.

Message to anyone still having money on deposit with Bank of America:  You’re being held hostage.

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