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Has Moral Hazard Hit the FDIC???
The last standout to the Moral Hazard Brigade has finally joined ranks. The FDIC is considering bailing out the banks!!! From IDD Magazine:
WASHINGTON
— As the number of bank failures continues to rise, some industry
representatives are making a case that amounts to political heresy: the
Federal Deposit Insurance Corp. should prop up dying institutions rather than letting them collapse.They
argue that the constant stream of failed-bank deals — in which the FDIC
sells deposits on the cheap and guarantees some of the losses — has
scared away potential buyers for open and operating institutions.If
the FDIC were to consider open-bank assistance in just a few cases,
this thinking goes, it could slow the pace of failures and save the
government money."I daresay that in some cases it will be the least-cost solution to provide some kind of open-bank assistance," said Ron Glancz, a partner at Venable LLP.
To
say that regulators and Capitol Hill are skeptical about this argument
is an understatement. The FDIC faces a high legal bar for providing
open-bank aid — and doing so would be politically dangerous."Do
you bet on a disciplined resolution to a very troubled institution … or
do you give the guys who got you into this position a chance to do it
again?" said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. "I don't mean to be unsympathetic, but I don't get it."Still,
some industry representatives said the loss-sharing deals the agency is
cutting to resolve failed banks are so attractive that private-sector
merger activity has all but evaporated."There have been some creative deals … but most buyers are just saying, 'I'll wait until it fails,' " said Dan Bass, the managing director in the Houston office of Carson Medlin Co.
I am almost (but not quite) at a loss for words. Hasn't it occurred to anyone that when businesses fail, it may just be because they should not be in business???!!!
The
FDIC should stick to its knitting of protecting depositor's interests,
up to the insured limits. If the deals being cut are too sweet, you
don't cut sweeter deals to remedy it. What the hell is going on in DC?
"I daresay that in some cases it will be the least-cost solution to provide some kind of open-bank assistance," said Ron Glancz, a partner at Venable LLP.
To
say that regulators and Capitol Hill are skeptical about this argument
is an understatement. The FDIC faces a high legal bar for providing
open-bank aid — and doing so would be politically dangerous."Do
you bet on a disciplined resolution to a very troubled institution … or
do you give the guys who got you into this position a chance to do it
again?" said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. "I don't mean to be unsympathetic, but I don't get it."Still,
some industry representatives said the loss-sharing deals the agency is
cutting to resolve failed banks are so attractive that private-sector
merger activity has all but evaporated."There have been some creative deals … but most buyers are just saying, 'I'll wait until it fails,' " said Dan Bass, the managing director in the Houston office of Carson Medlin Co.
A majority of the FDIC's failed-bank resolutions this year, 140 as of late Friday,
have included agreements that the agency and acquirer will share future
losses tied to its assets. Typically, the FDIC will cover 80% of losses
on a chunk of the assets, and then 95% beyond that level. (The
agreements run for 10 years for mortgages, and three years for
commercial-related assets.)The agency says the agreements help
draw more competitive bids for failed banks, mitigate the agency's
short-term cash needs and help it unload a high volume of assets.Yet
observers say the tactic hurts the FDIC in the long run as it shoulders
risks far into the future, bolstering the case for providing assistance
to a private-sector recapitalization that would stave off the failure."The
costs" of assistance "would have been far less than the FDIC is
experiencing in connection with the losses that are being sustained
going forward," said James Rockett, who co-heads the financial institutions corporate and regulatory group at Bingham McCutchen in San Francisco.
Perhaps proponents of this idea should read my latest blog post: Residential Lending Credit Losses Worsen as Unstainable Government Support Proves... Unsustainable. We
are still very much in a housing bubble, and many of those banks that
are anywhere near marginal and have RE exposure will fail. They need to
be put to pasture.
Failed banks "are costly, but they would be costly on an open-bank basis as well," said John Douglas, a partner at Davis Polk & Wardwell
and a former FDIC general counsel. "If you compare a closed-bank
situation and an open-bank situation, invariably the closed-bank
situation will turn out to be less expensive to the FDIC, because you
wipe out so many liabilities in the receivership. You wipe out all
contingent claims, subordinated debt and other types of debt. … You
don't have to deal with it at all."Bovenzi and Petrou said the mergers and acquisitions market eventually will recover on its own.
"Certainly
for any institution that is flatlining, there is not private investment
capital out there," Petrou said. "For entities that are weak but
viable, there is. There is money out there and there is money moving."Bovenzi said the pace of deals could pick up after the pace of failures slows.
"Down
the road when you get to the point where there are fewer bank failures,
you're still going to have winners and losers," he said. But "the
winners should be able to buy some of the institutions that wouldn't
necessarily otherwise fail, but would have their share price reduced to
the point where it would become attractive to those acquirers. While
this may not be the time where a lot of that's happening right now, it
doesn't mean it won't down the road."Lawmakers, many of whom
have condemned the bailouts of larger institutions, are also highly
unlikely to support giving the FDIC more room to assist dying banks. It
could also encourage smaller institutions to engage in more reckless
behavior, knowing they may be saved by the government."You'll
have a significant moral hazard issue for smaller institutions to the
degree that the FDIC supports institutions and subsidizes investments
in entities that should have pulled themselves back from the brink,"
Petrou said. "If an institution is in need of open-bank assistance, the
management that got it to that point is at least open to some question."
To be fair, Sheila Bair has condemned this idea. Thank goodness.
For
their part, FDIC officials have indicated they are not interested in
providing financial help to open individual institutions that are
troubled. Chairman Sheila Bair has expressed some
interest in using resources left in the Troubled Asset Relief Program
to benefit smaller banks, but she has also opposed open-bank
assistance, and urged Congress to prohibit it for nonbank firms in the
pending legislation to create a resolution regime for those companies.
"We're
subject to least-cost. We can't provide assistance of any kind to an
open institution absent a systemic-risk determination," Bair said Dec.
2.
Some observers said proponents of open-bank assistance are
really just interested in getting FDIC help for deals that would not
involve the highly competitive bidding process for institutions that
want to acquire failed banks.
"There are plenty of people who want open-bank assistance," Douglas said.
"The
reason sellers want it is because it gives their shareholders some hope
of recovery in the future. … The reason acquirers want it is they want
the institution without having to go through the bidding process."
FDIC is out of control!
When is the MSM going to hold Ms. Bair for:
"1. underestimating the severity of the financial meltdown while blasting Bloomberg for trying to warn her about the inadequacy of her insurance reserve last September, before the economic crisis was in full gear;
---"Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures."
www.fdic.gov/news/news/press/2008/pr0808...
2. seizing and selling Wamu when it was neither insolvent nor illiquid (translation= bank robbery made legal, even from pension funds);
---"Now, further investigation reveals that, contrary to regulators’ assertions at the time of the seizure, WaMu had sufficient liquidity and capital to meet regulatory standards and survive."
seattle.bizjournals.com/seattle/stories/...
---"The Washington State Investment Board's funds will lose about $47 million because of the failure of Washington Mutual"
www.kirotv.com/money/17566614/detail.html
"•The administration board's total unrealized or 'paper loss' from WaMu holdings:
$195 million
•Pension Fund (Florida Retirement System): $42.18 million in Wamu holdings; $8.8 milion was in stock
•Florida Hurrican Catastrophe Fund: $41.28 million, all bonds and related securities, no stock"
cftlaw.com/news.php?category=Insurance+I...
"At least seven pension funds lost their private equity investments in Washington Mutual, following its failure and subsequent purchase by JPMorgan Chase... Investors in the $19.8 billion TPG VI include CalPERS, New York State Common Retirement Fund, Illinois Teachers' Retirement System, Washington State Investment Board, Los Angeles City Employees Retirement System and the San Francisco City & County Retirement System."
www.pionline.com/article/20080929/PRINTS...
3. inexplicably picking an "on-the-verge-of-collapsing" Citigroup to "rescue" Wachovia and in total contrast to her earlier actions in the Wamu fire-sale, saving WB bondholders and endangering billions of tax dollars to guarantee toxic WB assets;
---"Citi will acquire 'the bulk of Wachovia's assets and liabilities,' the FDIC statement said. Under the agreement, Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans, while the FDIC will take losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing the risk"
www.marketwatch.com/story/citigroup-to-b...
"The head of the FDIC said the agency is standing behind the agreement it made with Citigroup Inc. to buy Wachovia Corp. despite Wells Fargo & Co.'s new $15.1 billion deal trumping Citigroup's plan."
www.nydailynews.com/money/2008/10/03/200...
---"U.S. Agrees to Rescue Struggling Citigroup... Plan Injects $20 Billion in Fresh Capital, Guarantees $306 Billion in Toxic Assets"
online.wsj.com/article/SB122747680752551...
4. destroying the credit and bond markets by seizing Wamu based on liquidity pressure and wiping out Wamu bondholders in an unprecedented move, respectively;
---"The amounts deposited with the ECB rise from a daily average of 0.09 billion euros in the week starting September 1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008... The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm."
www.newyorkfed.org/research/conference/2...
---
"This is a chart of the excess reserves held at the U.S. central bank. The chart, compiled by the St. Luis Fed demonstrates that banks always lend out nearly every dime they can so as to make a profit. They do not hold excess reserves at the Fed, sitting around making them no money.
But, notice how the blue line is flat near zero and then it spikes up to ridiculous levels close to $300 billion in 2008. With our reserve ratio of 10%, that's nearly $3 trillion of lending that isn't being done. Banks are scared out of their minds and are holding a huge amount of excess reserves... just in case- profits be damned.
This chart demonstrates that banks are not lending. This chart explains why the money multiplier is contracting. This chart explains why we have a credit crisis."
www.creditwritedowns.com/2008/12/chart-o...
5. playing favoritism;
---"Did FDIC Want CIT to Fail... Cramer pointed the finger directly at FDIC Chairwoman Sheila Bair. All the FDIC had to do was guarantee CIT’s debt, as it had done for many other lenders, and that TARP money would have been safe. And get this – CIT put in for guarantees back in January, but Bair sat on the application and provided no reason why."
www.cnbc.com/id/32011061
---"With the FDIC-backed TLGP program set to expire on October 31 (with a 6 month safety net optionality, whatever that means), GMAC did all it could to jump on the last train leaving the cheap taxpayer funded capital station. The government subsidized provider of car loans for cars nobody wants priced $2.9 billion of 3 year notes."
www.zerohedge.com/article/cash-sink-hole...
---"Federal Deposit Insurance Corp. Chairman Sheila Bair said she may give banks including Citigroup Inc. and JPMorgan Chase & Co. a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets."
http://www.bloomberg.com/apps/news?pid=20601087&sid=aN2SJifeRtNs&pos=4
www.americanbankingnews.com/2009/12/04/f...
6. giving troubled banks deadlines to raise capital or find buyer but at the same time sabotaging their attempts to stay independent by offering better deals in secret (translation= interested parties would wait until AFTER FDIC seizure to buy these banks cheap);
---"Wachovia Suitors May Delay Bidding After Dimon's Deal for Wamu... 'WaMu's takeover has proven that there's an easy way, if the FDIC is involved,' said Sean Egan, president of Egan-Jones in Haverford, Pennsylvania. 'You kick the hell out of the equity holders and bondholders. That may be the new model for bank takeovers.'''
www.bloomberg.com/apps/news?pid=20601087...
---"This week potential buyers looking to acquire BankUnited (BKUNA) have asked the FDIC to put the bank into receivership prior to selling its assets. This comes after BankUnited failed to raise sufficient capital to meet a $1 billion injection requirement by its May 4th deadline, prompting a warning by the Office of Thrift Supervision. Now the vulture capitalists are circling in the hopes that the FDIC will put a bullet to the bank and hawk off the assets at a rock bottom price."
seekingalpha.com/instablog/407662-troy-r...
7. using TLGP (Temporary Liquidity Guarantee Program) to help guarantee billions in bonuses for Wall Street institutions that did little lending, when the program's original purpose was to improve credit crunch;
---
---First-Half Revenue, Compensation and Head Count:
Revenue Comp Employees Comp/Employee
Morgan Stanley $8.36 bln $5.91 bln 62,215* $95,009
Goldman Sachs $23.2 bln $11.4 bln 29,400 $386,429
JPMorgan
Investment
Bank $15,672 bln $6.01 bln 25,783 $232,983
*Includes 20,004 employees related to the Morgan Stanley Smith Barney joint venture with Citigroup Inc.
i2.cdn.turner.com/money/2009/05/12/news/fdic.guarantee.fortune/chart_debt.gif
www.bloomberg.com/apps/news
---"While the smaller commercial banks were increasing their loan portfolios during the last four weeks, large banks and foreign-related institutions were reducing theirs. For example, in the last four week period, large commercial banks reduced total loans by almost $52 billion. For the last 13-week period these banks have reduced all loans by $139 billion. And the decreases were all over the balance sheet: commercial and industrial loans were down by $27 billion; real estate loans were down by $40 billion; and consumer loans were down by $10 billion."
seekingalpha.com/article/172219-a-positive-trend-in-small-bank-lending
8. exacerbating lending crisis for small businesses by collecting 3-year prepayments from banks, including healthy institutions that played no part in causing this financial chaos and have actually been doing loan servicing;
---"Ms. Bair aid that the prepayment proposal would have little impact on the ability of most banks to continue their lending businesses... Edward L. Yingling, president of the American Bankers Association... this prepayment will decrease the ability to lend"
www.nytimes.com/2009/09/30/business/economy/30regulate.html
9. terminating contracts and signing loss-sharing agreements in bank deals that ended up undermining Ms. Bair's own loan modification effort;
---"F.D.I.C.'s October agreement with JPMorgan Chase and Washington Mutual allows Chase to pick and choose which of the city’s 148 Washington Mutual branches it will keep. Chase will then turn over the rejects to the F.D.I.C. But here’s the kicker: According to sources, the F.D.I.C. can then simply terminate the leases of those rejected branches, all contractual obligations void."
www.observer.com/2008/real-estate/it-s-w...
---"If I'm OneWest, why would I want to waste my time negotiating through a Short Sale, when I can make the same amount of money (if not more) by just letting it go to foreclosure? And we wonder why nobody can get a Loan Modification? Why would OneWest approve a loan modification for this guy, when they can foreclose and make over $100k? And, to add injury to insult, they have held this loan for 6 months! Not a bad ROI, huh... This entire agreement between the FDIC and OneWest can be found here, on the FDIC website."
activerain.com/blogsview/1243528/is-the-...
10. advocating loan modification and payday loan programs without doing follow-ups on the effectiveness of these programs;
---"Why Many Loan Modifications Fail... Chase disclosed in November that nearly a quarter of trial modifications had failed because the borrower did not make even a single payment, and that nearly half had failed to make all three payments required before the modification could become permanent."
www.nytimes.com/2009/12/04/business/econ...
---"The Federal Deposit Insurance Corporation's (FDIC) two-year small dollar loan pilot program is proving to be a failure after one year, according to a recent critique of the program issued by Financial Service Centers of America (FISCA)."
http://sanfrancisco.bizjournals.com/prnewswire/press_releases/New_Jersey...
11. openly violating FDIC statue;
---“Smaller banks are outraged over the one-time fee, Camden Fine, president of the Independent Community Bankers of America... Community bankers are feeling like they are paying for the incompetence and greed of Wall Street... Bair [DISMISSED] that suggestion... 'For risk-based assessments, our statute restricts us from discriminating against an institution because of size,' Bair wrote"
www.bloomberg.com/apps/news?pid=20601103...
"Big U.S. banks will shoulder a larger share of restoring the fund that guarantees bank deposits under a measure approved on Friday... Federal Deposit Insurance Corp Chairman Sheila Bair defended the formula saying large institutions deserved much of the blame for fueling the financial crisis by funding high-risk mortgages."
www.reuters.com/article/idUSN2239078120090522
12. intentionally using accounting tricks to draw positive interpretations of FDIC actions;
---"'No-Risk' Insurance at FDIC"
www.nytimes.com/2009/04/07/business/07so...
---"New Rules! Banks Can Lie About Commercial Real Estate Loans"
www.businessinsider.com/henry-blodget-ne...
---"Fudging Losses Is Easy When the FDIC Does It, Too... No wonder so many banks are delaying their losses. The Federal Deposit Insurance Corp. keeps showing them how, by doing the same thing with its own."
www.bloomberg.com/apps/news?pid=newsarch...
13. continuously attempting to save her ill-prepared agency and cover its dismal failure in supervision (revealed in many negative reports released by the FDIC Office of Inspector General) at the expense of everyone else besides the FDIC, including shareholders, bondholders, unsecured/secured creditors, insured/uninsured depositors, community banks, and small business owners;
---"Ten of the 12 bank-collapse reviews released by the Fed and Treasury inspectors general this year fault oversight weaknesses including failure to limit excessive concentration in commercial real-estate loans. Examiners from the Fed, and Treasury’s Office of the Comptroller of the Currency and Office of Thrift Supervision also failed to issue enforcement orders and hold banks accountable for recommended changes... The FDIC’s inspector general released 26 reports in the same period, citing similar concerns."
www.bloomberg.com/apps/news?pid=20601087...
www.google.com/hostednews/ap/article/ALe...
---"When Banks Fail, So Do Those Promised CD Rates... FDIC Allows New Owners to Slash Interest Payments on Deposits"
huffpostfund.org/stories/2009/11/when-ba...
---"FDIC's Bair offers no comfort to uninsured IndyMac uninsured depositors... The bank’s failure cost the FDIC nearly $11 billion."
latimesblogs.latimes.com/money_co/2009/1...
"The FDIC chairman has been an activist in bailing-out individuals in foreclosure regardless of cost or circumstance. A year ago she attempted to arbitrarily delay millions foreclosures and has inappropriately manipulated mitigation efforts within failed banks. (I note that her efforts preceded the spike in unemployment and as such were directed primarily at housing speculators and irresponsible borrowers)"
http://theaffordablemortgagedepression.com/2009/10/26/has-sheila-bair-fo...
"As you can see in a liquidation depositors are subordinate only to statutory preference for employment and similar related claims; the entire capital strucutre of the firm has to be wiped out before depositors take any loss whatsoever... FDIC has not been and still is not following the black letter requirements of Prompt Corrective Action... You were, in essence, robbed by the government."
market-ticker.denninger.net/archives/155...
---"A U.S. government plan for a public-private investment fund to buy distressed assets to help clean up banks' balance sheets is likely to generate a 'healthy" profit' for taxpayers and investors, the head of the Federal Deposit Insurance Corp said on Wednesday."
www.reuters.com/article/ousiv/idUSTRE52A...
"The facts: in April, the average auction clearing price on the 331 loans the FDIC sold in January and February was 49.3%. In March, the number of loans FDIC sold in various auctions increased almost four-fold to 1,328, for a total of $470 million in book values of sales, with the average price dropping even more: the latest being at 46.4%"
zerohedge.blogspot.com/2009/05/fdic-sold...
---"Mary Shapiro Must Immediately Investigate The FDIC's Confidential Leak Information In Another Blatant Insider Trading Case... Those questions were quickly put to rest when it became known at 6:33 pm that NYB would in fact receive FDIC subsidies to acquire newly failed AmTrust Bank in a transaction that would be 'immediately accretive to earnings...' No, those would conveniently be funded by Ms. Bair herself. The cost to the FDIC, and US taxpayers, to make NYB a richer enterprise: $2 billion."
www.zerohedge.com/article/mary-schapiro-...
---"Ms. Bair is not happy having frozen the credit markets for months after hurriedly seizing WaMu, she wants to make sure that she freezes it forever! Her latest idea is to let the secured creditors take the fall for bank failures...
It is FDIC's job to insure banks against failures, and that job includes timely collection of premiums. If you neglected your fiduciary duty, then take the responsibility and resign from your post. But for heaven's sakes don't spew any more grand ideas. People who purchase bonds are traditionally averse to risk. If you make lending to banks risky, they will simply lend elsewhere.
Monitor banks closely and make new rules to decrease leverage, but to say that someone else should pay the price for you not doing your job, is not going to hold water."
sackbair.blogspot.com/2009/12/ms-bair-wa...
15. using the "delaying and pretending" tactics in bank seizures and sales, thereby immorally enslaving our children and grandchildren to billions of debts from future losses;
---"The FDIC is guaranteeing 9 billion in loans [in AmTrust deal]. The estimate is a bogus figure conceived by FDIC bureaucrats. They know that many of these loans will take a couple of years to default by which time they will be gone. These are the same type of loans that caused the S & L crisis."
online.wsj.com/article/SB125997349620477...
16. and WORST of all, ENGAGING IN POWER GRABBING AT THE EXPENSE OF THE INSURANCE FUND SPECIFIC FOR DEPOSIT PROTECTION, by overburdening the FDIC with billions of dollars worth of unwarranted liabilities ( i.e. TLGP, LLP, and loss sharing in bank sales)? Why did Ms. Bair wait until early 2009 to ask for an extra $500 billion credit line increase from Congress, instead of demanding money from TARP/Stimulus Bill to help rebuild its DIF ratio that had already fallen below the Congresssional mandated minimum since June 2008?
---
seekingalpha.com/article/140503-fdic-s-f..."
http://seekingalpha.com/instablog/387205-ppy/38175-sheila-and-tiger-msm-...
*imho*
The FDIC is just another fricken scam to employ more fricken people that suck money from the actually working stiffs-the TAXPAYER!
Why in the hell are we so pacifistic that we continue to allow these imbeciles to scam creates "jobs" that have no purpose, produce NOTHING, and waste our money?
Send these people onto the street to do something productive.
www.china.org reports that 11 mm jobs have been created in urban areas this year and about 85% of the 7 mm college graduates found employment. Both the US and China spend about $2 Trillion in stimulus. The US lost 7 mm jobs; China created 11 mm. Why?? I think China's controlled economy forced the banks to lend for construction without any regard to repayment just to create jobs. The US gave the money to the banks where it is used to buy Treasuries and to trade.
Goodbye Dollar! I'll miss you!
Let me count the thousand different ways the powers-that-be can extend and pretend. Each day, it's becoming more obvious to me that this will continue for as long as we allow it to continue. Up to now, we've been assuming it would all collapse under it's own ever increasing weight. I'm now beginning to believe this could go on for much longer than we expect.
That doesn't mean there won't again be market crashes like the fall of 2008. I'm simply saying the death throes will last years rather than months.
I agree. The sheeple are totally ignorant of the BS that the banksters are doing. Look who owns the media companies and tell me if you expect them to truly inform the people about what's going on. But I have no doubt that eventually the system will suffer a catastrophic collapse. Its merely a question of timing. That's why I'm not 100% into gold now nor will I be anytime in the near future.
I've been thinking the exact same thing.
It seems that there's a certain kind of "prosperity inertia" in this country that continues to coast along, seemingly unchanged.
How far we'll coast is the big question. Maybe we're even rolling downhill and picking up a little speed. Do things then level out so we come to a slow stop (giving ample time to those driving our car to tear out the nice stereo system), or does the road become a 45 degree incline and we come to a quick stop and then roll backward to a standard of living equivalent to the 1800s.
...or is there a reinforced concrete bridge abutment that we plow headlong into.
I wish I freaking knew.
I am fairly sure that someone cut the engine and threw the keys out the window though.
"I wish I freaking knew."
It'll go as long as the Chinese find not stopping it in their best interests, or until their losses when pulling the plug are calculated to be acceptable. Without external intervention, nothing will change. One of Newton's ideas...
So, it's okay to be fascist when Moral Hazard is sacrificed for Morale Hazard?
I agree, this philosophy of helping those that savaged the planet is absurd.
I think it's time to raise the income tax on wall street to 95%. Like England, we don't want your kind here!
Bank failure Friday brought us 2 banks that COULDN'T be sold. The interuption for customers of having their account closed and a - we'll send you a check in the mail message - can not be a pleasant experience. What about the checks you wrote that haven't cleared yet? What about your direct deposit (if you are lucky enough to have a job)? Do you have automated bill pay? That will most certainly suck. And when do you get the check? What if you have bills to pay on Monday? How do you put gas in your car? Do you need groceries in the next several weeks while your money is tied up? This is serious doodoo for banks as consumers are going to quickly realize that FDIC insured doesn't mean seemless change in management. Consumers need to have alternatives in place. They need to have 2 weeks in cash on hand. They can not rely on one bank for fear that bank will implode and find no buyers. The risk of increasing bank runs definitely just got exponentially greater. Which in and of itself guarentees failures if it spreads.
And the recovery???? Prime mortgage serious delinquency were up 20% in the third quarter over the second quarter. Add in sub-prime and credit cards and the majority of bank lending books starts to add up to very close to the magical 5% default rate of their entire portfolio for the entire industry! NO BANK IS SAFE. If they pull the unlucky short straw in the commercial defaults with loan books this close insolvant even the "best in breed" JPM could overnight become insolvant. I guessing there are some sore assholes in Washington as an epidemic of shitting bricks was spreading faster than H1N1.
We opened a Credit Union bank account. No paper statements, no ATM not anything. Even opting out of bank imposed services that are unnecessary such as line of credit.
We are covered under the NCUA, something totally outside of FDIC.
Just the other day we closed the Bank Vault. We have our own vault now and can keep the 100+ dollars a year that they charge for renting a box.
In short, we have done everything possible to get out of a FDIC bank. We are not sorry and we are thankful that others have helped us move before it did fall down.
How long did is take us to make the complete changeover?
3 months and another two to confirm all billing is normal and correctly run each month.
With that experience in mind, I hope that anyone reading this should consider that one day thier bank is going to FAIL and halt everything that they have carefully set up in life. They need to take action and start moving money into a NCUA Bank. Particularly those near Military Bases. Those are well run, well staffed and dont tolerate bull.
Do it quick and while everything is on your terms. You would not want to be the one wandering your town with a bad FDIC check in hand for your total life's money that may or may not be good.
Then fall onto a system of King Cash (I know that paper cash is worthless, but far better than swiping debit cards, atm cards or any kind of checks that must be processed against your utility company's cut off date for past due payments.
And then start filling in one month's MRE foods, Mountain house foods and twice the drinking water, cooking water and toilet water by the barrel along with all other things you and your family needs.
Finally but not last. Start going to the firing range and get decently accurate and comfortable with your weapons. If you life in a area that disallows guns, move everything and make a new home in a state that does allow it.
Basically the Government wont take care of you.... YOU need to do it yourself with your wallet, your feet and your freedoms while you still have it.
There are those who will think I am a wild eyed nut. But I tell you this. I had 4 years of getting ready for a total banking failure that must surely happen soon. When it does, I will want to be in a position to help my neighbors who will need it.
Exactly Reggie. When you take failure out of the free market equation, you kill innovation. Why prop up failed business models? Any other industry would be laughed at for this type of behavior. This is all fascism, corporate/gov't entanglement.
"Why prop up failed business models?" (of banks... of course)
To enable GS and JPM and C and BAC and WFC and the rest of the TBTFs to gather more "assets" and become EBTBTFs. (Even Bigger TBTFs). Somewhere in all those toxic loans and investments must be enough real value to offset the unrecorded derivative losses hidden by Mark-to-Myth.
That's Ben and Larry Tim flavored they're serving? Wonder if it gets picked the flavor of the year award! I've heard ice cream cures moral hazard, YUM-MY, and yes you can have it with peanut butter, no problem.
You don't cure a hangover with vodka? Then what the hell do you cure one with?
Beer and 2 aspirin.
I cure my hangovers with whiskey..Vodkas for girls
As Karl D has said the FDIC should be closing these banks before the losses get to such high levels. The FDIC should also be covering only deposits. The only purpose of the FDIC is to support the confidence of the small depositor. I'm stating the obvious but sometimes that is necessary.
Furthering its irresponible approach, the FDIC has come out with its decision that FASB 166/167 incoming assets can start out with a 6 month delay in addressing necessary increased capital.
then again, what's the difference...with creative FASB 157 accounting, i imagine the banks can find a way to bring these off balance sheet items on the books and value them at 105 cents on the dollar.
i'm also happy to report that the Fed has approved lending FDIC insured funds on CRE to levels well in excell of 100 LTV...what could possibly go wrong?
i hope i am alive in 10 yrs to read the history of this debacle and chuckle when the pundits inevitably ask "how could we have been this stupid" or "how come nobody stopped this"....
heckuva job ben.
helluva job larry.
heckuva job tim.
The government's captured by the moneyed interest. They will keep shoveling money to the banks for as long as the gutless American people allow them to. How long will they allow them to? For as long as they have their big fat wives, football, and beer. I've maintained since last fall that the powers that be will bankrupt this country trying to protect their wealth.
8000 banks? A few trillion dollars of our money on deposit plus associated rise and fall of the debit, ATM, credit, checking flows?
Who does FDIC think they are? Moneybags?
Here is what needs to be done. Run all of them until they either survive or drop. The ones that drop, close em down and say good riddance and walk away.
The few that survive should be so because they know how to do banking right and dont need anyone to bail them out.
That would turn into a great weakness for the United States. A generation of people being raised up being told dont worry if you fail in Life, someone will show up with other people's money to bail you out. /sarcasm.