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Warning: Mega-banks Could Fail Despite Federal Bailouts

Martin Weiss writes: The time has come to issue one of my sternest warnings to date: Bank of America and Citigroup could fail despite the most radical government rescues of all time.

Right now, after recent close calls with instant death, these two megabanks are on life support, receiving massive transfusions of government capital. But they're still hemorrhaging, and no one in Washington has found a cure.

Already, they have received capital injections of $90 billion ($45 billion each).

Already, this bailout is larger than the total combined capital of PNC Bank, Suntrust Bank and State Street Bank — all among America's ten largest.

Yet, ironically, that $90 billion is still a drop in the ocean compared to their massive exposure to risky assets.

The shocking facts revealed in the banks' own balance sheets and in the OCC's Quarterly Report demonstrate the enormity of problem: -see chart-

Fact #1. Too big to save. Bank of America Corp. and Citigroup, Inc. have combined assets of $3.9 trillion, or 43 times the size of the Treasury bailout funds they've received to date.

Fact #2. Bigger losses ahead. Even before any further declines in the economy, an unusually large portion of their assets are already in grave jeopardy — commercial real estate loans going sour, credit cards loans tanking, auto loans sinking, and residential mortgages turning to dust. Now, as the economy continues to tumble, avoiding much larger losses will be almost impossible.

Fact #3. Big derivatives players. Bank of America and Citigroup are the nation's second and third largest high-rollers in the derivatives market, with a combined total of $78 trillion in these bets outstanding. That's over ten times the derivatives that Lehman Brothers had on its books when it failed last year.

Read more and Facts at: http://www.marketoracle.co.uk/Article8504.html

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Washington Mutual

Washington Mutual is my bank,and it had already failed. Before it failed, I had taken out most of the money and converted them into physical gold. But later, Wamu is bought by Chase, so there was no change and all deposits are safe.

So if BoA and Citi go under, someone will come and pick up the pieces, if not Chase, then the US gov't, they will guaranty that all deposits up to 100,000 are safe. How will they do it? One way is just to print more money. But the rest of the debt or liabilities probably will go under.


Excuse my ignorance but what exactly happens when your bank fails? My bank is Bank of America and if it fails does my money just disappear?

Get out of these big banks

Move your money and accounts to smaller, safer regional banks or credit unions.

Let the big ones fail. They did this to themselves. Don't get caught trying to get your money out. FDIC may work but you never know.


Diversify. Keep some money in a big bank (though I cleared out of BoA because they're too stingy with the interest rates), move some to a local bank, hide some cash, buy some metals, and keep an eye on the news.

"Cowards & idiots can come along for the ride but they gotta sit in the back seat!"


that's what FDIC is for...

Your bank will likely be taken over by the government...nationalized because it can not survive on it's own any longer..

Probably called The Federal Bank of America


They've already failed.

If they were solvent, they wouldn't need the bailout funds, QED. These banks have failed, and the question at hand is whether to admit it or not. So far, the government has opted for "not".


"The problem with trying to child-proof the world, is that it makes people neglect the far more important task of world-proofing the child." -- Hugh Daniel

Probably not

The most irrefutable fact to argue that these banks will not fail is the list of campaign contributors to our sitting leaders in DC. Citi and BofA did not spend that money for no reason.

Fact #1 - No, these banks are not too big to save. Every time these banks deleverage, it destroys more money. That money can then be replaced with no net effect on inflation/deflation. The more they lose, the more room Obama & co have to print wildly. (by the way, all they are doing with "cash injections" is really just giving them permission to write fake numbers in their books, in essense).

Fact #2 - Both of these banks will have limited exposure to commercial real estate failures. They saw the writing on the wall, most commercial loans outstanding are on the reigonal and smaller banks. Credit card loans tanking are not huge losses. The new federal bankruptcy laws protect them so these bad loans are easy to resell to creditors. Auto loans are also an area of limited exposure...the brunt of that will be felt by Ford Credit and GMAC. Residential mortgages are not going to turn to dust...unless you think we have no more need for shelter in America.

Fact #3 - You cannot paint derivatives with such a broad stroke. Much of the deleveraging with derivatives is done with simple exchanges because the OTC derivatives have been resold so many times. If BofA owes Citi 10 million for CDS's and Citi owes BofA 10 million...they just wipe all of the assets out without paying a dime. Derivatives do have the capability of destroying a company...but they also have the ability for a company to benefit greatly. You cannot look at a number and assume anything with regards to derivatives...remember, for every loser on a derivative, there's a winner too.


Where have you been hiding you optimist? These banks are "zombie banks" just like Jim Rogers described Japanese banks. They are broke.

I laugh when I think about

I laugh when I think about that troll who used to frequent here and was touting his massive stock purchases in Citi :)

Does anyone know what

will happen to a mortgage held by Citi? I mean if it's up to date and never been even CLOSE to foreclosure? No missed payments.

Well, if Citi goes bankrupt

Well, if Citi goes bankrupt then their assets will be auctioned off in order to repay their creditors.

So, basically, your mortgage should be auctioned off to some investor. Maybe the liquidators sell it for 65% of what you owe on your mortgage. If that happens, the 35% difference does not go to you - it goes to whoever acquires the asset. You continue to owe what you owe, you just owe it to a different company.

At least that's how I understand it would work.

Now... if hyperinflation were to set in, you might be able to sell your car and pay off your mortgage. Hyperinflation greatly favors those who are in debt, and the U.S. is full of that.


Let em' fail

"So, basically, your mortgage should be auctioned off to some investor. Maybe the liquidators sell it for 65% of what you owe on your mortgage"

So why don't we have the option to bid on our own Mortgages? This way we save 35% on the Balance of our loan & Refinance it. If We're Really Smart we Could Refinance it with the next failing Bank & Repeat the the process.

That isn't what I am worried about.

I want to know if the same loan applies or will we have to refinance or what? Does it simply get sold and everything else remains the same and all that changes is where I mail the payments? Can the new owner of the mortgage demand the property unless we pay in full immediately?

it's already happened to me twice

Twice I've gotten a home loan, and twice it's been sold to Countrywide (and then BofA the second time).

All terms stay the same, all applied payments and principal stay the same, you just write a check to another bank.

I know

A mortgage is an asset to a bank, and it will be sold to another buyer.

Most likely, a single bank or a series of banks will buy up blocks of mortgages and you'll make your payments to these banks.

Don't worry about your house...a reliable payer is worth much much more than a house, especially in this market.

If you pay your payments on time, you will keep your house. You may eventually have to write the check to someone else, but that's life.

Yes, this is what I meant,

Yes, this is what I meant, though on re-reading my post, it could be misconstrued to mean that they would sell off your house.

Your mortgage represents an asset as a revenue stream. Selling your mortgage to another bank, as jzneff said, will only mean that you send your payments to a different bank. You don't really need to worry about losing your house as long as you can keep making your payments.

The mortgage will probably

The mortgage will probably be sold off to another bank to cover their losses. Of course, we are starting to go into uncharted waters here, so what is typical in the past may not be in the future.

Thank you for taking time to answer.

I've really been worried about this.

That is a good analysis of

That is a good analysis of where the banks are at and why this crisis is likely to get completely out of control -- even for the powers that be. They very well have created this crisis, but I sometimes wonder if they have underestimated just how bad the situation really is. When you live by lies, sometimes you forget to keep track of what is actually true. They have been lying for so long they forgot to check to see if they were lying to each other -- about their balance sheets, about their investments. It might be their undoing.