Months ago we wondered why BOA would buy Merril. We said it was a bad idea and yet the purchase continued. Now BOA has itself a real mess. Here is another case of the so called “experts” missing the boat…
Jan. 15 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, plunged as much as 22 percent in New York trading on concern that the company needs more government aid to absorb losses tied its acquisition of Merrill Lynch & Co.
Shares of the Charlotte, North Carolina-based bank dropped $2.01 to $8.19 at 9:59 a.m. in New York Stock Exchange composite trading and fell as low as $8. Bank of America told regulators in December the takeover might be abandoned because of Merrill’s worse-than-expected results, and the bank is in talks to get more U.S. aid, said three people familiar with the matter.
The government insisted the Merrill deal proceed because its collapse would renew turmoil in the financial system, said the people, who declined to be identified because talks are private. Details may be disclosed on Jan. 20, when the bank could post its first quarterly loss in 17 years after buying Merrill Lynch and Countrywide Financial Corp.
“Bank of America has all kinds of problems with its acquisitions,” said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “They’ve been so acquisitive, they find themselves with very little in tangible equity.”
The problem is that we still do not know the value of the toxic assets on the books of these banks. But since these shell banks need more cash in order to stay in business it’s becoming more and more obvious there is a “problem.”
Really, the A = L + E identity is all you need to know to analyze these companies.
So the government wanted banks to give loans to people that might not be the best risks…that didn’t work out so well. Now the government wants banks to buy banks that are definitely bad risks…and then people are surprised when that doesn’t work out so well. Shocking I say, absolutely shocking.
I’m looking forward to another two or three trillion dollars plus of government telling businesses what to do and how to do it. I’m CERTAIN it will work out swimingly.
So the government wanted banks to give loans to people that might not be the best risks…that didn’t work out so well. Now the government wants banks to buy banks that are definitely bad risks…and then people are surprised when that doesn’t work out so well. Shocking I say, absolutely shocking.
I’m looking forward to another two or three trillion dollars plus of government telling businesses what to do and how to do it. I’m CERTAIN it will work out swimingly.
~Matt
What is worse is that the Treasury and Fed were urging/forcing companies to merge originally, yet now, it seems they are trying to dismatle these frankencompanies.
Which goes to show you that the government shouldn’t be trying to alter small pieces of a market they can’t control because they have no idea what the ramifications will be.
The issue is that banks were stupid and intentionally made bad loans to people they knew were bad risks, solely using models built upon the premise “the real estate market won’t go down”.
Except the government started the ball rolling by A) saying those type of lending practices were ok for CRA clients which basically opened the door for that type of lending for everyone and B) bought the crappy MBS thru Freddie and Fannie in many cases with full knowledge of type of lending practices being used, such as with Country Wide C) continued to enable the practices thru low interest rates via the Fed…yes as before I’m aware the Fed is not the US government, but as before you’ll not convince they operate “independently” D) gave the impression that the government backed the loans, again thru Freddie and Fannie.
And finally no, the government is not entirely to blame, but they definitely had a hand in it. Had they not done any of the above more than likely the crisis would not have happened. In fact there were more than one instances of people trying to change these practices prior to the meltdown because people realized it was a problem, but alas, it takes a multi trillion dollar meltdown for people to realize there really is a problem.
I whole heatedly agree that in addition to the above your point of banks being stupid is very valid. I’ll also thru in stupid borrowers as well as no fault loans, crooked appraising practices and probably a half a dozen more issues I’ve forgotten. But if someone believes the government played no part in it they are, IMHO, very mistaken.
Plenty of people have dirty hands on this, government included.
Does anyone think that these financial institutions and the Big 3 might be overstating how bad their situations are in currently in order to get a handout from the government?
They’re all crooks, but I want mine too. I bought some BAC today under $8, and will unload once news of a bailout artificially pumps up the share price.