How BOA can use the 2005 Bankruptcy Law to steal depositors money.

[dixiegrrrrl]

Remember that BOA moved about 80 trillion $$$ of derivatives into its own bank?
And it seemed strange?

Over at Market Ticker, there is a possible understanding of why.
And why we need to understand what clawback means, and how it can hurt even bank depositors.

Summary:
"Recently Bank of America transferred a bunch of derivatives into their banking arm.
"A bunch" means somewhere around $80 trillion worth.

Now pay very careful attention, because part of the bankruptcy "reform" law in 2005
placed derivative claims in front of depositors in a business failure - including a bank failure.

What JP Morgan is claiming in the MF Global case is that the derivative trade (which is exactly what a "Repo to Maturity" trade is - it's a derivative)
is entitled to preference in the case of MF Global over those who had cash there for safekeeping
either as a margin deposit or just as free cash as you would hold free cash in a bank.

If a major bank blows up this very same claim,
supported in existing Bankruptcy Law with the changes signed by George Bush in 2005,
will be used to steal the entirety of your bank account,
and if you detect the impending blowup shortly before it happens -- say, 90 days before -- you're still exposed to the risk through clawback!"

Link to whole article:
http://market-ticker.org/akcs-www?post=198650

Notice that last sentence.
even if you have closed your account BEFORE a bank goes bankrupt, you STILL can be liable for clawback.
Repeat: derivatives legally get paid off before depositors.
BOA moved all its derivatives to its own banks.
BOA's bank stock is down to 1/3 of what it was a year ago, has had more losses than any of the other big banks.
It will make tons more money by going bankrupt and stealing depositor's money to cover the derivatives than it will by continued operation.

You do the math.

[barbtries]

1. what is clawback?

if my money is gone from that bank they'll have to chase me to hell to get it back. i'm going to go look it up but never heard the word before today.

[dixiegrrrrl]

3. clawback is a term being used a lot of late.

Here is an example of how the term is being used in the case of the post:

Frederick Grede, trustee for the bankruptcy of futures commission merchant (FCM) Sentinel,
has sued 50 of its former customers to recoup some $600 million in funds that were withdrawn prior to its bankruptcy.

He has already settled out of court with some customers and recovered about $25 million. The rest remains in litigation, filed before the two-year statute of limitations ran out.

His view is that the loss of funds should be shared equally, on a pro-rata basis, among all customers, not only those who were left holding the bag when Sentinel filed for bankruptcy.

http://www.reuters.com/article/2011/11/10/us-mfglobal-clawback-idUSTRE7A91DE20111110

There is also a slightly different use of the term relating to banker bonuses, Wiki explains it:

In finance economics, a clawback is when an organization (typically a financial firm) that is attempting to recover from a catastrophic shift and/or collapse (e.g., the current worldwide financial crisis) attempts to essentially "tame" its past practices by giving its most highly-paid employees bonuses in pay that are deferred rather than bonuses that are able to be spent by an individual immediately.
http://en.wikipedia.org/wiki/Clawbacks_in_economic_development

[barbtries]

4. i looked at the wiki page.

for someone like me who never has much in the bank there would be no upside to pursuing me in such a maneuver.
i'd like to see the people claw back some or all of the wealth they created, which has been siphoned into the pockets of the very very rich by various nefarious ways.

[Po_d Mainiac]

5. clawback example

Those that received dividends from the Madoff ponzi get to keep no more than the original investment. Anything above and beyond that initial investment is fair game for the trustees to 'clawback' and disburse to investors that got cornholed.

[Uben]

2. They can't steal it if they don't have it!

I will never keep money in a big bank or subsidy thereof. That's like hiring a cat to watch your bird.

[dtexdem]

6. Well, stealing it from the FDIC.

Except for those with accounts in excess of FDIC limits.

Still theft from the public.

[Citizen Worker]

7. If I recall there were 19 good democrats who voted for the so called bankruptcy reform.

http://www.govtrack.us/congress/vote.xpd?vote=s2005-44

Edit: change number of democratic senators voting Yea, striking Hillary Clinton, add link.