Is Bank of America the Credit Anstaldt of today?
Posted on 07 November 2010 with 1 comment from readers
In the spring of 1931 it was the failure of the Austrian bank Credit Anstaldt that triggered a breakdown in the global banking system that deepened the Great Depression and led to the failure of thousands of banks around the world.
The picture now emerging from the Bank of America Corporation is a worrying parallel. Only last April BoA looked a recovery success story with its government bailout repaid and shareholders who bought at the bottom sitting pretty.
BoA stock sinking
Not so now. BoA shares are down 41 per cent since April 15th. The problem is that mortgage-bond investors want their money back as the foreclosures fraud scandal comes to a climax. There is $141.6 billion of mortgages on Bank of America’s books, and who knows what they are worth now.
As Bloomberg points out today the BoA market capitalization has shrunk to 54 per cent of book value or: ‘Put another way, the market is saying there’s a $96.8 billion hole in Bank of America’s balance sheet’.
The fear is that the share sell-off will now start feeding on itself, totally undermining the bank and no doubt ending in another bailout by the Fed.
On May 8th 1931 the Credit Anstaldt, based in Vienna and founded in 1855 by the Rothschilds informed the government that it had made a loss that wiped out most of its equity. The government instantly came to the rescue but this failed to prevent a run on all the other Austrian banks because the same problems also applied to them.
Foreclosure fraud
The parallel with the modern USA is that mortgage foreclosure fraud is also an issue at pretty much every bank that has issued a home loan since the early 1980s. Basically the problem is that the ownership of home loan titles is not clear if mortgages have not been written correctly and so the bank’s collateral against these loans is in doubt.
Of course at the same time this also highlights the truth that most US banks have balance sheets that are still stuffed full of ‘toxic’ or bad loans where the value of the assets against which they are written is substantially lower than the value of the loans.
Could this be phase two of the global financial crisis? It certainly has the right ingredients.
1 Comment posted by readers:
The rich and the greedy are in control of most governments in the workd. They decide who should be elected in the legislature and who must be elected or installed as the president/ruler; and it is always the surrogates who apply the regulations to favor them all the time. The voting public is hoodwinked into voting citing pledges that are never fulfilled!