FDIC insurance and the US economy.

[SouthAmerica]

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October 1, 2008

SouthAmerica: The people on this forum are lucky to be reading my postings since I always give you advance information about a lot financial trends before most people figure out what is on the pipeline.

Here I am spelling out for you in black and white something important that most people have not grasped as yet and the mainstream media is going to take light years for them to figure this one out.

The real deal is:

I remember watching on television in the late 1980’s programs such as Frontline on PBS trying to explain how the savings and loan massive mess had developed and ended up exploding on a massive scandal.

The seeds for that problem was planted in March 1980 during the Carter administration when at 2 AM in morning one of the senators attached a little item to a bill that was about to the approved – when nobody was paying attention and without any debate deposit insurance was increased from $ 40,000 to the current $ 100,000 deposit insurance limit, and that helped the savings and loan scoundrels to piss away billions of taxpayer insured money.

Americans are not smart enough to figure out that as soon as Goldman Sacks and Morgan Stanley became banking holding companies now they want to increase the limit of the deposited amount that is insured by the US government.

By the way, today they had an article in the Financial Times (UK) mentioning this increase in deposit insurance limit and the article said to protect the deposits in the US banking system up to the value of $ 100,000 limit the FDIC had an insurance fund with a balance of $ 45.2 billion dollars at the end of June 2008. The article also had a chart showing that right now the value of non-insured US bank deposits was $ 2.6 trillion dollars.

The article did not say how many trillion dollars related to the current $ 100,000 deposit insurance limit the FDIC fund of $ 45.2 billion dollars was covering. And that FDIC fund balance was as of the end of June before we take in consideration the WaMu, Wachovia and other banks that went bankrupt in the USA since that time. But let’s not forget that in July 11, 2008 we also had the IndyMac's bank failure in California that experts expected to cost the FDIC between $4 billion and $8 billion that bank failure alone.

As of October 1, 2008 the FDIC fund balance must be much smaller after they clean up the latest bank failures in the US since the end of June 2008 – and today the FDIC fund balance should be around $ 25 billion dollars or even less.

That means that as of October 1, 2008 the FDIC fund balance of around $ 25 billion dollars is the insurance money available to insure “Trillions of US dollars” up to the current deposit insurance $ 100,000 limit per bank account.

Now if they increase deposit insurance from the current $ 100,000 limit to the new amount of $ 250,000 limit some idiots think that this move is really going to stop a run on the American banks since now the FDIC fund with a balance of around $ 25 billion and after a few more bank failures around the United States which is almost certain in the near future the balance of the FDIC fund balance is going to be close to ZERO.

Basically the FDIC fund is already broke and bankrupt even before Congress approves this increase in deposit insurance from $ 100,000 limit to the new $ 250,000 limit.

That means that in the near future the FDIC Fund with “ZERO” balance is going to insure “Trillions of dollars” in US banking deposits up to the new deposit insured amount of $ 250,000 limit.

That means that if you did not have a reason to run to your bank and take all your money out before the deposit insurance limit was increased – after those clowns in Congress increase the deposit insurance limit to $ 250,000 then you better run to your bank before the rest of the herd figure out want just happened.

If the US government approves the increase in deposit insurance without, at the same time, replenishing the FDIC fund with at least $ 200 or $ 300 billion dollar in new cash to serve as insurance against the trillions of dollars that the FDIC system is insuring - then run to the bank and take your money out before there is a run in the banks around the United States.

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[SouthAmerica]

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October 2, 2008

SouthAmerica: I know that some people still have not grasped what is happening regarding the FDIC fund and the increase in deposit insurance from the current $ 100,000 limit to the new $ 250,000 limit per bank account.

Here is some further information maybe that will help some people to understand what I have been talking about.

A March 2008 memorandum to the FDIC Board of Directors shows a 2007 year-end Deposit Insurance Fund balance of about $52.4 billion, which represented a reserve ratio of 1.22% of its exposure to insured deposits totaling about $4.29 trillion.

The IndyMac's bank failure in California it was initially projected by the FDIC to cost the DIF between $4 billion and $8 billion, but shortly thereafter the FDIC revised its estimate upward to $8.9 billion.

The decline in the insurance fund's balance at the FDIC fund caused the reserve ratio (fund's balance divided by the insured deposits) to fall to 1.01 percent as at June 30, 2008, and that was before we had some major bank failures such as IndyMac, Washington Mutual, Wachovia, and other banks that went bankrupt in the USA since that time.

If IndyMac cost the FDIC fund about $ 9 billion dollars, then we can assume that Washington Mutual and Wachovia are going to cost even more, and with a number of other banks also failing that means that the FDIC fund will be completely empty by the end of 2008.

When we take in consideration that the FDIC fund had a balance of $ 52.4 billion as of the end of 2007, which represented a reserve ratio of 1.22% of its exposure to insured deposits totaling about $4.29 trillion (based on deposit insurance of $ 100,000 limit) and the FDIC fund is going to have a balance of $ 0 (ZERO) which represented a reserve ratio of 0% of its exposure to insured deposits totaling about $4.4 trillion dollars (based on deposit insurance of $ 100,000 limit) by the end of 2008.

One point that we need to keep in mind when the deposit insurance increases from the current $ 100,000 limit to the new $ 250,000 limit – when a bank such IndyMac goes bankrupt the cost to the FDIC fund instead of being just $ 9 billion dollars - under the higher deposit insurance limit of $ 250,000 the cost might be closer to $ 20 billion dollars.

When Congress increases the deposit insurance from $ 100,000 limit to $ 250,000 limit the insured deposits will be increased from about $4.29 trillion in December 2007 to about $ 6.6 trillion dollars by the time the new increase becomes effective.

Based on this new amount of insured deposits then Congress should replenish immediately the FDIC fund with at least $ 300 billion dollars or even more to give depositors the idea that there is money in the insurance fund to cover potential losses and to reestablish some trust into the US banking system.

If Congress doesn’t replenish the FDIC fund immediately that means that your $ 100,000 deposit insurance limit is as good and is as valuable as the price of the common stock of Lehman Brothers. In plain English the insurance on your bank account has become worthless.

If Americans had an understanding of what has happened to their FDIC insurance fund then they probably would start a stampede to take their money from their bank accounts ASAP since for all practical purposes that deposit insurance has become completely worthless.

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[EMRGLOBAL]

It seems to me that those who just bash SA, are the very same "Group" that hopes the Bail Out plan will bring a trend reverse. The same group that has their head in the sand about the deep recession which, we currently are about to enter.

The Royal Bank of Scottland (A good friend from the UK is involved in their IB side) released a report a few months before LEH, BS, GS, MWD, AIG where trashed. I suggest many of you look outside the "local" cheerleading crowds and "Pundits/Doomsday crowds" here in the US. Read what forces outside, looking in who are carrying massive loads of our debt think.

Simple fact, raising the FDIC to 250k is a move to build what confidence? Second, the FDIC has pleaded with the FED to allow an unlimited fund access because they do not know where the money to protect the new "Rules", if passed, will come from.

Major Investment Banks in the US where not just leverged 2:1 or even 4:1. They where are still are (those that are alive) leverged 30:1
600 billion in assets vrs 1 trillion in outstanding debt? Do the math.

Bail out or no Bail out, the US economy will sink into a deep recession. Wall Street is, well Finished as a key player in the "INVESTMENT BANKING WORLD". The Elite GS and MWD are now "Banks". Nothing more.

This is a BEAR market and shorting any upward move makes sense.

Paper wealth is now in the process of being wiped away. Losses are being realised every day.

The consumer is folding faster than Wall STreet.

The only thing left, Manufactures in the Private Sector are still churning along. They are the last man standing. If our manufacture sector goes the way of Wall Street. Depression will be the end game.

SA has some valid points.

Most on ET think much like their Wall Street Giants that just folded. Many will suffer the same fate.

Bail out may or may not be passed by the House tomorrow. Regardless, GAME IS OVER for those who carry debt and who are leverage.

Cash is truly king now, even with the weak dollar.

 

[Mecro]

Quote from bgp:

i don't understand why you bash S.A. on the intelligent point he made ? the average consumer does not have any savings.

bgp

Because he is annoying, REFUSES to quote replies properly, even though it looks much better when it is done via forum function and overall, is pretty d*mn stupid. Even when he makes the correct conclusions, his reasoning is retarded.

FDIC only encourages looser lending policies that is a fact. However, it is not a cause, really a symptom. It's effect is similar to that of the Federal Reserve being the lender of last resort, lack of responsibility.

If you remove FDIC, banks would have to focus more on their reputation & financial stability to gain trust from depositors. If the Fed was dissolved and all regulations regarding reserve ratios were gone, banks would have ONLY their reputation & financial stability to go on. Instead of holding the minimum reserve ratio, as per Federal reserve regs, they would hold a very high reserve ratio.

 

[SouthAmerica]

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October 3, 2008

SouthAmerica: Easy come, easy go.

The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells Fargo deal would be done without it. The head of the FDIC said the agency is standing behind the agreement it made with Citigroup.

This example also helps to give you real confidence on how well the FDIC fund is being run – the FDIC fund is almost empty but they want to give away the little money that they still have available to pay their claims


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AP
Wells Fargo agrees to buy Wachovia, Citi objects
Associated Press - Friday October 3, 11:05 am ET
By Sara Lepro, AP Business Writer

Wells Fargo to acquire Wachovia for $15.1B, but Citi demands that Wachovia call the deal off

NEW YORK (AP) -- Wachovia says it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal. But Citigroup now demands that Wachovia abide by the terms of its earlier deal to buy Wachovia's banking operations.

The clash sets up a battle over who will win Charlotte, N.C.-based Wachovia.

The Citigroup deal would have been done with the help of the Federal Deposit Insurance Corp., but the Wells deal would be done without it. The head of the FDIC said the agency is standing behind the agreement it made with Citigroup.

Citigroup says its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citi or negotiate with anyone else.

Source: http://biz.yahoo.com/ap/081003/wells_fargo_wachovia.html

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[dandxg]

SA,

The problem with your posts is they lack a lot of objectivity. Then you make arrogant statements like we are lucky to have you, cmon! You are lucky you haven't been banned!

You have some good points, criticisms against the US, but when it comes to your beloved Brazil you are a shill, you overlook the complete past meltdowns of your banana republic and instead choose to look at only the positives. In that regard you are no different than die hard Republicans blaming Democrats and vice versa. That's why I joke you must be getting a stipend from your beloved Brazil. Anyway continue as I am sure you will.

 

[Surdo]

Quote from dandxg:

You have some good points, criticisms against the US, but when it comes to your beloved Brazil you are a shill, you overlook the complete past meltdowns of your banana republic and instead choose to look at only the positives.

S A:
How has your economy been @ home the past few months?
Life is not as good with an exchange rate of 2:1 now is it?

Speaking of meltdowns

surdista

 

[SouthAmerica]

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Surdo: S A:
How has your economy been @ home the past few months?
Life is not as good with an exchange rate of 2:1 now is it?

Speaking of meltdowns


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October 4, 2008

SouthAmerica: Reply to Surdo

I am not worried about the Brazilian economy, and the future of Brazil for that matter.

Exchange rates as of October 3, 2008:

US$ 1 = Real 1.9660

Euro 1 = US$ 1.3783

These are temporary exchange rates – the US dollar improved against these currencies because of the meltdown in the US financial markets. One of the major reasons for the sell out in the Brazilian stock market it is because when the shit hits the fan you are forced to sell everything in sight to be able to survive – even the most promising investments that you have on your portfolio – as is the case of Brazil.

Let explain to you how it works:

All kinds of financial companies in the United States (banks, insurance companies, hedge funds, mutual funds, and so forth) were in deep trouble and were forced to sell all kinds of holdings in response to redemptions by their investors and this massive deleveraging has created a downward spiral that feeds on itself and all these US financial institutions in their Panic selling had to sell very promising investments in Brazil. They had to sell some of the companies with great prospects for the future such as Petrobras – not because companies such as Petrobras were not a great investment, but because they were forced to sell even the jewels of their portfolios.

When American companies were forced to sell all these great investments in Brazil they started repatriating the money and converting it from real to US dollar creating a temporary demand for the US dollar.

Please don’t fool yourself after people from around the world realize what has happened here in the United States and the consequences of this $ 850 billion dollars Wall Street bailout then you are going to have a US dollar meltdown.

The truth is if you add all the US government bailouts in 2008 up to this point then there were $ 1.4 trillion dollars in actual bailouts so far.

I am going to describe in detail on my next article and put all the pieces together to show to foreigners around the world what is going on in the US economy and how the US economy is going to implode and why for all practical purposes the US dollar is becoming basically a worthless currency.

Warren Buffett understands that the US dollar is the process of becoming just Confetti.

The entire US financial system is operating in quicksand and you know what happens to something that is on top of quicksand.

The US dollar is becoming more obsolete than a Ford Model T – Countries such as Brazil and Argentina started trading among themselves using their local currency (international trade used to be done in US dollars) since they don’t trust the value of the US dollar.

Only fools such as China and Japan will continue stockpiling more Confetti – mostly because these countries are stuck with a massive amount of the stuff.

In 1922 in Germany it took as much as a “large wheel barrel of Marks” just to purchase a loaf of bread (Mark was the currency of Germany). When the US dollar meltdown in world markets and hyperinflation goes out control in the United States – Americans also are going to experience what the Germans had to go through around 1922. It was not a pretty picture.

Before most Americans realize we will be trading US dollars against other foreign currency as follows: 1 unity of foreign currency = 1 kilo of US$ 100 bills

When the US dollar starts being sold by the kilo then Americans would realize that it is cheaper to use the US$ 100 bills instead of any toilet paper.

It is no coincidence that a smart guy like Warren Buffett has started investing outside the United States such as in Israel, China, and he is also looking for investments in Europe.

You can bet that he is not doing that on his old age just because he wants to travel around the world. Warren Buffett knows that the US dollar is in deep trouble and is getting closer to the final meltdown – but it will be exciting to see first hand the biggest International Monetary System meltdown in world history and witness the end of an era for an international monetary system based on the US dollar/Confetti – very soon people will start using these words interchangeably.


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FDIC chair says more banks in danger of failing
http://www.msnbc.msn.com/id/25804466/

SAN FRANCISCO - The chairwoman of the Federal Deposit Insurance Corp. said Tuesday more banks are in danger of failing, and that the government agency expects to raise premiums to restore its reserve fund after paying out billions of dollars to depositors at IndyMac Bank.

Of the 8,500 banks in the country, 90 were in trouble in the first quarter. The FDIC does not disclose the banks’ names. Only 13 percent of banks that make the list fail, on average, Bair said. Most are nursed back to health or acquired by stronger institutions, she said.

The FDIC’s reserve fund is expected to drop after IndyMac’s losses are accounted for, but the reserve should weather future payouts, she said.

Healthy banks would have to make up the shortfall with higher fees. The FDIC is required to keep a reserve fund totaling 1.15 percent of estimated insured deposits.

IndyMac Bank’s assets were seized by federal regulators July 11 after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. The bank was the largest regulated thrift to fail, regulators said.

From 2003 to 2007, there were 10 bank failures in the U.S. Already in 2008, 13 banks have failed, with the lowlight being the collapse of Washington Mutual on September 25 - the biggest bank failure in American history.


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With 3 months to go to the end of the year after all the dust settles from bank failures around the United States the FDIC fund should end the year of 2008 with a fund balance quickly approaching Zero.

The new bank insured deposits up to $ 250,000 limit is estimated to be around $ 6.6 trillion dollars - since the FDIC is required to keep a reserve fund totaling 1.15 percent of estimated insured deposits – you do the math regarding the amount of cash that the FDIC has to have as a fund balance. ($ 6.6 trillion dollars X 1.15 percent = $ 76 billion dollars)

If the FDIC decides to keep a reserve fund totaling 2 percent of estimated insured deposits than the FDIC Fund balance should be around $ 132 billion dollars.

The truth is the FDIC Fund is away underfunded mainly during a period on financial chaos.

The good news is that Americans don't have a clue about what just happened to the FDIC fund and how vulnerable they are regarding losing all the money that they have on their bank accounts.

The FDIC fund is just a joke or if the FDIC were a insurance company then the FDIC would have a "junk" rating.

Would you feel comfortable buying insurance for your family from an insurance company with a junk rating?

Basically your bank account is insured by a insurance company with a junk rating today.

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[gkishot]

Please don’t fool yourself after people from around the world realize what has happened here in the United States and the consequences of this $ 850 billion dollars Wall Street bailout then you are going to have a US dollar meltdown

How long it will take for them to realize it? What is there that makes it hard for "people around the world" not to see the problem now? Aren't they replenishing their funds by selling the assets of the failed banks.

 

[SouthAmerica]

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October 11, 2008

SouthAmerica: My screen name in that forum is Brazil.

Reply to a member of the PBS forum – Washington Week – TV program.

You said: "So... why are these investments cratering now as if there were no warning?"


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Brazil: Because they took their pyramid game as far as they could, and they leveraged it at ratios of 30 to 1, 60 to 1, and even higher.

Now this house of cards is collapsing, but the only problem is that high leverage is great in the up, but it is a gigantic Tsunami in the way down when the system is deleveraging and the power of leverage starts working in reverse and result in a massive implosion of the entire system.

This emergency meeting over the weekend of the G7 it is just for Damage Control and to try to prevent a complete PANIC and a run into the banking system.

Don't forget the US government is already in PANIC and they increased the FDIC deposit insurance from $100,000 to $250,000, and there are people out there who are requesting that the US government lift the deposit insurance even further to no limit of balance in each account.

The US government also on its PANIC mode a few weeks ago extended Deposit insurance also to all money market mutual funds.

In a very short period of time the US government on its PANIC mode has increased its FDIC insurance to assets valued - from $ 4.4 trillion dollars as of the end of June 2008 - to the current over $ 10 trillion dollars.

But there is a major problem here: the FDIC fund had a balance of around $ 42 billion dollars as the insurance fund to cover any losses on the banking system, and since that time we had major bank failures in the United States that would bring the balance of the FDIC fund closer to $ 0 (ZERO).

As of the end of June 2008 the FDIC fund had a balance of $ 42 billion dollars (we are talking about Billions to insure Trillions) and since then the bank failure of Indi Mac alone in California the FDIC estimated that would cost $ 9 billion dollars. After that we had the failure of the largest bank failure in the United States - Washington Mutual - then Wachovia, and many others.

For all practical purposes there is no deposit insurance insuring any amount at the US banking system right now since the FDIC fund is also BANKRUPT.

The minimum that the US government can do at this time is bailout the FDIC fund by transferring at least $ 300 billion dollars to that fund.

And if the US government lifts the deposit insurance on bank accounts to any limit of money then they should send even more money to the FDIC fund as part of the premium to insure this extra money.

But if you read my postings about the derivatives market massive meltdown then you know that the entire US financial system is imploding very rapidly.

There was too much leverage in the US financial system on the way up, now that leverage works in reverse on the way down at the speed of light.

We are in the middle of a financial nuclear explosion and the chain reaction of the explosion is devastating everything in sight.

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