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Tuesday, November 24, 2009

Denninger: The FDIC Is Broke

From Denninger:

Yes, really.

Off the wire this morning:

FDIC Deposit fund had negative $8.2B balance in Q3

That's broke.

Bankrupt.

Kaput.

Gone. Poof. Dead. Rotting. A corpse.

Yes, yes, I know, Treasury has their back.

But let's not forget - The FDIC does not have a legal "full faith and credit" guarantee from the US Federal Government and Treasury.

It has a "sense of Congress" resolution, but not a formal, legally-binding guarantee.

I am not, by the way, predicting an actual FDIC failure to pay. Should such an event happen it would be tantamount to a declaration of revolutionary war (by the government about to be deposed!) as if there is one thing that would cause Granny to reach for her shotgun, it would be getting screwed out of her life savings after Sheila Bair and everyone else in our government has trotted out how their money is "fully safe" and that "nobody has ever lost a penny of insured deposits and never will" for more than 20 years, including lots of pronouncements of exactly that mantra over the last year.

Nonetheless this outlines the underlying problem the FDIC has - it has willfully and intentionally ignored the fact that banks have mismarked their "assets" to overstate their values, it has refused to demand that accounting be done on a strict "mark to market" basis by bank examiners, and indeed, it has backed the "extend and pretend" commercial real estate "rollover" provisions of recent months, all of which is manifestly unsound, intentionally misleading, a consequence of willful refusal to enforce 12 USC Ch 16 Sec 1831o ("Prompt Corrective Action"), and has led to enormous losses being absorbed by the Deposit Insurance Fund that should have never happened.

The result?

THE FDIC IS BROKE.

Let's put this in common-man terms:

YOUR SO-CALLED "DEPOSIT INSURANCE" AND THE SEVERAL TRILLION IN CITIZEN BANK DEPOSITS ARE BACKED BY THE SAME AMOUNT OF CAPITAL THAT AIG HAD TO BACK THEIR CREDIT DEFAULT SWAPS: BUPKIS.

Congratulations Sheila - is that your resignation I see in your hand or is that your promotion from Obama? After all, we all know that in Government the more you screw up and screw the taxpayer, the better the job you're offered.

One final question: Is the only thing preventing panic and bank runs the sheer stupidity of The American People?


Here's the FDIC "Quarterly Banking Profile" document to which Denninger refers.

And here is a snapshot of the key paragraph on page 13 of the 26-page .pdf document linked above (click to enlarge image):

$8.2 billion in the hole thus far, that is, with all the bank collapses still coming in Q409 still to be booked, for the government program designed to assure all Americans that they won't ever have a problem getting access to their bank deposits.

But look! Over there!

There's a new Grey's Anatomy spin-off starting to be webcast tonight!

7 Comments:

Anonymous Happy D said...

Well I have to admit this actually is a surprise. Usually we get more warning that a fed program is broke.

November 24, 2009 at 9:33 PM  
Blogger ΛΕΟΝΙΔΑΣ said...

For what it's worth, Friday we received the following forwarded email from a friend in Sweden (coincidence?):

[11/20/09 2:07:07 AM] Kerry Cassidy: "I do not normally pass on rumors or here-say, but a very good personal friend's uncle is a Deputy Economic Advisor to Obama as well as a Professior at a prestigious Eastern School. He was called into a private meeting last week with the President. They were told, I quote, the Following: "Between now and Jan 1st 70 more big banks will fail and 70% of Retail Companies will be Bankrupt. The President will allow them to make as much as they can for the Christmas Holidays then Jan 15 there will be a Bank Holiday and their new currency will be issued with a devaluation of 6 to 10 to 1. "I believe this is why they are trying to keep the market and dollar up now with their lies on all the News outlets. Set up the people to steal every last penny they can get. Martial Law cannot be too far behind. Get your money out of banks and into physical Gold and silver. I recommend 60% gold 40% silver, food, foundation seed, gun ammo generators... etc. If you cannot eat, drink it, wear it, live in it, raise food on it, do not invest in it. If you have stocks, bonds 401K Ira, take the penalty and put it in what I just said."


D.R.


We tried to check it out on snopes but no luck.

ΜΟΛΩΝ ΛΑΒΕ!

November 24, 2009 at 9:44 PM  
Blogger J E Carter II said...

Which is why we switched to a credit union this year. That and instead of amassing cash savings, I've been converting it to capital wherever I can and only trying to keep an operational cushion "in the bank". Those of you with substantial savings might want to think about cashing in on home improvements while materials costs are still reasonable, your bank is still operational and the dollar still has some life to it. Or buy a commodity or something besides stuff valued in dollars.

November 25, 2009 at 12:49 AM  
Anonymous Mike W said...

Guess I will have to put off singing"Happy Days Are Here Again"

November 25, 2009 at 12:56 AM  
Blogger jon said...

i don't know how many times i have to say it, but: be your own central bank. to have an account with just a number in it today is to have already taken advantage of the socialization of losses that central banking incurs on the less fortunate in our society.

from now on, you've got to take that into your own hands, just like you do (might. (should.)) your personal defense. it's a sad fact, that politicizing the economy makes us thus vulnerable, but a fact nonetheless. we should be able to love and trust our neighbors in that neighborly fashion we readily praise. we can't, because we constantly forsake the free market, but one day we shall again.

it'll be a hell of a day.

November 25, 2009 at 2:11 AM  
Anonymous Anonymous said...

Thats enough to pull my money out.

I'll be removing all but my necessary checking balance to cover my monthly bills in the next couple of days.

Thanks for the heads up!

November 25, 2009 at 2:36 AM  
Anonymous Anonymous said...

This is after we gave them HOW MANY BILLIONS last March??? We just bailed them out!

The Allegory

November 25, 2009 at 2:38 AM  

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