state, Puerto Rico. Three banks were closed, a total of $20.5 billion
of assets were transferred to new owners. In the process, The FDIC
recorded a charge of $5.3 in their DIF fund.
The Puerto Rican disaster is the biggest loss since the FDIC was forced
to absorb Indymac bank in 2008. Some perspective on the magnitude of the
loss:
In 2009 the FDIC raised $45 billion from its member banks. This amount
represented a three-year prepayment of the banks insurance premium.
Therefore the premium income available to absorb losses is $15 billion a
year. Puerto Rico just cost one third of the annual income.
Puerto Rico has a decent sized economy. The CIA puts their GDP at $88
billion. If they were a state they would be ranked 35th in Gross State
Product (“GSP”). It would have just nosed out Mississippi. By way of
comparison California has a GSP of 1.85T (21Xs PR) Illinois, 634b (7Xs
PR), Florida $744b (8Xs PR) and Georgia $400b (4Xs PR).
PR has a total population of 3.9mm. California’s population is 37mm
(9Xs PR), Florida 18.5mm (5Xs PR) and Illinois has12.9mm (3XsPR).
Based on the size of the economy and the population the losses
experienced by the FDIC in PR are way out of proportion. It begs the
question; “What were the regulators doing?” The PR losses at the FDIC
will not be born by the taxpayers. They will be born by the banks that
are part of the system. They will be forced to pay higher insurance fees
to offset the total losses. Tough luck for them, but those costs will
be passed to consumers dollar for dollar.
The D.C. mortgage lenders Fannie Mae, Freddie Mac and FHA all have a big
exposure to Puerto Rico. The losses relating to the PR loan exposure
will be funded by Treasury (AKA – the Taxpayers).
This web
site lists bank own properties in Puerto Rico. Of the 214 listed
homes 161 (80%) are owned by either Fannie Mae or Freddie Mac.
In the grand scheme of things Puerto Rico is not going to sink any of
the Federal lenders. However the losses in Puerto Rico are likely to be
proportionately larger than in the 50 States based on population. The
question is why? Puerto Rico is strategically important to the US.
Financial aid is/was justified. A portion of that aid was delivered
through Fannie, Freddie and the FDIC.
If we ever get around to addressing the problems of the Federal
Government’s role in the mortgage market, on the top of the list should
be the need to separate what are good lending standards and Federal
subsidies.
This is a trend. At the same time Washington protects and coddles the biggest banks, it's wiping out the small and regional ones. They took a major hit last year when the preferred shares of Fanny and Freddie were written off. This only gets worse, as far as anyone can see.
And something ZH drew our attention to first..
.. on ransquak news..Crisis Panel to Probe Window-Dressing at Banks
"PR has a total population of 3.9mm. California’s population is 137mm (36Xs PR), Florida 18.5mm (5Xs PR) and Illinois has12.9mm (3XsPR)."
California has a population of 137mm!?! Holy Crap! Maybe more like 37 million perhaps.....
yeah, yeah. I fixed it. My copy editor is a drunkard....
and your copy editor is ... :^)
subtle.
No worries.
The Administration is probably cleaning up P.R. Banks before they become publicity issue once they attempt Statehood.
Administration wants P.R. because they will get 2 Senators and about 6 House Seats and expectation is they will all go Democrat.
Total game to mess with 2012 Election.
More importantly, they would pick up 8 votes in the electoral college if the logic that PR would go Democratic holds. Just another shovel of dirt on the lid of the coffin of the republic. Maybe the US should reclaim Cuba and make it number 52.
We are well on our way to the 57 states that O promised us in the 2008 elections.
on Wed, 05/05/2010 - 09:05
#332463
by snowball777on Wed, 05/05/2010 - 09:28
#332514
by The Alarmist
on Wed, 05/05/2010 - 09:31
#332527 You (3) Three think this is the Dems Fault and that the Dems picking up votes will cause the U.S. to faulter? really? seriously?
So what caused the 50 to 1 leverage to be put under pressure? WallStreet!? Shorts!? or was it when the monies where pulled out of the programs that provided the backstop for the 50 to 1 leverage that was until that time backed by Federal or as I like to call them Tax Trough Dollars... Bush pumped 100% more money into the programs and then several years later... he pulled funding from those same programs he pumped...
50 to 1 leverage on Federal monies that had been flowing like a river for 2 or 3 decades? which then got pulled... caused the stresses that lead to Goldman being able to short, which lead to Lehman's collapse and so on… This financial crisis was engineered and is was an Austrian lite thought process that lead us to this collapse… Reigning in any spending, on a broad scale has a ripple effect that spans well beyond what we would choose to see.
Not a story on the first domino that fell anywhere, even here. Bush pulled the backstop away from WallStreet... maybe all of those dollars going the other way pissed him off? http://money.cnn.com/2006/10/31/news/political_donations/index.htmDecember 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 - 2007.
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
HOME is the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-income households. Each year it allocates approximately $2 billion among the States and hundreds of localities nationwide. The program was designed to reinforce several important values and principles of community development:
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/
Which was part of: HOME is authorized under Title II of the Cranston-Gonzalez National Affordable Housing Act, as amended. Program regulations are at 24 CFR Part 92.
Which Daddy Bush pushed thru...
Now, after pumping all of these dollars in... Bush cut funding, never mine the shit head idiot dems v. reps...
When Bush pumped the housing market, with the magic, un-written Federal backstop clause and then cut the funding... all of that 50 to 1 leverage took on a new sheen... 50 to 1 leverage for an ongoing Federal Program, or as I would call it... The big boys feeding from the public trough of tax dollars... was safe, safe enough that how many absolute return funds bought into the rated, magic Federal funded and back stopped debt machine / vehicles? LOTS!
But, when the Federal monies where cut... and the magic backstop was found to be a lie... the domino's fell, one after another... Bu tgo ahead and tell me how the lil fat bald gay guy did it! The Dems? Bush? was a Dem?The Banks are using profits to pay for their Lobby? not the 0% Fed Window?
http://www.wired.com/threatlevel/2009/08/bank-lobbyists/
**** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****
http://online.wsj.com/article/SB124640640747376775.html
So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?
http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008
You don't think this will come up in the senate debates?
does anyone else think it's an accident that house bill HR2499, "Puerto Rico Democracy Act" was snuck to vote and passage (223 to 169) on April 29th? yes - that's 4 days ago... oh, you didn't hear about that one either?
(http://clerk.house.gov/evs/2010/roll242.xml)
then, one day later three large PR banks are consumed by the FDIC...?
what the hell is going on here? are we moving to add them to the US in some legal fashion so we can hold them up when they collapse?
maybe this is a decent idea (i don't think so), but i really resent how this sh#t is being done. what else is going on that we're missing?
obama: "watch the other hand"...
Plus, plus and PLUS! for the info! Thanks.. to continue on in the spirit started by you...
Official Summary4/29/2010--Passed House amended. Puerto Rico Democracy Act of 2010 - Authorizes the government of Puerto Rico:
(1) to conduct a plebiscite giving voters the option to vote to continue Puerto Rico's present political status or to have a different political status;
(2) if a majority of ballots favor continuing the present status, to conduct additional such plebiscites every eight years; and
(3) if a majority of ballots favor having a different status, to conduct a plebiscite on the options of becoming fully independent from the United States, forming with the United States a political association between sovereign nations that will not be subject to the Territorial Clause of the Constitution, being admitted as a state of the Union, or continuing its present political status.
Prescribes the eligibility requirements for voting in a plebiscite. Requires the Puerto Rico State Elections Commission to:
(1) certify plebiscite results to the President and Congress; and
(2) ensure that all ballots used for a plebiscite include the full content of the ballot printed in English.
Directs the Commission to inform persons voting in a plebiscite that if Puerto Rico retains its current political status or is admitted as a state:
(1) the official language requirements of the federal government shall apply to Puerto Rico; and
(2) it is the best interest of the United States for the teaching of English to be promoted in Puerto Rico as the language of opportunity and empowerment in order to enable students in public schools to achieve English language proficiency. Requires the Commonwealth of Puerto Rico to pay all costs associated with such plebiscite (including the costs of printing, distribution, transportation, collection, and counting of all ballots).
http://www.opencongress.org/bill/111-h2499/show
Related Issue AreasData from the Congressional Research Service
Bruce, why bail out PR? IS the FDIC stealing money? Or losing it? Is there a difference anymore? The more debt the better? I always look forward to your articles and hope that one day I can understand all these nuances. Thank you for your work!
Puerto Rico is strategically important to the US. Financial aid is/was justified.
"Strategically important...???"
Kind of a stretch if you ask me.
(*SHRUG*)
Laying that aside... what's this about "financial aid" being... er... "justified...???"
How so?
Hell... I don't want the federal government to bail out NEW FRIGG'N YORK - and I live here!!!
Jeezus... would you STOP encouraging the frigg'n morons in Washington spend more of my G-ddamn money?!?!
Now I'm not the most religious guy on earth, but I seem to recall something about "The Big Guy" helping those who help themselves.
This bailout mentality has got to go...
BILL
Okay. You are right. PR is important. But not that important. Possibly Congress should vote on subsidies. I argue that if there is a need for a subsidy for strategic or political purposes that subsidy should not be done via Fannie and Freddie or FHA.
A "bailout" at this point may take the form of fast-tracking PR to becoming a state. The federal government, with precedent, could absorb a lot of PR debt and Obama and the Democrats would love to have the additional electoral votes and congressional representation. If this is actually any one's strategy it works to their advantage to fan the flames and make PR look like an even bigger disaster than it actually is.
update: oops, I didn't see that SteveBob made the same point below.
This is not the end of the world. It's just the end of the world as we knew it. Good ridence.
Minor correction: California's population is 37 million, not 137 million... a bit over (9Xs PR).
I think he was counting Mexico.
+100 - now *that* was funny!
"The PR losses at the FDIC will not be born by the taxpayers."
It was my understanding that the FDIC "banks" with the Treasury, which has backstopped it, and will continue to backstop it, well beyond their actual funds. The Treasury in turn gets backstopped by the Fed, through QE both overt and covert. QE erodes the value of every dollar in existence, and over time wipes out the value of the "taxpayer's" savings. As for the emergency 3-years forward dues collected by the FDIC, they have already committed to multiples of that in guarantees on questionable assets; it is gone if something around 5% of the guarantees need to be fulfilled. It is also wrongheaded thinking to expect that the 3-years forward dues wouldn't be needed by simple "normal" operations over the upcoming 3 years. Will we complacently accept it when the FDIC specially collect the subsequent 10 year's dues to cover needs during the next 3 years, whose dues they already spent this year? Pretense.
The one single overriding theme of modern times is that the taxpayers get sacked for *everything*.
The FDIC insures $4.5T in deposits. They charge .35% on average and raise $15b p.a.
They could double that if they had to. $100b every three years. That is a lot of money to lose. They also have the ability to borrow. So no, I don't think the FDIC is going to cost the taxpayers.
This is the TBTF issue. Say a top five bank went under (unlikely). This would destroy the FDIC. For that reason the bank would not be allowed to fail. There would be another TARP.
The FDIC is really there to protect the smaller banks. If a big one goes it is all on the taxpayer.
+1
Yes, the taxpayers gifted the FDIC the taxpayer credit rating, and the FDIC will drink at the taxpayer subsidy trough (they can pretend it's a "loan", but it won't be paid back.)
It's a joke that the FDIC sought-and-got three years pre-payments. They need that money, and much more, in this year and all subsequent years. There is no scenario by which the banks can fund FDIC liabilities.
The taxpayer is so screwed. Dear Lord, they're stupid.
I remember reading something about the FDIC wanting to move in much earlier, but they were having a hard time finding suitable banks on the island to take on the deposits.
Clycntct was seen on a street corner with a tin cup and hand sign.
Will work for accountability.
Please help a guy out.
I was totalling those up when I read it Friday, too Bruce.
Shelia better open a website for us to start donating to the FDIC a la Timmay G's "Please give to the Treasury today to lower the deficit..."
I would give you one digit Shelia... but I am busy using it... It is the middle one pointed up at your boss....
"Puerto Rico has a decent sized economy."
Puerto Rico Top Exports: Food and Hot Chicks... I am a BIG fan...