Here is Ron Paul who has introduced legislation to audit the Fed questioning Fed General Counsel Paul Alvarez about the Federal Reserves involvement in the gold market. His concern about the U.S. dollar is my concern as well.-Lou
In an FDIC unprecidented Memorandum to the Board of Directors dated September 28, 2009 it states the following:
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 toresolve failed institutions remain positive.
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 $100billion 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.
If the Board imposes no further special assessments and leaves existing risk-based assessment rates in place, staff projects that the Fund balance would become significantly negative in 2010 and may remain negative until 2013. According to these projections the reserve ratio would not return to the statutorily mandated minimum reserve ratio of 1.15 percent until late 2018.
Amazingly, the FDIC admits that it is virtually broke as of September 30th (tomorrow) and does not have funds to insure bank accounts. We know they have the ability to borrow from the Treasury if needed so I would not be concerned about the safety of my savings but this has never happened before. Yesterday they said they intend to make banks pay 3 years worth of assesment fees in advance (December 2009). This adavaced payment should raise $45 billion but doesn’t the memo say losses could be $100 billion or greater? I hope this news does not result on bank runs.-Lou
Want to bet that the $100 billion figure is too low?
FDIC insurance plan is no long-term solution
Deposit insurance fund seen running a deficit as soon as this month
WASHINGTON – A plan that regulators proposed Tuesday to have banks prepay $45 billion in insurance premiums won’t provide a long-term fix for the shrinking fund that insures bank deposits.
But the Federal Deposit Insurance Corp.’s proposal would spare ailing banks the immediate cost of an alternative idea: paying an emergency fee for the second time this year. And most banks would likely be able to prepay their premiums without having to reduce lending to businesses and consumers.
Regulators said they expect the cost of bank failures to grow to about $100 billion over the next four years — up from an estimate of $70 billion earlier this year. Faced with that sobering news, they voted to require banks to prepay $45 billion in premiums to replenish an insurance fund that will start running dry on Wednesday.
The FDIC board’s proposal to require early payments of premiums for 2010-2012 could take effect after a 30-day public comment period. Depositors’ money is guaranteed — up to $250,000 per account — by the FDIC. It would be the first time the agency has required prepaid insurance fees.
The increased loss estimate underlines the short-term nature of the prepayment solution. The agency will be able to continue paying depositors when banks fail. But banks will have to pay tens of billions more in coming years to keep the fund solvent.
So this is what the FDIC has decided to do to replenish the dwindling deposit insurance fund. Making banks pay assessments 3 years in advance will raise $45 billion. What happens when that money runs out next year? Sheila Bair says the FDIC has “tons of money” so why are they making banks kick in $45 billion in advance?-Lou
FDIC Seeks Fee Prepayments
Agency Hopes to Raise $45 Billion as Banks Remain in Poor Health
WASHINGTON — The Federal Deposit Insurance Corp., faced with a deposit insurance fund expected to be in the red by the end of Wednesday, moved Tuesday to raise $45 billion by having U.S. banks prepay their premiums for three years.
FDIC staff are proposing a multi-stepped program that will require banks to prepay their assessments for 2010 through 2012 when they pay their fourth-quarter premiums at the end of 2009. Additionally, banks will face a three-basis point increase in their premium rates beginning in 2011.
The radical move comes as the condition of the U.S. banking industry continues to deteriorate. Officials said the number of problem banks and assets has “increased rather significantly” in recent months, increasing the FDIC’s estimated cost of bank failures to $100 billion from $70 billion from 2009 through 2013.
“Asset quality problems among insured institutions are not expected to abate in the near-term,” the staff said.
FDIC Chairman Sheila Bair told reporters Tuesday that the agency has “tons of money” and assets to continue to protect depositors in the event of a bank failure. The proposal is aimed at ensuring the banking industry continues to pay for the deposit insurance the FDIC provides to the industry.
The cost of bank failures, which have reached 95 in 2009, has put a serious strain on the FDIC’s deposit insurance fund. Officials said that the fund balance is expected to be negative as of Wednesday, and that without any changes it could remain in the red until 2013.
That doesn’t mean the FDIC doesn’t have cash on hand, though officials warned they could face a liquidity crunch early next year without a cash infusion. The agency had roughly $22 billion in liquid assets as of June 30, but failures have reduced that figure and FDIC staff now estimate its liquidity costs would outpace its needs in the first quarter of 2010.
“Through 2010 and 2011, liquidity needs could significantly exceed liquid assets on hand,” the staff said in its proposal.
The FDIC proposal avoids having the agency assessing the banking industry an immediate special fee, which already happened once this year, or tapping the agency’s line of credit with the Treasury. Ms. Bair said the agency may have to borrow from the Treasury at a later date, but that it would prefer to rely on the banking industry to pay for the deposit insurance fund without causing too much shock for banks.
“Any additional special assessment or immediate, large increase in assessment rates would impose a burden on an industry that is struggling to maintain positive earnings overall,” the FDIC said.
Staff said that if the proposal is approved it would return the deposit insurance fund to a positive balance in 2012 and to healthy levels by the first quarter of 2017. The public will have 30 days to comment on the proposal.
The next three posts are all related.
Chris Martenson is one smart guy, I love his stuff. This is really big news.-Lou
From chrismartenson.com
This is important information. What I’ve found and present below is that the Federal Reserve is not just supporting the housing market, it is the housing market.
Just as important as a person’s desire to buy a home is their ability to gain access to mortgage funding.
The mortgage market is a gigantic beast with many moving parts, but it is pretty easy to understand from a high level.
The process works like this: A homeowner secures a mortgage from a bank or mortgage company. Then the mortgage is sold off to another company, with the cash generated by that sale now available to lend to other potential homeowners. Ultimately the mortgage may pass through several sets of hands but ultimately it lands with a terminal holder.
In that chain, the mortgage might get sold off several times, or perhaps sliced and diced by Wall Street wizards, but all that matters is that some company (with cash) is there at the end to buy the mortgage to keep the whole chain moving along.
Lately, the “terminal buyers” in that chain have increasingly ended up being the federal government (through the GSEs) and the Federal Reserve.
And not just by a little bit, but by a lot.
Here are the numbers:
So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.
Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:
That is, a total of ~$686 billion in new mortgages were issued in 2009 (through August).
Now let’s look at how many Mortgage Backed Securities (MBS) and agency debt obligations were accumulated by the Federal Reserve on its balance sheet over the same period of 2009:
It turns out that in 2009 (again, through August), the Federal Reserve has bought $624 billion of MBS and a further $98 billion of Agency debt, for a total of $722 billion in money injection into the housing market through Fannie Mae, Freddie Mac, and the FHLB.
In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of new (purchase) mortgages in 2009.
That’s not a free housing market; that’s a market bought, owned, and sustained by the Federal Reserve’s willingness to print up three quarters of a trillion dollars out of thin air.
Noriel Roubini was one of the few economists who forecasted the financial crisis. What he says about the dollar should be taken seriously. Since there is no way the government will reduce spending and debt issuance, the dollar’s fate is preordained.-Lou
U.S. Dollar Will Weaken, Currency Crash Possible, Roubini Says
Sept. 4 (Bloomberg) — The dollar will weaken and the U.S. risks seeing a crash of the currency unless it does more to control the deficit and reduce debt, said New York University Professor Nouriel Roubini, who predicted the financial crisis.
“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said in an interview today in Cernobbio, Italy. “The value of the dollar over time has to fall on a trade-weighted basis, but not necessarily relative to euro and yen.”
Roubini said he didn’t see a risk of a dollar crash in the “‘short term.” The value of the U.S. currency relative to currencies such as the yen or the euro “cannot change too much compared to current levels because if the dollar were to weaken a lot and the euro strengthen a lot, that’s going to warp any chance for the European economy to recover, same argument as to the yen,” he said.
“Most of the adjustment of the dollar in the future has to occur relative to China, relative to emerging Asia and relative to some of the other commodity exporters in the world, whether these are advanced economies or emerging markets,” he said.
Foreign creditors need assurances that the U.S. will address its deficit, Roubini said.
“Unless in the medium term these issues of fiscal sustainability are addressed, and unless we mop up that excess liquidity from the financial system, eventually the financial markets and the foreign creditors of the United States might get more concerned about the sustainability of the U.S. fiscal deficit and about the U.S. being tempted to use the inflation tax as a way of resolving its private and public debt problems,” he said.
Sundays “The Financial Physician” radio shows are now available. Both the national radio show on XM Satellite Radio and my New Jersey show on WOBM-AM 1160 are archived HERE
The NCUA is the equivalent of the FDIC for credit unions. I wonder how much they have in their insurance fund. Stay within their insurance limits if you are a member of a credit union Accounts are insured up to $250,000. From the NCUA website : ” Member deposits are safe. Their accounts are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF), a federal fund managed by NCUA and backed by the full faith and credit of the U.S. Government.”
Keys Federal Credit Union Taken Over by NCUA on September 24th
Keys Federal Credit Union of Key West, Florida has been placed into conservatorship by the National Credit Union Administration (NCUA) on September 24, 2009. NCUA plans to continue credit union operations with continued uninterrupted service to members.
Members of Keys Federal Credit Union can continue to conduct normal financial transactions – deposit and access funds, make loan payments and use share drafts. Keys FCU is a full service credit union with assets of $180 million. The decision to conserve a credit union enables the institution to continue normal operations with expert management in place correcting previous service and operational weaknesses.
All credit union member deposits are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF), a federal fund managed by NCUA and backed by the full faith and credit of the U.S. Government.
The Federal Credit Union Act authorizes the NCUA Board to appoint itself conservator when necessary to conserve the assets of a federally insured credit union, protect members’ interests or protect the NCUSIF. Members of Keys Federal Credit Union can continue to conduct normal financial transactions – deposit and access funds, make loan payments and use share drafts. Keys FCU is a full service credit union with assets of $180 million. The decision to conserve a credit union enables the institution to continue normal operations with expert management in place correcting previous service and operational weaknesses.
All credit union member deposits are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF), a federal fund managed by NCUA and backed by the full faith and credit of the U.S. Government.
The Federal Credit Union Act authorizes the NCUA Board to appoint itself conservator when necessary to conserve the assets of a federally insured credit union, protect members’ interests or protect the NCUSIF.
This is a very dangerous game that was started by the U.S. when it slapped a 30% tariff on tires imported from China. Trade wars and protectionism is what exacerbated the Depression in the 1930s. Both China and the United States will be best served avoiding the mistakes of the past.-Lou
China launches probe into imports of US chicken
BEIJING — China on Sunday started investigating complaints that American chicken products are being dumped in China and are unfairly benefiting from subsidies, adding to a string of trade disputes with Washington.
The Commerce Ministry said the probe was launched Sunday on broiler products and chicken products, following requests by Chinese companies to investigate the U.S. imports they say are hurting the domestic industry.
The investigation comes at a time of mutual finger pointing Washington and Beijing accusing the other of protectionism, which both say will hurt efforts to end the global economic crisis.
A U.S. labor union and three paper companies announced last week they had filed a new trade complaint over imports of Chinese paper. The move came a week after Beijing filed a World Trade Organization challenge to Washington’s decision to raise tariffs on imports of Chinese-made tires.
The two governments also are involved in disputes over access to each others’ markets for steel pipes, music and movies. On Tuesday, China appealed against a U.S. victory in a trade dispute over restrictions on the sale of U.S. music, films and books in the Chinese market.
The same week, U.S. President Barack Obama and his Chinese counterpart, Hu Jintao, were attending a summit of leaders of the Group of 20 major economies in Pittsburgh, which issued sweeping promises to fix a malfunctioning global economic system including a vow to “reject protectionism in all its forms.”
At the summit, China played down growing trade tensions with the United States, saying the two trading partners must focus on long-term relations and settle their differences through friendly talks.
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