It will be the stick-the-fork-in-it moment for the Obama presidency when the Democratic national convention is held in Charlotte, home of Bank of America, a banking city to remind Americans just how much they hate the banksters, if BofA is sucking on a new bottle of taxpayer money to stay alive. It will be President Obama’s “killer rabbit” moment, for those of you who recall the Carter revels.
Warren Buffett is no fool. I don’t doubt the element of patriotism in his $5 billion investment in BofA, recalling how J.P. Morgan single-handedly saved the financial system more than a century ago. But the Oracle of Omaha also knows that this bank is too big to fail and the Treasury and Fed will move heaven, earth and your tax dollars to save it. Buffett pocketed a $1.3 billion profit from his special premium shares on Thursday, although the bank’s common stock is barely moving today. The rich are different from you and me, and Buffett negotiated a sweet deal. As investment manager Doug Kass told Business Insider: CEO Brian “Moynihan got fleeced by Buffett, the savviest of wolves who slipped out of his bathtub wearing sheep’s clothing.” It is telling that BofA turned to Buffett when a healthy institution could borrow at near zero interest rates or use its huge deposit base to raise capital.
BofA’s problems are largely self-inflicted, especially from its swallowing the Death Star of subprime, Countrywide Financial (former CEO Angelo Mozilo has yet to be held accountable), as well as Merrill Lynch. Billions in civil suits await, even if the Obama Justice Department won’t indict. Former CEO Hugh McColl Jr. never would have made such mistakes.
BofA’s biggest problems also include size and complexity. What are its assets really worth? What weapons of financial mass destruction are sitting deep inside the corporate center at the corner of Trade and Tryon in downtown Charlotte? Does anybody really believe the regulators have a handle on the situation?
Tell me again why we didn’t break up the too-big-to-fails and pass a new Glass-Steagall with incentives for banks to, oh, do the dull business of taking deposits and lending for productive economic activity? Oh, right, the banksters used their two-party Get Out Of Jail Free card.
Links of the week:
Best East Coast quake tweet, from Marketplace Radio’s Tess Vigeland in LA (@radiotess): “Oh all you East Coasters are so adorable with your ‘wow!’s and your ‘earthquake!’s…”
Today’s Econ Haiku:
The Jackson Hole meet
Must be a pleasant respite
From the hole we’re in