Friday January 16, 2009
Navivest

The U.S. Treasury announced very early this morning, that it “entered into an agreement today with Bank of America (BAC), to provide a package of guarantees, liquidity access and capital as part of its commitment to support financial market stability.”

Under terms of the agreement, the government through the Treasury and the Federal Deposit Insurance Corporation, “will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value.”

In other words, any mortgage-backed junk that Bank of America has on its book, that it assumed when it purchased Merrill Lynch, to the tune of $118 billion, will be guaranteed against failure by the U.S. tax payers.

Actually, Bank of America will will be responsible for the first $10 billion in losses on the $118 billion and the Treasury and FDIC will be responsible for the next $108 billion. These are mortgage backed assets that became BoA’s responsibility after it took over Merrill Lynch on September 14, 2008.

For those that are wondering why the government is taking on such burdens, there is a good chance that Bank of America was strong-armed into buying Merill Lynch and this is just a continuation of the back-room deals, to which taxpayers are not privy.

Remember, Merrill Lynch agreed to sell itself to Bank of America on Sunday September 14, and that deal probably came about after the government decided that letting Merrill Lynch just go under, would be too detrimental to the economy. So they went looking for a “buyer.”

Besides backing the above mentioned $108 billion in loans and securities, the U.S. Treasury, “will invest $20 billion in Bank of America from the Troubled Assets Relief Program in exchange for preferred stock with an 8 percent dividend to the Treasury” and in return, “Bank of America will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program.”

Tags: Bank of America TARP