#OWS: Bank of America is At It Again
News broke today that the Federal Reserve and the Federal Deposit Insurance Corporation had a little disagreement about a transfer of assets between subsidiaries of Bank of America Corporation (BAC) which owns both Merrill Lynch and Bank of America (BofA, the retail bank you’re more familiar with.) It seems that BAC is moving something on the order of $75 trillion dollars of derivatives risk from Merrill Lynch, which is not insured by American taxpayers, to Bank of America, which is. This means that just as European banks are about to crumble in on themselves in an epic default, BAC has pushed their substantial share of the risk of those defaults from their shareholders to the FDIC, effectively putting taxpayers on the hook.
Here is another great piece on the transfer from former regulator William K. Black.
They did this without a peep from the Federal Reserve. Through the FDIC, you and I now bear the risk of the screwed up European banking system without ever engaging in these risky and fraudulent debt obligations to begin with. They ate the meal, now we clean the $75 trillion dishes.
This is why people do not, and probably should not, trust the financial sector and its narrow interests. People now associate ‘Wall Street’ with a threat to regular people with regular jobs and regular investments. The financial sector is the largest contributor to federal elections, including President Obama. Mitt Romney is one and is surrounded by them. And the media is literally owned by them, and are aligned according to a strict imaginary line that seperates D’s and R’s who both say ‘Wall Street is the best.’
Take this great video from Jay Smooth. He applies an apt metaphor:
The reason this shell game is so effective is because the financial industry, like most industries, is extremely large and complex, so we rely on journalists and commentators to provide us with information and context. When they lie, we all lose. The same is true for all serious professions.
It’s impossible to expect most people to understand finance. God knows I don’t. That’s why I pay for financial experts to manage my money. But if you turn your back for a decade or so and find that the “smartest guys on Earth” have turned a tech boom into a gaping crater full of houses no one can afford, all while collecting seven and eight figure salaries, you have to wonder if maybe the profession needs a serious thrashing before you give the keys back.
The deal that went down today is a perfect example of what is wrong with our monetary and banking systems. Derivatives meant to hedge risk are useful to bankers as long as that risk is perceived as low, and as long as they’re earning humongous nominal returns that they can strap on at shareholder meetings to flap around and grab big bonuses. But the instant the dookie starts to pile up, or when the credit ratings agencies that lied about the value of those assets start to admit they were totally and completely wrong, then suddenly it’s time to move those assets into insured banks, just in case.
It’s like raising a pyromaniac for a kid and then sending him to live with your parents once he learns how to light a match.
As folks in finance and politics continue to level criticism at Occupy for being socialist and pointless and anti-Semitic and anarchist and secretly-led-by-nefarious-Jews, ALL AT THE SAME TIME, it’s important for everyone to remember that instances of corporate malfeasance and exploitation of public institutions is not only extremely common and easy to identify, it’s also much more detrimental to society than anyone who commits Medicare fraud or files a frivolous lawsuit (often the counterpoint allegation, along with the freeloading 47% who ‘don’t pay taxes’). Powerful people always point to petty criminals to justify their own lawlessness to create an illusion of symmetry between completely out scaled phenomenon.
The financial system will always be complex. A more equitable system is likely to be more complex than the one we have now – if only because more individuals would participate directly, instead of relying on employers and unions to create wealth for them. But that complexity cannot be an excuse for the kind of chicanery currently being spun by Bank of America, Ben Bernanke, and the Treasury Department.
At least with the solidarity and spirit shown by Occupiers everywhere, now they know that we are watching them, and we won’t go down the same way twice.