Poverty in America: Millions of families too broke for bank accounts

Sabino Fuentes-Sanchez hid $25,000 all around his house because he didn't trust banks. Lasonia Christon receives her Wal-Mart salary on a pre-paid debit card. Kim James was homeless for most of the past decade in part because she had no place to save money.

There are plenty of reasons people still live all-cash lives, but the sheer number who do it might surprise you. At a time when the majority of Americans use online banking, and some even deposit checks using their cellphone cameras, roughly eight percent of America's 115 million households don’t have a checking or savings account, according to census data compiled by the FDIC.

The numbers are far higher among minorities: More than 20 percent of African-Americans and Hispanics are essentially left out of the American banking system.

Frozen in the cash-only past, they face myriad “kick-them-while-they-are-down” situations where getting money costs money. Banks typically charge $6 to cash checks. Want to secure an apartment? Fee-based money orders are the only option. Without credit cards, they must turn to triple-digit interest rate payday loans for emergencies. Read more >>

JPMorgan Chase Faces Full-Court Press of Federal Investigations

As the nation’s strongest bank, JPMorgan Chase used to be known for carrying special sway with regulators. Now it increasingly finds itself in the cross hairs of federal authorities.

At least two board members are worried about the mounting problems, and some top executives fear that the bank’s relationships in Washington have frayed as JPMorgan becomes a focus of federal investigations.

In a previously undisclosed case, prosecutors are examining whether JPMorgan failed to fully alert authorities to suspicions about Bernard L. Madoff, according to several people with direct knowledge of the matter. And nearly a year after reporting a multibillion-dollar trading loss, JPMorgan is facing a criminal inquiry over whether it lied to investors and regulators about the risky wagers, a case that could accelerate when the Federal Bureau of Investigation and other authorities interview top JPMorgan executives in coming weeks.

All told, at least eight federal agencies are investigating the bank, including the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission. Federal prosecutors and the F.B.I. in New York are also examining potential wrongdoing at JPMorgan. Read more >>

More Americans opting out of banking system

In the aftermath of one of the worst recessions in history, more Americans have limited or no interaction with banks, instead relying on check cashers and payday lenders to manage their finances, according to a new federal report. Not only are these Americans more vulnerable to high fees and interest rates, but they are also cut off from credit to buy a car or a home or pay for college, the report from the Federal Deposit Insurance Corp. said.

Released Wednesday, the study found that 821,000 households opted out of the banking system from 2009 to 2011 and that the so-called unbanked population grew to 8.2 percent of U.S. households. That means that roughly 17 million adults are without a checking or savings account. Another 51 million adults have a bank account, but use pawnshops, payday lenders or rent-to-own services, the FDIC said. This underbanked population has grown from 18.2 percent to 20.1 percent of households nationwide.

The study also found that one in four households, or 28.3 percent, either had one or no bank account. A third of these households said they do not have enough money to open and fund an account. Minorities, the unemployed, young people and lower-income households are least likely to have accounts. Read more >>

Bank loans to small business fall to 12-year low

New federal data show that the number of small bank loans to business has fallen to the lowest point in more than a decade, cutting the flow of money to a sector that's usually a job-creation powerhouse.

"It's usually the smaller business that is more able to bounce back and take advantage of different opportunities faster than a middle-market company," said Linda O'Connell, manager of small business research at Barlow Research Associates, a Minneapolis market research firm that focuses on the financial industries. "We haven't seen that."

An analysis of recently released Federal Deposit Insurance Corp. data by the Investigative Reporting Workshop shows that overall commercial and industrial lending by banks has increased for five straight quarters, but small loans to business of $1 million or less have been shrinking consistently since June 2008. As of Sept. 30, total outstanding loan volume was down 14.7 percent from its peak. More...

Bank Fees Push Consumers to Put Money Elsewhere

Occupy Santa Cruz - Bank of America refusing to close account

Alternative finance firms, from credit unions to online and pawn lenders, are gaining traction as banks turn off the tap for easy cash and start charging fees for services that customers have had for free.

Some 60 million Americans — close to a fifth of the adult population — were underbanked or unbanked in 2009, according to the Federal Deposit Insurance Corp. That number is likely to rise as banks choke off free checking, and adjust to new rules that cut into their revenue.

Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo, PNC Financial, Suntrust and others are beginning to charge for once-free services, making a bank account more of a luxury to those living on a tight budget.

"Credit unions are an alternative source for the kind of services a bank provides," said professor Lawrence White of New York's Stern School of Business. "I'm hoping they would see the unbanked as part of their mission. That would be the most socially worthwhile thing they could do." More...

U.S. bank failures through 2015 will drain $19 billion from FDIC

Image via WikipediaU.S. bank failures through 2015 will drain $19 billion from the Federal Deposit Insurance Corp. fund for covering losses from shutdowns, the agency said in an update of its reserve ratio projections.

The $19 billion figure reported by the FDIC today is a decrease from the estimated $23 billion needed to cover bank failures in 2010, reflecting both the slowing rate of bank shutdowns and the impact of assessment increases imposed by the FDIC to bolster the Deposit Insurance Fund.

The fund, pushed into deficit by the wave of failures stemming from the 2008 credit crisis, turned positive as of June 30 after seven consecutive quarters of negative balances.

“The assessment that the insurance fund remains on the path to recovery and on track to meet the goals established by Congress is welcome news,” FDIC Acting Chairman Martin J. Gruenberg said in a statement. “As we seek to stay on track, it’s important to always be mindful of the challenges we face and ongoing risks to the insurance fund.”

Under current projections, FDIC assessment rates will boost the insurance fund to 1.15 percent of insured deposits in 2018, according to the agency’s statement. The regulator is required by the Dodd-Frank Act to increase the ratio to 1.35 percent by Sept. 30, 2020.

Today’s report shows that the FDIC may have gone farther than it needed to in increasing assessments, according to James Chessen, chief economist for the American Bankers Association. More...

Banks slashed small business lending by $43 billion

The numbers back up what small business owners have been saying for two years: Main Street suffered a brutal credit crunch.

The total value of outstanding loans to small businesses plunged by $43 billion, or 6.2%, between June 2009 and June 2010, according to a report released this week by the Small Business Administration. That's a drop of $59 billion, or 8.3%, from June 2008.

The drop-off in small business loans came against an overall backdrop of reduced lending. Lending to large businesses -- measured by commercial loans of more than $1 million -- dropped by $156.2 billion, or 8.9%, between 2009 and 2010. Read more...

FDIC says list of 'problem' banks grows in Q3

The number of banks on the Federal Deposit Insurance Corp.'s "problem" list grew over the summer...The number of troubled banks rose to 860 in the July-September quarter from 829 in the previous quarter. That's the most since 1993, during the savings and loan crisis.

The FDIC also said banks earned $14.5 billion during the third quarter. That was a decrease from the previous quarter's result of $21.4 billion, but well above the $2 billion banks earned a year earlier. The troubled banks were smaller, on average, holding $379.2 billion in assets. That's down from $403.2 billion in the April-June quarter. More...

New underground economy

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Richard W. Rahn

The underground or "black" economy is rapidly rising, and the fault is mainly due to government policies.

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.

Tax revenues are falling far more rapidly at the federal, state and local level than would be expected by the small drop in real gross domestic product (GDP) and changes in tax law that have occurred since the recession began. The currency in circulation outside the U.S. Treasury, Federal Reserve banks and the vaults of depository institutions - that is, the currency held by individuals and businesses - has grown by 13.3 percent in the last two years, while real nominal (not inflation-adjusted) GDP has not grown at all, and real (inflation-adjusted) GDP incomes have fallen by more than 3 percent. With the growth of electronic means of payment and financial service providers, it would be expected that the currency component of GDP would fall, not rise.

The underground economy refers to both legal activities, such as often found in construction and services industries where taxes are not withheld and paid, and illegal activities, such as drug dealing and prostitution.

Countries such as the United States, Switzerland and Japan historically have had relatively small, nonreporting and/or illegal sectors, a typical estimate being 13 percent of GDP.

Most European countries have had somewhat larger underground sectors (typically 20 percent or so) in part because of the desire to escape higher tax rates. Italy and some of the other Southern European countries are believed to have underground sectors that account for 30 percent or more of all economic activity.

I recall an Italian finance minister telling a few of us at a meeting a couple of decades ago that, for policy purposes, he assumed that "the economy was 40 percent larger than what was reported." In some developing countries and/or highly corrupt countries, underground or "off the books" activities are estimated to be as high as 70 percent of all economic activity.

The FDIC report about the size of the unbanked or underbanked sector in the U.S. should be of concern because those who do not use the banking system often have to pay higher fees to cash checks, pay bills (e.g., money orders, etc.), or transmit funds.

People who keep their savings in cash at home rather than in banks make themselves easier prey for criminals and are more likely to lose their money to fire, flood, or just neglect. Not surprisingly, a majority (71 percent) of the unbanked have household incomes of less than $30,000 per year.

There are many reasons people do not have bank accounts. Banks, because of the "know your customer" and other anti-money laundering regulations, make it difficult for nonestablished people, such as the young and transient, as well as legal and illegal immigrants, to open bank accounts.

Also, many of these same regulations are responsible for the rise in bank fees, which are a particular burden for low-income people. You can be sure that every time Congress passes some new law or the IRS implements some new regulation to "get tax cheats," much of the real burden of these compliance costs will fall on those least able to afford it, while those intent on finding their way around it will do so.

People also avoid having bank accounts because they are vulnerable to asset seizure, judgments, levies, etc. Increasingly, bankers and others who provide financial services are forced by governments to spy and snitch on their own customers, and this is a real turnoff for many people, which causes them to find other ways of maintaining financial privacy.

Many studies have shown that when people believe the taxes they are required to pay are reasonable and the political leaders tend to spend their tax dollars wisely, tax compliance rises, and vice versa. In the United States, there is increased evidence that many tax dollars are not being spent wisely and are often used to pay off political cronies.

Over the past year in particular, the public has become aware that many in Washington who advocate higher taxes and argue that everyone has a responsibility to pay taxes are themselves not complying with the tax laws and regulations.

When you have a secretary of the Treasury and the chairman of the House Ways and Means Committee (the tax writing committee) accused of cheating on their taxes, it greatly undermines the moral authority of the tax collectors, making the common citizens feel like chumps and, hence, much more willing to try to legally avoid or illegally evade taxes themselves.

The evidence is unambiguous; governments cannot increase tax compliance and decrease the size of the underground economy by ever increasing and more onerous regulations.

It is no accident that those governments that allow their citizens a high degree of personal and financial liberty, including financial privacy, and spend taxpayer dollars wisely, honestly and competently, have much smaller underground sectors than corrupt and oppressive governments. Washington, take note.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

Broke and Desperate, Now Banks and the FDIC Want the Money Under Your Mattress

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USA today reports more than one in four American households, including more than half of black households, use check cashers, payday lenders or pawnbrokers rather than a bank, according to a FDIC report. That's roughly 30 million households that have no bank account, or have one and use a check cashing service; about 9 million households have no bank account at all, according to the FDIC study which was conducted by the Census Bureau.

USA Today writer Martha Moore describes this as a "problem", a problem says Moore that's "most acute among minorities: 53% of African-American households and 43% of Hispanic households.

Now the FDIC claims they want banks to "win back those customers, saying consumers should have the benefit of insured savings and be able to build a credit history. Translation -- they need the money.

"There's a substantial segment of American households whose financial services needs aren't being adequately met," Martin Gruenberg, FDIC vice chairman, said in an interview Tuesday. He called the disproportion of minority households in the group "dramatic and troubling."

What's dramatic and troubling is that not only are banks broke, but so is the FDIC, and now they're after money from the poorest segment of the population.

USA Today:

The FDIC will use the data in its effort to persuade more banks to offer starter accounts," low-cost, no-minimum checking accounts without automatic overdraft programs that can result in customers getting hit with fees if they go in the red. One option, Gruenberg said, is to offer incentives to banks through the Community Reinvestment Act, which encourages banks to do business in low- and moderate-income communities."

Largest US Financial Companies Lose FDIC Debt Guarantees

American Banking News
Some of the nation’s largest financial companies, including Citigroup (NYSE: C), GE Capital (NYSE: GE), JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC) and others will no longer have certain debt guaranteed by the federal government through the FDIC’s Temporary Liquidity Guarantee Program as of October 31st.

The FDIC voted on Tuesday to end the Temporary Liquidity Guarantee Program that is being used to guarantee certain debt issued by some of the nation’s largest banks, but also setup a 6-month safety net facility as part of the process. All five members of the FDIC’s panel of regulators voted to end the program as scheduled on October 31st.

New debt can be issued and guaranteed under the program up until the deadline. The deadline on the newly placed debt would expire no later than December 31st, 2012.

FDIC Chairman, Sheila Bair, stated, “It should be clear that this is not a continuation of the program but an ending of the program.”

The program does leave open a 6-month safety-net feature for banks suffering from “market disruptions” beyond their control. Under the transitional facility, banks can have new debt guaranteed through April 30th, 2010 if the FDIC approves the guarantee.

During the month of September, the FDIC requested public comment about two different approaches to ending the program. One of the programs would let the program finish by the end of the month and the other would include a 6-month guarantee facility for some banks on a case-by-case basis.

The FDIC established the Temporary Liquidity Guarantee Program last October in order to boost confidence in the banking industry, add more liquidity, and reduce the possibility of bank runs. The TLGP program places a government guarantee on some senior unsecured debt and mandatory convertible debt, as well as on banks’ transaction deposit accounts.

Regulators are hoping to phase out the program now that stress on the credit market has eased. FDIC officials are also want to avoid promoting reliance on government aid by the financial industry. As of October 14th, 2009, the FDIC had $309.4 billion in outstanding debt-guarantees.

Pre-approved Credit Card with APR of 79.9 Percent

Image by liewcf via Flickr

The offer is for a Premier card from First Premier Bank, which is based in South Dakota. On its Web site, First Premier says it is the country's 10th largest issuer of Visa and MasterCard credit cards. The site also says it "focuses on individuals who have less than perfect credit but are actually still creditworthy."

A spokesman with the Federal Deposit Insurance Corporation (FDIC) said interest rate limits on bank cards are set by the individual state and not on a federal level. According to information on the South Dakota Legislative Web site, there is "no maximum or usury restriction." In other words, the individual bank can set its own interest rate limits. Read More...

FDIC Fund Is Now Negative

ZeroHedge

In an unprecedented disclosure, the FDIC has highlighted that it expects the DIF reserve ratio to be negative as of September 30. As there are a whopping 48 hours before that deadline, one can safely assume that the DIF is now well into negative territory: as of today depositors have no insurance courtesy of a banking system that has leeched out all the capital of the Federal Deposit Insurance Corporation. Let's pray there is no run on the bank soon.

Pursuant to these requirements, staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative. This reflects, in part, an increase in provisioning for anticipated failures. In contrast, cash and marketable securities available to resolve failed institutions remain positive.

Additionally, the FDIC has now raised its expectation for bank failure costs from $70 billion $100 billion. Feel free to expect this number to continue growing.

Staff has also projected the Fund balance and reserve ratio for each quarter over the next several years using the most recently available information on expected failures and loss rates and statistical analyses of trends in CAMELS downgrades, failure rates and loss rates. Staff projects that, over the period 2009 through 2013, the Fund could incur approximately $100 billion in failure costs. Staff projects that most of these costs will occur in 2009 and 2010. Approximately $25 billion of the $100 billion amount has already been incurred in failure costs so far in 2009. Staff projects that most of these costs will occur in 2009 and 2010.

First Mary Schapiro has failed at her task of "regulating" anything on Wall Street, and now Sheila Bair presides over a newly insolvent institution. Chalk one up to Washington's success at "containing" the crisis. Zero Hedge wishes Ms. Bair all the luck in the world in returning the DIF to its statutory minimum requirement of 1.15% of all insured deposits (a shortfall of a mere hundred billion or so). Maybe she can convert the FDIC to a REIT and have Merrill Lynch do a concurrent IPO and follow-on offering (while Goldman raises it to a Conviction Buy which incorporates the firm's expectations for 10% GDP growth in 2010 coupled with projections for $1,000 per barrel of crude)?

FDIC's full memorandum outlining its failure can be found here.

FDIC Propping up Foreign Banks

From The New York Times:
Guaranty Bank, a deeply troubled Texas lender, was sold on Friday to Banco Bilbao Vizcaya Argentaria of Spain in one of the largest government-assisted deals offered to a foreign firm. Federal regulators seized Guaranty Bank and simultaneously brokered the sale of its branches as well as most of the deposits and assets to BBVA Compass, the Spanish bank’s American subsidiary. The government, however, agreed to absorb most of the losses on $9.7 billion, or more than 80 percent, of the Guaranty assets included in the deal.

The failure is the fourth-largest since the financial crisis began, and the Federal Deposit Insurance Corporation projects that it will cost its deposit insurance fund about $3 billion. Stockholders in Guaranty Bank will be wiped out, but the deal ensures that its depositors will not suffer losses. Although BBVA did not take control of the failed bank’s $344 million of brokered deposits, the F.D.I.C. said that it would reimburse brokers directly for those funds.

The government also agreed to shoulder the bulk of the losses on all of Guaranty’s loans — a deal sweetener that the government has rarely extended to overseas buyers. BBVA agreed to buy $12 billion of the $13 billion assets left at Guaranty Bank, which it will ultimately sell to private investors. The F.D.I.C. agreed to take on the remaining $1 billion of assets, as well as cover losses on the $9.7 billion pool of risky loans that BBVA bought. The agreement calls for the government to take on about 80 percent of the first $2.3 billion of losses, and 95 percent of the losses above that threshold.

Loss-sharing agreements have become a standard part of the F.D.I.C.’s toolkit for resolving troubled banks, but rarely have they covered such a big portion of a failed bank’s assets. And seldom are they offered to foreign buyers. Indeed, it appears the last time that an overseas bank received federal assistance in a failed bank deal was when the Bank of Ireland scooped up four New Hampshire banks in September 1991.

Nearly all American banks are essentially insolvent

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Bill Sardi breaks down the American banking system's insolvency in simple terms.

Days Away From Economic Chaos?

Bill Sardi

America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2^nd Quarter report for 2009 on the state of health of American banks.

It has not particularly alarmed Americans that its growth and prosperity have been built upon debt. The American public is a bit desensitized, particularly since the Y2K threat fizzled. We must wait and see how Americans respond to the upcoming FDIC report.

There are roughly 8400 American banks that set aside a small portion of their profits to aggregately insure bank depositors should their local bank fail. A plethora of bank failures has depleted the FDIC reserve fund from $52.8 billion in 2008 to $13 billion in the 1^st Quarter of 2009.

Alison Vekshin, writing for Bloomberg, indicates

"The failure of 77 banks this year is draining the fund, prompting the agency in May to set an emergency fee of 5 cents for every $100 of assets, excluding Tier 1 capital, to raise $5.6 billion in the second quarter. The agency has authority to set fees in the third and fourth quarters, if needed, to prevent a decline in the fund from undermining public confidence."

Vekshin goes on to report that 56 bank failures since March 31 have cost the FDIC an estimated $16 billion. (For comparison, in the 1^st Quarter, bank failures only cost the FDIC $2.2 billion.) That $16 billion bank rescue would fully deplete the FDIC fund as it only had $13 billion at the close of the 1^stQuarter. It’s possible the FDIC has already tapped into its line of credit at the Treasury Department without setting off alarm bells to the public.

The FDIC is required by law to maintain a reserve ratio, or balance divided by insured deposits, of 1.15 percent. It was at 0.27 percent as of March 31. It could be near zero at the current moment.

Banks will be assessed extra fees

The FDIC's 8400 banks will likely be assessed special fees to shore up the FDIC's treasure chest.

Bloomberg’s Vekshin, quoting Robert Strand, a senior economist at the American Bankers Association, says the industry will pay $17 billion in premiums this year, including $11.6 billion from the annual fee.

Insured institutions set aside $60.9 billion in loan loss provisions in the 1^stQ, an increase of $23.7 billion (63.6 percent) from the first quarter of 2008.

Hiding losses

Banks have been slow to foreclose, allowing mortgage holders a few months before their home is deemed in default and giving another 2 years before the property is foreclosed on its accounting books. This practice has been able to temporarily hide most of the banking collapse.

But banks must eventually write down their real estate home mortgage losses. First-quarter net charge-offs of $37.8 billion were slightly lower than the $38.5 billion the industry charged-off in the fourth quarter of 2008.

As banks write off bad home loans, this downsizes their asset values. Downsizing at a few large banks caused $302-billion decline in industry assets in the 1^stQ. The FDIC report says:

Total assets declined by $301.7 billion (2.2 percent) during the quarter, as a few large banks reduced their loan portfolios and trading accounts. This is the largest percentage decline in industry assets in a single quarter in the 25 years for which quarterly data are available. Eight large institutions accounted for the entire decline in industry assets;

You can see by the following chart that US banks are directing a great deal of their profits towards write-offs (loss provision in the following chart) for non-paying home mortgages (foreclosures). So the banks only have about $5–7 billion of profit to direct to the FDIC to shore up its quickly vanishing reserve account. This aggregate profit equates to about $890,000 profit per bank in a quarter. That is a pretty thin margin.

Zombie banks

The FDIC, which claimed only about 300 problem banks in the 1^st Quarter of 2009, but hid the fact there were about 2000 total lame banks among its 8400 members, This has given rise to the term "zombie banks," which are defined as "a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support."

Examination of the following FDIC chart shows geographically that most banks are not making a profit.

FDIC's $13 billion against $220 billion liabilities

So just how much liability does the FDIC bear aggregately for its "problem banks?"

At the end of the 1^st Quarter in 2009 the FDIC said that figure was $220 billion. Remember now, the FDIC had only about $13 billion to over these institutions at the time. (See chart below) This figure will likely grow beyond imagination with the issuance of the FDIC 2ndQ report.

How do American banks make profit today?

So how to American banks make any money today? You can see in the following chart that in the recent past American banks derived most of their profits (45%) from residential and commercial property loans. These income sources are obviously crashing.

So the FDIC 1^st Quarter report tells all – our so-called conservative American bankers, entrusted with your hard-earned savings, with no place to turn to generate traditional profits, have entered the gambling parlor. Here is how the FDIC said it:

Sharply higher trading revenues at large banks helped FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009.

Trading revenues means profit generated from trading stocks and other risky investments. Recall, when your money was being financed commercial and residential property it had some collateral behind it. An asset (real estate) was held in balance against the risk of failure to pay the loan. Now bankers are "investing" your money in the stock market in what appears to be a replay of how the Japanese propped up their stock market in recent years – by simply having major companies purchase each other’s shares to prop up value.

The FDIC's 1^stQ report says: "Total equity capital of insured institutions increased by $82.1 billion in the first quarter, the largest quarterly increase since the third quarter of 2004 (when more than half of the increase in equity consisted of goodwill)."

What the hoot is "goodwill" you want to know? It is how the banks are cooking their books. Arbitrary value is being given to bank holdings.

The FDIC 1^stQ report goes on to say that:

Most of the aggregate increase in capital was concentrated among a relatively small number of institutions, including some institutions participating in the U.S. Treasury Department’s Troubled Asset Relief Program (TARP).

Banks valued by goodwill and bailout funds

So there, you can see that in addition to goodwill, the bank's capital was largely increased by bailout funds. So a dose of reality therapy will lead one to conclude that nearly all American banks are essentially insolvent.

If this leaves you feeling a bit queasy, well, you may need to reach for Dramamine when you realize the FDIC is not only broke, but it will probably announce it is tapping into its line of credit at the US Treasury Department, which is also insolvent (America is spending $1.58 trillion more than it collects in taxes this year).

Here is how Bloomberg’s Vekshin says it:

If the fund is drained, the FDIC also has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.

Compared with savings and loan crisis

American banks weathered the savings and loan/real estate appraisal crisis in the 1980s and 1990s by loading from the US Treasury. In 1991–92, during the last part of the savings and loan crisis, the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later.

But just exactly how will American banks ever pay back the treasury while facing years of write-offs from home mortgages? The banks do not have sufficient profits to offset their losses.

The entire cost of the savings and loan crisis of the 1980s and 90s was finally calculated at $153 billion, which was four times the reserves held by the FDIC (FSLIC at the time) in 1982. Of this, taxpayers paid out $124 billion while the thrift industry itself paid $29 billion. (FDIC Banking Review, volume 13, no.2, December 2000) So there is a false notion that the banks underwrite their own members’ losses. In fact, the public bears the brunt of the losses when bankers are reckless.

Bankers prodded to loan money

Sheila Bair, FDIC chief, is trying to get US bankers to begin loaning money again. But to do so bankers must begin to assess the worth of real estate at more realistic values. Then the real value of their asset package would be revealed and the banks would all collapse. Furthermore, if banks begin to loan money under their fractional banking scheme (banks loan out 10–50 fold more money than they have in reserve), then massive inflation will likely result. This would not only result in Americans bearing the brunt of higher cost of goods and services, but it could trigger Asian banks, seeing their savings devalued, to sell off their stash of US treasury bonds. America as a debtor nation depends upon billions of dollars every day, loaned from Asian banks, to stay afloat financially.

The FDIC's Bair is aghast at American bankers shift away from traditional sources of revenue backed by collateral to risky investments. Bair wants to charge banks additional fees tied to risks when their business expands beyond traditional lending, such as stock trading. This idea hasn’t advanced in Congressional committees yet. American bankers are walking a tight rope with their depositors’ money.

The mother of all bank runs?

Now if just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted. A short banking holiday would have to be declared and who knows what happens from there – troops in the streets, issuance of new currency, martial law? Don’t think those in the Federal government haven’t made plans for such an occurrence.

The unbanked

Of surprising interest, the FDIC reveals that millions of Americans don’t trust or don’t use banks. These Americans have been called the unbanked or underbanked, meaning that they "do not have access to banks or are not fully participating in the mainstream financial system," says the FDIC. The FDIC guesstimates that 10 percent of American families are "unbanked." That’s a lot of capital the banks don’t have access to. Those who hold currency outside of banks are anathema to the gods of banking.

Sources: Alison Vekshin, FDIC May Add to Special Fees as Mounting Failures Drain Reserve, Bloomberg News August 20, 2009; FDIC 2ndQuarter report 2009.

August 21, 2009Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.

Ending the Federal Reserve should be the collective goal of all Americans

Whatever preconceived notions and beliefs you may harbor about gold salesman, there's no disputing the truth and wisdom in the following article written by Darryl Robert Schoon, who, like Ron Paul, understands the absolute necessity to abolish, once and for all, The Federal Reserve System.

***

Economic cycles of expansion and contraction are the inevitable result of central bank credit flows. So, too, are deflationary depressions and hyperinflations. Though far less frequent, the destruction caused by deflationary depressions and hyperinflations more than make up for their infrequency; and, today, after perhaps the longest absence of each in recent history, we are now about to experience both—perhaps this time in tandem.

This will not be just a deflationary depression, it will be deflationary depression accompanied by a monetary crisis of epic proportions. The sudden on-set and virulence of the current economic crisis caught economists and central bankers by surprise. Having successfully dismissed those who disagreed with the spread of central banking and its illegitimate off-spring, fiat money, central bankers and economists were stunned when their world of paper money suddenly collapsed in 2007. Were it not for the unprecedented flood of government aid in 2008, private bankers would have been swept away just as they were in the 1930s. But, instead, private bankers were rescued with public funds, funds which allowed them to quickly return to their avocation of profiting from the indebting of others.

DON’T FEED THE PIGEONS

Words of advice from The Banker’s Handbook. Modern banking is essentially a Ponzi-scheme on a global scale. Bernard Madoff’s Ponzi-scheme was but a smaller, private version of the public model used in the world today. What people do not understand is that bankers loan money which doesn’t exist and then receive compounding interest and repayment of previously non-existent funds in return.

While this might be considered an abomination and nightmare, it is a wet-dream for bankers and those who profit from such a system. Charging interest on the loaning of gold and silver was believed to be a sin during the Middle Ages, but, today, the charging of interest on the loaning of money that didn’t previously exist and the receiving of the previously non-existent principal back plus interest is considered nothing less than a miracle—at least by the bankers who profit thereby.

The very birth of paper money was conceived in sin. In its genesis, central banking’s paper money was always a fraud. Believed to be backed by equal amounts of gold or silver, in actuality it was never so, no more than were the demand deposits of savers available upon demand in banks.

WHERE’S THE MONEY?
THE SHELF LIFE OF A SHELL GAME

Modern banking is akin to a shell game. As long as the public doesn’t catch on or the unexpected never happens (as in a banking crisis) the fraud can and does continue. The banking crisis during Great Depression, however, almost brought the banker’s shell game to an end by exposing it for what it was—a shell game. When US depositors rushed to the banks between 1930 and 1933 to withdraw their savings, they found the banks didn’t actually have their money and thousands of banks were forced to close.

This is what happened to Bernie Madoff’s clients when they requested their money en masse in 2008. This was Bernie Madoff’s nightmare. It is also the nightmare of all bankers because—just as with Bernie Madoff—the depositors’ money isn’t really there. When the Great Depression alerted savers to the fact that the banks didn’t actually have their money, bankers and government decided something had to be done to prevent bank runs from occurring in the future.

So, they created the FDIC, the Federal Deposit Insurance Corporation, which would maintain a fund composed of bank insurance premiums that would protect depositors against any losses up to a certain proscribed amount. But while Americans now believe their savings are backed by premiums paid into the FDIC fund, no such fund exists; and, although the FDIC regularly reports how much money is in the FDIC fund, the fund itself, like modern economics, is a fraud.

Modern economics, i.e. central banking, is a shell game, a shell game where bankers with the aid of governments have foisted a highly lucrative fraud on society; and, while the fraud of the FDIC fund is egregious, it is no more egregious than the fraud of the Fed or of the economy itself.

In economies based on the fraudulent issuance of money as debt, there are only predators and victims. Bankers are the predators, society is the victim (businessmen are victims who often believe they’re predators) and governments are the well-paid-off referees in the rigged game being played out in today’s capital markets.

ALL GOOD THINGS COME TO AN END
AND BAD THINGS DO TOO

This is our salvation. The debasement of our money and our enslavement by bankers into perpetual debt is finally coming to and end; but not because those oppressed realize their plight and are finally revolting. Their slavery is ending because those so enslaved are now so indebted they are unable to pay what they owe and the prison of debt itself is now bankrupt.

Banker’s credit creates constantly compounding debt and; today, so much debt has been created the economy can no longer expand fast enough to service it or pay it back. Homeowners, workers, farmers, business people, corporations and governments are all indebted beyond their means to repay and. when debtors can’t pay what they owe, the shell game of debt-based capitalism collapses—game over.

The Federal Reserve System which substituted debt-based paper money for the gold and silver based money issued previously from the US Treasury is now 96 years old; and, if the US economy continues to decline because of the compounding levels of debt created by the Federal Reserve, the Federal Reserve System itself may be called into question before it reaches its 100 year anniversary.

The end of the Federal Reserve System should be the collective goal of all Americans; for all Americans—black, white and brown, men and women, rich and poor, tea-baggers and tree-huggers, the already born and yet-to-be born—have all been enslaved by the Fed’s substitution of its debt-based money for the gold and silver currency previously issued by the US Treasury.

Today, all Americans collectively owe more than can ever be repaid. America has been delivered into perpetual bondage by the Federal Reserve. It’s about time that changed. The descent into perpetual debt happened on our watch. It is our responsibility to now do something about it. If we owe anything to anyone, we owe this to ourselves and to our children.

Five More Banks Seized Late on Friday

1. Colonial BancGroup Inc.'s Colonial Bank
2. Community Bank of Nevada
3. Union Bank NA, of Phoenix, AZ
Union Bank NA of Gilbert, AZ
4. Community Bank of Arizona
5. Dwelling House Savings and Loan Association, PA

WSJ:

Friday's five failures put at 102 the number of U.S. institutions that have been seized by regulators since the beginning of 2008 as the credit and broader economic problems continue to reverberate through the financial system. The failures put further pressure on the FDIC's deposit insurance fund, which stood at just $13 billion as of the end of March. The agency expects to offset some of the losses by collecting a one-time fee of $5.6 billion from the banking industry in September, and also from a $25 billion reserve fund announced earlier this year to help account for expected failures. The seizures Friday evening came hours after regulators moved to seize Colonial Bancgroup Inc.'s Colonial Bank in the sixth-largest bank failure in U.S. history.