Bank of America’s latest assault on American taxpayers

At Common Dreams, former bank examiner Bill Black has written of a terrible (though anticipated) new development at the Bank of America. The bank has taken on enormous toxic debt from its holding company (BAC) in order to saddle American taxpayers with the bill, as the Federal Reserve winks and nods.

BAC continues to deteriorate and the credit rating agencies have been downgrading it because of its bad assets, particularly its derivatives. BAC’s answer is to “transfer” the bad derivatives to the insured bank – transforming (ala Ireland) a private debt into a public debt.
Bloomberg has been aggressively reporting the story. Here's a short description by Jonathan Weil:
The Federal Deposit Insurance Corp. is objecting to the transfers. That part is easy to understand: More risk for the retail lender means more risk for FDIC-insured deposits, which ultimately are backstopped by the U.S. government. The Fed, however, has signaled to the FDIC that it favors the transfers. Shifting the derivatives to the commercial lender may let Bank of America avoid collateral calls and termination fees stemming from the rating downgrade. Some Merrill clients may prefer having their contracts with the higher-rated unit. In short, the Fed’s priorities seem to lie with protecting the bank-holding company from losses at Merrill, even if that means greater risks for the FDIC’s insurance fund. . . . The entire story would be playing out in secret were it not for some unidentified whistleblowers who seem to have this crazy idea that the public should be informed about what the regulators and Bank of America are up to.
In his article, Weil makes it clear that all roads lead to American taxpayers picking of the tab, and it could run into the trillions. In fact, check the comments to Weil's article and you'll see the desperation, because the number being suggested is $75 TRILLION in derivatives, which Ben Bernacke has approved to be dumped on taxpayers, who don't have this money in any way shape or form (the U.S. only takes in $2 trillion in tax receipts each year). Thus, the Fed, a covey of criminal bankers, is in the process of attempting to destroy the FDIC and the American economic system in order to buy a bit more time for its big players (BAC is not alone; Morgan Chase is holding another $75 T in these fraudulent derivatives). What are "derivatives," the source of this immense debt? Bloomberg's Bob Ivry explains derivatives in his article that broke this scandalous decision to move Merrill derivatives to BAC's taxpayer insured banking unit:
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates. Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.
In these times, as the credit ratings of the big banks continue to slide, the objectives of the banks is always the same, but more intense than ever: Privatize the profit and socialize the losses.   The so-called banks have armies of corrupt accountants, lawyers and lobbyists working hard to find yet another way to make innocent taxpayers foot the bill for the the banks' immense amounts of debt that resulted from irresponsible gambling.  As William Black explains, the banks happily took on this gambling debt sharply, but now they want to dump in on people like you and me.  The Fed has given the nod because it is wholly corrupt in this adventure, contrary to the protests of the FDIC.  The bank management is giving the nod sharply contrary to fiduciary duties they owe to their shareholders and customers. This entire charade needs to be reported on the front page of every paper in America.  If Americans were better informed about the depth and scope of how they are being fleeced, we'd see hundreds of millions of Americans joining the #Occupy protests.

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The nebulous nuts and bolts of health care reform

How is that "health care reform coming? New York City's Mayor Michael Bloomberg, a savvy businessman with a long and successful career, is skeptical regarding the pending health care reform bills. This is what he had to say on Meet the Press today:

MAYOR BLOOMBERG: You know, if you really want to object to something in this bill, number one, I have asked congressperson after congressperson, not one can explain to me what's in the bill, even in the House version. Certainly not in the other version. And so for them to vote on a bill that they don't understand whatsoever, really, you got to question how--what kind of government we have. Number two, when they talk about bending the curve, as, as the governor said, bending the curve is a flimflam euphemism for increasing costs, but we're going to say we'll do it at slightly lower rate than we would have otherwise.

GOV. PATRICK: That's not what I'm talking about.

MAYOR BLOOMBERG: I understand that. But they are not talking about reducing costs, they're talking about chancing the first derivative.

MR. GREGORY: Slowing it, right.

MAYOR BLOOMBERG: Slowing the growth down. And when you look at where the cost savings are going to be, well, they're going to cut something out of Medicare and Medicaid. Now, anybody that runs for office will tell you, you don't do that.

MR. GREGORY: Right.

MAYOR BLOOMBERG: I mean, the bottom line is it's so politically explosive, it really would be a first time in the history of the world if they ever cut anything out of either of those two programs.

I suspect that based upon the utter inability of any credible knowledgeable person to frankly state the cost of "health care reform," that Americans are in for a rude awakening. Consider the starting point: the terrible financial condition of Medicare. Here's how bad it is:

The present value of unfunded obligations under all parts of Medicare during FY 2007 over a 75-year forecast horizon is approximately $34.0 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years.

No private non--criminal corporation would submit operating budget this insane. Yet this is the type of program that we have come to expect from Congress, and it is based upon scores of accounting tricks. These sorts of tricks and traps are exactly what has been alleged about the current proposals for "health care reform." Consider the arguments articulated in the November 13, 2009 issue of Reason.

Congress is using "every budget gimmick in the book" to conceal hundreds of billions in healthcare-reform costs that will lead to "massive tax increases" and higher insurance premiums, one of the country's leading healthcare experts warns.

Early on, Obama originally pledged that his plan would save the typical American family $2,500 a year in healthcare costs. The main purpose of health care reform was "cost control." (see Obama's State of the Union Address from February 2009). Where is this cost control in the current bills? How can we possibly cover tens of millions of people who can't otherwise afford coverage, yet save lots of money for those who are paying their way? Both of the current proposals both depend on a government-funded free-market program administered by for-profit insurance companies. Paul Krugman has argued, however, that the free market doesn't work regarding health care.

[Y]ou don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket. This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping.. . .

We are a country filled with people who abuse their bodies and then depend upon the health care system's expensive treatment. The annual cost of obesity alone in the U.S. is $200 Billion. In fact, we spend less than one percent of total health care spending on prevention. Where is the "stick" (or the "carrot") in the current proposals that will actually make obese, chain-smoking and otherwise reckless Americans change their wasteful and destructive ways? These are my concerns about the current proposals. Well, those concerns and these and these and these . And now we have the business-savvy mayor of NY stating that he has yet to find a member of Congress who understands how the current proposals would really work. And we have a Congress with a history of not actually dealing with fiscal catastrophe, but only putting it off for a few years. We have a system that has yet to explain how it will force Americans to live healthier life styles, in order to save that money. We have competing 2,000 page proposals loaded with lots of stuff that will only be revealed AFTER "reform" is passed. I can already hear it: "We didn't catch that obscure language inserted by [financially interested corporation] that will cost taxpayers an additional $40 Billion every year"). What sustains the momentum is that we will purportedly be insuring thirty million more people, even though it is not clear what we will be giving up in order to do that. Things that motivate the idea of "health care reform" are some low-hanging fruit such portability and restrictions on denying coverage for pre-existing conditions. I've advocated that we should pass laws regarding these obviously needed measures separately, so that we can then really look carefully at the rest of the proposal separately, to just it on its own merits, if we can cut through the morass of accounting gymnastics that apparently serve as the backbone of most of the package. Another thing that motivates passing "health care reform" is the name of the legislation itself. Who could possibly be against "health care reform." A good title does wonders for ramming through indecipherable legislation. This is the current health care "reform," as best I can discern it. It's not looking promising, because it's not looking financially sustainable.

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The extent of the remedy for our financial ailments

How much public money is at stake in the attempt to fix our financial woes? Bloomberg adds it up:

The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s. New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

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