Let's talk about the banking crisis

[Atash Hagmahani]

This is from Dr. Gary North's website:

Why the FDIC will run out of money.

Stare at the table, and then at the graph. There are more deposits, but significantly fewer reserves to "insure" those deposits. The banking system would go insolvent, were the US government not bailing it out. But the amounts of money needed to bail it out imply that the banking system is likely to be "saved" only with the demise of the currency itself.

[offdalip]

Sheila Blair has got a huge problem on her hands then.
I am sure she will get unlimited funding for the banks tho'

[mantis308]

Credit unions are being hit by this also. The limit raised to $250K caused the NCUA (FDIC equivalent) to bill my institution $1.5 Mil, destroying nearly every operating budget for the year. We, a stable and reliable credit union, are bailing out the banks too. It is actually funny, in a twisted way- we replace about 1/3rd of our equipment every year, and because of this bill, we can't do it this year. It will end up making us essentially less reliable.

[Atash Hagmahani]

Interesting. Now that is significant, Mantis. I had not been aware of this. The credit unions here had been advertising that they were in better shape than the banks, because they had not been playing some of the same games.

[mantis308]

Well, during the great depression, credit unions were much stronger than banks because they are run by volunteer boards, and aren't subject to the massive distributions to share holders and board members. These are different times, though. With the bailout and increased depositor insurance, we are forced to subsidize failure, at the expense of our success and stability.

I'll see if I can find out the details and post them.

[Atash Hagmahani]

Posting this here because it will impact the value (and availability of!!) our money:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aabXQOXBRk8E&refer=home

But at first I wasn't sure it was even worth posting. Most of us already realized this would happen, and those who didn't, didn't have enough perspectives that any more bad news would matter.

March 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.

“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said today in testimony prepared for the Senate Budget Committee. “Although progress has been made on the financial front since last fall, more needs to be done.”

Bernanke’s comments suggest he sees a role for bigger federal outlays as the Obama administration seeks congressional approval for a budget of $3.55 trillion for the fiscal year beginning in October. President Barack Obama has already signed into a law a $787 billion economic stimulus package of tax cuts and government spending.

Obama’s first budget seeks standby authority for as much as $750 billion in new aid to the financial industry. Whether those funds will be needed “depends on the results of the current supervisory assessment of banks” and the evolution of the economy, Bernanke said.

Bernanke said policy makers would have “preferred to avoid” what is likely to be the largest ratio of federal debt compared with gross domestic product since the end of World War II, and he urged lawmakers not to lose sight of fiscal discipline.

Cost to Budget

“But our economy and financial markets face extraordinary challenges,” and doing less now would eventually prove to be more costly, he said. “We are better off moving aggressively today to solve our economic problems; the alternative could be a prolonged episode of stagnation” that would cause budget deficits to swell further, increase unemployment and undermine incomes “for an extended period.”

[The Future]

It never ceases to amaze me how seemingly intelligent folks make the most ridiculous decisions.

[darwinslair]

I would say that his decisions are pointed and calculated to protect the industry he runs at the expense of anything and everything else.

Which makes him calculating, but maybe not stupid.

A thief who is in power, steals from you, and stays in power, is seldom dumb.

tom

[offdalip]

excuse me!?!?!?!

The chief of the federal reserve?


He is definitely not on your side , and I would go to say has an agenda ( which does not equate with yours ), he will lie to your face to get his policies thru.

We should have done away with the fed long ago

[mantis308]

Okay.. about credit unions.

I spoke with my boss, and found out the details. Evidently, the NCUA has a thing called "share insurance" which basically acts like FDIC insurance, but is not government controlled per se but controlled by member credit unions. Essentially, all credit unions are required to maintain 1% of their assets in this insurance fund. This fund is designed to insure the deposit accounts nearly exactly like FDIC does.

What happened was that NCUA used half of it's insurance fund in dealing with credit union failures in late 2008. In other words, 0.5% of all credit union assets evaporated in a single quarter. That doesn't sound like much, but it is. So NCUA required all member institutions to fund the share insurance back up to it's 1% level, with of course, some nice premiums for them.

Credit unions happily participated in the loose lending crap that went on during the last decade, and the ones that were not large enough to have experienced staff that could mitigate this disaster, are begining to fail. Most of it goes unreported, because the NCUA wants this to be kept within the industry. I don't know if they are more or less stable than banks, but I suspect that they are about the same, just no public money involved.

[oscar615]

Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said today in testimony prepared for the Senate Budget Committee. “Although progress has been made on the financial front since last fall, more needs to be done.”

And of course the only way to get stability is to print money like it was toilet paper.


I totaly agree with darwinlair...

[Atash Hagmahani]

Everybody keep this topic alive. Watch for news of bank failure rates. Mantis, thanks for the news about the credit unions.

This is important. Early in the crisis there was talk of bank holidays (a common euphemism for temporary ad-hoc mass closures of the whole banking system) even in the mainstream media. Dr. Gary North (a couple of us are subscribers to his site, and he's got some good connections we don't) discounts these as unlikely, but not impossible. He thinks they are unlikely because in the modern banking system, it's not like you can withdraw all your cash anyway--they just hand you a check to put into another bank!!

But Argentina DID close the banks, and the cash machines quickly stopped working and/or ran out of cash. And that was not all that long ago. So, I suggest keeping this topic fresh in your minds, and training your brains to monitor the situation.

Just to make sure everyone understands the situation: if the banks shut down, so does 99% of commerce, as it all runs through the banks anymore. Our remittance systems are almost entirely electronic, except for a tiny amount of cash.

[opsec]

Maybe we should pin this one to the top of the forum?

[mantis308]

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=alsJZqIFuN3k

The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said.

Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview.

Okay, so this is basically the same thing credit union's face, except banks are much more vulnerable to these fees, as they are profit driven.

Bonuses are generally driven by profit, and recipients generally get a percentage of net (or in some cases gross) profit. Without earnings, executives and board members face the real possibility that they will not get bonuses this year, or at least shouldn't. I expect many many more cases this year of book-cooking in order to justify massive bonuses for these bank executives and board members.

At my FI, we have been basically told that due to this share insurance premium, nobody will be getting bonuses. My bonus for the year is pathetic anyway, and our executives (when compared to banks) bonuses are pathetic. We have been asked to remember that bonuses are based on net earnings, and because we start the year $1.5M in the hole, unless we have a record year, we will not get bonuses, or if we do they will be very very small (5-10% of the maximum). Most of us aren't disappointed however, in light of the increasing unemployment levels. We are happy just to have work.

[Eddie]

re:"Just to make sure everyone understands the situation: if the banks shut down, so does 99% of commerce, as it all runs through the banks anymore. Our remittance systems are almost entirely electronic, except for a tiny amount of cash".


So in other words, it might be a good idea to keep some cash stashed at home somewhere safe?


I read in a couple of different places that the safest bank up to date in Washington state is
'Washington Federal Savings". I have a credit union account through Boeing, but one of the things that bothers me is they only hold cash at two central locations, one in Everettt and one in Tukwilla. None of the smaller branches carry cash, you must go to a ATM for a withdrawal. Or the other alternative is to walk in to a branch and get a money order and then go to your other bank to cash it. Its pretty lame, I think Im going to close with BECU soon because of it.