Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

FDIC Chairman Sheila Bair Is Out Of Control

Stock-Markets / Government Intervention Jul 24, 2008 - 01:16 PM GMT

By: Mike_Shedlock

Stock-Markets

Best Financial Markets Analysis ArticleIn a sad twist of irony Shelia Bair is accusing blogs of being "out of control". Sadder still is the fact that San Francisco Business Times writer Mark Calvey agrees. Please consider the incredibly inane article FDIC learns it ignores bloggers at its peril .

The federal agency insuring bank deposits learned that it can't afford to ignore the blogs following its seizure this month of IndyMac Bank, the largest bank failure since the 1980s.


"The blogs were a bit out of control," Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the San Francisco Business Times after a speech in San Francisco this week.

That's putting it mildly. Following the FDIC's takeover of IndyMac on July 11, widely followed blogs were speculating on bank runs on some of California's largest banks based on nothing more than people waiting for their branch to open or large deposits moving between financial institutions.

The FDIC plans to pay closer attention to the blogosphere in the future.

"We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it," Bair said. "The misinformation that came out over the weekend fed a lot of depositors' fears."

I would like to see the list of blogs Malk Calvey is referring to in this statement "Widely followed blogs were speculating on bank runs on some of California's largest banks based on nothing more than people waiting for their branch to open or large deposits moving between financial institutions."

The blogs I read (those that get high traffic) all looked at thing from the perspective of it's ridiculous to pull money out of IndyMac after it went into receivership.

Education? Think Again.

Here's an interesting statement from the article. " The FDIC also plans to begin airing public service announcements as part of a public education campaign on the nation's deposit insurance program. "

Rest assured that "education" is likely to be extremely if not grossly misleading. I can write it myself. Here goes:

"The banking system is sound. No person has ever lost a dime in insured deposits".

There will be no mention of points 24 and 25 of You Know The Banking System Is Unsound When.... . Here are those points:

24. 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.

25. 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.

Furthermore there is likely to be no mention by Shela Bair of the moral hazard of FDIC insurance in that "education" process. And make no mistake about it, FDIC insurance is an extreme moral hazard.

Many small and mid-size banks are enormously overleveraged in commercial real estate, construction of condos in Florida, Alt-A loans, and all sorts of other nonsense. How did those projects get their funding? The answer is by banks paying way above market rates on CDs and savings accounts, that is how.

So not only does FDIC insurance keep banks in business that should have been gone under long long ago, it deprives sound banks of capital to make better quality loans. It has also left the state of Florida in a mess of half complete condo towers that will never be occupied. That is just one horrendous example of the misguided nature of FDIC insurance.

In my opinion, here's what should happen.


1) FDIC insurance should be scrapped for all but checking accounts
2) On checking accounts, FDIC insurance should be unlimited.
3) Banks should not be able to lend out checking deposits, not a penny of it. After all, checking accounts are demand deposits. The money should be available on demand. It clearly isn't.
4) Automated sweeps programs that move money from checking deposits to savings deposits so that money can be lent out should be terminated.
5) Anyone that wants to chase yield in CD or high yielding savings accounts should have to pay the price if something bad happens. That would have shut off much of this insane lending spree right up front.

By the way, checking accounts should more accurately be called lending accounts. The reserve requirements on savings accounts is zero. Every penny is immediately lent out. The money that people think is in their "savings account" simply isn't there. I do not have a problem with this, except for the fact that "education" is lacking on this point, and there should be no government sponsored insurance on those in risky activities.

Shelia Bair should come out and say, "The money in your savings account, well none of it is there. By the way, only 10% of the money in your checking account is there either". Now that would be an education.

When I first saw the headline "The FDIC plans to pay closer attention to the blogosphere" I thought, WOW the FDIC is going to watch the only people that have called the housing bubble and banking problems accurately: blogs.

Silly me. Instead, Shelia Bair wants to shut off the only source of information as to how unsound the banking system and FDIC is. Note to Shelia: Should I have any facts wrong in this article I would be more than happy to clear them up.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments


29 Jul 08, 03:13
The wisdom of Sheila Bair

Dear Sheila. Thank you very much for reassuring me as to the safety of the banking system. You did this is a nonplussed, unequivocal, deliberate, and detached way on public television tonight. Prior to your reassurance, I was considering consulting Harvard and Caltech PhD's in Economics and Banking as to whether our funds were safe in federally insured institutions, particularly after the run on the bank at Indymac. However, after reviewing your expertise in philosophy and law and your corresponding B.A. and Law Degrees from the University of Kansas, I am reassured, and now feel that no other reassurances are necessary from inferior intellects at the second rate institutions that I mentioned. You have saved the 21st Century American citizenry from unnecessary waste time and worry. Despite what the internet says, the people out of control are undoubtedly little more than tiddley wink players writing for possible secret Masonic institutions such as the Market Oracle. I can only hope and pray the the esteemed authors at the Market Oracle will sit up straight and take note!

Again, I wish to thank you for all wisdom and comfort that you have conveyed to participants of the market place. I'm sure your place in Kansas and FDIC history will remain unchallenged for centuries to come. May you continue to protect us all against both the Black Arts and Doomsayers. Carry on valiant Knight-ess


Post Comment

Only logged in users are allowed to post comments. Register/ Log in