Inspector General: Financial Bailouts May Cost Taxpayers $23.7 Trillion
In July, Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program (TARP), reported that American taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies.
Barofsky was appointed by President Bush last November to represent the taxpayers and oversee the mammoth bailout of the nation's financial system. His role is to scrutinize how the money is spent, and root out graft, corruption, and the potential mismanagement of an absolutely massive amount of taxpayer money.
Last fall, Congress hastily approved the $700 billion TARP in what was deemed an emergency situation. But many legislators, and the public at large, were astonished by the sheer size of the government intervention.
Yet it was a mere fraction of all the public money that has been, and continues to be, used to rescue US banks, investment houses, and other financial institutions including AIG, one of the world's largest insurance companies.
The Federal Reserve alone doled out $6.8 trillion in aid. And Barofsky estimates additional massive government infusions including the following: $2.3 trillion in programs offered by the Federal Deposit Insurance Corporation; $7.4 trillion in TARP and other aid from the Treasury; and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs.
Taken as a whole, these various undertakings amount to a staggering sum total of $23.7 trillion, which US taxpayers will be responsible for. To put it in perspective, that is more than seven times the current federal budget.
So far, the Treasury has spent $441 billion of TARP funds and has allocated $202.1 billion more for other spending, according to Barofsky. That amounts to just over $643 billion, almost all the money originally authorized by Congress and approved by President Bush last fall.
However, in the eleven months since Congress authorized TARP, Treasury has created 12 programs involving funds that may reach almost $3 trillion, according to Barofsky.
Keeping track of it, and being sure that it is all appropriately spent, is a Herculean task. And it's all the more difficult when the agencies it is monitoring refuse to be cooperative.
Barofsky offered criticism in a quarterly report of Treasury’s implementation of TARP, saying the department has “repeatedly failed to adopt recommendations” needed to provide transparency and fulfill the administration’s goal to implement TARP “with the highest degree of accountability.”
As a result, taxpayers don’t know how TARP recipients are using the money or the value of the investments, he said in the report.
Friction between Barofsky and Treasury resulted in Congress complaining that the Obama Administration was trying to interfere with Barofsky's work. Treasury has fought Barofsky each step of the way, dragging its feet, or outright refusing, when his office requested documents.
In fact, Treasury went as far as asking the Justice Department if it actually had to fulfill Barofsky's requests, and if the inspector general's office was instead subject to the Treasury's authority.
Ultimately, last week the Treasury announced that it would not continue to challenge Barofsky and his watchdog agency.
But it shows that the Treasury is disinclined to transparency, scrutiny, and supervision. This begs an obvious question: what is it hiding?
Meanwhile, the Fed is fighting a proposed Congressional audit.
The central bank and the Treasury work in unison, like two perfectly aligned gears. Neither likes any authority— other than their own—and neither likes accountability. Having to answer the inquiries of the inspector general must feel like stooping to the dictatorial duo.
The disturbing reality is that a cavernous hole has been dug by elitist bankers and their enablers which the American people will never get out of. The taxpayers will be paying off these monumental debts in perpetuity.
A sum as large as $23.7 trillion is totally incomprehensible, and the grandest case of larceny in the history of the world has been perpetrated against the American people.
This heist, one of entirely historic proportions, amounts to nothing less than a coup de grace by the Fed and their banking brethren.
We are all now at their mercy.
Minggu, 06 September 2009
Kamis, 03 September 2009
"Too Big to Fail" Should Mean Too Big To Exist
Fearing a systemic financial failure last year, the federal government pumped hundreds of billions into the US banking system.
America's biggest banks were deemed "too big to fail" and were buoyed with taxpayer dollars, even though the bankers had taken brazen risks that landed them in trouble in the first place.
The primacy of moral hazard was utterly ignored by our alleged government leaders.
Instead, the biggest, most irresponsible, most reckless banks were allowed to get even bigger.
According to a story in last Friday's Washington Post. JP Morgan Chase, Bank of America (partly government-owned due to the crisis) and Wells Fargo each now hold more than $1 of every $10 on deposit in this country.
This means that just three behemoth financial institutions now hold an aggregate of 30% of all US bank deposits.
What's more, according to federal data, those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards.
That clout and market share give them distinct advantages over their competitors.
New data from the FDIC show that big banks have the ability to borrow more cheaply than their peers because creditors falsely assume these large institutions have less risk of failing.
Large banks with more than $100 billion in assets are borrowing at interest rates 0.34 percentage points lower than the rest of the industry. Back in 2007, that advantage was only 0.08 percentage points, according to the FDIC. Such differences can cause huge variance in borrowing costs given the massive amount of money that flows through banks.
Does all of this sound like a dangerous monopoly to you? Does it seem that our once sacred anti-trust laws (the ones our government so famously used to break up the monopolistic giant Standard Oil) are plainly being violated?
If you said yes, we're in agreement.
The government is responsible for the arranged marriages of B of A / Merrill Lynch, JP Morgan Chase / Washington Mutual, and Wells Fargo / Wachovia. Most outrageously, the government also provided extraordinarily bountiful dowries too boot, amounting to billions of taxpayer dollars.
And it did all of this despite a blatant violation of existing US law.
JP Morgan Chase, B of A, and Wells Fargo were each allowed to hold more than 10 percent of the nation's deposits despite a rule barring just such a practice. Federal Reserve documents show that in several metropolitan regions, these banks were permitted to take market share beyond what the Department of Justice's antitrust guidelines typically allow.
It makes you wonder; what's the point of these laws?
Last October, when the Fed was arranging the merger of Wells Fargo and Wachovia, it identified seven metropolitan regions in which the combined company would either exceed the Justice Department's antitrust guidelines or hold more than a third of an area's deposits. Yet the merger was allowed to proceed anyway.
"There's been a significant consolidation among the big banks, and it's kind of hollowing out the banking system," said Mark Zandi, chief economist of Moody's Economy.com. "You'll be left with very large institutions and small ones that fill in the cracks. But it'll be difficult for the mid-tier institutions to thrive."
"The oligopoly has tightened," he added.
Hooray for capitalism. Hooray for the rule of law.
Fearing a systemic financial failure last year, the federal government pumped hundreds of billions into the US banking system.
America's biggest banks were deemed "too big to fail" and were buoyed with taxpayer dollars, even though the bankers had taken brazen risks that landed them in trouble in the first place.
The primacy of moral hazard was utterly ignored by our alleged government leaders.
Instead, the biggest, most irresponsible, most reckless banks were allowed to get even bigger.
According to a story in last Friday's Washington Post. JP Morgan Chase, Bank of America (partly government-owned due to the crisis) and Wells Fargo each now hold more than $1 of every $10 on deposit in this country.
This means that just three behemoth financial institutions now hold an aggregate of 30% of all US bank deposits.
What's more, according to federal data, those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards.
That clout and market share give them distinct advantages over their competitors.
New data from the FDIC show that big banks have the ability to borrow more cheaply than their peers because creditors falsely assume these large institutions have less risk of failing.
Large banks with more than $100 billion in assets are borrowing at interest rates 0.34 percentage points lower than the rest of the industry. Back in 2007, that advantage was only 0.08 percentage points, according to the FDIC. Such differences can cause huge variance in borrowing costs given the massive amount of money that flows through banks.
Does all of this sound like a dangerous monopoly to you? Does it seem that our once sacred anti-trust laws (the ones our government so famously used to break up the monopolistic giant Standard Oil) are plainly being violated?
If you said yes, we're in agreement.
The government is responsible for the arranged marriages of B of A / Merrill Lynch, JP Morgan Chase / Washington Mutual, and Wells Fargo / Wachovia. Most outrageously, the government also provided extraordinarily bountiful dowries too boot, amounting to billions of taxpayer dollars.
And it did all of this despite a blatant violation of existing US law.
JP Morgan Chase, B of A, and Wells Fargo were each allowed to hold more than 10 percent of the nation's deposits despite a rule barring just such a practice. Federal Reserve documents show that in several metropolitan regions, these banks were permitted to take market share beyond what the Department of Justice's antitrust guidelines typically allow.
It makes you wonder; what's the point of these laws?
Last October, when the Fed was arranging the merger of Wells Fargo and Wachovia, it identified seven metropolitan regions in which the combined company would either exceed the Justice Department's antitrust guidelines or hold more than a third of an area's deposits. Yet the merger was allowed to proceed anyway.
"There's been a significant consolidation among the big banks, and it's kind of hollowing out the banking system," said Mark Zandi, chief economist of Moody's Economy.com. "You'll be left with very large institutions and small ones that fill in the cracks. But it'll be difficult for the mid-tier institutions to thrive."
"The oligopoly has tightened," he added.
Hooray for capitalism. Hooray for the rule of law.
Government Projects Grim Fiscal Outlook
The latest projections for both federal deficits and the national debt can be described as nothing but grim.
On August 25, the White House Office of Management and Budget and the nonpartisan Congressional Budget Office each predicted exploding federal deficits and mounting debt over the next decade.
Both project the budget deficit for this year swelling to a record of nearly $1.6 trillion.
The White House revised its projected budget deficit to be $2 Trillion higher over the next decade than its previous May estimate. It now foresees a cumulative $9 trillion deficit from 2010-2019.
However, congressional budget analysts put the 10-year figure at a lower $7.14 trillion.
Either way, the news paints a bleak picture of America’s deteriorating debt position.
“If you include the administration’s fiscal plans, this implies a deficit increase way in excess of $10 trillion over the next decade – the numbers are deeply alarming,” said Bill Gale, a senior economist at the Brookings Institution.
The difference in the two government estimates is due primarily to the CBO's assumption that all of the Bush tax cuts will expire as scheduled by 2011, as dictated by current law. Yet, the White House intends to maintain the tax cuts for families earning less than $250,000 a year.
Regardless, 10-year projections can be highly inaccurate; any number of foreign and domestic challenges could make actual deficit figures very different from the estimates.
Beyond the 10-year forecast, the nation will face the additional challenges of rising health care costs and an aging population, the CBO said. "The budget remains on an unsustainable path" over the long-term and will require some combination of lower spending and higher tax revenues, it said.
Both estimates envision the national debt nearly doubling over the next decade. As of August, the total national debt stood at a staggering $11.7 trillion.
Congressional Budget Office director Douglas Elmendorf said if Congress doesn't reduce deficits, interest rates will likely rise, hurting the economy. But, he said, if Congress acts too soon, the economic recovery – whenever it arrives – could be thwarted.
"We face perils in acting and perils in not acting," Elmendorf told reporters.
The White House said the economy would shrink by 2.8 percent this year, more than twice its previous 1.2 percent estimate. It also expects unemployment to pass 10 percent and stay higher than 8 percent until the end of 2011.
White House budget director Peter Orszag said the government will have to spend more on unemployment insurance and food stamps due to the extended recession.
According to Orszag, continuing stresses will increase the cost of the economic stimulus package – most of which will be spent in fiscal year 2010 – by tens of billions of dollars above the original $787 billion.
The latest projections for both federal deficits and the national debt can be described as nothing but grim.
On August 25, the White House Office of Management and Budget and the nonpartisan Congressional Budget Office each predicted exploding federal deficits and mounting debt over the next decade.
Both project the budget deficit for this year swelling to a record of nearly $1.6 trillion.
The White House revised its projected budget deficit to be $2 Trillion higher over the next decade than its previous May estimate. It now foresees a cumulative $9 trillion deficit from 2010-2019.
However, congressional budget analysts put the 10-year figure at a lower $7.14 trillion.
Either way, the news paints a bleak picture of America’s deteriorating debt position.
“If you include the administration’s fiscal plans, this implies a deficit increase way in excess of $10 trillion over the next decade – the numbers are deeply alarming,” said Bill Gale, a senior economist at the Brookings Institution.
The difference in the two government estimates is due primarily to the CBO's assumption that all of the Bush tax cuts will expire as scheduled by 2011, as dictated by current law. Yet, the White House intends to maintain the tax cuts for families earning less than $250,000 a year.
Regardless, 10-year projections can be highly inaccurate; any number of foreign and domestic challenges could make actual deficit figures very different from the estimates.
Beyond the 10-year forecast, the nation will face the additional challenges of rising health care costs and an aging population, the CBO said. "The budget remains on an unsustainable path" over the long-term and will require some combination of lower spending and higher tax revenues, it said.
Both estimates envision the national debt nearly doubling over the next decade. As of August, the total national debt stood at a staggering $11.7 trillion.
Congressional Budget Office director Douglas Elmendorf said if Congress doesn't reduce deficits, interest rates will likely rise, hurting the economy. But, he said, if Congress acts too soon, the economic recovery – whenever it arrives – could be thwarted.
"We face perils in acting and perils in not acting," Elmendorf told reporters.
The White House said the economy would shrink by 2.8 percent this year, more than twice its previous 1.2 percent estimate. It also expects unemployment to pass 10 percent and stay higher than 8 percent until the end of 2011.
White House budget director Peter Orszag said the government will have to spend more on unemployment insurance and food stamps due to the extended recession.
According to Orszag, continuing stresses will increase the cost of the economic stimulus package – most of which will be spent in fiscal year 2010 – by tens of billions of dollars above the original $787 billion.
Minggu, 30 Agustus 2009
Nobel Economist: Dollar Not Good Stove of Value, Has High Degree of Risk
Nobel Prize-winning economist Joseph Stiglitz recently voiced his rather pessimistic view of the US currency, saying, “The dollar is not a good store of value," and "anybody looking at the dollar has to say there’s a high degree of risk.”
Stiglitz, a Columbia University economics professor, also told a conference in Bangkok this month that he is concerned about the growing specter of inflation.
Under the leadership of Ben Bernanke, over the past year the Fed cut its benchmark lending rate to as low as zero while creating an additional $1.1 trillion in credit that was subsequently unleashed into the economy.
“As the balance sheet of the Fed has blown up, as the deficit of the U.S. and the debt has increased, people have asked the obvious question: will there be inflation in the future? Right now we’re facing deflation, but some time in the future, there will be consequences," said Stiglitz.
He is not alone in this view. Curtis Mewbourne, a portfolio manager at Pacific Investment Management Co., the world’s biggest manager of bond funds, says the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.
“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.
China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.
Stiglitz concurs.
“There is a need for a global reserve system,” Stiglitz told the Bangkok conference. "The current reserve system is in the process of fraying.”
Mewbourne has a similar view, writing, “While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative.”
A global reserve system is the dream objective of the Fed in its quest to expand its global power and reach.
Bill Gross, Mewbourne's PIMCO colleague, is also warning that the U.S. currency will fall. In June, Gross urged holders of dollars to diversify before central banks and sovereign wealth funds do the same because of concerns that government budget deficits will deepen.
Nobel Prize-winning economist Joseph Stiglitz recently voiced his rather pessimistic view of the US currency, saying, “The dollar is not a good store of value," and "anybody looking at the dollar has to say there’s a high degree of risk.”
Stiglitz, a Columbia University economics professor, also told a conference in Bangkok this month that he is concerned about the growing specter of inflation.
Under the leadership of Ben Bernanke, over the past year the Fed cut its benchmark lending rate to as low as zero while creating an additional $1.1 trillion in credit that was subsequently unleashed into the economy.
“As the balance sheet of the Fed has blown up, as the deficit of the U.S. and the debt has increased, people have asked the obvious question: will there be inflation in the future? Right now we’re facing deflation, but some time in the future, there will be consequences," said Stiglitz.
He is not alone in this view. Curtis Mewbourne, a portfolio manager at Pacific Investment Management Co., the world’s biggest manager of bond funds, says the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.
“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.
China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.
Stiglitz concurs.
“There is a need for a global reserve system,” Stiglitz told the Bangkok conference. "The current reserve system is in the process of fraying.”
Mewbourne has a similar view, writing, “While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative.”
A global reserve system is the dream objective of the Fed in its quest to expand its global power and reach.
Bill Gross, Mewbourne's PIMCO colleague, is also warning that the U.S. currency will fall. In June, Gross urged holders of dollars to diversify before central banks and sovereign wealth funds do the same because of concerns that government budget deficits will deepen.
Jumat, 28 Agustus 2009
International Energy Agency: Oil Running Out Far Faster Than Previously Predicted
Dr Fatih Birol, the chief economist at the respected International Energy Agency, says the world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production.
Dr Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilization depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.
But the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace calculated just two years ago.
The IEA estimates that the decline in oil production in existing fields is now running at 6.7 percent a year compared to the 3.7 percent decline it had estimated in 2007, which it now acknowledges to be wrong.
In its landmark assessment of the world's major oil fields, the IEA concluded that global consumption of oil was "patently unsustainable", with expected demand far outstripping supply.
Oil production has already peaked in non-OPEC countries and the era of cheap oil has come to an end, it warned.
In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand.
Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030, Dr Birol said.
"One day we will run out of oil. It is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day," Dr Birol said. "The earlier we start, the better, because all of our economic and social system is based on oil. So to change from that will take a lot of time and a lot of money and we should take this issue very seriously," he said.
Sabtu, 22 Agustus 2009
US Income Inequality Reaches Record Level
According to research done by Emmanuel Saez, a professor of economics at U.C Berkeley, in 2007, the top 10% of income and wage earners got half (49.74%) of all income and the other 90% split the other half.
The previous peak level was 49.29% in 1928, the height of the 1920s stock market bubble.
If capital gains are excluded, we were not quite at the Roaring 20’s levels of inequality, but were close at 45.51% vs. 46.09% in 1928.
The average from the end of WWII through 1980 was 32.3% excluding capital gains and 34.0% including them.
But the disparity began widening in the early 1990s. According to Saez, "The top 1% incomes captured half of the overall economic growth over the period 1993-2007."
And the disparity became especially distorted during the current decade.
"While the bottom 99 percent of incomes grew at a solid pace of 2.7 percent per year from 1993-2000, these incomes grew only 1.3 percent per year from 2002-2007. As a result, in the economic expansion of 2002-2007, the top 1 percent captured two-thirds of income growth," reports Saez.
Even while the stock market surged, employment expanded, and home prices inflated at historic levels, things were not nearly so rosy for the vast majority of U.S. workers.
The full report can found at: http://elsa.berkeley.edu/~saez/TabFig2007.xls
"As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped." -- Marriner S. Eccles (1951), FDR's Fed Chairman, on events leading to the Great Depression
According to research done by Emmanuel Saez, a professor of economics at U.C Berkeley, in 2007, the top 10% of income and wage earners got half (49.74%) of all income and the other 90% split the other half.
The previous peak level was 49.29% in 1928, the height of the 1920s stock market bubble.
If capital gains are excluded, we were not quite at the Roaring 20’s levels of inequality, but were close at 45.51% vs. 46.09% in 1928.
The average from the end of WWII through 1980 was 32.3% excluding capital gains and 34.0% including them.
But the disparity began widening in the early 1990s. According to Saez, "The top 1% incomes captured half of the overall economic growth over the period 1993-2007."
And the disparity became especially distorted during the current decade.
"While the bottom 99 percent of incomes grew at a solid pace of 2.7 percent per year from 1993-2000, these incomes grew only 1.3 percent per year from 2002-2007. As a result, in the economic expansion of 2002-2007, the top 1 percent captured two-thirds of income growth," reports Saez.
Even while the stock market surged, employment expanded, and home prices inflated at historic levels, things were not nearly so rosy for the vast majority of U.S. workers.
The full report can found at: http://elsa.berkeley.edu/~saez/TabFig2007.xls
"As in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped." -- Marriner S. Eccles (1951), FDR's Fed Chairman, on events leading to the Great Depression
Minggu, 16 Agustus 2009
US Bank Closings
2007 - 3
2008 - 25 (more than in the previous five years combined)
2009 - 74, the most since 1992 (122). It's only August.
Bank closures typically take place on Fridays, and this past Friday was no exception. Colonial Bank was the latest bank to fall, and it was the biggest failure this year.
The FDIC’s list of “troubled banks” stood at 305 at the end of the first quarter, the latest data available.
On August 14, Bloomberg News reported that more than 150 publicly traded U.S. lenders had nonperforming loans above 5% of their total holdings. Former regulators say that this is the level that can wipe out a bank's equity and threaten its survival.
Last September, Christopher Whalen, managing director of Institutional Risk Analytics, which sells its analysis of FDIC data to investors, predicted that 100 U.S. banks would fail by the end of 2009. The current pace of closures could easily surpass that.
By the end of 2008, the FDIC expected bank failures to cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. However, its problems have grown continually worse.
As of March 31, the FDIC had $13 billion to cover $4.83 trillion in deposits. Does that make you feel insured?
The August 14th failure of Colonial Bank (the biggest failure this year) will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said.
So far, failures this year have cost the insurance fund nearly $18 billion.
Think about that: $13 billion in assets, $18 billion in losses. Does that make any sense? It seems that the FDIC's insurance fund is already broke.
History and context:
- In 1930, 1300+ banks failed, 600 in just the final two months of the year.
- During the savings-and-loan crisis (1986-95), 2,377 banks failed.
- In 1989, 534 banks were closed, the most since 1934.
- According to the FDIC, since 1934, the only two years with no bank failures were 2005 and 2006.
- From 2000=2007, only 32 US banks failed.
2007 - 3
2008 - 25 (more than in the previous five years combined)
2009 - 74, the most since 1992 (122). It's only August.
Bank closures typically take place on Fridays, and this past Friday was no exception. Colonial Bank was the latest bank to fall, and it was the biggest failure this year.
The FDIC’s list of “troubled banks” stood at 305 at the end of the first quarter, the latest data available.
On August 14, Bloomberg News reported that more than 150 publicly traded U.S. lenders had nonperforming loans above 5% of their total holdings. Former regulators say that this is the level that can wipe out a bank's equity and threaten its survival.
Last September, Christopher Whalen, managing director of Institutional Risk Analytics, which sells its analysis of FDIC data to investors, predicted that 100 U.S. banks would fail by the end of 2009. The current pace of closures could easily surpass that.
By the end of 2008, the FDIC expected bank failures to cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. However, its problems have grown continually worse.
As of March 31, the FDIC had $13 billion to cover $4.83 trillion in deposits. Does that make you feel insured?
The August 14th failure of Colonial Bank (the biggest failure this year) will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said.
So far, failures this year have cost the insurance fund nearly $18 billion.
Think about that: $13 billion in assets, $18 billion in losses. Does that make any sense? It seems that the FDIC's insurance fund is already broke.
History and context:
- In 1930, 1300+ banks failed, 600 in just the final two months of the year.
- During the savings-and-loan crisis (1986-95), 2,377 banks failed.
- In 1989, 534 banks were closed, the most since 1934.
- According to the FDIC, since 1934, the only two years with no bank failures were 2005 and 2006.
- From 2000=2007, only 32 US banks failed.
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