Bank of America Seeks Second Bailout From Treasury Department
Jan 14th, 2009 | By Rob | Category: Government
Yesterday, I speculated on the question of whether a bailout of those in credit card debt would be fair. Today, ironically, news sources are reporting that the government may have to provide additional bailout funds to one of the nation’s largest credit card issuers.
Just when I had begun to think that concerns about banks failing were behind us, it turns out that the U.S. Federal Government is now considering injecting additional capital into Bank of America because of problems stemming from Bank of America’s recent acquisition of Merrill Lynch. Apparently, Bank of America underestimated Merrill Lynch’s fourth quarter losses and would not have completed the merger as expected on Jan. 1st without an expectation of additional assistance from the U.S. Treasury Department.
Back in September, the nation’s largest bank was frequently mentioned by investment professionals among the list of banks that would survive the banking crisis and benefit from consolidation in the industry. Now, after its acquisition of mortgage lender Countrywide and investment bank Merrill Lynch, the fact that Bank of America has been negotiating with the government for additional assistance suggests that it may have bitten off more than it could chew. Merill Lynch’s merger with Bank of America was supposed to rescue Merrill Lynch from its imminent collapse this fall when it was announced. It seems even its rescuer was not prepared for its financial problems.
According to the Wall Street Journal report, Bank of America has been discussing borrowing additional money from the Treasury Department’s TARP program since the middle of December. That’s disappointing for several reasons. First, it’s the second major bank to go back to the Treasury seeking additional capital (Citigroup sought additional funds from the Treasury Dept. after its stock plunged in November). Second, although I’m not sure of the exact timing, the need for additional funds for Bank of America in December may have had an impact on the decision of the legislature to authorize TARP funds for the auto bailout. Finally, it’s more evidence that banks haven’t disclosed to the American public, and stock investors specifically, the extent of their problems.
Why is this information relevant to those in credit card debt? If you don’t think that the financial position of the banks has anything to do with their willingness to lend to you at an affordable interest rate, or maintain the available balance on your credit card, or find additional ways to charge you outrageous fees, then you need to call your doctor because you may be delusional.
Let’s hope that the government subjects Bank of America to the kind of scrutiny that Congress put the automakers through for their bailout funds. I’m still at a bit of a loss to understand why we should lend capital to a bank at a 5 percent interest rate so that they can lend it back to us via our credit cards at an interest rate of 20 percent. Let’s hope that the government negotiates a better deal for us than they did the first time around. Otherwise, it may be those borrowing money from Bank of America that will be forced to pay.
