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Bank of America writes
its own bailout. Privatize the profits. Socialize the losses. This has been the modus
operandi of the big U.S. banks for decades. There hasn't been a
domestic credit collapse of significance since the 1930s, but the U.S. banks
have been getting into trouble regularly overseas. Remember the huge IMF
loans of 1997-1998? The Asian governments had no debt problems. Thailand's
total foreign debt was $4.8 billion, while it held foreign reserves of $37
billion. The problem was that the U.S. commercial banks had made loans to the
private sector, which weren't being paid back in the environment of
macroeconomic chaos. The IMF would lend money to the government of Thailand,
and the government of Thailand would then pay off the private-sector loans to
the U.S. bankers. This would bail out the U.S. bankers, and leave the Thai
taxpayers to pick up the tab. I used this excerpt in my book. It is from an
op-ed in the International Herald Tribune written by Hubert Neiss, the
director of the IMF's Asia and Pacific department:
"The three crisis
countries were also caught between a rock and a hard place because of the
huge foreign currency debts of their domestic banks and corporations. Full
debt service could not be maintained without some debt relief in the shape of
loan rollovers and restructuring to allow more time for repayment.
Defaulting on debt
service would have forced foreign banks and other creditors to suffer
immediate losses ...
Each of the three Asian
countries receiving billions of dollars in international loans marshaled by
the IMF decided to support continued debt servicing while seeking to
negotiate debt relief with creditors. The IMF arranged additional official
inflows of money to strengthen national reserve positions. It also
facilitated debt negotiations with foreign commercial banks to provide the
necessary balance of payments relief and some burden sharing by
creditors."
"In Defense of the
IMF's Emergency Role in East Asia," International Herald Tribune,
October 9, 1998.
The IHT,
by the way, is an international english-language paper owned by the New
York Times.
The funds from the big
IMF loans to the Asian governments in 1997-1998 spent no time in Bangkok,
Seoul, Manila or Jakarta. They were immediately sent back to New York to make
the U.S. banks whole on their loans to the private sector.
My understanding is that
much the same thing happened during the Latin American debt crisis of the
1980s -- U.S. bank loans to private sector, commercial entities in Latin
America were replaced by sovereign debt, which evolved into the famous Brady
bonds. In short, the U.S. banks were bailed out by the taxpayers of Mexico,
Brazil, Peru etc.
I haven't been able to
find a proper description of the U.S. bank bailouts on their Latin America
commercial debt of the 1980s, organized by the IMF, but these two sentences
from a description of the crisis about sum it up:
"The 1980s crisis,
while sparked by the official default of the Mexican government, was
generally a crisis of the private sector. The majority of the debt was held
in non-guaranteed private sector loans which were eventually nationalized to
meet obligations."
http://www.columbia.edu/~ad245/theberge.pdf
In the latest Bank of
America-authored "homeowner bailout bill," we see that the Bank of
America mortgage to a delinquent borrower is replaced by a mortgage from the
U.S. government. BofA takes a small haircut, about 10%, which is much less
than what they would face in foreclosure and liquidation, typically around
50% these days. Once again, we see the big U.S. banks' loans to the private
sector paid off by the government. It's the same modus
operandi. Here's a good description of the operating process, and
Bank of America's involvement in it.
http://bigpicture.typepad.com/comments/2008/06/did-boa-write-t.html
 
While it appeared that
this abomination would be vetoed by the White House, that is looking a little
less certain at this point.
Nathan
Lewis
Nathan Lewis was formerly the chief international economist
of a leading economic forecasting firm. He now works in asset management.
Lewis has written for the Financial Times, the Wall Street Journal Asia, the
Japan Times, Pravda, and other publications. He has appeared on financial
television in the United States,
Japan, and the Middle East. About the Book: Gold: The Once and Future
Money (Wiley, 2007, ISBN: 978-0-470-04766-8, $27.95) is available at
bookstores nationwide, from all major online booksellers, and direct from the
publisher at www.wileyfinance.com or 800-225-5945. In Canada,
call 800-567-4797.
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