Bank of America (NYSE:BAC) beat lowered earnings expectations this morning. The company came in with a $0.56 profit. Sounds good, and I suppose it is. But the bank was helped by a lot of one-time accounting adjustments like the one we discussed with Citi yesterday.

The stock’s up in the pre-market so we can assume investors like the numbers from BofA.

Goldman Sachs (NYSE:GS) put up a loss of $0.84 a share. It was only the second quarter that the firm has ever lost money.

The only areas that looked good for Goldman were trading revenues and commissions on equity trading. I’d say Goldman will push ahead with its pan to lose the bank holding company status so it can do proprietary trading again.

And speaking of Goldman Sachs, I came across an interesting Forbes interview with its Chief economist, Jan Hatzuis. He’s forecasting 0.5% GDP growth for the first quarter of 2012, and that the Fed will announce QE3 in the next 6-9 months.

Hatzuis also believes the de-leveraging process that American households have been going through will lead to increased spending in late 2012. Sounds like a long time, but it’s only a year away. And given the situation in housing and unemployment, that doesn’t sound overly optimistic.

Finally, he said that the European debt situation has cost the U.S. a point or so of growth. And when the U.S. is struggling to hit 2% GDP growth, that’s significant.

Wall Street traders are biding their time until the European situation is resolved. That’s led to a clear range-bound market. So traders simply buy support and sell resistance. That as much as anything, is why the S&P 500 retreated yesterday. 1220 is strong resistance. And no one should be so naïve as to believe that the EU situation will be resolved (and stocks hold a rally) until banks actually write-down Greek debt and suffer the consequences.

I know, it’s brutally frustrating for individual investors. But there’s no way to ignore Greece and Europe. The write-offs have to happen, and then we’ll see who’s holding which credit default swaps and if there’s going to be any liquidity crunches or failures.

The use of swaps to manage Greek default risks takes me back to the days of Alan Greenspan. Daily Profit readers know I am know great fan of Greenspan. He did make some good moves, but he failed to understand the combustible combination of low interest rates, lower mortgage loan standards and derivatives.

In fact, he thought each of these was a good thing. 

Low rates kept money moving. Higher home ownership meant greater personal asset values and economic participation. And derivatives meant that risk could be spread to the point that nobody was fully on the hook.

Wrong.

The reality was that low rates in an environment of growth encouraged risk-taking. Lower mortgage standards raised the default risk. And a company like AIG (NYSE:AIG) took on more liability than the assets it could hope to amass in 300 years.

The tipping point was basically that the value of the housing market was many multiples of the size of AIG and the banks. In 2007, total real estate value was around $20 trillion. A 10% correction is $2 trillion. You simply can’t insure that, because no one is big enough to pay out.

The situation in Greece is different. All the Greek bonds and default swaps designed to insure against loss in the event of Greek default don’t add up to a fraction of the U.S. real estate market.

Yes, we still have to wait for actual default. No, it won’t be anywhere near as bad as 2008-2009.

Published by Wyatt Investment Research at