Gobble the Bad Bank "solution" at your own Risk, Caveat Emptor

BAC and Citi have assets of 2566 billion. Their 1st bailout represented some 90 billion, the sub investment grade Credit Derivatives alone represents 1461 billion or a factor of 16 times their current bailout package and a factor of 60 times all credit derivatives which is only a fraction of the overall derivatives exposure. The leverage ratio Assets/Derivatives stands at 29 that is if 3.5% of the Derivatives need to be written off, mark to market, the Asset base (deposits, reserves) has evaporated.

The BAC/Citi total derivatives exposure is approx a factor 10 of Lehmann.

Needless to say significant further write-offs are needed on mortgages, car loans, student loans, credit cards, and other loans with the counterparty becoming insolvent will still increase the exposure by a large measure.

Not too long ago Messrs Bernanke, Paulson & Geithner touted that 100 billion would do the trick to resolve the financial crisis.

With the Bad Bank bailout plan a disappointment of the same magnitude is preprogrammed, salami tactics, one slice at the time. Beware when JPM should get into any difficulties e.g.. the Fed can no longer silently compensate them for their ongoing trading losses.

http://www.occ.gov/deriv/deriv.htm

Table 11, etc