Home > Main > Can We Prevent a $100 Billion+ BoA Taxpayer Ripoff?

Can We Prevent a $100 Billion+ BoA Taxpayer Ripoff?

October 19, 2011

This story is astonishing.  I can’t believe I am seeing it happen right now.

Bank of America Deathwatch: Moves Risky Derivatives from Holding Company to Taxpayer-Backstopped Depositors

This is a taxpayer ripoff, pure and simple.  If the counterparties need a bailout, let them do it above board.  Don’t give out FDIC money to derivative counterparties.

As Yves points out – why not just post more collateral?

We were ripped off when the feds bailed out AIG’s derivative counterparties.  There was no reason to do this – we can and should have been far more agressive in the negotiations with these people.

(I also suspect that Hank Paulson acted in a criminal manner.  He was CEO of Goldman during the time when these trades were being created, and this division was a major profit center for Goldie.  He knew.  )

[Update: beowulf points out its actually even worse than we thought in a comment over at Naked Capitalism.

ITS WORSE THAN EVEN WORSE THAN THAT. In January, the Federal Circuit Court of Appeals ruled in Slattery v US that FDIC obligations are also direct Tsy obligations. Congress doesn’t even have to vote on it, FDIC creditors may now elect to file suit at their local US District Court against FDIC or in in DC at the Court of Federal Claims against Tsy directly. Geithner might have to mint those platinum coins after all.

Because the majority rules that the FDIC is not a NAFI, the United States is now directly liable for the FDIC’s contractual commitments. Mr. Slattery and future plaintiffs like him can now sue the United States in the Court of Federal Claims… The FDIC, however, has no statutory obligation to reimburse the government for any damages paid out of the Judgment Fund. Accordingly, from this date forth, taxpayers, not the FDIC, shall bear the burden of the FDIC’s contractual commitments… the majority has by judicial fiat created a more direct bailout than the 1989 Congressional bailout of the savings and loan industry 

Categories: Main Tags: ,
  1. October 20, 2011 at 5:42 pm

    The silver lining: maybe they’ll have to mint platinum coin(s), after all. Of course, they’ll only mint enough to bailout FDIC/BoA. Then we can ask why they didn’t make it a $60 T coin.

  2. TC
    October 20, 2011 at 10:02 pm


  3. beowulf
    October 20, 2011 at 11:27 pm

    Bernie Sanders should correct this in his Fed reform bill (I see in Warren’s update that Jamie Galbraith was added to panel).

    To decode some legalese, NAFI refers to “nnonappropriated fund agency as one where there has been a ‘clear expression by Congress that the agency was to be separated from general federal revenues’,”, that’s from Denkler v. US, the 1986 decision that ruled the Federal Reserve to be a NAFI. The holding in the Slattery case (copied below) is so broad, it probably overruled Denkler, leaving Tsy exposed as being directly liable for all Fed obligations.
    On this en banc review, we hold that (1) when a government agency is asserted to have breached an express or implied contract that it entered on behalf of the United States, there is Tucker Act jurisdiction of the cause unless such jurisdiction was explicitly withheld or withdrawn by statute, and (2) the jurisdictional foundation of the Tucker Act is not limited by the appropriation status of the agency’s funds or the source of funds by which any judgment may be paid.

    I can teach it round or flat, but Congress should either:
    (a) push the fishhook all the way through and ratify this decision to put the full faith and credit of the United states behind the obligations incurred by FDIC (and arguably, the Fed, Federal Financing Bank, Federal Housing Finance Agency and National Credit Union Administration as well);
    (b) withdraw Tucker Act jurisdiction from FDIC and any or all of the other said agencies.

  1. No trackbacks yet.
Comments are closed.
%d bloggers like this: