Bank of America Corp (BAC)

For a long time, I would look at the immense derivative holdings of Bank of America and throw up my hands. How could you possibly value a company with over $38 trillion in derivative positions? Maybe it's worth a huge sum. Maybe not. But, now I think I have figured out how to take a pretty good stab at it, without even knowing what derivatives B of A holds. Either 1), B of A made the wrong bets, and it will soon go down in a crash far bigger than anything we have seen so far. If it loses only 3% on the derivatives, easy to imagine, that is over a trillion dollars. Or 2), it made the right bets. We already have an example of how that turns out. Goldman Sachs made the "right" bets, buying $20 billion of credit default swaps from AIG in 2007-2008. Very smart of them. Then, last September, AIG went bust, and Goldman's $20B went with it. Suddenly Goldman had to run to Warren Buffet for $5B in order to not breach their loan covenants. Anyway, imagine that B of A, by some miracle, actually made the right bets with its derivative portfolio. It's just not possible that its counterparties could pay up on the "winning" bets. Whoever was making the losing bets is already worse than broke. So, it's heads, B of A explodes, and tails, B of A crumbles. The best scenario is probably that it manages to cover up its situation, whatever that happens to be, for a few more months. The worst is that it goes kablooey in a few days or weeks. Most troubling to me is that the FDIC is already broke. It cannot bail out the banks already on its watch list. B of A is huge, far beyond the capacity of the FDIC to cope with. So, not only will stock owners be wiped out, depositors are also at huge risk. Check out the derivative situation for yourself. Thanks, Bulleye168, for this link to a U.S. Treasury report on U.S. companies' derivative holdings. If you scroll over halfway down, you can see the list of the top 25 derivative holders and the sizes of their portfolios. http://www.occ.treas.gov/ftp/release/2008-152a.pdf