The Reasoned Review

(c/0 The Daily Digest)

ZeroHedge has a good find today: The FIDC is getting so desperate that it’s literally begging Americans to open savings accounts. Here’s the press release:

FOR IMMEDIATE RELEASE
February 22, 2010     Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

The Federal Deposit Insurance Corporation (FDIC) is calling upon consumers across the nation during America Saves Week to  consider establishing a basic savings account or boosting existing savings. FDIC Chairman Sheila Bair said, “One fundamental lesson of the financial crisis is that savings can help families withstand sudden changes in their economic well being. Establishing a savings account in a federally insured institution is a great first step to build wealth and begin a savings habit that will last a lifetime.”

The personal savings rate rose to 4.6 percent in 2009 from 2.7 percent in 2008, according to the U.S. Department of Commerce. “I am pleased to see that people are saving more of their hard-earned money and building wealth. Having personal savings for an emergency fund or saving for a future expenditure, such as a college education, can make a big difference in avoiding other costly alternatives. I’ve always been a big advocate of a back-to-basics approach to financial services; it’s my hope that Americans’ increase in savings is the beginning of a long-term trend,” Bair said.

“Money saved by consumers also provides a stable source of funding for investments in the economy that benefit all Americans,” said Bair. “In fact, a country with robust savings generally has more capital to fund investments and support economic growth over the long-term. As demonstrated recently, it is harmful to an economy when consumers spend beyond their means, financed by debt that they cannot afford to repay.”

Man, things are not looking good. And for those who are interested, here are the number of  FDIC “problem banks” over time, now in convenient chart format!

That’s a lot of liabilities. Oh yeah, and their reserves just went negative, so they’re basically broke. Hooray!

This is good news, even if it does fall short of anything one could describe as “punitive” toward the banks. The plan, I guess, is that Mr. Obama collects $90 billion over the next decade (that’s $9 billion per year) from the 50 banks he deems were “most responsible” for the late crisis.

At one point, Mr. Obama channels Michael Moore:

“We want our money back and we’re going to get it,” Obama said. “If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to pay back every cent they received from taxpayer.

Right. And while this $90 billion (over ten years) may go some distance in repaying the $2,000,000,000,000 we printed as a result of this imbroglio, I seriously doubt it’ll cover the tab. Mr. Obama seems to follow the strictest definition of “borrowed” imaginable – he only counts the TARP program (you remember, the first $700,000,000,000 back in November ’08), and not the trillions we’ve simply distributed as behind-the-scenes gifts.

The Washington Post sums it up in a quote:

“The new big-bank tax is just like charging a nickel sin tax on a half-gallon of cheap liquor — it may make moralists feel good, but it doesn’t do much to stop bad behavior,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which tracks regulatory issues for financial industry clients.

Exactly. I would hasten to compare this half-assed bonus tax to the one recently levied in Britain and France (50% of all bonuses, whether or not your bank received a bailout). These taxes have a punitive element to them that the US counterpart completely lacks. What, are we supposed to feel good because our government finally worked up the nerve to ask for some of the money back? The towering levels of fraud and malfeasance perpetrated by our financial sector deserves, I think, a little more than a light admonishment and the extraction of a promise of repayment.

As always, any talk of “financial regulation” and “congressional oversight” (let alone “repayment”) mean absolutely nothing without mentioning the Glass-Stegall Act. You know, that rule they made after the Great Depression that said “commercial” and “investment” banks must be separate entities? The one whose repeal in 1999 allowed our banks to assume epic risk, gamble away people’s 401(k)s, and eventually bring the whole system down? Yeah, that one. If we don’t correct the shoddy legislation that allowed this crisis to happen in the first place, we’re just setting ourselves up for another one however many years down the road.

Zero Hedge gives us yet more evidence that the Dow is overvalued: industry insiders are selling stock 82 times faster than they’re buying it.

In the most recent data set, $11.6 million in stock was purchased by insiders, while a whopping $957 million was sold. And somehow pundits are still spinning this mass orchestrated sell into the bid by those in the know as a bull market.

For significant holders of stock, now might be the time to unload.

I know I’m somewhat late to this party, but I wanted to point out to all who are still unaware that the ‘too big to fail’ banks which caused our late crisis are even bigger.

JP Morgan, AIG, Citigroup, Goldman, and Bank of America were the winners of Geithner-Paulson’s free money giveaway (with Lehman a bad loser), and together they have swallowed the hundreds of small and medium banks that have failed since. They now present an even bigger and more systemic risk, should they choose to gamble away their money once again.

Despite repeated calls from almost every respected economist (notably Joseph Stiglitz) that these banks are a menace, Lords Geithner and Bernanke have done nothing to restrict their size – indeed, they have made them impossibly more dangerous and lucrative.

Furthermore, none of the incentives which led to such reckless gambling (ludicrous bonus packages, easy credit, low intrest, short-term rewards) have been addressed, and instead have been reinforced.

The next bailout will have to be 700 trillion instead of a mere 700 billion.

I missed the last three failed bank Fridays, so here are all seventeen that failed in the past three weeks in a row. As always, from the FDIC:

Show me the money!

Three this week, including one from my home state. Who says the recession is over?

Via the FDIC:

As I mentioned in an earlier post the FDIC has seen its reserves dwindle under the weight of this year’s bank failures. Well, the day of reckoning has come, according to The New York Times, who reports that the Federal Deposit Insurance Corporation will fall into deficit this week.

The speed with which the FDIC has eaten through its $50 Billion slush fund should alarm, but after three successive Trillion-dollar bailouts, mere billions fail to awe. Rank-and-file depositors probably have no reason to worry, however – the missing cash will most likely be “borrowed” (at no interest) from the Treasury or from our bailout-bloated mega-banks, in a maneuver only one step removed from simply printing more cash.

Our federal balance sheet has already loosed from any anchor to reality it may have once had, so, the argument goes, what’s a few billion more? But take this as an indication that the glut of bank failures, far from slowing amid last year’s bailouts, has continued at a steady clip.

From the FDIC:

From the FDIC, this week’s bank failures:

From the FDIC:

Banks are still failing at a rate of 4-10 per week, even if the mainstream press tries to pretend it’s not happening.

ProPublica has an excellent graph showing the FDIC’s wiped-out reserves, which I alluded to in a previous post. Here is the graph, re-posted with due respect:

Disappearing FDIC Reserves

Can anyone say, “Bailout”?

A dark patch in our media’s otherwise cheery coverage of the economy. After three weeks of exultation over Bernake’s re-appointment (even from administration critic Paul Krugman!), endless blather over so-called “green shoots”, and an outright declaration from the Dallas Fed Chief that “The Recession is Over”, our Federal Deposit Insurance Corporation announced it is down to its last $10 Billion. 20% of their funds were reportedly wiped out this quarter alone, bringing them back to early ’90s levels.

The wave of small and mid-level bank failures has not yet abated, though it receives far less coverage than it once did. Here is the FDIC list of failed banks in its stewardship. You will notice a majority failed this year.

If this trend does not reverse quickly, the FDIC will the likely require a government cash infusion. Our wheel of bailouts has come full circle.

In particular, this development throws new light on President Obama’s re-appointment of Ben Bernanke for Fed Chief. The administration would have us believe Bernanke acted “boldly” to “rescue the economy from another Great Depression”, but actual signs of recovery are hard to see. Unemployment still skyrockets (though not with such horrifying swiftness as it did earlier this year), and the banking crisis has clearly not been solved.

Bernanke was also in a leadership position all throughout the run-up to the crisis. He did nothing to stop it, and even tried to convince us not to worry. He repeatedly claimed the subprime issue would not threaten housing in general -  and certainly not the economy as a whole. How quaint such comments seem after all this devastation!

Bernanke may have a very dubious record of public governance, but he has an excellent record of corporate “partnership”. The net effect of his actions since the crisis has been to secure the fortunes of a very few at the expense of our public coffers. It is then not surprising that the corporate world viewed his nomination with great jubilation. Google the words “Bernanke” and “Reassure” together to get a picture of how true this is.

And if there is one thing we can say of President Obama, it is that he has the financial sector’s interests in mind.