Monday, July 28, 2008

How Safe Is Your Bank?

How Safe Is Your Bank?

“In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back. What cannot be paid back will be defaulted on. If you did not know it before, you do now.” The entire US banking system is insolvent. By Mike "Mish" Shedlock Evidence of the US Banking System Teetering on the Brink of Collapse

The corporate mind control apparatus has deliberately downplayed the state of the economy at the behest of the financial oligarchy that owns it. As recently as a few days ago the corporate media served as stenographers and cheerleaders as US Secretary of the Treasury Henry Paulson a former CEO of Goldman Sachs investment banking firm, Ben Bernanke the Chairman of the Federal Reserve Bank (a consortium of privately owned banks the Congress allows to set monetary, credit and interest rate policies and we the taxpayers pay for) and the pathological prevaricator George W Bu$h all stated the US banking system was in good shape. Nothing could be further from the truth. The ruling plutocrats and their flunkies are desperately trying to suppress a panic. They cannot afford the type of hysteria that could cause people to go their local bank and withdraw all their money. The last thing they want to confront is a massive run on US banks that would cause the whole house of cards Ponzi scheme to come crashing down. The truth is the whole US banking system is on the verge of a major default. To get a better grasp of what is really happening, go to and read the article entitled Evidence of the US Banking System Teetering on the Brink of Collapse. This easy to read and understand listing of recent events and statements will enable you to comprehend just how egregiously we are being lied to by the “powers that be” and the media.

How safe is your bank? This is a timely and appropriate question given the news about bank failures that we have been hearing about around the world recently. Bu$h says every thing is cool, so you know things are actually in crisis/chaos. Have you ever heard the term “fractional reserve”? If not it is the key to just how precarious the whole banking situation in AmeriKKKa really is. The US banking system has an inherent aspect of it that potentially puts all banks at risk. All that keeps it from all falling apart is the trust of the people who think or who have been brainwashed to believe the system is foolproof and solvent.

Fractional Reserve means that a commercial bank can keep as little as ten per cent (10%) of the total sum of all the money its depositors have entrusted to it on hand at any given time. This means that if you deposit $1,000 in a savings account at your local bank, that bank only has to keep $100 on hand. It lends out the other $9000 at a higher interest rate than it pays you to “hold” your money. Keep in mind your money is not there physically. The bank only has to keep $100 of it on “reserve”. If four of your friends also deposit $1000 which totals $4000 the bank is only required to keep $400 of it on hand. Now after the bank lends the money out say to a couple that want to buy a house or to a business man or corporation, those deposited funds are in circulation, not in the bank’s vault. If for example you and your friends come in and demand all your money, the bank would be hard pressed to give it to you then and there because they only have $500 of your money on hand! If for some reason, every depositor at that bank came in to demand their money,( this is called a run on the bank) the bank would be in deep dodo. “For instance, you could ask to withdraw all the money in your checking account at any time. If all the depositors of a bank did that at the same time (a bank run), the bank could be in trouble, though this rarely happens. However, the Northern Rock crisis of 2007 in the United Kingdom is an example of such an event.”

Under normal circumstances your bank would have to borrow money from the Fed or other banks to meet the demand of its depositors. Alas these are not normal times. Even without the normal risks of fractional reserve, most US Banks are overextended. In the recent “greed is good” financial wheeling and dealing and deregulation frenzy, banks made bad loans and they invested in get rich quick deals that are not panning out. Now its time to pay the piper. Things are so bad the lines of credit between banks have dried up and banks won’t lend to each other because they cannot trust the other bank to be “solvent” due to all the fallout from the subprime and Alt A mortgage defaults and other exotic schemes (unregulated Hedge Funds, derivatives and Shadow Banking System deals) that are imploding as we speak.

Well you say, “my deposits are insured”. If you have $100,000 or less in a commercial bank, this is true, they are. But what happens if you have more than $100,000 in one bank? Or what happens if the Federal Deposit Insurance Corporation, the agency that insures your deposits is underfunded in these volatile times?! If either of those situations occurs, you are, as we used to say “SOL” stone out of luck. All of this, by the way, is a real possibility. The FDIC only has about fifty-eight billion in its account. Eight billion of that will be gobbled up by the collapse of IndyMac. Keep in mind, IndyMac was not on the FDIC’s watch list before it went belly up. Two more banks were added to the failed list. “US BANKING regulators closed two lenders in California and Nevada two weeks after the collapse of IndyMac Bancorp, as loan defaults and foreclosures soar. First National Bank of Nevada, with $US3.4 billion ($35.6 billion) in assets, and the Californian First Heritage Bank, with $US254 million, lacked sufficient capital, the Office of the Comptroller of the Currency said last week in a statement. Their deposits and some assets would be acquired by Mutual of Omaha Bank, the Federal Deposit Insurance Corporation said.”

There are about ninety or so other banks that are on the FDIC watch list. (The FDIC has recalled several retired employees in anticipation of more bank failures). But the truth is, every bank is at risk just by virtue of the fractional reserve system!!! That’s why Bu$h, Paulson and Bernanke are lying about the real state of the US banking system. They are afraid more banks will fail, putting a severe drain on the limited funds the FDIC has which will cause a panic and lead to more runs on banks which will spell doom for the whole banking system. How safe is your bank?


Wednesday, July 23, 2008

US Taxpayers Get Shfted Again

US Taxpayers Get Shafted Again

“The US Treasury’s rescue plan for Fannie Mae and Freddie Mac could cost taxpayers $25bn, congressional researchers said on Tuesday as evidence mounted that turmoil at the two companies is helping push up interest rates for homebuyers. US mortgage rates have hit their highest levels in about a year amid rising Treasury yields and growing fears among investors that Fannie and Freddie will cut back their purchases of home loans and mortgage securities. Hank Paulson, Treasury secretary, on Tuesday said he was “confident” Congress would complete work on approving his plan to give the Treasury authority to increase its credit line to Fannie and Freddie and invest in their equity, if necessary. The plan has faced criticism on Capitol Hill for exposing taxpayers to potentially huge losses, but is seen by most lawmakers and administration officials as necessary to prevent mortgage rates from climbing even higher.” US housing rescue ‘could cost $25bn’ By James Politi in Washington and Nicole Bullock and Michael Mackenzie in New York Published: July 22 2008 17:58 | Last updated: July 23 2008 00:32

The corporate mind control apparatus is predicting George W. Bu$h will sign the recently proposed Housing Bill which the Congressional Budget Office says may cost US taxpayers upwards of twenty-five billion dollars. As with most government statistics/figures we taxpayers ought to be extremely cynical about this figure. With the rampant mismanagement, corruption and fraud going on in Washington, the final payout will probably be much higher. I warned you some time ago dear reader, the Wall Street crooks, con men and hustlers would call in the chits and bribes they pay to the crooks in Congress to finagle a way to make Joe and Jane Sixpack pay for Wall Street’s avarice, larceny and criminality. Of course this latest corporate welfare, socialism for the rich rip off is being spun in the corporate media as a necessity. The media is saying this has to been done to “save” the housing industry. Save? In case no one has noticed the US housing industry is toast! What they really mean is they are doing this to save Wall Street, the big investment banks and put the onus for paying for this humongous bailout on the hapless taxpayers. This is a redo of the 1980's Savings and Loan rip off.

“The housing bill is expected to be approved by the House of Representatives on Wednesday, before moving to the Senate and the White House for the signature of President George W. Bush possibly later this week. As well as the Fannie Mae and Freddie Mac provisions, the legislation also includes language allowing the government to guarantee up to $300bn in mortgages refinanced at more affordable rates through the Federal Housing Administration, the federal housing insurer for low-income Americans.” Bush drops opposition to housing bill By James Politi in Washington The so called Housing Bailout is not designed to help struggling homeowners stave off default and remain in their homes. It is a straight up example of corporate welfare, socialism for the rich, a total scam where the taxpayers foot the bills and make it easier for the banks to eventually foreclose on homes in the future. “So when it comes to workers' pain, we are told that there really is nothing that can be done. What about the pain of incompetent bankers? Well, we can't let incompetent bankers suffer. Congress, the president and the Fed will move heaven and earth to make sure that the bankers are not allowed to sink just because of their bad business decisions. That was why Fed chairman Ben Bernanke was so quick to tell the creditors of the major investment banks not to worry that that Lehman Brothers or Citigroup might be following Bear Stearns in going belly up. He promised that the Fed would throw out as much money as was necessary to make them whole. There was little concern for moral hazard or the incredible waste of taxpayer money to bail out the extremely rich. (Guarantees are real money – if anyone ever tells you otherwise, ask them to sign a guarantee note for your mortgage or student loan.) The guarantees, plus the below market loans from the Fed's discount window, was just round one. Round two is the bailout package that is about to pass Congress. This bill is being sold as a bailout of homeowners. The big problem with that story is that the government guaranteed checks go to banks, not homeowners. Furthermore, the banks get to decide which loans get placed in the programme. This is simple Econ 101. Banks are sitting on several hundred billions of dollars of really bad loans. They can go through with the foreclosure process, but this is costly. In addition, house prices have fallen so much, and the market is so glutted in many areas, that they will get be able to recover relatively little of the original value of their mortgage through foreclosure. So, along comes Congress with a big bag of taxpayer money and offers to guarantee new mortgages that will allow the banks to recover a much larger share of the original value of their mortgage. Who knows, with an exaggerated appraisal (ever hear of exaggerated appraisals?), they may even be able to recover most of their money. Of course Congress sells this as a bailout of homeowners. And we all know homeownership is the American Dream, so anyone who raises questions must be some sort of al-Qaida loving communist.” Help workers, not Wall Street Loan guarantees will help the bankers responsible for the housing crisis, not the homeowners suffering from it

What the article doesn’t say is that because many of these mortgages were chopped up, bundled with other loans (auto, student, commercial etc) and repackaged as bonds (what they call securitized debt), the bank that issued the original loan doesn’t hold the lien and cannot foreclose on the properties anyway. So not only are the banks out of the money for the loans, they cannot legally foreclose because they don’t hold the liens or title to the property. All this scrambling by the Fed, the Treasury, Wall Street and Congress to get Fannie Ma and Freddie Mac solvent and get FHA involved in the refinancing of these loans is the bankers’ scheme to either get the government to pay the loans or get the liens loans back so they can foreclose on them later. They know the economy is going to get worse and many of the borrowers won’t be able to afford the refinanced/restructured loans. The fix is in, the legislation is written so that in a worse case scenario, the government will step in and guarantee the newly refinanced FHA loans and the Wall Street bankers will get off Scott free. It is not about helping the people!

To glean a better idea of how all this happened and who was behind this colossal rip off read: Status Report on the Collapse of the U.S. Economy by Richard C. Cook at Suffice it to say the creators of this crisis could care less about the harm and massive damage they are causing to millions of ordinary US citizens. All they care about is recouping their money. And as usual, they will call on their stooges and puppets in Congress to make sure they recoup their losses while passing the costs on to the befuddled and bamboozled taxpayers who are being lied to and taken to the cleaners one more time.