According to "The Daily Bail", Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

The investment bank's European derivatives liability is now backed by U.S. taxpayers.  Bank of America didn't get regulatory approval to do this; they did it at the request of frightened counterparties.  Now the Fed and the FDIC are arguing whether this was sound.  The Fed wants to "give relief" to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer by the bank without approval by regulators and without public input.  JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan.  Even worse, the total exposure is unknown because Wall Street successfully lobbied during the Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

What does not make any sense is that the Total World  GDP is only $58 Trillion.  So where in the world will they get $75 Trillion when the whole deck of cards comes tumbling down?

This is a recipe for Armageddon.  Bernanke is absolutely insane.  No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks.  His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.