This page has been archived and commenting is disabled.
The FDIC, Recursive Exceptionalism, and the Fall of the Republic
Historically, the appearance of recursive exceptionalism is a highly predictive harbinger of republican (and, as it happens, imperial) decline, eventual fragmentation (typically violent in character) and collapse. It was no accident that the Roman Republic's decline followed hard upon the unspoken disposal of two-consul rule (no matter if you believe that this actually began with Pompey, Caesar or Octavian). Likewise, it is instructive that the progression towards The Principate after 400 some years of a Roman republic was also driven significantly by the conflict between the remnants of Roman monarchy, the aristocracy, and the plebes. If you find yourself a supporter of Ludwig von Mises, you might also note currency debasement, price controls, tariffs and restrictions on the free movement of labor and goods among the similarities to contemporary conditions. Self-inflicted economic wounds notwithstanding, once you stop following your own rules, "all bets are off," and it can only be a matter of time before you find that rem ad Triarios redisse (or rem ad Federal Reserve redisse, as the case may be).
In this connection, today we find it instructive to direct the modest beam of the Zero Hedge searchlight onto the boxy, greenroof-topped, marble facade of the Federal Deposit Insurance Corporation. This post marks the beginning of a week-long Zero Hedge series on the FDIC.
On September 28, 2009, Arthur J. Murton, Director of the FDIC's Division of Insurance and Research penned a memo to the Board of Directors on plans to prevent the Deposit Insurance Fund from total depletion (which threatens imminently even as we type this). That memo is actually most interesting primarily for its quick summary of the exceptions made to the general statutory requirement that the DIF maintain a minimum reserve ratio of 1.15%. In short, the memo noted that an October 2008 exception permitting the FDIC to take five years to return to statutory compliance was modified only four months later to grant seven years of extension only to be boosted three months later to an eight year respite. The prospect of almost a decade of non-compliance with the original (and clearly already insufficient) statutory reserve ratio is instructive.
If you are reminded of the now obviously useless national debt ceiling originally set in 1917, you are not alone. In 1919 that limit was $43 billion. By 2001 it stood at just under $6 trillion. Today, obviously, it floats just above $12 trillion (and just above the total debt figure as well). The ritualistic farce that now accompanies the regular and totally unopposed raises to the limit is, unfortunately, characteristic of recent statutory shenanigans by Federal authorities in the United States in legal disciplines ranging from bankruptcy to bailout authorization to agency finances.
The FDIC, (along with the Federal Housing Administration, Fannie, and Freddie), appear to have been so totally co-opted from their original purpose as to make a mockery of the authorizing legislation for the entities (not that these were organized properly- or indeed, justifibly- in the first place). But this should not surprise us. Moreover, looking deeper, and touching on an increasingly common theme here on Zero Hedge, we find that agencies and departments of the Federal government appear to enjoy a great deal of latitude with respect to setting their own rules (and self-non-enforcing them). A footnote in the above referenced memo is illuminating in this regard:
In setting assessment rates, the FDIC’s Board of Directors is authorized to set assessments for insured depository institutions in such amounts as the Board of Directors may determine to be necessary. 12 U.S.C. §1817(b)(2)(A). In so doing, the Board shall consider: (1) the estimated operating expenses of the DIF; (2) the estimated case resolution expenses and income of the DIF; (3) the projected effects of the payment on the capital and earnings of insured depository institutions; (4) the risk factors and other factors taken into account pursuant to 12 U.S.C. §1817(b) (1) under the risk-based assessment system, including the requirement under such paragraph to maintain a risk-based system; and (5) any other factors the Board of Directors may determine to be appropriate. (Emphasis added).
We would point to the absolute insanity of permitting "projected effects of the payment on the capital and earnings of insured depository institutions" as a criteria for determining what amount to risk-based insurance premiums as item (3) above explicitly authorizes, but item (5) pretty much allows the Board of Directors to use any criteria they like in any event, so it is not clear to us what the point of the preceding assessment rate criteria limitations are, other than as a continued employment act for government attorneys. Similarly, we might ask why...
...the term ‘disaster-recovery FMAP adjustment State’ means:
a State that is one of the 50 States or the District of Columbia, for which, at any time during the preceding 7 fiscal years, the President has declared a major disaster under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and determined as a result of such disaster that every county or parish in the State warrant individual and public assistance or public assistance from the Federal Government under such Act and for which— ‘‘(A) in the case of the first fiscal year (or part of a fiscal year) for which this subsection applies to the State, the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection and subsection (y), is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year after the application of only subsection (a) of section 5001 of Public Law 111–5 (if applicable to the preceding fiscal year) and without regard to this subsection, subsection (y), and subsections (b) and (c) of section 5001 of Public Law 111–5, by at least 3 percentage points; and ‘‘(B) in the case of the second or any succeeding fiscal year for which this subsection applies to the State, the Federal medical assistance percentage determined for the State for the fiscal year without regard to this subsection and subsection (y), is less than the Federal medical assistance percentage determined for the State for the preceding fiscal year under this subsection by at least 3 percentage points.
...immortalized in recent health care legislation isn't simply written in its more commonly known form ("Louisiana"). It becomes increasingly difficult not to feel that one's intelligence is being insulted.
This bit of language is quite telling with respect to the entity's view of the public confidence it [lacks/enjoys]...
The final rule also provided that if, after June 30, 2009, the reserve ratio of the DIF were estimated to fall to a level that the Board believes would adversely affect public confidence or to a level that shall be close to or below zero at the end of any calendar quarter, the Board, by vote, may impose up to two additional special assessments in 2009...
..in that it anticipates that a lack of public confidence criteria alone once the reserve ratio falls below zero might not be enough to trigger special action. Could it be that the public has already priced in total FDIC insolvency?
Why, exactly, do we tolerate this bit of FDIC folly? We're not sure, but watch this space in the days to come to follow our exploration of exactly this topic.
»
- 4940 reads
- Printer-friendly version
- Send to friend
- advertisements -
I've officially started reading ZH more than Drudge...
You may now add 10 IQ points back. Congratulations
And if you don't vote for Palin you can have 10 more.
FDIC now selling real estate:
http://www.mybudget360.com/fdic-broke-and-selling-real-estate-how-13-tri...
Marla, I thought we've been through this. Rules/Laws/Limits, these things are for peasants, not gov't bankers, not private bankers, not gov't officials, and certainly not the ruling elite (aka. quasi-gov't bankers). No, only peasants need concern themselves with concepts like consequences.
We love it when you talk Latin.
Fall of the Republic, must watch
http://www.youtube.com/watch?v=F8LPNRI_6T8
thank you! thank you! thank you! fave'd, rated, and shared...
+1 followed by forty zeros
"Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed. Money is so noble a medium that is does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.
Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, 'Account overdrawn.' "
"Francisco's Money Speech"by Ayn Rand
rem ad Federal Reserve redisse
I always appreciate a good latin saying. This particular one works on so many levels :-)
For those too lazy to google: http://en.wikipedia.org/wiki/Triarii
Looking forward to reading what the ZH searchlight reveals about the FDIC.
Mahatma Gandhi - "You can judge a financial system by how they treat their weakest members."
I want to raise the debt ceiling on my credit card...
You're not going crazy, you're going sane in a crazy world.
This might sound sarcastic. I've been wanting to get a job at the FDIC for some time now. I thought it would be a good experience. But it seems to be pretty difficult.
Anyone with an IQ higher than 83 is screened out.
I'm assuming you're much higher simply because you're visiting ZH and either you spell well or you know where to find the spell check button, which alone is good for a 110 IQ. :>))
You would need a doctorate in suck up. The FDIC will be gone in 3 or 4 years so if you can get the degree before then.....................
This is gonna be a great series, up there with Mayberry R. F. D.
"hey, my keys...."
Thank you Marla....great piece, looking forward to the rest of the series.
And this little gem is so, well, gemific:
"....we find that agencies and departments of the Federal government appear to enjoy a great deal of latitude with respect to setting their own rules (and self-non-enforcing them)."
Mono-referential societies have and always will fall ... Persia, Greece, Rome, Charlemagne dynasty, Merovingian dynasty etc etc. And while the subsequent middle-ages did not come so abruptly and violently as many claim they did (which is perfectly described and proved by Le Goff in his book " The Birth of Europe) the transition was in no way a calm one. While the subsequent fall of Rome can be ascribed to the change in the political structure which came with Caesar (and caused the frequent power struggles and, of course, lack of any true power in the end-stages of Rome), recent articles suggest the final blow to Rome was caused when Rome agreed to pay the northern nations an annual fee which ultimately lead to the debasement of the Roman denarius, and thus caused Rome to be unable to finance its army or any other "program". While this is only a minor part of this article, it is in no way, an irrelevant one; simply because it offers us a good historical lesson on what will happen once WHEN The USA loses its position as a global policeman. While globalization can and is perceived as an political, economic and cultural reality of the future; it can, in no way, not be characterized as utopia in the full meaning of the word. Also the financing for the project comes from the pockets of the American citizens and their "will" to subdue to the power that is. Again I am not suggesting anything; but it is always good to read upon and compare the past similarities in the outcome of the political, economical and cultural programs and structures which goal was "world" domination. Once the will of 150 million+ US citizens, to pay for some utopian dream, halts (and all evidence suggest it will be so, and be so very soon), the Grand Globalization Project will halt as well, and The US will, make no mistake about that; lose its position as the only superpower; and we will, make no mistake about also, re-visit some of the histories finest hours of war, savagery and despair. Only fools, like many fools before them, think that is not a possible outcome of this madness. And now excuse me, I need to go and buy some gold.
All excellent points. Be sure you hide that gold someplace safe. What is your perspective on how Switzerland will weather the next 10-20 years?
When working class illegal immigrants in California cheer on the Chinese rescue of the State and muni governments through an "angel loan" that comes with repo rights to state lands and FDIC owned property, we'll know that the 3rd and 4th sacking of Rome analogies have come to fruition.
For a one paragraph blog response it is very sharp, well written.
I suggest people read the Decline & Fall of the Roman Empire by Edward Gibbon before the fall of the West.
Good enough to get its own thread
The Biggest Rip-off of All Time
by Martin D. Weiss, Ph.D. 11-23-09
http://www.moneyandmarkets.com/the-biggest-rip-off-of-all-time-5-36544
I would really like to see an FDIC watchdog, like SIGTARP for TARP, at this time. If there is such an independent entity please let me know who it is. The FDIC new "rules" are ripe for corruption. I do not trust the FDIC to carryout its "new" mission. There should be a grand jury to look into FDIC bank liquidations and handling of CDOs, CDSs, other bank SIVs and asset liquidation and pricing.
My feeling is that Sheila C. Bair and the FDIC cannot continue in the brokering, holding and conversion of bank bad debts (liabilities) beyond the usual insured deposits. This is wrong and she know its.
Mark Beck
To those who have been around preparing for this eventuality... there is an informative posting from years ago by a engineer living in Argentina.
Learn survival lessons from the Argentina collapse that sent 60% of people into poverty.
http://www.survival-spot.com/survival-blog/argentina-collapse/
Some of us come from families who spent generations fleeing various civil wars in Europe. Of those, some of them never fully Americanized in the great moderation of the 1950's Post War expansion, and some descendants have never seen reason to buy $300 pairs of jeans 'pre-distressed' by guatemalan peasant women.