Comment and analysis on all things Charlotte

BofA Bailing Out for the Fed?

Sometimes things are hidden in plain sight.

Bank of America (along with Wachovia) goes to the Federal Reserve discount window, typically the lender of last resort for banks in trouble. Both banks said they used the window to borrow $500 million each in order to remove the stigma of doing so and generally to help build confidence that the financial sector had checks in place to ensure the continued flow of credit after weeks of rough going.

Then BofA turns around and buys about 16 percent of Countrywide Financial, the troubled mortgage lender, for about $2 billion. Coincidence? I think not.

The New York Fed is far more wired into Wall Street than most people understand. It is not far-fetched to imagine a series of meetings in which the feds strongly indicate that it would be extremely helpful for someone to step up and take on the chunk of Countrywide.

Let’s see if Wachovia takes a similar stake somewhere.

4 Responses to “BofA Bailing Out for the Fed?”

  • Aug
    24
    2007

    In 1998, the New York Fed engineered a $3.6 billion bailout of Long-Term Capital Management (LTCM) to “save the financial system.” Ahh, moral hazard: it never really disappears.

  • Aug
    24
    2007

    It does if no one reports it.

  • Sep
    07
    2007

    [...] ‘So this is not a bailout, you see, because it is for the borrowers, not the lenders. And if you believe that, then you’ll also believe that the Federal Reserve has been shoving money at the banks by the billions in recent weeks in order to help borrowers, too.’ (Reason article). [...]

  • Jan
    10
    2008

    [...] As we noted back in August, BofA surely has the Fed’s blessed in trying to help clear Countrywide’s books. That means plenty of access to the discount window. But an outright purchase of Countrywide takes it too a whole new level. [...]

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