Get Rich Slick

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Why not?  If US Treasury can own Freddie and Fannie, why not throw FDIC into the mix.  Why don’t we just have the US Treasury buy up Ford & GM while we’re at it?

This is yet another alarming crack in the already stressed dam we call the American financial system.   Don’t say you weren’t warned people!

 (Reuters) - Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.

The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.

The borrowed money would be repaid once the assets of that failed bank are sold.

Bair said such a scenario was unlikely in the “near term.” With a rise in the number of troubled banks, the FDIC’s Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.

In a bid to replenish the $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.

The fact that the agency is considering the option again, after the collapse of  just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.

Did you get that, “just nine banks this year” and FDIC is already borrowing.   Compare that to the S&L crisis where it borrowed money towards the end of the crisis.

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Bloomberg is reporting that FDIC is nearing the legal reserve ratio limit mighty fast. Some notable quips:

The FDIC is required to shore up the fund when the reserve ratio, or the balance divided by the insured deposits, slips below 1.15 percent or is forecast to fall below that level within six months. A 2006 law directs the agency to take steps to reach the 1.15 percent ratio within five years.

“Raising rates is our first and best option if we need to get more revenue to increase the fund and the reserve ratio,” Ellis said.

The ratio fell to 1.19 percent in the first quarter from 1.22 percent the previous quarter, the agency reported in March. IndyMac’s collapse may push it down at least 9 basis points, to below the 1.15 percent threshold, Ellis said. A basis point is 0.01 percentage point.

I did find this quote absolutely amazing and amusing:

As a last resort, the U.S. Congress can step in to protect depositors with legislation and appropriations as it did during the savings-and-loan crisis by creating the Resolution Trust Corp. in 1989 to manage the closings of 747 failed thrifts.

`Armageddon Scenarios’

“So if Armageddon scenarios did play out, the people’s deposits would be backed by the full faith and credit of the United States government,” Bair, 54, said on July 30.

I’m guessing she means Congress will issue another $800 billion blank check like the one they issued to Paulson to cover Fannie & Freddie. The quote is amusing because FDIC’s own website has this disclaimer, “ The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. “

Get real! If you have any chunks of cash lying around, stuff it under your mattress.

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Whispers and rumors of a major bank going under soon. Maybe this Friday, maybe next Friday….overheard recently:

CHARLIE: Tell us about our money, George? Where’s our money?

GEORGE: Now, please! Now, wait minute! Listen to me! Now, you’re thinking about building and loan all wrong. Your money’s not here!

PEOPLE IN CROWD: What?

GEORGE: Wait minute, now, let me tell you. Let me tell you. Your money’s in people’s [over valued] houses! In Kennedy [mcmansion] house, and MacClaren [mcmansion] house, and in your [overvalued] house, and hundred others. You all put your savings in here [suckers] and then we make loans to people to buy homes [they’ll never be able to repay] and cars [they can’t afford] and other things [i.e. Wal-Mart crap]. Now, what are you going to do? Take their [over valued] homes and [gas guzzling] cars and [made in China] things from them?!

CHARLIE: I got two hundred and forty dollars in shares. Now lemme have it!

GEORGE: All right, all right, Charlie. Now, you’ll get your money in sixty days.

CHARLIE: Sixty days?!

GEORGE: Well, now, look, that’s what you - that’s what you agreed on when you bought your shares.

RANDALL: I got my money!

PEOPLE IN CROWD: Where?

RANDALL: Old Man Potter [a.k.a. FDIC] has taken over bank! He’ll pay you fifty cents on a dollar.

CHARLIE: (to crowd) Then let’s take our shares to Potter! Half is better than nothing!

GEORGE: Wait a minute, wait a minute, please, folks! I please don’t do that. If Potter gets hold of your shares, he’ll own this building and loan. And he’s got a bank. He’s got a bus line. He’s got department stores. And now he’s after us because he wants to keep you living in houses and apartments he owns and paying kind of rent he decides to charge. Now, we can get through this thing all right, but we have to work together and help each other! We’ve got to have faith in each other!

MRS. THOMPSON: My husband’s out of work. We need money.

ANGRY MAN: I have doctor bills to pay!

WORRIED WOMAN: I can’t feed my kids on faith!

PEOPLE IN CROWD: Me, too! What about that, George?!

MARY: How much do you need? We’ve still got some money!

GEORGE: Hey, Mary!

MARY: Here is our money, George! You told me to take care of it. It would have paid for nice honeymoon — and bought furniture, too!

GEORGE: Hey, now, wait minute, folks! Listen, I got two thousand dollars! All right, Charlie, how much do you need?

CHARLIE: Two hundred and forty dollars.

GEORGE: Please, Charlie, now, listen — just enough to tide you over!

CHARLIE: I said, two hundred and forty dollars!

GEORGE: Okay, okay. Uncle Billy give Charlie two hundred and forty dollars. All right, Ed, now, how much just to get by?

ED: Twenty dollars, I suppose.

GEORGE: Now you’re talking! Mrs. Thompson, how about you?

MRS. THOMPSON: Twenty dollars will do me.

GEORGE: Good, good, twenty dollars. All right, all right, who’s next?

So who’s honeymoon money is going to bail out your bank?   Have a plan!

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Do you remember the musical chairs game?

The FDIC Game of Musical Chairs is similar:

FDIC Musical chairs is a game played by a group of people (usually clueless consumers), often in a panic setting purely for defensive purposes such as a classic bank run. The game starts with any number of banks and a number of “chairs” (a.k.a FDIC coverage) one fewer than the number of banks; the “chairs” are arranged in a circle (or other closed figure if space is constrained; a double line is sometimes used along with heavy police presence) facing outward, with the people standing outside a bank waiting for their money. A non-playing individual (FDIC Chair Sheila Bair) plays recorded media sound bytes. While the sound byte is playing, the players waiting for their money walk in unison around the bank hoping chairs will be left for them. When the sound byte controller suddenly shuts off the sound byte, everyone must race to sit down in one of the chairs. The player who is left without a chair is eliminated from the game and subsequently left insolvent, and one chair is also removed to ensure that there will always be one fewer chair than there are players. The sound byte resumes and the cycle repeats until there is only one player left in the game, who is the winner. Everyone else loses.

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I’ve just about lost all confidence in the banking system.  Ben Bernanke lost me at “well contained” and Sheila Bair lost me at “The blogs were a bit out of control” and Paulson lost me at “sound financial banking system.”  But what really broke this camel’s back was this idiot in this video laughing it up while TRILLIONS of dollars in value and cash have disappeared off the face of the financial earth.

The “solution” Congress and the Administration have come up with is to dump the problem on the tax payer.   The only thing I can do to stop the madness is to remove my own liquidity from the system.    I’ve taken the first $50,000 out of the banking system and used the funds to pay some of my mortgage off.   I don’t know what is going to happen over the next 12 months any more but I do know when the dust settles that I’ll have a place to live in when the world collapses in all around me.

Since banks lend out 9 times what they have in reserve, I’m assuming here that I’ve taken out $450,000 in “leveraged capital” from the banking system.   I hated doing this because my existing mortgage is under 5 pct and that debt will get inflated away at today’s real inflation rates but I just can’t be a party to the madness any more.

If things don’t get better I’ll take out another $50,000 from the banking system and pay more of my mortgage off and remove yet another $450,000 from the “leveraged capital” banking system.   I’m still in the process of moving money around but there’s only so much mortgage I can pay off.   The next thing left to pay off is an outstanding loan on my wife’s car.   I’ve already taken a substantial amount of cash out of the banking system a couple of months ago and paid off my other new car.

The last thing on the list is 40k in zero percent credit card arbitrage to pay off but why would I ever pay that off?   That’s my insurance policy against this banking madness.    My spidey sense is tingling and that must mean a new bank run is in progress.    Be careful.

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The minimum federal wage will increase from $5.85 to $6.55 this week which represents a twelve pct increase in pay for workers and a 12 pct increase in cost for business. You can read more about that here.

In addition to the minimum wage increase, the Financial Times is reporting that many food companies are planning on increasing prices dramatically,

“Price increases vary a lot by type of products but the increases will be as low as zero and some products we will decrease on and other increases [will be] in excess of 20 per cent.” Kraft Foods, Kellogg’s, ConAgra and Tyson are also pushing through increases, which are expected to contribute to inflationary pressures in the US.

It’s getting so desperate that I’ve been reading story after story of people, even police officers, stealing gasoline from anywhere and everywhere including U-Haul trucks, church buses and even golf carts! Read any of the stories on these links to hear about gasoline thefts.

The oil pull back is only temporary in my opinion. It’s a short term correction and oil will pop up hard once a hurricane blows through the gulf but any other world events could trigger a pop.

Hang on to your hats blokes, the inflation wind is going to blow hard for the remainder of the year.

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