FDIC has begun “death watch” on many banks-Its downhill from here

[Ichingcarpenter]

On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to “determine the total insured amount for each depositor....as of the day of the failure” and return their money as quickly as possible. The agency is “modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions.” >>>.snip


What does this mean?

It means there's going to be an unprecedented wave of bank closures in the US and that people who want to hold on to their life savings are going have to be extra vigilant as the situation continues to deteriorate. And it is deteriorating very quickly.

Right now, many of the country's largest investment banks are holding $500 billion in mortgage-backed securities and other structured investments that are steadily depreciating in value. As these assets wear-away the banks' capital, the likelihood of default becomes greater. This week, Fitch Ratings announced that it will (probably) cut ratings on the 5 main bond insurers (Ambac, MBIA, FGIC, CIFG,SCA) “regardless of their capital levels”. This seemingly innocuous statement has roiled markets and put Wall Street in a panic. If the bond insurers lose their AAA rating (on an estimated $2.4 trillion of bonds) then the banks could lose another $70 billion in downgraded assets. That would increase their losses from the credit crunch--which began in August 2007---to $200 billion with no end in sight. It would also impair their ability to issue loans to even credit worthy customers which will further dampen growth in the larger economy. Structured investments have been the banks' “cash cow” for nearly a decade, but, suddenly, the trend has shifted into reverse. Revenue streams have dried up and capital is being destroyed at an accelerating pace. The $2 trillion market for collateralized debt obligations (CDOs) is virtually frozen leaving horrendous debts that will have to be written-down leaving the banks' either deeply scarred or insolvent. It's a mess.

There were some interesting developments in a case involving Merrill Lynch last week which sheds a bit of light on the true “market value” of these complex debt-pools called CDOs. The Massachusetts Secretary of State has charged Merrill with “fraud and misrepresentation” for selling them a CDO that was "highly risky and esoteric" and "unsuitable for the City of Springfield.” (Most cities are required by law to only purchase Triple A rated bonds) The city of Springfield bought the CDO less than a year ago for $13.9 million. It is presently valued at $1.2 million---MORE THAN A 90% LOSS IN LESS THAN A YEAR.

http://www.inteldaily.com/?c=173&a=5126

[aquart]

1. Greedy bastards.

What gets me is how shocked they are.

[Ichingcarpenter]

2. 6 banks failed last year

1 bank failed in January of this year.

I think that the FDIC link might be
important for many people this coming year, in order to protect their funds.

http://www.fdic.gov/bank/index.html

[nashville_brook]

3. damn, that's a long, depressing article. longer and more depressing when you

read between the lines. this one is going to HURT. it's not a recession. we've never seen the likes of the storm that's gathered on the horizon.

[Ichingcarpenter]

4. January's retail sales weakest in nearly four decades

Here's a sign of how shaky the economy has become: Wal-Mart says its shoppers are redeeming their holiday gift cards for basic items – pasta sauce, diapers, laundry detergent – instead of iPods or DVDs.
Wal-Mart didn't have much to smile about as shoppers used their gift cards on basic items.

Merchants had hoped shoppers armed with gift cards would provide a lift after a dismal holiday shopping season – partly because people tend to spend more than the value of the card.

Instead, on Thursday, the nation's retailers turned in their worst January sales growth in almost four decades as high gas and food prices, a slumping housing market, tighter credit and a tougher job market pushed consumers to the edge.

http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-retailsales_08bus.ART.State.Edition1.39239bc.html

The stock market is not a real indicator of the problems facing the middle and lower class.

[nashville_brook]

9. right you are -- the stock market and middle class reality might even be mutually exclusive

hmmm...might even be able to go more to the point and say "the stock market and reality are mutually exclusive."

[havocmom]

5. Any questions about why Wall Street wants force investment via payroll taxes

The Ponzi scheme is falling down because Kenny Boy Lay and his ilk took too many small investor dollars and wiped their asses with the money.

Banks became pyramids when people couldn't save money anymore due to loosing real wages and the inflation the powers that be refused to admit was going on. Inflation (of housing prices and milk for that matter) can only continue so long as people have the money to spend. Today, they don't.

How many investor $$ have been taken out of the country? We wuz all robbed by the Board Room Gang.

[Ichingcarpenter]

6. Credit Card Companies (Banks) are Jacking Interest rates for no reason

The major credit-card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter—headed "Important Amendment to Your Credit Card Agreement"—advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. "No one could give me an explanation," says Eric Fresch, a Huron (Ohio) engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit.

Bank of America spokeswoman Betty Riess confirms some bank cardholders could be receiving rate increases for reasons other than declines in credit scores, such as running higher balances with their Bank of America cards or with other creditors. She says the increases are part of a "periodic review" that assesses customers' credit risk. She declined to say if the Charlotte (N.C.) bank had changed its credit standards thereby bumping some consumers' rates or how many cardholders were being affected by the review. Bank of America has 40 million U.S. credit-card accounts.

Buzz about the letters is building on the Internet. Since mid-January Credit.com, a credit-card information site, has received 40 complaints from consumers Bank of America had notified of sharp rate increases, even though they were current on their bills, says Emily Davidson, a Credit.com researcher. Complaint sites My3cents.com and BankofAmericaBadforAmerica.org say they have also received similar complaints.

The so-called "opt-out" letters give borrowers the option of no longer using their card and paying off the balance at the old rate. But they must write Bank of America by later this month if they plan to do so—otherwise their rates on existing and new balances automatically rise.>>>>snip


http://www.businessweek.com/bwdaily/dnflash/content/feb2008/db2008026_105146.htm?chan=rss_topStories_ssi_5#html

[Lydia Leftcoast]

11. So they're going to apply higher interest rates to people who have

higher total indebtedness.

That makes sense...NOT. :wtf:

[AdHocSolver]

23. Banks jack interest rates in hopes of getting "blood out of a turnip".

They "lent" more money than they could afford to loan because they used their cash reserves to buy poorly collateralized loans (such as subprime mortgages). Now they have cash flow problems and the back up source for funds, for example, selling the mortgages, is impossible since buyers now realize that these mortgages can't be resold, and so are, in effect, worthless.

We are right at the place that the country was in just before the stock market crash of 1929. Once the public realizes the seriousness of the problem, they will dump their stocks and cash in their CD's, mutual funds, etc. They will want to get their money out while their is still money in the system, before the rest of the public realizes what is happening, and tries to cash in their CD's, etc. Everyone trying to dump their "paper" at once, with few buyers, means a big devaluing of assets.

All the safeguards put in by the New Deal in the 1930's under FDR has already been undone starting in the 1990's. That is how we came to this situation. The safeguards which were designed to prevent this kind of wild speculation do not exist any more. A lot of it was Greenspan's and the Fed's doing. A lot of it is Congress' fault including a Democratic controlled Congress and Bill Clinton.

Offshoring of jobs and the debt incurred by the trade deficit are also blameworthy. The Federal deficit is a significant cause. Any one of these conditions could cause problems. All of these causes working together are going to make a serious "correction" unavoidable.

The privatization and corporatization of government will have to be undone to bring about a recovery. Trade laws will have to be rewritten with import quotas, import tariffs, and tax law changes to bring manufacturing back to the U.S. Trade agreements like NAFTA, WTO, IMF, etc. have to be rewritten or rescinded. Get over the "free trade" nonsense. These agreements have nothing to do with free trade. They are written by and for the profit of the multinational corporations and are designed to prevent free trade.

The Glass-Steagall Act, which set rules of operation for financial institutions, rules that were designed to protect the public, has to be reinstated.

The corporations have taken over our government and promoted policies that increase their profits and power, policies which have brought this country to the precipice in which it finds itself. The corporations are not helping America, they are destroying America. The only solution is for the people to wake up and retake control of our government.

The corporate world, contrary to the image they present of themselves, is riddled with incompetence surpassed only by greed. The mess that health care is in did not occur by chance, it was planned that way. How people can still buy into the propaganda that "privatized" (i.e., corporatized) health care is "better" than Medicare, or the Canadian system, is beyond comprehension.

[tanyev]

7. Kick to read later.

Yikes.

[Lochloosa]

8. Same here

Damn

[Ichingcarpenter]

10. self kick

[Ichingcarpenter]

12. If you want to trance how much money the feds poured into the banks

since August......

Add up these 15 pages which is only a search on Reuters on the subject.

Fed added in temporary reserves to the banking system:

http://search.us.reuters.com/rsearch/rcomSearch.do?blob=Fed+added++in+temporary+reserves+to+the+banking+system+&site=US&srch_Tab=&srch_Results=&srch_MoreResults=



You Folks realize what these means don't you?

[grasswire]

13. no, what?

please explain

[Ichingcarpenter]

15. I counted in the trillions the money sent to prop up the banks

since the M3 was discontinued we have no way of knowing
how much they are printing. Each of these transactions
was hard currency, even though transfered electronically
to the banks. Now the odd thing is try to find
the payback by the banks to the feds on the loans.

You can't.

Notice when the stock market tanks
and the correlation on these loans, and loans are what they are.

[Ichingcarpenter]

14. How Big Media Hides the Real Economic News

After years of denial and spin about the financial condition of U.S. households and consumers, you might think the newswires and salesmen on cable would be buzzing with the key findings in Wednesday’s Bureau of Labor Statistics report on U.S. hours worked, real compensation, output and productivity. You would be wrong; the debt industry’s misleading confidence game prevails with the key findings either not mentioned at all or they are relegated to an afterthought as space permits.

The key finding in that report is that the total number of hours worked (and paid) in non-farm businesses during the fourth quarter of 2007 fell at an annual rate of 1.5 percent. Indeed, the total number of hours worked in the fourth quarter was less than in the fourth quarter of 2006. The report shows total non-farm jobs also falling at a 0.5 percent annualized rate in Q4 and rising by only 0.4 percent year over year.

Furthermore, after adjusting for the increased costs of gasoline, health care, etc., real average (not median) salary and benefit compensation for all U.S. workers fell at an annualized rate of 0.3 percent in the fourth quarter and by 0.3 percent year over year. Since total hours worked fell even with meager year over year job growth, this means that average real weekly and monthly hours paid per job were reduced along with the decline in real compensation per hour. With lavish soak-the-customers-and-shareholders bonuses on Wall Street lifting average compensation, the median decline in compensation was surely far worse.

Non-farm business output grew at only an annualized rate of less than 0.4 percent in the fourth quarter. But since total hours worked declined 1.5 percent, output per hour of work – productivity – grew at a rate of 1.8 percent. The vital distinction between virtually stagnant production growth and 1.8 percent productivity growth is lost in the confidence spin and fairy-tale assumptions.

http://www.ourfuture.org/blog-entry/how-big-media-hides-real-economic-news

[Elspeth]

16. We're being destroyed--and maybe being prepared to be IMFd

As we default on the huge war debt.

[AdHocSolver]

22. Productivity growth: expect fewer people to do more work for less pay.

The "usual" concept of productivity is a worker produces more output for the same amount of effort. It was usually expected that mechanization of the job or automating the job, i.e. giving a worker better tools, increased productivity.

However, the way the "bean counters" calculate productivity is by using the "cost for a unit of output". Increase output for ths same cost, or reduce cost for the same output, and you get "increased productivity".

When you substitute cost for actual output you get a measurement whose numbers look good at the expense of the worker. The experience of a friend of mine describes how the measurement really works.

She worked as a programmer in a department of a two billion dollar corporation. There were originally five programmers working for three managers. This company was making plenty of profits. She worked there for about five years. After five years they started laying off the programmmers one by one, so that the remaining programmers did the same amount of work as when they had five. The amount of UNPAID overtime work that was expected merely increased. By management's definition, productivity had just increased (which probably resulted in these managers getting a nice bonus).

After a few months, another programmer left and there were three programmers doing the same work as previously done by five. More unpaid overtime and another productivity increase and more management bonuses. This scenario repeated until she was the only programmer left doing the same work as five programmers working for three managers who each demanded priority for her time. She said that at this point she was heading for a nervous breakdown.

Their bonuses for increasing productivity must have been substantial. They came to her and told her that they could no longer afford to pay her full-time, so they were reducing her paid time from 40 hours to 30 hours, expecting the same work to be done, but out of the goodness of their hearts, they were, for now, allowing her to keep her health insurance. She quit.

This is how corporations have been increasing productivity for the past several years.

[LongTomH]

17. Here's what's really scary - from OP

The quote from economist Nouriel Roubini:

“One has to realize that there is now a rising probability of a 'catastrophic' financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. That is why the Fed has thrown caution to the wind and taken a very aggressive approach to risk management.” (Nouriel Roubini EconoMonitor)

"In the fourth quarter of 2007, new foreclosures averaged 2,939 a day, double the pace of a year earlier." (RealtyTrac Inc.) The banks are presently cutting back on home equity loans which provided an additional $600 billion to homeowners last year for personal consumption. Bush's $150 billion “stimulus package” will barely cover a quarter of the amount that is lost. As consumer spending slows and the banks become more constrained in their lending; businesses will face overproduction problems and will have to limit their expansion and lay off workers. This is the downside of “low interest” bubble-making; a painful descent into deflation.

The difference between Recession and Depression isn't just one letter. A recession is an economic slowdown: two or more quarters of slow or no growth. A depression is marked by that other 'D' word: Deflation. Your assets lose value because no one's buying.

Gee! Who'da guessed that shipping all our good jobs overseas would really hurt? Wasn't that supposed to create even more jobs?

[LongTomH]

18. Brother, can you spare a dime?

They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it's done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it's done. Brother, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.
Why don't you remember, I'm your pal? Buddy, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.
Why don't you remember, I'm your pal? Buddy, can you spare a dime?

From Songs of the Great Depression

[UpInArms]

19. I wonder if they are doing "Consent Agreements" like the FSLIC did?

http://www.answers.com/topic/savings-and-loan-association?cat=biz-fin

A second wave of restructuring occurred in the 1980s. The Depository Institutions Deregulation and Monetary Control Act of 1980 set a six-year timetable for the removal of interest rate ceilings, including the S&Ls' quarter-point rate advantage over the commercial bank limit on personal savings accounts. The act also allowed S&Ls limited entry into some markets previously open only to commercial banks (commercial lending, nonmortgage consumer lending, trust services) and, in addition, permitted Mutual Associations to issue Investment Certificates. In actual effect, interest rate parity was achieved by the end of 1982.

The Garn-St Germain Depository Institutions Act of 1982 accelerated the pace of deregulation and gave the Federal Home Loan Bank Board wide latitude in shoring up the capital positions of S&Ls weakened by the impact of record-high interest rates on portfolios of old, fixed-rate mortgage loans. The 1982 act also encouraged the formation of stock savings and loans or the conversion of existing mutual (depositor-owned) associations to the stock form, which gave the associations another way to tap the capital markets and thereby to bolster their net worth.

In 1989, responding to a massive wave of insolvencies caused by mismanagement, corruption, and economic factors, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) that revamped the regulatory structure of the industry under a newly created agency, the Office of Thrift Supervision (OTS). Disbanding the Federal Savings and Loan Insurance Corporation (FSLIC), it created the Savings Association Insurance Fund (SAIF), now the Deposit Insurance Fund (DIF), under the administration of the Federal Deposit Insurance Corporation (FDIC). It also created the Resolution Trust Corporation (RTC) and Resolution Funding Corporation (REFCORP) to deal with insolvent institutions and scheduled the consolidation of their activities with SAIF after 1996. The Federal Home Loan Bank Board was replaced by the Federal Housing Finance Board (FHFB), which now oversees the Federal Home Loan Bank System. See also Savings Bank.

[Baby Snooks]

20. Reality of the Federal Reserve

It was created to control the currency and to provide a safety net for banks. But that safety net was not intended to keep insolvent banks solvent which is what is happening. Even when that, the banks are losing so much on the subprime investments that the bottom inevitably will fall out. For most of the past year, while the "experts" who have indicated there may indeed be a problem framed it within the context of a "what might happen" nonetheless they indicated that a collapse witin the banking system which in turn set off a sell-off on Wall Street would be different from 1929. It will definitely will be different from 1929. It will be much worse.

The only consolation, if there is one, is the crooks will be hit the hardest. They won't have much left either. And probably won't be able to sell their $50 million townhomes in Manhattan for even $1 million.

This is the result of Alan Greenspan's "neo-con" policy of making money available for expansion of the economy. Low interest rates sounded good but the only people who really benefitted were the corporations like Enron which could borrow to cook their books with while they bought whatever they thought was a good investment which usually wasn't which is why they needed to cook their books. And so the cycle began. And this is the result. An oversimplification. But reflective of the reality.

The theory may have been sound. Unfortunately the corporate sector was not. Certainly not of "sound mind" and of course Ken Lay is a perfect example of how "sound minds" prevailed during the 1990s.

The Federal Reserve will continue to make the money available until the banks default on the Federal Reserve loans. And some wonder if that is already happening.

The good news is economic collapse may bring everyone back to their senses. Which is probably not good news for the politicians.

[ursi]

21. the worse is yet to be revealed

[Bennyboy]

24. kick a delic!