Posted by Larry Doyle on June 9th, 2011 1:37 PM |
In one corner, we have Jamie Dimon who on behalf of his shareholders would seemingly like to maintain as much of the status quo for the powers that remain in the Wall Street oligopoly.
In another corner, we have Barack Obama grasping at straws that might breathe some lifeblood into the economy and support his prospects for reelection.
Who occupies the center of the ring and is neither compromised by the large money interests on Wall Street nor the pursuit of perpetuating a political career in Washington?
The soon-to-retire head of the FDIC–she steps down in early July–provided perhaps her final dose of ‘sense on cents’ this morning. What did she have to say? (more…)
Posted by Larry Doyle on June 24th, 2010 9:31 AM |
How secure do you feel about your bank deposits? They are insured, right? Well, how secure would you feel about your health insurance if your provider was not collecting badly needed premiums?
I am not pulling any fire alarms, but a recent announcement from the FDIC in regard to its insurance premiums collected from depository institutions speaks volumes about the current state of our banking system and our overall economy.
Recall that the FDIC’s insurance fund was exhausted late last year (Sense on Cents commentary: FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance). To replenish its fund, the FDIC had banks prepay estimated assessments of $45 billion, and also imposed higher premiums to rebuild the fund.
While Wall Street banks were in a position to pay out approximately $140 billion in 2009 bonuses, we now learn that the banking system is not in a position to begin paying the higher premiums to the FDIC. (more…)
Posted by Larry Doyle on December 3rd, 2009 9:26 AM |
Postponing losses in hopes that one can trade out of them is a game very rarely won. In similar fashion, not acknowledging losses in hopes that the situation improves and the loss is mitigated is also a recipe for disaster. All one needs to do is look eastward to Japan to realize that. Ultimately, a loss not only must be realized, but paid. “I’ll gladly pay you Tuesday for a hamburger today …” may be cute in cartoons, but in the real world that approach never works. That said, this ‘delay to pay’ is the exact approach being utilized by Uncle Sam and, in large measure, by private industry.
Bloomberg’s Jonathan Weil once again distinguishes himself and provides great insight on this dynamic in writing, Fudging Losses is Easy When the FDIC Does It Too:
No wonder so many banks are delaying their losses. The Federal Deposit Insurance Corp. keeps showing them how, by doing the same thing with its own.
Last week the FDIC, led by Chairman Sheila Bair since 2006, said its insurance fund’s liabilities exceeded assets by $8.2 billion as of Sept. 30. That marked the first time since 1992 that the industry-financed fund had shown a deficit. There’s plenty of reason to believe its financial health is much worse.
How much worse? (more…)
Posted by Larry Doyle on September 18th, 2009 12:27 PM |
It was only a matter of time before both the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC) would walk over to the U.S. Treasury and ask for a ‘bigger allowance.’ That time has come, despite what some officials may say. High five to MC for bringing the FHA story to my attention.
The Wall Street Journal highlights the FHA’s predicament in writing, FHA Tightens Credit Standards, Sees No Bailout:
The Federal Housing Administration said Friday its cash cushion will dip below mandated levels for the first time, but officials insist it won’t need a taxpayer rescue.
The agency, a growing source of funds for first-time home buyers, faces mounting concerns that it will soon need a taxpayer bailout. As of this summer, about 17% of FHA borrowers were at least one payment behind or in foreclosure, compared with 13% for all loans, according to the Mortgage Bankers Association.
Rising defaults mean the FHA’s reserves may sink below the 2% mark required by federal law. The FHA says a study being sent to Congress in November is expected to show that ratio dipping below required levels for the first time.
Please recall that FHA-insured loans require only a 3% down payment. In writing a previous blog post focused on the FHA, a well informed reader shared with us that builders will often offer rebates which effectively cover that down payment. What is the result? Homeowners purchasing properties with no money down, otherwise known as ‘no skin in the game.’ This practice was prevalent throughout the irresponsible stage of sub-prime lending. Make no mistake, plenty of this is continuing today with the support and backstop of Uncle Sam . . . all in hopes of filling that growing hole in the housing dike.
The FHA will certainly need more capital unless and until mortgage delinquencies, defaults, and foreclosures stabilize and decline. None other than Wells Fargo CEO John Stumpf shared the other day that he does not see a slowing on those fronts.
In regards to the FDIC, the insurance fund has exhausted the bulk of the initial $50 billion which it had prior to bank failures starting in 2008. The costs of these failures have far exceeded that $50 billion figure. How so? Some very large profile failures were brokered to stronger hands with FDIC support but without the FDIC having to make an initial outlay of funds.
The WSJ highlights the current dire straits of the FDIC in writing, FDIC Mulls Borrowing from Treasury:
Federal Deposit Insurance Corp. Chairman Sheila Bair said Friday her agency may tap its $500 billion credit line with the U.S. Treasury to replenish its deposit insurance fund, though she appeared cautious about doing so.
“We are carefully considering all options” including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.
Ms. Bair has already warned banks that they may face an assessment increase to bolster the fund. Friday, she said there are also other little-known options available to the agency, including requiring banks to prepay assessments. The FDIC board of directors will meet at the end of this month to consider how to replenish the fund, she said.
Individually, the FHA and FDIC stories are both significant. However, in the midst of bailouts of other institutions (large banks, Freddie and Fannie, AIG, GM, and Chrysler), the funds likely to be injected into these entities are treated as merely adding another leaf to Mom’s dining room table for Thanksgiving dinner.
Is the American public grateful for the undisciplined and greedy lending practices that have crippled the FHA and FDIC? Perhaps I should rephrase that question: are these institutions grateful for the American public putting their taxpayer dollars on the line?
Posted by Larry Doyle on June 14th, 2009 12:43 PM |
I have always held Sheila Bair in high regard. Why? I believe she has no agenda other than what is best for our country. I find her to be tough, but fair. I think she prioritizes integrity, transparency, and reputation–all of which we badly need, but are in short supply.
Ms. Bair is currently engaged in an active debate about potential management changes at Citigroup. She is no shrinking violet in taking on any and all Wall Street heavyweights. I commend her for that. Additionally, she is giving “no quarter” in defending her positions on financial regulatory reform.
Ms. Bair recently spoke with Forbes, Bair Cautions Banking Crisis Is Not Over. Ms. Bair does not pull any punches or play the pandering games regularly seen in Washington and on Wall Street. As such, I think it is prudent for all of us to listen closely to what she has to say. Forbes reports:
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said Friday that while the crisis that swept through the financial world last year has subsided somewhat, it was far from over and there would be “many more bank failures” ahead.
“I think there’s still some challenges, I think we need to be realistic. There are still some troubled assets on the books and we still have an economy that’s under significant stress.”
How many other government officials are equally as blunt? How many regulators will openly address the fact that the toxic assets are still very much an issue and that the economy is under ‘significant stress’? Our country is screaming for some good old-fashioned truth combined with straight talk. Ms. Bair provides it. Let’s go back for some more. What does Sheila Bair think about the economy? Green shoots? Turning the corner? Bair provides sobering commentary: (more…)
Posted by Larry Doyle on March 26th, 2009 11:10 AM |
The other day, I provided a cursory overview of the details embedded in the recently proposed Public-Private Investment Partnership, Will Banks Truly Sell these Toxic Assets?
The main point I tried to highlight in that piece was the need for true price discovery for these toxic assets. A loyal reader provided tremendous insight in highlighting that the PPIP needs to assure that sellers are truly at arm’s length from buyers to insure that the price discovery process is real and fair.
There are potential concerns with this price discovery process highlighted in my piece Send in the Clown. Are the bank portfolios, located within the largest banks needing to sell toxic assets, attempting to prop the market higher? (more…)
Posted by Larry Doyle on March 10th, 2009 5:50 AM |
I thoroughly respect Sheila Bair (see my list of Economic All-Stars in the left sidebar). Our Head of the FDIC has been an honest broker each and every time I have heard her speak. I looked forward to her interview with Paul Gigot of The Wall Street Journal.
Ms. Bair addresses the finer points of the Obama Foreclosure Mitigation Plan which is targeted at helping 9 million homeowners stay in their homes. Specifically she touches on:
1. how this program will not reward bad behavior;
2. how it can be viewed as helping people who have managed their finances appropriately;
3. expectations of redefaults given her experience with the failed institution Indymac.
As I initially mentioned, I believe Sheila Bair is an honest broker in an impossible position. Her seeming lack of enthusiasm does not strike me as not believing in the benefits of this program, but rather a subtle acceptance that this program can only go so far. Additionally, this type of program will have plenty of unintended consequences. Will people who are currently paying their mortgages on schedule start to become delinquent on their mortgages in order to gain the benefits of this program?
I think Ms. Bair will make the best of a bad situation. That said, no program will be totally effective. I am fully supportive of programs that will assist Americans, but don’t be fooled to think that we will get 100% return on all dollars spent.
Let’s go to the video . . .