Suicide bankers

Bank of America arranges for mutually assured financial destruction:

Recently Bank of America transferred a bunch of derivatives into their banking arm. “A bunch” means somewhere around $80 trillion worth. Now pay very careful attention, because part of the bankruptcy “reform” law in 2005 placed derivative claims in front of depositors in a business failure – including a bank failure.

What JP Morgan is claiming in the MF Global case is that the derivative trade (which is exactly what a “Repo to Maturity” trade is – it’s a derivative) is entitled to preference in the case of MF Global over those who had cash there for safekeeping either as a margin deposit or just as free cash as you would hold free cash in a bank.

If a major bank blows up this very same claim, supported in existing Bankruptcy Law with the changes signed by George Bush in 2005, will be used to steal the entirety of your bank account, and if you detect the impending blowup shortly before it happens — say, 90 days before — you’re still exposed to the risk through clawback!

There is a fairly cogent argument to be made that what BofA did is tantamount to intentionally placing an armed financial nuclear device in the center of the board room table and then daring anyone — including the government — to come tamper with it and risk setting it off, knowing full well that if it explodes it is utterly impossible to contain the damage to our economy and financial system.

Translation: your FDIC guarantees won’t matter if you’re a BoA depositor. Whatever can be salvaged from the mass destruction will go towards paying back its derivative bookie, most likely Goldman Sachs. This sounds rather as if BoA’s executives are planning to abandon ship.

And notice that it was that conservative Republican, George W. Bush, who signed that law into place, again confirming that Republicans are part of the problem, and therefore cannot be part of the solution.