Friday, March 6, 2009

The Down-Beat Goes On

Bloomberg reports: "Merrill Lynch Says It Discovered ‘Irregularity’ in Trading Unit".
Apparently a $120 M gain in currency trading was really a large loss.

Merrill Lynch may have lost hundreds of millions of dollars on currency trading and credit derivatives last year, the New York Times reported earlier today. The losses did not “spill into plain view” until after Bank of America investors had approved the takeover in December and Merrill Lynch disbursed $3.6 billion in bonuses to bankers, the newspaper said.

managers of the business are focused on the issue and believe the risks surrounding possible losses are under control,” Merrill said in the statement.

In January of 2008, Societe Generale in France reported a multi-billion dollar loss, which it blamed on a single trader. AIG's auditor reported deficiencies in its financial controls long before it failed. Barney Frank assured everyone that Fannie and Freddie were sound not long before they failed. And on an on . . .

Now Calculated Risk reports:

Senate Bill Seeks $500 Billion for FDIC

From the WSJ: Bill Seeks $500 Billion for FDIC Fund

Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department....

The FDIC would be able to borrow as much as $500 billion until the end of 2010 if the FDIC, Fed, Treasury secretary and White House agree such money is warranted....

The FDIC's deposit-insurance fund has fallen precipitously with 25 bank failures in 2008 and 16 so far in 2009.

It was just last September that the FDIC disputed a story by David Evans at Bloomberg:
Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a "bailout."

CR ends:

I guess the proposed $500 billion is just a loan and not a bailout.

Anyone who knows how this is going to end is just guessing. But almost daily things sound more and more ominous.

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