U.S. to Rescue Ponzi Bank of America

Before dawn today it was announced that the Treasury Department will commit $138 billion to saving the common shareholders of Bank of America. In return, the Treasury Department will take only $20 billion in preferred stock. That's not quite 15 cents on the dollar.

This is the enormous frosting now being spread on top of an earlier huge bailout of "$15 billion into Bank of America and $10 billion into Merrill [Lynch, now owned by Bank of America] to bolster the combined company against the credit crunch." And it gets even worse. The bulk of today's triple- billion- digit bailout is in the form of asset insurance.

In the latest Bank of America deal, the government will protect a $118 billion pool of assets that a U.S. official said includes residential and commercial real-estate holdings and credit-default swaps.

What that means, as the New York Times explains, is that the actual amount of risk assumed in the name of the taxpayers could be much, much higher. "If the government-guaranteed securities turn out to be worthless, the cost of the insurance would be much higher than if the Treasury Department had simply bailed out the banks with cash in the first place."

Heck of a job, Hank Paulson. And, heck of a job by Bank of America's CEO Ken Lewis, too. His past annual compensation totaled $15.6 million per year ($1.5 in base salary, $5 million bonus, $10 million stock options).

Lewis, 61, has spent $129 billion on acquisitions, including regional lenders FleetBoston Financial Corp. and LaSalle Bank, credit-card issuer MBNA and investment manager U.S. Trust Co.

"Bank of America has all kinds of problems with its acquisitions," said Gary Townsend, a former bank analyst and president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. "They’ve been so acquisitive, they find themselves with very little in tangible equity."

And that was before BoA took on the poisoned assets of Merrill Lynch and Countrywide Mortgage.

Someone tell us, please: Just what is the difference between Bernie Madoff and Ken Lewis? Both of them were running Ponzi schemes, weren't they?

Madoff suckered investors into giving him their money, bought not much, repaid a smidgen back in dribbles with new money as he found new suckers, and spent the rest on himself. Until he ran out of suckers, that is.

Lewis suckered investors into giving him their money, bought shitpile companies with worthless assets, took for himself more than $15 million per year, and now that he has run out of money, we are the suckers who will be giving him new money.

If Madoff ever goes to jail (don't bet on it!) shouldn't Lewis be his cellmate?