The government’s **implicit** guarantee — regardless of any argument regarding the status of an “official agreement” — resulted in tremendous increases in BoA’s market capitalization (let’s face it, investors bought Big Bank stocks because of the feeling that the government would not walk away from the banks). Not to mention how the behavior of the banks over the past 12 months was driven by their own feeling that the government stood by their side with a fire hose at the ready

And now BofA can just walk away and pay a fraction of the true value of a lifeline.

In any other set of circumstances, the Department of Justice would feel compelled to sniff around the area of this “deal.”

In the real world, I hope that Iran gets nuclear and blows all of us up. What’s the point in caring, if we are, in the long run, completely and utterly powerless. It appears that we have far more to fear from our banks than all of the Islamic terrorists ever born. Ultimately they and their lobbyists, in cahoots with our elected (and appointed) officials, are more than happy to blow up our worlds. Or as T. S. Elliot famously said in his famous “Love Song..”, “this is the way the world ends, this is the way the world ends, not with a bang but a whimper.”

But, y’all hang in there and pray, because prayer will work just as well as anything or nothing.

“The value system is entirely mixed up here.”

You must understand that only members of The Club are allowed to game the system. In fact, that is a major perk of being a member of The Club. The Club is the system, and the system is The Club, so it is not really gaming the system.

As for the general populace, they exist to support the system, and the system supports them in return, albeit at a subsistence level.

The system is global, and is known to the cognoscenti as La Sistema. La Sistema holds the world economy together, and keeps it from disintegrating into chaos and anarchy. Viva La Sistema! La Sistema de los Ricos, por los Ricos, para los Ricos.

;) (I think.)

This is no prediction, but I fear that the most likely scenario is low inflation via defaults and bankruptcies, leading to a double dip.

There was a time when the Wall Street Journal was the best paper in America.

When I first heard the phrase, “the smartest guys in the room”, I thought it was damning with faint praise. Later I found out that it was praising with faint praise. However, as things have unfolded, I think my original interpretation was correct. ;)

This defacto “agreement” between the FED & BoA is enangering but not surprising. It will be interesting to see who benefits from this arrangement in 5 years- who moves to what positions, board appointments, lucrative consulting contracts, on & on.
The one group we ALL know who will NOT benefit will be the taxpayer.

I appreciate the discussion on contract law as it may apply in this instance.

1. Yes, that’s the way it should have been. $4 billion was the premium – if the gov’t got it in cash or stock, it’s the same thing. B of A still had to pay 20 bp on the commitment, and OIS + 300 bp if it actually used the guarantee.

2. In practice, the terms of all those preferred stock investments say that Treasury can decide whether the bank can buy the stock back or not. So that would also have become a negotiating point. But I think my answer #1 is the way it should have been.

It seems the financial elites have carte blanche to game the system it operates in. But the argument against health care reform is sometimes based on the hypothetical and real “slackers” will game a health benefits funded by taxation.

So it seems the financial elites get to game the system. The for-profit health business gets to game the system. But the middle and working class are asked (some are ideologically convinced) they must hold the line against healthcare delivery to the allegedly-undeserving minions.

The value system is entirely mixed up here.