The American way - let's socialize bad banking investments, privatize the profits...
BofA toxic derivative assets are estimated at $75 TRILLIONS, while the US GDP is estimated at only $15 TRILLIONS...
Why Iceland Should Be in the News, But Is NotBy Deena Stryker
An Italian radio program's story about Iceland�s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt. The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.
As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here's why:
Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country�s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks� foreign debt. In 2003 Iceland�s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy.
Contrary to what could be expected, the crisis resulted in Icelanders recovering their sovereign rights, through a process of direct participatory democracy that eventually led to a new Constitution. But only after much pain.
Submitted by Elaine Magliaro, Guest Blogger
In an article titled Another Weapon for OWS: Pull Your Money Out of BofA, Matt Taibbi wrote that �when it comes to commercial banking, Bank of America is as bad as it gets.� He said he believed the markets seemed to agree as the bank had a credit downgrade recently �to just above junk status.�
He continued: The only reason the bank is not rated even lower than that is that it is Too Big To Fail. The whole world knows that if Bank of America implodes � whether because of the vast number of fraud suits it faces for mortgage securitization practices, or because of the time bomb of toxic assets on its balance sheets � the U.S. government will probably step in to one degree or another and save it.
After the credit downgrade in September, Bloomberg reported that Bank of America �moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits�� Taibbi said the transfer involved trillions of dollars in risky derivatives contracts.
According to Bloomberg: 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.
Here�s how Ryan Chittum explained it in the Columbia Review of Journalism: Bank of America moved risky insurance contracts to a taxpayer-insured company, ostensibly to save money. The FDIC, which would now be on the hook for losses if the derivatives collapse, is not happy, and the move raises more questions about the health of Bank of America, which has already seen its market value sliced in half this year.
Kirsten Pittman reported in The Charlotte Observer that more than a dozen Democratic members of Congress are concerned about the reported transfer �of financial instruments from Merrill Lynch into the bank�s deposit-taking arm��which they say �could put taxpayers on the hook for big losses � three years after the bank received billions in bailouts from the federal government.� The Congressmen wrote to federal regulators to ask why they allowed the movement of derivatives into the retail bank, which has deposits that are insured by the FDIC. In a statement, Rep. Brad Miller of North Carolina said, �This kind of transaction raises many issues of obvious public concern. If the bank subsidiary failed, innocent taxpayers could end up paying off exotic derivatives.�
William Black, a professor of economics and law at the University of Missouri-Kansas City and a former bank regulator, said, �The concern is that there is always an enormous temptation to dump the losers on the insured institution. We should have fairly tight restrictions on that.�
So much for financial reform. Just three years ago, Bank of America received $45 billion in bailout money during the financial crisis. It doesn�t seem that much has changed since 2008, does it?