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Posts Tagged ‘FDIC’

Book Review: Reckless Endangerment: A Wall Street-Washington Incestuous Legacy and A MUST READ

Posted by Larry Doyle on January 21st, 2012 3:33 PM |

Years from now when people study what led to the greatest economic crisis since the Great Depression, they will have plenty of material to review. This is good.

Unlike our current era in which we clearly failed to learn from past crises, I hope future generations will not only study what led to our current crisis but then actually do something so it is not repeated. We have yet to begin that process.

On that note, let’s start right now to save our collective future. How so?

If we are to save our future, then let’s be brutally honest about our past and our present(more…)

Sheila Bair’s Final ‘Sense on Cents’

Posted by Larry Doyle on June 9th, 2011 1:37 PM |

Sheila Bair Sheila Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC), pauses as she speaks during a news briefing May 27, 2009 in Washington, DC. Bair announced the bank and thrift industry turned a profit in the first quarter of 2009.  (Photo by Alex Wong/Getty Images) *** Local Caption *** Sheila Bair

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?

Sheila Bair.

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…)

FDIC “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…)

Without Transparency, Financial Regulatory Reform Gets a “D”

Posted by Larry Doyle on March 15th, 2010 9:50 AM |

Bloomberg just provided a sneak peek at the Financial Regulatory Reform package to be proposed by Senator Chris Dodd (D-CT) this afternoon. What are some of the highlights and my thoughts? Let’s navigate.

From the top down, and without being overly cynical, I am extremely concerned that this proposed financial regulatory reform is a reshuffling of deck chairs with increased powers for both the Federal Reserve and U.S. Treasury. The very fears I voiced almost a year ago remain entrenched. What is the basis of my fear? The so-called reform is much more focused on the “sufficiency” of regulation of our financial industry and not nearly focused on the “transparency” of the regulation, the regulators, and the regulated.

Call me suspect.

What are the key highlights as reported by Bloomberg? (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…)

Financial Chicanery and Accounting Charades

Posted by Larry Doyle on October 1st, 2009 11:38 AM |

Financial chicanery and accounting charades come in all shapes and sizes. From mismarking trading positions on Wall Street to running massive Ponzi schemes and with many other stops along the way, the games people play to accrue false profits and cover real losses are endless. That said, all this artifice ultimately does end as the true value, or lack thereof, of the underlying assets is flushed out. For this very reason, I remain extremely concerned about the economy and overly conservative in my approach to the markets.

While we could debate at length about the necessity and efficacy of the FASB’s relaxation of the mark-to-market accounting for bank assets, ultimately the accounting will not truly matter. Why? The value of the assets on the banks’ balance sheets will find their true level. In the process, the banks will be sufficiently capitalized, or not. My bet is that many more of these banks will not be sufficiently well capitalized. Additionally, do not expect bank examiners and regulators to share this information.

I see clear evidence of this exact scenario in reading Bloomberg’s esteemed columnist Jonathan Weil’s commentary, Banks Have Us Flying Blind on Depth of Losses:

There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.

It failed last week.

Georgian’s clean-up will be unusually costly. The book value of Georgian’s assets was $2 billion as of July 24, about the same as the bank’s deposit liabilities, according to a Federal Deposit Insurance Corp. press release. The FDIC estimates the collapse will cost its insurance fund $892 million, or 45 percent of the bank’s assets. That percentage was almost double the average for this year’s 95 U.S. bank failures, and it was the highest among the 10 largest ones.

Do you think Georgian Bank was a special situation that somehow slipped past the accountants, examiners, and regulators? If you believe that, I have some AAA sub-prime CDOs for you that really look like good value.

What do we learn with the failure of Georgian? As Weil attests:

The cost of Georgian’s failure confirms that the bank’s asset values were too optimistic. It also helps explain why the FDIC, led by Chairman Sheila Bair, is resorting to extraordinary measures to replenish its battered insurance fund.

How many other ‘Georgians’ are out there? Plenty. The material difference amidst the banking system is the composition of the loan and investment portfolios of different institutions. Despite the fact that the FASB, pressured by Congress and Wall Street, has allowed banks to utilize chicanery and charades to cloud our view, fortunately we have journalists like Jonathan Weil to provide some clarity.

Might we be able to get Mr. Weil to shed some light on “Analyst Exposes Wells Fargo Balance Sheet Charade”?


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?


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