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 http://www.marketoracle.co.uk/Article5594.html

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 http://www.marketoracle.co.uk/Article5594.html 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.” http://en.wikipedia.org/wiki/Fractional-reserve_banking

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.” http://www.brisbanetimes.com.au/news/business/two-more-us-lenders-bite-the-dust-as-loan-defaults-soar/2008/07/28/1217097094722.html

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?

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