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
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
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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