Saturday, October 22, 2011

Is Bank of America about to go bust?

Answer:  I don't know, but there are some troubling signs in the news.

First was the strong reaction to their new $5 monthly fee for using debit cards.  Many consumers are reacting by moving their payroll direct deposits to smaller regional banks and to credit unions.

And now there is the news that BofA has socked away risky derivatives representing a potential $75 TRILLION liability in their retail banking division - thereby transferring these risky instruments out of their investment banking arm (Merrill Lynch, which was absorbed by BofA during the financial crisis).

Why is this bad?  Because it means that if those derivatives go belly-up, the DEPOSITS of ordinary bank customers - you and me - will be used to pay off those obligations until there is no money left to pay depositors, at which point FDIC will be forced to pony up.  Depending on the size of the losses, FDIC's entire deposit insurance fund could be easily bankrupted, and then the US government would be forced to step in and bail out the banking system again, at taxpayer expense, to prevent depositor losses.

I personally closed my BofA accounts a long time ago (when they threatened to steal my deposits to pay off an overdue credit-card bill), but if I were still holding any demand deposit accounts there, I would GET MY MONEY OUT NOW, before BofA says "surprise!" and reveals just how rotten the toxic assets stashed in their retail banking division really are.  Because when that happens, there will truly be a major "run on the bank," and the only way that these losses could be covered is if Treasury and/or the Fed print up massive amounts of new money, enough to cause runaway inflation of the dollar supply and of prices.

And if THAT happens, and if meanwhile, similar things happen to the Euro due to the ongoing debt crisis in Europe, the only safe response to the ensuing global currency crisis will be to stash one's personal liquid wealth in a form other than traditional sovereign fiat currencies - for example, in the form of Bitcoins.  Better to do this sooner, rather than later, in my opinion...

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