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WikiLeaks Could Spark the Next Financial Disaster

By Jacob Wolinsky   |   Thursday, 02 Dec 2010 03:51 PM

Julian Assange, the founder of WikiLeaks, has managed to infuriate nearly every country with his leaks of secret U.S. State Department documents, which portrayed many foreign leaders as corrupt, even accusing the Russian government of having ties to the mafia.

But the next big target looks like it will be the U.S. financial system.

In an interview with Forbes, Assange claimed to have thousand of internal documents from a large U.S. bank.

He stated in the same interview that the details would reveal corruption on the scale of the Enron e-mails. Enron was a massive energy company which declared bankruptcy in 2001 after it was exposed for engaging in massive and complex accounting fraud.

When Assange mentioned a “big U.S. bank,” it could only be a few banks: JPMorgan Chase, Wells Fargo, Bank of America, Morgan Stanley, Goldman Sachs or Citigroup.

Right away, Citigroup and Bank of America come to mind because they were the worst run of the big banks and were near bankruptcy at the height of the financial crisis.

Assange has stated that he won’t reveal which bank he is referring to, but there is already a lot of talk that it is Bank of America. The reason for this theory is that in 2009, Assange claimed to have obtained several gigabytes of data from a Bank of America executive's hard drive.

To my surprise, shares of Bank of America haven’t fallen too much since the news. If I were a Bank of America shareholder, I would be scared by this situation.

I have no idea what Bank of America would be ashamed of, but it took $45 billion from the government to avert a collapse. In September 2008, then CEO Ken Lewis acquired Merrill Lynch — at the height of the financial crisis — paying what Lewis thought was a discount for the premier investment-banking company in the U.S.

Merrill Lynch had billions of dollars in risky credit default obligations (CDOs). Lewis was shocked to find how poor Merrill Lynch’s balance sheet was when he acquired the company (he even wanted to back out of the deal). Bank of America also acquired a big subprime lender, Countrywide Financial, which could be another source of problems.

To sum it up, Bank of America could have a lot of troubling information hiding on its balance sheet.

In my opinion, if Bank of America ever failed, the repercussions would be enormous. Bank of America is the largest bank-holding company in America by assets, with more than $2 trillion dollars in assets. The collapse of the bank would cause Lehman Brothers’ fall to look tiny in comparison.

I think that the bank's fall would lead to a lack of confidence in all other major banks and could quickly cause credit markets to freeze just like late 2008 - and that freeze quickly spread to nonfinancial companies. This could lead to another economic collapse.

This has me wondering: Will Julian Assange cause the next financial disaster?

(The author doesn’t own shares of Bank of America. He is a shareholder in two large U.S. banks: Wells Fargo and US Bancorp.)

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Julian Assange, the founder of WikiLeaks, has managed to infuriate nearly every country with his leaks of secret U.S. State Department documents, which portrayed many foreign leaders as corrupt, even accusing the Russian government of having ties to the mafia. But the next...
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