Bank of America Is in Deep Trouble, and There May Be Financial Disaster on the Horizon

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November 15, 2010
Will Bank of America be the first Wall Street giant to once again point a gun to its own head, telling us it'll crash and burn and take down the financial system if we don’t pony up for another massive bailout?

When former Treasury Secretary Hank Paulson was handing out trillions to Wall Street, BofA collected $45 billion from the Troubled Asset Relief Program (TARP) to stabilize its balance sheet. It was spun as a success story -- a rebuke of those who urged the banks be put into receivership -- when the behemoth “paid back” the cash last December. But the bank’s stock price has fallen by more than 40 percent since mid-April, and the value of its outstanding stock is currently at around half of what it should be based on its “book value” -- what the company says its holdings are worth.

“The problem for anyone trying to analyze Bank of America’s $2.3 trillion balance sheet,” wrote Bloomberg columnist Jonathan Weil, “is that it’s largely impenetrable.” Nobody really knows the true values of the assets these companies are holding, which has been the case ever since the collapse. But according to Weil, some of BofA’s financial statements “are so delusional that they invite laughter.”

Weil points to the firm’s accounting of its purchase of Countrywide Financial -- the criminal enterprise at the center of the sub-prime securitization market. Bank of America, Weil notes, hasn’t written off Countrywide’s entire value. “In its latest quarterly report with the SEC,” he wrote, “Bank of America said it had determined the asset wasn’t impaired. It might as well be telling the public not to believe any of the numbers on its financial statements.”

With investors valuing BofA at half the worth that the bank claims, it’s one titan of Wall Street that may be on the brink of collapse. But it’s not alone. “Everybody was doing this, this is not just something that Countrywide and Bank of America were doing," legendary investor Jim Rogers told CNBC. As a result, the banks’ balance sheets are "full of rotten stuff" that “is going to be a huge mess for a long time to come.”

And that “rotten stuff” will continue to be a drag on the brick-and-mortar economy until the mess gets cleaned up. Which, in turn, is a powerful argument for a second dip into the public trough….”

See:
http://www.alternet.org/module/printversion/148817



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