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This is nuts – but it’s just like all the other government Ponzi schemes.  I just read an article on CNN about the FDIC taking money from large banks in order to have enough funds to bail out failed banks – which have been mainly smaller banks.

The article says  “A lot of large banks haven’t failed because of massive government assistance,” Bair said. “If it weren’t for those, some big banks would have failed and there would have been costs.”

Duh.  So Bair’s policy is effectively to take government money from large banks (which have received bailouts) and use it as insurance to pay depositors in small banks.  Is she really so stupid that she doesn’t think we can tell that it’s government money being used to pay for government insurance?  And that we don’t realize where that money is coming from?

The money is literally being printed out of thin air, which causes inflation.  I’m not the brightest candle on the shelf, but even I can tell that this is not going to actually solve anything.

gk

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If it’s Friday, there must be a bank failure….  The FDIC shut down two more banks yesterday, bringing the total of failed banks to 15 for the year.

In case you’re wondering, I think this is a good thing.  It’s what we should be doing with all the failed banks.  Instead, we’re spending billions to bail them out.  Why not simply let them fail and let other solid banks bid on the assets?  That’s what the FDIC does in these cases.

Here’s part of the FDIC statement for Security Savings Bank of Henderson, NV.

Security Savings Bank, Henderson, Nevada was closed today by the Nevada Financial Institutions Division, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Bank of Nevada, Las Vegas, Nevada, to assume all of the deposits of Security Savings Bank.

As of December 31, 2008, Security Savings Bank had total assets of approximately $238.3 million and total deposits of $175.2 million. Bank of Nevada did not pay a premium to acquire the deposits of Security Savings Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $59.1 million. The Bank of Nevada’s acquisition of all the deposits of Security Saving Bank was the “least costly” resolution for the FDIC’s Deposit Insurance Fund compared to alternatives. Security Savings Bank is the sixteenth bank to fail in the nation this year. The last bank to fail in Nevada was Washington Mutual Bank, Henderson, on September 25, 2008.

The other failed bank is Heritage Community Bank of Glenwood, IL.  Here’s the FDIC statement.

Heritage Community Bank, Glenwood, Illinois, was closed today by the Illinois Department of Financial Professional Regulation, Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with MB Financial Bank, N.A., Chicago, Illinois, to assume all of the deposits of Heritage Community Bank.

As of December 5, 2008, Heritage Community Bank had total assets of $232.9 million and total deposits of $218.6 million. In addition to assuming all of the deposits of the failed bank, including those from brokers, MB Financial Bank agreed to purchase approximately $230.5 million in assets at a discount of $14.5 million. The FDIC will retain the remaining assets for later disposition.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $41.6 million. MB Financial Bank’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s Deposit Insurance Fund compared to alternatives. Heritage Community Bank is the fifteenth FDIC-insured institution to fail in the nation this year and the third in the state. The last FDIC-insured institution closed in Illinois was Corn Belt Bank and Trust Company, Pittsfield, on February 13, 2009.

gk

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This just in from the FDIC – banks will now pay more for FDIC insurance for depositors.  To which I say – Duh!

When you get home insurance in Florida, you’re going to pay more than you would for the same priced home in say, Tennessee.  That’s because Florida is riskier from an insurance perspective because of hurricanes.  The insurer is more likely to have to pay up, so it costs more.  No problem.  That’s the (somewhat) free market system at work.  I say “somewhat” because the insurance industry is heavily regulated by the government.

The problem with FDIC insurance (government sponsored of course, no free market rules apply) is that they charge basically the same rates to everyone.  Here’s a quote from the link above:  Currently, most banks are in the best risk category and pay anywhere from 12 cents per $100 of deposits to 14 cents per $100 for insurance.

The FDIC is adjusting the rates – that’s a good thing – but only slightly: Under the final rule, banks in this category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1, 2009.

In other words, the new rates will make the riskiest banks pay 16 cents instead of 14 cents per $100 of deposits.  Not much of a change in my opinion.

The FDIC also adopted an interim rule imposing a 20 basis point emergency special assessment on the industry on June 30, 2009. The assessment is to be collected on September 30, 2009. The interim rule would also permit the Board to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance.

I’m not sure how much of an additional increase that amounts to, because I don’t know the starting point.  I know 20 basis points is .2%, so it sounds like they mean an additional 2 cents on top of the existing premiums, but I’m guessing at that.

Regardless, raising insurance rates on the riskier banks is a no brainer, and it should have been done years ago.  It makes no fiscal sense to charge the same rate to a technically bankrupt bank like Citi as they charge a fiscally responsible bank.

gk

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The FDIC kept its’ streak unbroken when it closed Silver Falls Bank in Oregon late Friday.  According to CNN, U.S. bank regulators closed Silver Falls Bank on Friday, the 14th U.S. bank to fail this year as the struggling economy and falling home prices take their toll on financial institutions.

The Federal Deposit Insurance Corp said Silver Falls Bank, of Silverton, Oregon, had $131.4 million in assets and $116.3 million in deposits, as of Feb. 9.

In case you’re wondering how a bank can fail when it has millions more in “assets” than it has in liabilities, the “assets” are loans they made to others.  So technically they have that money coming in, while deposits are owed to other people.

The problem is that the “assets” are mainly fictitious, as are the “assets” on the balance sheets at many US banks.  Many – or most – of them are bad loans that will never be paid back.  So the Silver Falls Bank owed depositors $116.3 million, and it couldn’t pay them back because payments on their “assets” weren’t being made on time.

In case you’re wondering, taxpayers are on the hook for “an estimated $50 million” so get ready to fork it over.

Tune in next week for the latest episode of FDIC Friday!

gk

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In what has become a Friday tradition, three (I posted this too soon) four more banks bite the dust.  MarketWatch.com has this story on today’s edition of  FDIC Friday.

(Added at 9:54pm ET – I posted the FDIC Friday story too soon.  MarketWatch hasn’t updated the story yet, but Pinnacle Bank in Beaverton OR was also closed today.  It’s on the FDIC website here.  According to the FDIC Pinnacle Bank had total assets of approximately $73 million and total deposits of $64 million.  The FDIC estimates that the cost to the Deposit Insurance Fund will be $12.1 million.  So add $12.1 million to the numbers below.)

Loup City, Neb.-based Sherman County Bank, Cape Coral, Fla.-based Riverside Bank of the Gulf Coast and Pittsfield, Ill.-based Corn Belt Bank and Trust Company were closed by regulators Friday, bringing the number of U.S. bank failures for 2009 to 12 and 37 total since the start of the credit crisis, the Federal Deposit Insurance Corp. said.

In reading the story, it appears that the FDIC is on the hook for about $28 million for Sherman County Bank, $201.5 million for Riverside Bank, and $100 million for Corn Belt Bank.  That’s $309.5 million this week.

Besides the fact that they do this on Friday so the markets can’t react to the news, another thing really bothers me about these bank failures.  It’s the way the FDIC categorizes the finacial situation of the failed banks.  Here’s a quote to help you understand what I mean: Nebraska’s Sherman County Bank had roughly $129.8 million in assets as of Feb. 12 and $85.1 million in deposits, the FDIC said.

If they really had $129.8 million in assets, and $85.1 million in deposits, why did they fail?

I guess my question is how they can be considered assets when they are actually liabilities?  Notice that every one of these failed banks actually show more “assets” on their books than deposits – and deposits are money that need to be paid back to depositors.  So why are they now broke and out of business?

The answer of course is that the “assets” are actually loans they made.  Many of which will never be repaid.  While the people who deposited money into these banks most assuredly want their money back.  And they’ll get it back via the FDIC – with tax dollars from us.

Well, the money is actually being printed out of thin air so we’re not paying for it yet, but we will.  The government has just stolen $309.5 million worth of our future production from us.  And hardly anyone even bothers to mention it.

We’ve become numb to these numbers, and no one really cares anymore because everyone knows we’re broke as a country.  The national debt (see the counter at the top of this page for the current total debt) will never be repaid.

The way I see it, the US Government has only two choices: Default on the debt or inflate it away.  Guess which one they’re doing?

Tune in right here next week for the next installment of FDIC Friday.  Until then, buy gold.

gk

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According to a report on Reuters, the new “TARP 2.0″ bailout package won’t include a provision for a “bad bank”.

A so called “bad bank” is an idea that has recently been floated.  In effect, the bad bank would buy up all the toxic crap from other banks, leaving them with nice clean balance sheets.  But who pays for the toxic crap?  That’s the problem – we all would.

Trillions and trillions would be required to buy up all the bad mortgages and derivatives.   No one – not even China – has those kind of reserves.  Even if some country had that kind of money, why on earth would they invest it in a bad bank?

Since no rational person or country would ever do that, the US government had volunteered you and me to do it.  But since we don’t have the money either, it would simply be printed out of thin air.

With any luck at all, this report is accurate and the dumb idea of a bad bank will be buried forever.  After all, don’t we already have enough bad banks?  Do we really need another one? 

gk

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It’s called “FDIC Friday” for a reason – the FDIC seized three more banks on February 6th, bring the total to nine for the year.  There have only been 6 Friday’s so far in 2009.  6 weeks, 9 failed banks.

Here’s a CNN story with details of the failures.

The failed banks are FirstBank Financial Services based in McDonough, GA.; Alliance Bank of Culver City, CA.; and County Bank of Merced,CA.  The total cost to the FDIC (you and me) will be about $452 million.

At least the FDIC let them fail and didn’t waste billions on bailing the out.

gk

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I don’t know how I forgot about this – it’s a Friday tradition for the FDIC to take over failing banks.  That way it’s old news by Monday morning, and the stock market won’t tank.

Anyway, here are the latest bank shutdowns.  According to MarketWatch: Federal regulators closed three banks in a single day Friday, as the ongoing credit crisis showed no signs of abating.

Utah’s MagnetBank became the fourth bank failure of the year, and the Federal Deposit Insurance Corp. was forced to directly refund depositors after being unable to find another institution willing to take over its operations.

This is headline news.  I’ve been following this financial crisis for quite awhile, and I think this is the first time in a couple of years that the FDIC hasn’t been able to strike a deal with another bank to take over the operations of the failed bank.

Damn, I should’ve read the next paragraph before starting this post, as Marketwatch has a better memory than I do….  That marked the first time the FDIC has been unable to find an acquirer for a failed bank in nearly five years, according to FDIC spokesman David Barr. “This bank did not have an attractive franchise value, and not many retail deposits or core deposits,” Barr said. The FDIC had conducted an extensive marketing process for the bank’s assets, he said.

The FDIC later said it has also closed Maryland-based Suburban Federal Savings Bank, and Florida’s Ocala National Bank.

Add these to the list of failed banks.  That’s 6 already this year, and (according to MarketWatch) 31 since this mess started midway through 2007.

Let the good times roll.

gk

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Yesterday was FDIC Friday.  That’s a term I read in some comments on MarketWatch.com last year and it stuck with me.

It came about because the FDIC has taken to shutting banks down on Friday evenings just after the stock market closes.  That gives the stock market a couple of days to forget how bad things are, and everyone is fat, dumb, and happy come Monday morning.

Here’s the story on CNN about the two banks that were shut down yesterday.  There were the National Bank of Commerce in Berkeley, Il., and Bank of Clark County in Vancouver, WA.

This happened to be the first time the FDIC shut down any banks this year.  It won’t be the last.  Looks like I’ll have to update my page that lists bailouts and bank closings.

gk

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The Senate tonight passed the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″.   Why should you care?  Because it’s the single largest, most intrusive, most budget busting bill ever passed.

In case you’re wondering, the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″ is the name of the Senate version of the bail out bill.   I’m serious.  And I’m serious about kicking both of my Senators (Corker and Alexander) out.  On their asses.  Hard.  Because both of their asses voted for this monstrosity.

The bill passed 74 to 25.  You can see how your Senators voted here.

Take a minute and read some of the highlights of what’s in the bill.  Here are a few quotes.  Let me know when you figure out what the hell this has to do with the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″ – or how these items will somehow make the bill more palatable to House Republicans.

The package adds provisions to the House version – including temporarily raising the FDIC insurance cap to $250,000 from $100,000. It says the FDIC may not charge member banks more to cover the increase in coverage.

The bill allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit (This is the dumbest thing I’ve ever heard – prohibit the FDIC from raising insurance rates – while allowing them to “cover any losses” (yes, it’s UNLIMITED) by borrowing from us.  STUPID!)

Here are some other financial bail out items included in the bill that I’m sure Corker and Alexander think we needed….

a deduction for the purchase of solar panels….

allow individuals to deduct state and local sales taxes on their federal returns….

relief for another year from the Alternative Minimum Tax….

Here’s the kicker – and I quote “The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill.”

The dumbass Senators who voted for this bill didn’t have a fucking clue as to what they were voting on – because “of the many unknowns” contained in the bill!

PLEASE – Call and write your Representatives.  Now.  I mean right now, not tomorrow morning, don’t wait, DO IT NOW.  This financial nightmare that’s being ramrodded down our throats can still be stopped if enough people express outrage.  If the House doesn’t pass it – it won’t become law.  It’s that simple.

God help us (and our kids) if this gigantic takeover of the private sector goes through.  I’m only 46 and there’s no way to pay for it in my lifetime – it’s borrowed from my kids and their kids.  STOP THE MADNESS NOW!

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