And this is why we've been screaming about regulating derivatives! I kind of think that the Occupy movement is going to have something to say about this corporate sleight of hand that came to light earlier this week. Do they really think we're going to look the other way and let them stick us with a $74 trillion bill -- just to let good old "too big to fail" Bank of America off the hook? I don't think so:

If you have any doubt that Bank of America is in trouble, this development should settle it. I’m late to this important story broken [...] by Bob Ivry of Bloomberg, but both Bill Black (who I interviewed just now) and I see this as a desperate (or at the very best, remarkably inept) move by Bank of America’s management.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.

And remember, as we have indicated, there are some “derivatives” that should be eliminated, period. We’ve written repeatedly about credit default swaps, which have virtually no legitimate economic uses (no one was complaining about the illiquidity of corporate bonds prior to the introduction of CDS; this was not a perceived need among investors). They are an inherently defective product, since there is no way to margin adequately for “jump to default” risk and have the product be viable economically. CDS are systematically underpriced insurance, with insurers guaranteed to go bust periodically, as AIG and the monolines demonstrated.

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Moral hazard! Personal responsibility!

Oh, come on. It's a lot more important in the big picture to keep the banks from being pestered from the consequences of their indifference to laws that only apply to little people:

WASHINGTON -- Top policymakers at the Federal Reserve are fighting efforts to rein in widely reported bank abuses, sparking an inter-agency feud with the FDIC and the Treasury Department. The Fed, along with the more bank-friendly Office of the Comptroller of the Currency, is resisting moves to craft rules cracking down on banks that charge illegal fees and carry out improper foreclosures. The FDIC supports such rules, according to an FDIC official involved in the dispute.

The new regulations would rein in debt collection, loan modification and foreclosure proceedings at bank divisions called "mortgage servicers." Servicers have committed widespread fraud in the foreclosure process. While the recent robo-signing of fraudulent documents has received the most attention, consumer advocates have complained about improper fees and servicer mistakes that lead to foreclosure for years.

[...] On Tuesday, more than fifty economists, banking experts and consumer advocates sent an open letter to banking regulators demanding action on mortgage servicers. Many of the proposed rules are simple standards of banking conduct, like appropriately crediting borrower accounts when they make payments. But most mortgage servicers are effectively unregulated at the moment. The OCC, which oversees the largest servicers, has never taken any formal public regulatory action against a mortgage servicer, allowing abuses to continue without serious consequences.

"Widely reported servicer fraud, whether in the foreclosure process or in the systematic assessment of illegal fees against homeowners, is . . . a serious problem," the letter reads, noting that, "problems of this magnitude are a threat not only to the economic recovery, but to the safety and soundness of all insured depository institutions."

The Wall Street reform bill signed into law by President Barack Obama this summer requires regulators to craft new rules to ensure the securitization market functions properly. The FDIC wants those rules to include standards for mortgage servicer conduct and hopes to have rules ready by the end of next month.

Nevertheless, the Fed and the OCC are pushing back, according to a source at the FDIC. Spokespeople from both the Fed and the OCC said their agencies support new mortgage servicing standards but declined to comment on the new rules being advocated by the FDIC. A spokesman for the Treasury Department said the Treasury supports regulating mortgage servicers, but was unable to comment on the FDIC plan by press time..

Apparently the banks are arguing that just because they screw up a few foreclosures, it's no big deal considering how many they do in a month:

More common are cases like Ms. Ash’s, in which a homeowner was behind on payments, perhaps trying to work out a modification, when bank crews changed the locks.

In Florida, contractors working for Chase Bank used a screwdriver to enter Debra Fischer’s house in Punta Gorda and helped themselves to a laptop, an iPod, a cordless drill, six bottles of wine and a frosty beer, left half-empty on the counter, according to assertions in a lawsuit filed in August. Ms. Fisher was facing foreclosure, but Chase had not yet obtained a court order, her lawyer says.

Chase Bank? Would that be this Chase Bank? The one whose employee just filed a whistleblower case with the SEC, charging all kinds of nefarious illegal practices -- including shredding proofs of payment sent by creditors? The one who fired the employee for pointing these things out?

The break-in was discovered when a Canadian couple renting the house returned from the beach.

Chase officials said such behavior by its contractors, if determined to be true, would be considered unacceptable and corrective action would be taken. Banks and their contractors insist that the number of mistakes is minuscule given the hundreds of thousands of new foreclosure cases filed each month. Bank of America, for instance, says it works with third-party contractors to inspect and maintain more than one million properties each month and has enhanced its controls in the last year to prevent mistakes.

Alan Jaffa, chief executive of Safeguard Properties, which inspects and maintains foreclosed properties for mortgage servicers, acknowledged that a handful of mistakes had been made. In most instances, he said, his company provided a valuable service that protected properties and neighborhoods.

“There is a stigma that we go in, kick the door in and throw grandma out head first and board up the windows,” Mr. Jaffa said. “We are doing a lot of good out there.”

But Alan M. White, a consumer law expert at Valparaiso University in Indiana, says: “Volume is not an excuse for violating someone’s rights.”

LittleSis: Two big players, in both the Democratic party and the business community, teamed with the Chamber of Commerce to fight financial reform

Pruning Shears: What happened to WaMu? The FDIC won't say

FDL News Desk: Dorgan exploring the mystery of who killed his drug reimportation legislation

Crooked Timber: The failure of trickle down...

Mock, Paper, Scissors: I needed a laugh. Thanks Tengrain

HOLY CRAP: Satan attacks Rod Parsley...Christian Radio...Indoctrination is all the “Hip”...Suck on this, infidel...Christmas quagmire...Oral Roberts passes on...This guy has absorbed too many kicks to the head...Ted Haggard still begging forgiveness...Oh, the humanity!...Christmas billboard...Christian radio, part ll...The courthouse is not a church...Criminal resigns from pedophile cult...Principles...

The New Yorker has a great profile of Sheila Bair, the populist Republican who's at the helm of the FDIC. (h/t Riverdaughter)

As you may already know, Bair is not well liked by the Wall St. crowd that's running the White House show. (Apparently she has this bizarre idea that her job is to look out for working folk. Crazy talk!) Well, she's very popular with regular people - the administration wouldn't get rid of her, it would make a stink. Instead, they've just neutered her:

These debates entered into the Administration’s discussions about building a new regulatory architecture. In late March, Geithner previewed for Congress some of the key concepts that Treasury wanted. The outline seemed to match the Bair camp’s ideas. [Ladies, has this ever happened to you?] A new authority with the power to take over large financial institutions that posed a systemic risk to the economy was modeled on the F.D.I.C., which, Geithner suggested in his testimony, would be an equal partner with Treasury in resolving such firms if they failed. He seemed to be saying that although he and Bair may have disagreed about how to handle the current crisis, there was much more consensus about how to deal with a future one.

But in the white paper detailing the new legislation, which the Administration released on June 17th, all the new authority to regulate firms that posed systemic risk was vested in the Federal Reserve. During Geithner’s testimony before the Senate, Jim Bunning, of Kentucky, echoing Bair, was incredulous. “It took fourteen years for the Fed to write one regulation on mortgages after we gave it the power to do that,” he said. “What makes you think that the Fed will do better this time around?” In addition, while the March plan said that the “Secretary and the FDIC would decide” how to resolve a failing firm, the new plan said such power should “be vested in Treasury.” Geithner could appoint the F.D.I.C. to do the technical work of cleaning up the firm, but between late March and mid-June — when Bair’s aggressive ideas about how to handle Citigroup leaked to the press — Bair’s agency had been downgraded from Treasury’s equal partner to a sidekick.

The senior Treasury official said that stripping authority from the F.D.I.C. had nothing to do with pressure from the banks. “Making a group decision on something that must be done really quickly is not easy,” he said. “At the end of the day, someone has to have the ability to make a call, and it’s better to have that authority vested in one person.”

When I asked Bair about the plan, she said, “I think it reflected a lot of input from a lot of different agencies, and the private sector, and insurance and consumer groups. It’s a very difficult task to try to balance all the different perspectives and come up with a package, and every compromise is going to have people who are unhappy about various parts of it. So I think it’s a starting point.” I said that she sounded disappointed. “I don’t know if ‘disappointed’ is the right word,” she replied.

Ezra Klein: Why did Arlen Specter become a Democrat?  First he says he wants Coleman to win in Minnesota, then he says he regrets his 'no' vote on cryto-segregationist, Jeff Sessions, for the federal bench. We don't need the GOP's Benedict Arnolds.

Balkinization: Prosecution of of torture memo lawyers seen as unlikely

Pam's House Blend: Memo to Miss California and all wingnut snivelers: Get off the cross, we need the wood

Scholars and Rogues: FDIC screws community banks

cab drollery: Strength and Weakness

Newsifact: Windows warns users that Republican policies may crash computers

You know, it's getting hard to read between the lines these days. This NY Times story about FDIC chair Sheila Bair, the only Bush official who's been looking out for homeowners facing foreclosure, has all the signs of a classic hit job: Unnamed sources (even "a representive of IndyMac" who remains unknown) expressing deep concern that Bair is a hot dog whose so-called policies don't work.

The only question remains is, who's trashing her - and why?

I read recently that the Obama team wants to dump her (more unnamed sources, of course). So is Bair as good as I've heard, and is being targeted for ruffling the Good Old Boys' feathers, or is she a self-promoting hot dog? You'd never know from reading this story. It's a masterwork of insinuation.

Boy, I wish there was a real newspaper I could read that could make that distinction, draw a credible conclusion and bolster it with facts people would back - on the record.

Hey, New York Times, here's a thought: instead of asking unnamed sources for quotes on her policies, why not do your homework?

d r i f t g l a s s: "The Old Men"

Open Left: Ending the nomination campaign

Whiskey Fire: I keep forgetting that Chuck Norris has a column at Townhall. Let's head over there and see what this great big stick of fistic jerky has to say to us.

Calculated Risk: FDIC to hire more workers, braces for bank failures

INSTAPUTZ: Packer

one good move: Celebrity Endorsement