Saturday, October 29, 2011

Why occupy Wall Street? II

The original post was just the embed of a video about the raison d'être for the Occupy Wall Street movement. One of the things mentioned in the video is the Glass-Steagall Act, and that its repeal (after being enacted as one of the principal reforms coming out of the Depression) in 1999 was really, really stupid.

Matt Taibbi gives us an absolutely current example of why it was really, really stupid. It seems that the Superfund site, the holding company for Bank of America, is moving some of its toxic sludge inherited from Merrill Lynch into the FDIC insured part of its business, the "bank" itself:
The government’s patronage of the bank was never clearer than in recent weeks, when B of A quietly decided to move trillions of dollars (trillions, not billions) in risky Merrill Lynch derivatives contracts off Merrill’s books and onto the books of the parent/retail arm, Bank of America.

This decision was done at the behest of counterparties to those transactions, who wanted those contracts placed under the aegis of Bank of America, whose deposits are insured by the FDIC. The move was made, according to reports, so that Bank of America could avoid posting $3.3 billion in collateral to satisfy the company’s creditors. In other words, Bank of America just got You the Taxpayer to co-sign as much as $53 trillion worth of dicey derivative contracts.
Fifty-three trillion dollars? The current U.S. debt is under fifteen trillion dollars.

You see, Glass-Steagall separated commercial banking from investment banking, insuring the deposits of the former to assure depositors and reduce runs on banks. And it worked like a charm. But now, every banker who comes up with some half-witted scheme can try to figure out a way to make losses insured by the FDIC.

Privatize the gains but socialize the losses.

I really wish that weightless bit of fluff at CNN had asked this guy why people were protesting at the Occupy Wall Street rallies around the country.

Because you see, Pecora was the chief counsel to the Senate Banking Committee which was instrumental in the passage of the Glass-Steagall Act.

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