April 20, 2008 – 1:29 pm


Bank of America’s pre-earnings aftermath (yes we just made that phrase up) has already left a mark whose deepening impression threatens several aspects of the larger economy. By the time the bank reports in the morning, many of its assets will have been revealed to be crushed under the burgeoning weight of the credit crisis:

Lehman Brothers analyst Jason Goldberg wrote in a client note it will be tough for Bank of America to meet expectations for the quarter. The bank’s books are vulnerable to $18 billion in leveraged loans, $15.7 billion in commercial mortgage-backed securities, and $8.2 billion in subprime collateralized-debt obligations.

The bank’s response has been to tighten up on credit itself, and as other banks join ranks, the shots will be heard around the global economy. To begin, Bank of America was one of several to abandon making private student loans:

Bank of America on late Thursday said it would exit the private student loan business, but continue to make loans backed by a federal loan program for students.

Boy, doesn’t that just about characterize all lending nowadays? The thin veneer of “free market capitalism” on top of our omnipresent implied government guarantees has been dissolved away, leaving the real thing in all its naked fascist (or is that socialist?) glory.

The next causality is Sears Holdings Corp:

Sears Holdings Corp. which operatesKmart and Sears stores, said in a filing with the Securities and Exchange Commission on Friday that Bank of America will not renew its $1 billion long-term credit amendment under its existing terms.

And not to be outdone, Bank of America’s acquisition price of Countrywide Financial Corp. is also threatened by credit problems at the mortgage lender:

…weak credit trends could endanger the final sale price.

Countrywide is likely to report rising defaults among its option ARM portfolio, as well as other mortgage product holdings

The bank’s bogus assets are being written down as the global ponzi scheme is seizing up. They of course aren’t alone in this trend, but so much for the old saw that “the retail banks will be fine”.

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