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Bank of America Cries Bailout


$138 billion to absorb Merrill's toxic debt.

Bank of America (BAC) became the latest major US bank to be rescued by the federal government, receiving a $138 billion bailout package to help complete its purchase of Merrill Lynch.

Apparently the beancounters at the Charlotte-based Bank of America misjudged the value of Merrill's toxic balance sheet by over $100 billion. Oops.

After a similar government effort to keep Citigroup (C) afloat last November, of the country's biggest banks, only JPMorgan (JPM) and Wells Fargo (WFC) have thus far avoided needing to be bailed out. (JPMorgan's Treasury-assisted purchase of Bear Stearns notwithstanding.)

According to Bloomberg, Bank of America will be on the hook for the first $10 billion in losses on a $138 billion pool of assets, most of which it inhereted from the Merrill purchase. The Treasury Department and FDIC will absorb the subsequent $10 billion, while the Federal Reserve will backstop the rest of the losses -- which appear to be preordained -- with a loan.

The assistance is on top of the already $25 billion Bank of America received from the Treasury Department in September, as part of the initial capital infusions under the TARP. And since the Senate approved releasing the second $350 billion yesterday afternoon, more help is likely on the way.

Separately, the FDIC announced it would further support the banking system by extending it's bond insurance program to debt maturing in 10 years, up from the current 3 years.

Quietly, the financial system has crept back to the edge of the precipice from which it retreated 2 short months ago. And, as it has done consistently for the past 18 months, the federal government has seen fit to step in to avert crisis, preventing the country from experiencing that moment of recognition it so sorely needs.

And with news circulating that President-Elect Obama's crack team of financial gurus is cooking up the bailout to end all bailouts, that trend is likely to persist for some time.

These bailouts are now well beyond the reach of any plausible explanation: Tens of billions have become hundreds of billions, almost as a rounding error. Taxpayers, meanwhile, are left scratching their heads, wondering where our elected officials learned to vaporize money with such skill.

To claim these moves are in any way stabilizing the financial system would laughable, if it weren't so tragic. Lawmakers and regulators have lost all credibility; even the boy who cried wolf has grown tired of rhetoric he knows to be just that - rhetoric.
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