Stabbing small investors, like pension funds and small businesses, in the back is not what we are supposed to be doing in the capitalist United States, but we are, and some of it is thanks to a bankruptcy law that of course is not addressed in the voluminous, poorly-written Dodd-Frank bill.
Bank of America was allowed to move about $75 trillion in derivatives into their banking arm (Dodd-Frank, where are you?). Our revised bankruptcy law of 2005, signed by Bush, allows derivative claims to be placed in front of depositors in a business or bank failure.
Bloomberg news reported: “Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation,” Furthermore, they say, “The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people.”
Same thing with the JP Morgan Chase claim in the MF Global case that enables their derivative trade to get preference in the MF Global situation, meaning they will be at the front of the line.
The small investor will get nothing or close to nothing. The big boys win, and if you try to save your bank account, even up to 90 days before the implosion of whatever company it is, they can still come and take your money. For more details: TP Economist
Some people like to call this crony capitalism, but a more apt name is actually crony corporatism, which is prominent in Socialist nations, and which is becoming a signature of U.S. economic policies.
Wall Street and D.C. are One Voice apparently.