The Paul File

[786]

Then if you KNEW that then you shouldn't write totally misleading BS like this:

Because the implication is that it is the RISK of the ML Derivitives, not that the risk in the Derivitive market puts some additional risk on the BofA deposits.

I don't think you understand. Do you know which unit they transfered that risk to? The depository arm.

No, first of all, for big banks like BofA the ration won't be as high as for small banks so 80% is over stating it,

As I said its only using general estimation. Why don't you provide as with a 'more accurate' percentage. Just saying it isn't so isn't really an answer.

secondly though the bank may fail, the huge amount of loans on their books and their assets (branches, equipment, operation centers etc) have huge value and would be sold, so no even when both WAMU and Wachovia failed in the same week they didn't cost the FDIC ANYTHING.

1. They were transactions essentially a firesale. FDIC simply forced the deal of WAMU. Wachovia? Wells Fargo actually bought them out, FDIC was selling them for cheap but that didn't happen since Wells Fargo bought them.

2. None of those banks had derivatives exposure, this big, as part of their depository unit in fact.

And that's what you are missing.

Your comparison of those deals isn't even the same thing. Not to mention Wachovia was 'sold' not 'failed'.

Failure of BofA would be much more like the failure of those other big banks then the SMALL banks which are causing a drag on the FDIC (which have far fewer assests)

Assets have always surpassed insured-deposits yet FDIC reported losses before. Secondly you have to understand that the derivatives are being transfered to the depository arm, which creates a massive liability if they are a loss. All those 'assets' would not be enough to cover the cost of this liability.

But even for the SMALL banks, the Failures are only costing them 20c on the dollar, not 80c, so again you are far over stating the risk.

I never said 80c on the dollar is the cost, I only said roughly 80% of deposits are insured. 20c on the dollar for a big bank can't be handled by $3.9 Billion.

 

[adoucette]

I don't think you understand. Do you know which unit they transfered that risk to? The depository arm.

That's exactly what I said.

As I said its only using general estimation. Why don't you provide as with a 'more accurate' percentage. Just saying it isn't so isn't really an answer.

I'll see if I can find it.
But regardless, I gave you two large banks, whose combined assets were roughly the size of BofA which failed and for which the FDIC DIF incurred no losses at all.

1. They were transactions essentially a firesale. FDIC simply forced the deal of WAMU. Wachovia? Wells Fargo actually bought them out, FDIC was selling them for cheap but that didn't happen since Wells Fargo bought them.

What's your point. The FDIC lost nothing on either of these.

2. None of those banks had derivatives exposure as part of their depository unit in fact.

Why a bank fails isn't exactly the point though is it, the effect is roughly the same.

Your comparison of those deals isn't even the same thing. Not to mention Wachovia was 'sold' not 'failed'.

It was failing, and because of that it was Sold.
The FDIC would do the same thing with BofA if it was in the same position.

Assets have always surpassed insured-deposits yet FDIC reported losses before. Secondly you have to understand that the derivatives are being transfered to the depository arm, which creates a massive liability if they are a loss.

Liability doesn't ever exceed assets, and liability to the FDIC is only to insured deposits.

I never said 80c on the dollar is the cost, I only said roughly 80% of deposits are insured. 20c on the dollar for a big bank can't be handled by $3.9 Billion.

But they will never pay 20c on the dollar on BofA, so that's just a red herring.
And yes the FDIC could handle it, it would borrow from the Treasury, sell the remaining assets, and then repay the treasury from it's fees.
Oh, and besides the DIF, the FDIC's DIF-related investment portfolios were at $45.0 billion on June 30, 2011

So again, no "devastating consequences" which you are trying to spread fear about.

Arthur

 

[Billy T]

Interesting that RP is running as a Republican when what he is mainly against was Nixon's doing:

"On August 15, 1971, he took the United States off the gold standard, devalued the dollar, and dismantled the stable structure of foreign exchange based on the Bretton Woods Accord of 1944.

Indeed, if just one event in the postwar 20th century could be selected to mark the dividing line between global stability and instability, it would have to be Nixon's dollar devaluation of August 15, 1971...."

From an Email I received today from a financial advisory service, but is simple historical fact, not needing any reference.

 

[786]

Lol.... You can't seem to note the major difference because you keep saying 'sell remaining assets'... WHAT assets!

The liability of these derivatives is far more than any asset they have. They won't be left with any net assets to 'sell'.

Wachovia never failed it was bought out. They had assets at the end of the day. WAMU also had more assets than liabilities.

Listen. What we're saying is if BAC realizes the losses from derivatives those losses will be so huge that they would be far greater than their assets. What happens then? FDIC is let holding the bag for all of the insured deposits- no assets = no sale. So you keep bringing up these 'big banks' example when they aren't even close to what is wrong with BAC. Its not just 'bank failure'. Its that their liabilities would be far, far greater than their assets because of the huge derivative exposure- if those losses are realized there won't be any net assets to begin with. So all of FDIC solution 'borrow, repay by selling assets' isn't gonna work here.

FDIC only gotta pay back the insured deposits but where will those assets come from when the loss from derivatives have to be paid? You think FDIC can takeover and do whatever the hell it wants not giving shit about the creditors (derivative parties)?

 

[Billy T]

... Liability doesn't ever exceed assets, and liability to the FDIC is only to insured deposits. ...Arthur

That is seldom, if ever, correct. FDIC liability is equal to the sum of all deposits less than $250,000 but never is there that sum just sitting in the bank vault. - It typically is now invested in "assets" like mortgages, many of which now are "under water" - I.e. the mortgage assets the FDIC can take over and sell to reduce their cost will not cover their cost - why the FDIC must occasionally ask Congress for more money.

In reality, it is much worse than that as not even are the mortgages in the bank. They typically have been "sliced and diced" in to a few dozen (or more) derivative called CDOs and no one knows where they are as they too have been re sold and or sliced and diced into other derivatives. Often, almost always, without the legally require local recording of mortgage transfers so the mortgages may have zero value (no identifiable owner) as some courts in New England have held.

The mortgage mess is like an iceberg - only the tip is showing. If I had one, I would stop paying it as think there is nothing the bank can do. In fact many banks have stopped trying to foreclose until this mess gets straightened out - big multi-year bonanza for thousands of lawyers, if it is even possible to straighten it out.

 

[adoucette]

Lol.... You can't seem to note the major difference because you keep saying 'sell remaining assets'... WHAT assets!

Their LOANS
Their ACCOUNT relationships (very valuable)
Their BUILDINGS
Their EQUIPMENT

Wachovia never failed it was bought out. They had assets at the end of the day. WAMU also had more assets than liabilities.

Yeah, that's the point.

Listen. What we're saying is if BAC realizes the losses from derivatives those losses will be so huge that they would be far greater than their assets.

Ah you are assuming that ALL the derivitives take a loss for their total value.
Why?

What happens then? FDIC is let holding the bag for all of the insured deposits- no assets = no sale.

Yes, they would have assets.
No, all the derivitives are not going to ALL suddenly be worth zero (derivitives go both ways so they can't all fail)

So you keep bringing up these 'big banks' example when they aren't even close to what is wrong with BAC. Its not just 'bank failure'. Its that their liabilities would be far, far greater than their assets because of the huge derivative exposure- if those losses are realized there won't be any net assets to begin with.

Again, absolute WORSE case is losses equal to the total financial assets.
Which is still not only not likely, but not devestating.

Again WHY ARE YOU TRYING TO SPREAD TOTALLY IRRATIONAL FEAR????

Arthur

 

[adoucette]

That is seldom, if ever, correct.

Really?
Show me a single case of a large bank that failed where it cost the FDIC more than the total Assets of the bank.
Just one Billy.

FDIC liability is equal to the sum of all deposits less than $250,000 but never is there that sum just sitting in the bank vault. - It typically is now invested in "assets" like mortgages, many of which now are "under water" - I.e. the mortgage assets the FDIC can take over and sell to reduce their cost will not cover their cost - why the FDIC must occasionally ask Congress for more money.

I didn't say the assets are in the vault and bank's mortgage portfolios are NOT underwater, and those assets, like the bank's branches and accounts and equipment all have substantial value.

The FDIC most recent report:

During the second quarter of 2011, the FDIC was named receiver for 22 failed institutions. The combined assets at inception for these institutions totaled approximately $9.6 billion with a total estimated loss of $2.0 billion. The corporate cash outlay during the second quarter for these failures was approximately $1.3 billion.

Or in other words the FDIC took a loss of roughly 15c on the dollar of total assets.

Arthur

 

[786]

No, absolute worst is if derivative losses outweigh any assets. And it doesn't have to be 'ALL', just enough. I'm reading they have total $75 Trillion derivative exposure, so clearly 'ALL' don't have to fail.

Its not fear. Its putting the fact simply that the RISK is on taxpayer shoulders. Why should this ever be allowed. The chances of it happening or not isn't even an issue. Technically speaking if enough loss from derivatives is taken we are left holding the bag. This is just wrong.

Leveraged positions can cause damage greater than 'assets'.

 

[Billy T]

Really?
Show me a single case of a large bank that failed where it cost the FDIC more than the total Assets of the bank. ....
Or in other words the FDIC took a loss of roughly 15c on the dollar of total assets. Arthur

No need for me to show one - you just did.* I.e. the FDIC took a 15% loss - I said they would be able to recover some of their liability, but not 100% so yes they go back to Congress to ask for more funds.

* but here if you want a dollar cost (instead of percent) for closing just three banks less than 1 year ago, see this post of mine (quoting from Marketwatch.com):

"...Three more U.S. banks were closed by regulators Friday, bringing the total number of bank failures for the year to 157 ... The three bank failures will cost the federal deposit-insurance fund a combined $102.3 million, the FDIC said. ..." From: http://www.marketwatch.com/story/three-us-bank-failures-bring-years-total-to-157-2010-12-17

Billy T notes: Friday was day 365-14 = 351. So, 351/157 = 2.236 days between failures, certainly a slowing rate now, but as noted in post 155 that may be due to banks finalizing fewer foreclosures so can carry on books mortgage value that is not real. With two more Fridays in 2010 (that is when the FDIC acts, or at least reports) the total for 2010 should be or exceed 160 failures, 20 more than in2009 - problem still getting worse, but not sure total cost to FDIC is greater this year as small bank failure are, I think, a higher fraction of all.

From: http://www.sciforums.com/showpost.php?p=2664659&postcount=156

Again your statement here is simply false.

{post 542}...
Liability doesn't ever exceed assets, and liability to the FDIC is only to insured deposits. ...Arthur

 

[adoucette]

No, absolute worst is if derivative losses outweigh any assets. And it doesn't have to be 'ALL', just enough. I'm reading they have total $75 Trillion derivative exposure, so clearly 'ALL' don't have to fail.

No, but derivitives go both ways, so when some go down others go up. That's the way it works.

Its not fear.

Your BS about DEVESTATING CONSEQUENCES isn't FEAR?
Who are you trying to kid?

Its putting the fact simply that the RISK is on taxpayer shoulders. Why should this ever be allowed. The chances of it happening or not isn't even an issue. Technically speaking if enough loss from derivatives is taken we are left holding the bag. This is just wrong.

Nope.
The FDIC DIF comes from the Banks themselves.
The worst case is the Treasury funds a temporary shortfall in the DIF until the FDIC can repay it.

This is just RIGHT.

As for BofA, they just reported $6.2 billion net income in the third quarter, returns on average equity of 22% and return on Tier One capital up 11.5%.

Their stock is undervalued and IMHO is a good buy.

Arthur

 

[786]

Well when it fails I'll remind you of the 'good buy'.

 

[adoucette]

You do that.

But since that hasn't happened let me remind you that they just made $6.2 billion net income in the last quarter and as far as I can tell, the only big lawsuits against them are actually against Countrywide which they can dispose of via bankruptcy (they just bought the stock, so they don't get the liabilities of any bad dealing done by Countrywide)

Oh and their stock is up 4% today.

For future reference the stock was at $6.49 at the start of 10/24/11.

Cheers.

Arthur

 

[adoucette]

No need for me to show one - you just did.* I.e. the FDIC took a 15% loss - I said they would be able to recover some of their liability, but not 100% so yes they go back to Congress to ask for more funds.

No Billy, I said show me where the LOSS was greater than the total Assets of the bank.

Show me a single case of a large bank that failed where it cost the FDIC more than the total Assets of the bank.

In that example the loss to the FDIC was equal to 15% of the total assets. (I agree though, my wording of that claim was a little clumsy and could have been misleading)

Still the loss was not greater than the total assets, and no the FDIC didn't need to go to the Congress for funds. They use the Deposit Insurance Fund which comes from charges made to the banks and have an investment portfolio as well.

The FDIC's, DIF was at $3.9 Billion and the DIF-related investment portfolios were at $45.0 billion on June 30, 2011

Congress gave them a large line of Credit, but they have always paid back any temporary borrowings (as opposed to cashing in investments).

More to the point, the structure and asset ratio of big banks is far better than these small banks so it is quite likely that if BofA got in trouble the FDIC could break them up and sell their 60 million accounts, their loan portfolios and 6,000 branches and op centers etc and come out with little to no loss.

Arthur

 

[786]

You do that.

You sound like those people before the crash: 'everything is swell'.. Keep reading those numbers, but when it fails those numbers won't mean jack squat.

 

[adoucette]

You sound like those people before the crash: 'everything is swell'.. Keep reading those numbers, but when it fails those numbers won't mean jack squat.

And you sound just like those people on soap boxes shouting "the end is near", and have been doing so for as long as I can remember (and that goes back quite a while).

 

[786]

^ Not the end, but a pretty big dip. Prior to the crisis everyone was all 'good' too. Numbers were fine but people were still warning of a crisis, like Peter Schiff.

 

[joepistole]

Lol.... You can't seem to note the major difference because you keep saying 'sell remaining assets'... WHAT assets!

God forgive me for helping Arthur, but I think he has squirmed enough. Bank of America has more than 2 trillion in assets sitting on it's books and has a tangible book value of over a 100 billion dollars. And a book value in excess of 200 billion dollars. So Bank of America has some serious assets.

The liability of these derivatives is far more than any asset they have. They won't be left with any net assets to 'sell'.

Wachovia never failed it was bought out. They had assets at the end of the day. WAMU also had more assets than liabilities.

Listen. What we're saying is if BAC realizes the losses from derivatives those losses will be so huge that they would be far greater than their assets. What happens then? FDIC is let holding the bag for all of the insured deposits- no assets = no sale. So you keep bringing up these 'big banks' example when they aren't even close to what is wrong with BAC. Its not just 'bank failure'. Its that their liabilities would be far, far greater than their assets because of the huge derivative exposure- if those losses are realized there won't be any net assets to begin with. So all of FDIC solution 'borrow, repay by selling assets' isn't gonna work here.

FDIC only gotta pay back the insured deposits but where will those assets come from when the loss from derivatives have to be paid? You think FDIC can takeover and do whatever the hell it wants not giving shit about the creditors (derivative parties)?

No what you are doing is confusing "notional value" with "value at risk" or the "Net Current Credit Exposure".

http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq211.pdf

You have been using the notional values of the contracts and they do not represent the risk borne by Bank of America for holding them. Two, Bank of America is required to consolidate the books of all of its subsidaries onto it's books. So for reporting purposes, it matters little to Bank of America which subsidary bears the burden of the risk, it is all going to show up on the banks consolidated financials (balance sheet and income statement).

Bank of America's net current credit exposure is less than its risk capital. So it should, ceteris paribus (i.e. all things being equal), be able to cover it's potential losses.

 

[Tiassa]

Can St. Paul Win the Day

Ron Paul's Supporters ...

... seem to think, well, we're not sure:

The Paulies Say, "Yes": Although never a front-runner in national polls, the Texas congressman has one
of the most loyal and active bases of voter support. What do you think? Could Ron Paul be the nominee?
(Results as of Oct. 24, 2011, 15:23 PST)​

I mean, clearly they think Rep. Paul can pull it off, but one does wonder how. Given the factors lined up against him, including his age, extreme positions, and the fact that few in media, politics, or the voting population take him seriously as a candidate, it seems a dubious proposition that his nearly-rabid and oft-incoherent fan base can convince the population at large that destroying our government revenue flow, wrecking the educational infrastructure, and subordinating the idea of liberty to irrational aesthetics is really going to help anything, other than the now-apparent, evolving plutarchy making a strong play for ownership of the American dream.

Votes are piling up quickly. Since I took the screenshot above, another forty-seven have voted. And that number will increase again by the time I actually get this posted.
____________________

Notes:

Question of the Day Group. "Can Ron Paul win the GOP presidential nomination?" The Wall Street Journal. October 24, 2011. Online.WSJ.com. October 24, 2011. http://online.wsj.com/community/groups/question-day-229/topics/can-ron-paul-win-gop

 

[Michael]

Look, at the end of the day it all depends on what type of society you would like to live in.

Paul is way ahead of his time. Most people don't get Paul because much of what he says requires a lot of life experience and it's hard to get that sort of experience. I understand exactly where he's coming from. He's a Capitolist Libertarian. No different than the Founding Fathers.

It's hard for me to explain, and most people may not realize it, but America is really turning into a pile of shit. I've lived in a number of different countries and yes, no where is "Perfect", but things are rapidly spiraling out of control in the USA. Unless you've had that sort of experience, you probably don't really realize how shit things are in the USA.

Take Paul's stance on the TSA. I do a lot of traveling and I HATE having to go into the USA. It's like I just stepped off a normal continent into paranoia ville. Most of the TSA are undereducated simpletons who have little to no idea regarding the law other than what they are allowed to get away with. In one case I saw another American filming the TSA and these thugs just about went ape-shit. I'm talking the real deal ape-shit, just like you see on National Geographic. Puffing out the chest, circling, loud voice, staring down, puffing air out of their noses, and etc... It's was crazy. But, he stood his ground, didn't say a word and continued to film. See, he was within his rights. Most Americans wouldn't DARE. THAT is a sad sign of the times. How brow beaten we are. It's sick. I really don't know how to explain it to you, unless you could travel back to the 1980s and then fast forward to today? The USA is much more militaristic both within and without. People are much more willing to tolerate it and are much more accepting of invasions of their privacy by the State. Perhaps you don't notice and maybe you're acclimatized to the new norm. But, I can assure you, it's not like that most anywhere else in the civilized world.

Most will say Paul is crazy for wanting to close this horrible agency? But, I know exactly where he's coming from.

His ideas regarding alternative currencies. I should think any true American Capitalist would support this stance. I mean, why not? We have the technology to instantly convert anything priced into USD into an alternative currency. If people would like to try to regain a little more control over their local economy, I say give it a go. Who am I to say what you can and can not do in a free society? Yet, again, that must seem like "Crazy Talk". The truth is most people are simply to retarded to understand the arguments and to lazy to do anything about it.

Paul's stance on truly pulling the troupes out of other nations including Japan and Germany. Who can argue with that? Why are we there? It's a waste of money.

Paul's stance on no income tax. Everyone here knows that this tax was supposed to expire. So, let it do so. Put more control into the hands of the people. Let the People decide how to spend their money. To have a properly functioning democracy people need to take part in it. That doesn't happen much anymore. They vote for GOP or DEM and that's barely 40%. Most have ZERO input into how things are run. I think, personally, that people have to get involved and the only way to do that is to take the money from these massive Washington bureaucracies and put that money into the hands of the people. WILL they make mistakes? Sure, but probably no where as bad as the USA government does. Certainly no where remotely as wasteful.


What kind of Republic do we want to live in?
Do you REALLY want change?

If you think things are fine as they are, vote for either Obama OR Mitt Romney OR Rick Perry. It won't matter. The government will grow larger, you will loose more of you rights, things will get worse and we'll be in a few more wars. It really doesn't matter. None of those people are going to change a system they know how to game and are good at playing. Obama gets relected or not. It won't matter for 80% of America - just more of the same ole bullshit and no real change :shrug:

 

[adoucette]

^ Not the end, but a pretty big dip. Prior to the crisis everyone was all 'good' too. Numbers were fine but people were still warning of a crisis, like Peter Schiff.

No, not everyone was all good too.

A lot of people saw the housing bubble was going to burst.

I did (though it took a bit longer than I thought).

I sold my last house in late 2004 in one of the hottest markets in the country because I knew the rapidly rising prices simply could not be sustained.
I moved 90 miles away to a much smaller city and a rather sedate housing market and bought a very nice house in a historic district for less than half what I sold my house for.

And because the house prices here were not overbid my house is worth more today then when I bought it.

Arthur