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View Diary: Lawmakers Probe $75T Derivatives Dump by Bank of America (238 comments)

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  •  Even with the correct numbers, BoA is still (4+ / 0-)

    a bunch of shitbags looking to screw our nation even further.

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    by The Dead Man on Tue Nov 01, 2011 at 04:26:51 AM PDT

    [ Parent ]

    •  eh. (8+ / 0-)

      The most common theory being hurled around here is that if BOA goes under, the derivatives counterparties will be paid first.

      This is false.

      Under Dodd-Frank, the FDIC can block seizures of collateral, effectively sending the counterparty to the back of the line, who will be paid only after the depositors are paid.

      They probably are scumbags, but there could be less sinister motives (alea, a supersmart finance blogger, for example, suggested that this was more just to match the books).

      •  So wait... (9+ / 0-)

        Dodd-Frank actually does something...good?

        You mean that bill that the Democrats passed against ferocious Republican opposition?

        It did something GOOD?

        Wow, I thought they were all the same...these D's and R's...

        Wait, wait, you mean Dodd-Frank puts the depositor class AHEAD of the investor class in this situation? You mean it doesn't favor the big institution over the average guy?

        But I thought that the administration was firmly in the pocket of Wall St....

        What am I missing here?

      •  Dodd-Frank (0+ / 0-)

        Didn't some Republican candidate just say that Dodd and Frank need to be in jail?

        -5.38 -4.72 T. Atlas shrugged. Jesus wept.

        by trevzb on Tue Nov 01, 2011 at 08:51:10 AM PDT

        [ Parent ]

      •  "This is false." (1+ / 0-)
        Recommended by:
        happymisanthropy

        Please provide some citation for this. I have read multiple articles on the subject and have yet to see a reference to the FDIC's discretion in this matter - in fact, the assumption of most commenters is the opposite, that the FDIC is exposed big time to collateral calls by derivatives counter-parties.

        I'm happy to be wrong about this. Please cite the source of your information.

        Courage is contagious. - Daniel Ellsberg

        by semiot on Tue Nov 01, 2011 at 09:49:55 AM PDT

        [ Parent ]

        •  You can look at the bill yourself. (0+ / 0-)

          It's the section on setoffs.  Here's a summary.

          •  Explain to me, if you please, how the following (0+ / 0-)

            nullifies the rights of derivative contract holders at the discretion of the FDIC:

            Setoff.  The Dodd-Frank Act specifically empowers the FDIC as receiver to transfer assets of a financial company “free and clear of the setoff rights of any third party,” but grants a preferred recovery right to the claim of a creditor based on the loss of an otherwise valid right of setoff due to such transfer.  As did the NPR, the Final Rule provides that such claim is to be paid at a level of priority immediately prior to all other general unsecured creditors, but below administrative expenses of the receiver, amounts owed to the United States and certain employee-related claims.  However, in a change from the NPR, the Final Rule makes clear that the priority given to creditors who have lost setoff rights as a result of the exercise by the FDIC of its right to transfer assets does not affect the provisions of the Dodd-Frank Act relating to qualified financial contracts.

            It seems to me to open the possibility that in fact, holders of  "qualified financial contracts" will enjoy a

            preferred recovery right to the claim of a creditor based on the loss of an otherwise valid right of setoff due to such transfer [of claims to the FDIC].

            Furthermore:

            [T]he Final Rule provides that such claim is to be paid at a level of priority immediately prior to all other general unsecured creditors, but below administrative expenses of the receiver, amounts owed to the United States and certain employee-related claims.

            I see no clear mention whatsoever of FDIC insured deposits in the link you provide. Perhaps you might advance the discussion by pointing out how it is that this Final Rule - as interpreted by your source - gives the FDIC the legal right to liquidate without challenge a bankrupt bank and pay off depositors up to the statutory guarantee, leaving derivative contract holders without recourse should the payoff of insured deposits exhaust the remaining assets.

            In my opinion, your source, as I read it, gives no clear support to your categorical assertion that "It is false" that derivative contract holders can expect no priority in a bank liquidation.

            Courage is contagious. - Daniel Ellsberg

            by semiot on Wed Nov 02, 2011 at 04:59:33 AM PDT

            [ Parent ]

      •  Really? Under Dodd-Frank the FDIC *can* (0+ / 0-)

        block seizures. Will it?

        That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

        by enhydra lutris on Tue Nov 01, 2011 at 03:59:18 PM PDT

        [ Parent ]

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