Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

FDIC To Raid Federal Reserve Coffers

Stock-Markets / Credit Crisis 2008 Sep 04, 2008 - 10:30 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: The "Bailout Bens" are at it again.

I'm talking, of course, about U.S. Federal Reserve Chairman Ben S. Bernanke, who's clearly decided it will be " bailouts for all ."


Why is this problematic? Federal Deposit Insurance Corp. Chairman Sheila C. Bair last week said that the government agency "may need to tap into [short-term] lines of credit with the Treasury for working capital," but "not to cover our losses," The Wall Street Journal reported .

After all, why hit up Treasury when you can have the taxpayer cover your losses?

In a bid to shore up a bank-insurance fund that's been drawn down by the U.S. credit crisis, not only is the FDIC planning to raid the Federal Reserve's coffers; it's also apparently making plans to increase the premiums it charges the 8,500 banks and thrifts that are required to pay into the fund. According to an industry insider that I've spoken to about this, the FDIC also is planning to charge a significantly higher premium to those institutions engaged in "riskier" lending practices.

The danger is that both of these actions could squeeze profit margins in the already-fragile banking industry and that any embryonic sector recovery from the credit crisis would be nipped in bud.

What matters and what concerns me about Chairman Bair's news conference remarks is that nobody ever goes broke from so-called " accrual accounting ."

Working capital indeed.

The reality is that the FDIC hasn't got enough cold hard cash on hand to insure the deposits it is supposed to be overseeing - even with a record $50.2 billion in funds at its disposal. Despite the fact that reserves are four times the $11.4 billion the FDIC thought it needed a year ago, $50.2 billion is only 64% of the $78 billion in troubled assets listed as of the second-quarter's close.

And it's only going to get worse - much worse, in fact.

First, you can bet that only a fraction of the assets from other troubled institutions will show up on that list in the quarters to come. By my back-of-the-envelope calculations, the FDIC could need as much as $124 billion in the next six months to shore up the assets of "problem institutions" - which is Fedspeak for banks on the brink.

So, in as much as Chairman Bair may believe she's got things under control, her comments strike me as straight from the Ministry of Whitewash when she says such a scenario is unlikely in the "near term."

Indeed, while speaking at the news conference, Bair told reporters that she and her FDIC compatriots "don't think the credit cycle has bottomed out yet," and don't believe that U.S. banks will return to high levels of earnings anytime soon. Bair said she expects that banks and thrifts will keep building up their reserves for the next several quarters.

The industry is already paying a full third of its net operating revenue into the system to build up reserves, meaning the Fed is the only place left to turn to.

Which, of course, means that taxpayers like you and me are once again going to be put even deeper in hock to bail out the financial institutions that created this mess in the first place.

Nearly two years ago, I heard laughter when I suggested that the global credit crisis would be a trillion-dollar problem . Well, they're not laughing now. Especially when I tell them that I'm now predicting that the total fallout from the credit crisis will exceed $2 trillion.

It seems quite clear from Chairman Bair's comments that "Bailout Ben" is just getting started - even though the Fed is already pumping $170 billion a year into the financial system.

Other federal agencies are in trouble and so are legions of banks - and not just from subprime-mortgage debt, either. Factor in inadequate reserves for credit-card defaults, home-equity lines of credit, automobile loans and other forms of consumer debt and it becomes very clear that this could get a whole lot worse before it gets better.

In fact, as banks panic and consumers hunker down, money flows could dry up, signaling still further economic contraction. It's a viscous circle and one that feeds on itself. And that's what former Vice President Al Gore would label as " an inconvenient truth ."

But we taxpayers are the ones who will be experiencing the inconvenience.

News and Related Story Links :

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

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


Post Comment

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

6 Critical Money Making Rules