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HomeFDIC “Kicks the Can”
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…)
European Bank Stress Tests? Nein, Danke!!
Posted by Larry Doyle on June 1st, 2010 8:58 AM |
How do you think the wizards in Washington are feeling about the European bailout structured two weeks ago at their behest? In those two weeks, the Euro has plummeted another 5%, equities continue to suffer, and credit spreads continue to widen.
Our Washington wizards are looking back into their bag of tricks and now recommending another of their ’shell game’ proposals to their European counterparts. Which proposal might this be? How do you spell charade? Try, bank stress tests.
Treasury Secretary Geithner is pressuring European central bankers to perform and release bank stress tests as a precursor to restoring financial health and stability into the European system. The Wall Street Journal highlights Geithner’s recommendation this morning in writing, U.S. to Push Europe on Stress Tests:
The U.S. intends to urge Europe to disclose publicly the results of bank stress tests as a way to calm jitters over the health of the Continent’s financial system, U.S. officials said. (more…)
Elizabeth Warren Calls for New Bank Stress Tests
Posted by Larry Doyle on February 11th, 2010 9:34 AM |
The initial Bank Stress Tests run by Treasury Secretary Geithner were largely a sham. I questioned as much last April in writing, “Bank Stress Tests: Major Sham?”:
As with any test, the results are only meaningful if the process and proctor have unquestioned integrity. The proctors for the Bank Stress Test are none other than Treasury Secretary Tim Geithner and Fed chair Ben Bernanke. Why is a testing authority of the magnitude of FDIC, led by Sheila Bair, not more involved in the process? Ms. Bair is the one individual in our country with the greatest level of interaction with and understanding of the student body, that being the banking industry as a whole and individual banks specifically.
What does the FDIC, led by Ms. Bair, have to say about the upcoming Bank Stress Tests? The New York Post provides a CHILLING perspective: (more…)
Will Geithner ‘Walk the Walk?’
Posted by Larry Doyle on November 18th, 2009 9:35 AM |
Do you have any confidence that Washington even knows how to properly address our massive and growing fiscal deficit? Rahm Emanuel, Tim Geithner and others understand that from a political standpoint they need to start talking about deficit control, but will that talk lead to action?
Do you think Congressional leaders, specifically Harry Reid and Nancy Pelosi, have the character and fortitude to ‘tighten the belt?’
The first real test for this crowd is already upon us. How so? The TARP, with a $700 billion commitment, expires on December 31, 2009. Of that $700 billion, $400 billion has actually been spent. Why wasn’t the other $300 billion spent? Well, don’t forget that Obama’s Stimulus Bill totaled $770 billion and assorted other programs implemented by Treasury have run into the trillions. As a result, Geithner did not immediately need to allocate those funds.
The question begs as to what will happen to that $300 billion. While Emanuel and Geithner are starting to ‘talk’ the fiscal discipline ‘talk,’ will they ‘walk the walk?’ (more…)
Sheila Bair Trumps Tim Geithner
Posted by Larry Doyle on October 29th, 2009 9:52 AM |
FDIC Head Sheila Bair
“Too big to fail.”
Do you think the American public is sufficiently sickened by that phrase? No doubt.
How will our ‘wizards in Washington’ handle this monstrous issue going forward? Is there any doubt that the industry itself should be held accountable to provide the necessary capital to unwind firms deemed ‘too big to fail?’ Of course not. However, the execution of that policy is where the rubber meets the road and where we learn who in Washington is truly working for the American public and who is working for the financial industry. How so? Let’s navigate. (more…)
FHA and FDIC Getting Ready to Ask Uncle Sam for a Bigger Allowance
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?
LD
Citigroup Still Milking Uncle Sam
Posted by Larry Doyle on September 16th, 2009 11:42 AM |
A number of banking institutions have repaid Uncle Sam’s TARP funds. The truth be told, a few of these institutions never wanted Uncle Sam’s money in the first place. Now we learn that the biggest financial beneficiary of Uncle Sam’s largesse, that being Citigroup, wants to begin discussions for Uncle Sam’s exit.
Be mindful that Uncle Sam (that’s you and me, boys and girls) owns upwards of 40% of Citi and that this giant would be dead and buried without Sam’s bailout. If I am Citi, I would also like to get out from under the grand old Uncle’s watch. The Wall Street Journal highlights this story in writing, Citigroup Explores Bid to Pare U.S. Stake:
Citigroup Inc., eager to shed the stigma of being a ward of the state, is working on a plan to reduce the U.S. government’s 34% stake.
Top Citigroup executives have been devising plans for a possible multibillion-dollar stock offering in which the New York company would issue new shares to the public, while the Treasury Department would sell at least a portion of its Citigroup holdings, according to people familiar with the matter.
Citigroup hasn’t held in-depth talks with the government. Over the weekend, Citigroup called a Treasury official and said the company wanted to start talking about paring down the Treasury investment, according to people familiar with the matter. On the call, Citigroup officials said they planned to raise outside capital in order to repay the outstanding bailout funds. Treasury officials responded to Citi that they didn’t object to the company paying back Washington as long as Citi first raised offsetting capital, these people said.
![[citigroup bailout]](http://s.wsj.net/public/resources/images/MI-AY766_CITI_NS_20090914190901.gif)
It is regrettable that the WSJ did not juxtapose this story of Citigroup’s grand vision to regain its independence with the fact that Citigroup continues to milk Uncle Sam via the FDIC-backed debt program. What is that?
The FDIC-backed debt allows Citigroup to issue debt which is effectively government guaranteed. In the process, Citi generates a significant cost savings because this debt falls into the ‘heads we win, tails you lose’ category. How much of this ‘milk’ did Citi just suck? Try a nice steady stream totalling $5 billion. The Financial Times sheds some light on this ’stall’ in writing, Citi Raises $5 Billion in Bail-Out Bonds:
People close to the situation said Citi was in early talks with the US Treasury over a plan that would enable the company to raise capital by selling shares and enable the authorities to pare their holding.
But Citi’s decision to sell two and three-year bonds backed by the Federal Deposit Insurance Corporation could reinforce the perception that the bank, which has received $45bn in federal aid, is still not back to full health.
The hypocrisy of it all is par for the course, but for Citi, this milk tastes Mmmm…Mmmmm good!!
LD
Auctions Across America
Posted by Larry Doyle on August 28th, 2009 4:07 PM |
How does an entity sell a massive amount of assets? Individual sales are too time consuming. Personal negotiations would be too onerous. How about utilizing the internet and engaging a wider audience? That is, in fact, exactly what is happening as America goes on sale via auctions. That’s right, folks.
From the state of California to small banks and all points in between, there are and will be ongoing liquidations via auctions for the foreseeable future.
How does one receive a list of items for sale? Check out the following to start:
>> Great California Garage Sale held by the California Department of General Services.
I have two rhetorical questions:
1. What will these auctions mean for consumer spending and retail sales going forward?
2. What will these auctions mean for the pace of inventory buildup?
All part of the new dynamic within the Uncle Sam economy.
Have fun shopping.
LD
