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Is Bank of America Headed Toward Collapse?

The nation's largest bank has only gotten bigger since the financial crisis and the government bailouts. But is big trouble ahead for the big bank?

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And of course, with all those public protests against B of A's practices, Smith pointed out that the bank has been steadily losing depositors, as customers move their money to different banks that have less of a reputation for shady dealings.  

So when, on Thursday, a mainframe computer malfunction in the Los Angeles area left customers unable to access their accounts, Demos fellow and former Wall Streeter Nomi Prins tweeted “Yesterday, BofA says it doesn't need to raise more capital, today its CA systems fail, thereby clamping down on capital. probably unrelated.”

Whether or not the Los Angeles computer glitch had anything to do with B of A's financial troubles, the bank is likely to see its problems magnify. The entire financial market took a hit over the past couple of weeks, and the bank's current legal troubles may be only the beginning. Jack Barnes at Money Morning called Bank of America “A house of cards on the verge of collapse.” With a double-dip recession looking increasingly likely, a giant, undercapitalized beast like Bank of America looming over the economy like a bomb waiting to go off should scare everyone.

Christopher Whalen at Reuters wrote “[Bank of America] is a too big to fail zombie created by the Obama administration and the Fed to protect US financial markets, but is now so vast and unstable that it threatens the global economy,” and argued that the best way to deal with it is to put it through a restructuring under the Dodd-Frank legislation.

In other words, for the FDIC to take control of the bank, proceeding like a regular bankruptcy but protecting depositors before creditors of the bank.

As we learned with the first round of financial crises, the government was unwilling to let the big banks go under, preferring to save giant institutions and hope that their largesse would trickle down to depositors and borrowers. They also proved unwilling to break up those giant institutions—in many cases, like that of Bank of America and Countrywide, putting multiple too-big-to-fail entities together to create an even bigger, more dangerous monster that could have serious impact on everyone if it goes down.

If Bank of America does wind up in the death spiral Smith and others predict, are taxpayers going to find themselves on the hook for another bailout? Is there hope in the interventions of AGs Schneiderman and Biden, that perhaps some government officials will put people before massive corporate profits, and hold the people at the root of the economic crisis responsible for their dealings? Only time will tell. 

Sarah Jaffe is an associate editor at AlterNet, a rabblerouser and frequent Twitterer. You can follow her at @seasonothebitch.