U.S. Bank Failures: Nine in One Day

Another Friday night salvage-operation by the FDIC netted a big haul this week: nine U.S. banks were officially declared insolvent – all part of a large, banking chain, bringing the total this year to 115 banks. The remnants of these corpses have been absorbed into other financial institutions, but at a net cost to the FDIC of another $2.5 billion.

Some will suggest that my title deliberately twists and exaggerates this news, since the FDIC only conducts these operation one day a week. Those same people would also likely object to my observation that fifteen U.S. bank failures have been announced in the last eight days.

However, consider how the FDIC is attempting to deliberately minimize the appearance of ill-health and insolvency in the U.S. financial sector. There have been more than 10 bank-failures per month in the U.S. this year, an average of one every three days. Would anyone suggest that even the most gullible sheep would believe the propaganda of a “U.S. economic recovery” if they were hearing about another U.S. bank failing every three days?

By limiting its operations to one day per week and choosing Friday evenings for those bank-seizures (arguably the low-point in the week for news reporting), obviously the FDIC is doing everything possible to hide the severity of this crisis. In making this assertion, I can point to far more evidence than merely how it is handling the vast numbers of U.S. bank failures.

The FDIC has its own “list” of “troubled banks”. The list itself is confidential, but (supposedly) the number of “troubled banks” is not. The problem here is that no large or high-profile U.S. banks are allowed to be on this list – despite the fact it is confidential. Large bank-failures such as Indy Mac demonstrate this. Indy Mac never appeared on the FDIC's list. One day it was “healthy”, the next day it was bankrupt.

The FDIC argues that it needs to keep its list of troubled banks confidential – to protect these sick banks from the damage that would be caused by letting the public know the truth: that these institutions are close to bankruptcy. However, an important part of the FDIC's legislative mandate is to maintain “confidence” in the U.S. financial system.

What does it do for confidence in the U.S. banking system when it is public knowledge that the primary regulator of U.S. banks doesn't even have an accurate list of the nation's “troubled banks”, despite knowing the real number of such pending failures? What does it do for confidence in the U.S. banking system when large, U.S. banks can go from being “healthy” to “insolvent”, over night?

Clearly, what FDIC chief Sheila Bair and the rest of the FDIC see as their real mandate today is to hide the fundamental insolvency of the U.S. banking system not only from foreign investors, but also from the American public. Earlier this year, I lambasted the FDIC for another policy-change designed to hide rather than find the truth.

In “Problem Banks soar as FDIC tries to ignore problem”, I pointed to an announced policy-change by the FDIC: to raise the threshold on the size of U.S. bank-failures which prompt official reviews by the FDIC. Previously, the FDIC was required to investigate the failure of any U.S. bank with assets greater than $25 million. What the FDIC announced was that they would raise that threshold to $500 million – only banks twenty times the size of those which previously triggered such an investigation would now be reviewed. At a time when U.S. bank failures are at their highest level in decades, and likely on the way to being the worst mass-failure in U.S. history, the FDIC wanted to be less vigilant, and gather less data on this crisis.

None of these actions demonstrate what the U.S. financial system (and the American public) need today: a vigilant, independent regulator – who sees its primary duty as protecting the integrity of the U.S. banking system. Instead, what the American people are getting is an inept and politically compromised regulatory body, which sees its primary duty as being to protect and cover-up the misdeeds of a group of greedy, reckless (but politically well-connected) oligarchs.

About the only subject where the FDIC is honest is with regards to its own insolvency. And once again the FDIC demonstrates how it has been politicized into nothing but another part of the Obama re-election team. Sheila Bair is proposing that the FDIC collect several years of the bank-fees it requires from U.S. banks in advance – in order to (hopefully) fill up its own coffers.

Thus, at the same time that the crash in U.S. commercial real estate is just beginning to get serious, and just before the next down-leg for the U.S. housing market (see “Fantasy Housing Numbers a Prelude For NEXT U.S. Crash”), the FDIC wants to triple the amount that it currently takes from U.S. banks. Just as U.S. banks are truly entering this banking crisis, the FDIC wants to “kick them when they're down”.

While I confess to seeing a certain amount of justice in squeezing U.S. banks in the same manner that they have been squeezing U.S. small businesses and middle-class Americans, the fact is that such “justice” will cause the most harm to smaller U.S. banks (who are not as well politically-connected) – while the “too big to fail” oligarchs who were the perpetrators of both the bubble and the crash can simply ask their servants, Ben Bernanke or Tim-the-tax-cheat Geithner for more free money to cover anything they have to hand over to the FDIC.

As many know, there is absolutely no need for the FDIC to cure its own insolvency in this manner, since it has a $500 billion “line of credit” with the U.S. Treasury. The Treasury Department doesn't have any money either, but can simply ask the private bankers of the Federal Reserve to print-up that money on their printing press and then lend it to the Treasury Department (i.e. the American people).

The problem for the Obama regime is not that they would be heaping an even larger “mortgage” onto the shoulders of their children and grandchildren (U.S. presidents haven't worried about that for more than 40 years). The problem is that such additional debt would have to recorded on Barack Obama's presidential resume – since it can't simply be hidden by fraudulent accounting, like most of the debt accumulated by U.S. presidents.

Thus, the FDIC/Obama “solution” is to throw small U.S. banks an anchor and make it even easier for the too-big-to-fail oligarchs to cannibalize more of their smaller, weaker brethren – allowing them to grow even larger and more powerful in the process.

What this also means is less credit available to U.S. consumers and U.S. small businesses. While Wall Street banks are simply choosing to continue to cut back on their lending (despite over $1 Trillion sitting in a “savings account” with the Federal Reserve), smaller U.S. banks will be prevented from lending more over the next two years (when the U.S. economy and Americans need it most) because of much higher fees to the FDIC.

For loyal, Obama-supporters who continue to disbelieve that their government could betray them in this manner, Barack has just one thing to say: “Yes we can!”

Comments

[dirtyharry:]

Loved the ending! Like parents in denial over a misbehaving child, I have found Obama supporters to be equally obstinate. Instead of "my child can do now wrong" it has become "my candidate can do no wrong."

The real problem here is that most people just don't understand what's actually happening. They don't understand that printing money creates inflation, or what credit expansion/contraction means, etc.etc. In the case of Obama supporters, their first reaction is to defend their candidate and blame Bush.

Nov 02 08:40 AM

[The Geoffster:]

The American political system is corrupt to its core. The common man has no access to the system except through narrow special interest groups which necessarily contradict some other interest of the commoner. The Constitution has been trashed and burned because those it was intended to protect traded liberty for oppression disguised as entitlements and subsidies.

Nov 02 08:58 AM

[Graham and ...:]

Right now, the number is 15 PLUS 100 (115).

But someday, the number will be 15 TIMES100 (1500).

Nov 02 09:51 AM

[Jeff Nielson:]

It is partisan politics which is dooming Americans - by distracting them from the fact that NEITHER party has the slightest concern for the well-being of average Americans.

Until Americans finally realize that they can't "solve" their problems merely by switching Tweedle-Dee for Tweedle-Dumb (and vice-versa) over and over (while both their personal financial health AND the wealth of the nation crumbles), they have NO HOPE for a better future.

Salvation can ONLY occur by getting rid of the entire, two-party dictatorship.

Nov 02 12:14 PM

[ex- bond tr...:]

Powerful article Jeff, thanks for speaking the truth.
We need to fire all of the congressmen and congresswomen, and fire all or most of the senators, governors, and without a doubt kick out the commie Prez. and all his commie czars.
Ron Paul is the only one who deserves to keep his job.

Nov 02 03:24 PM

[El Pedro:]

I understand why some of the unhealthy banks aren't disclosed, but, what ticks me off is that the connected wall street firms and large banks do know and they can positions themselves for profit, while us saps stay in the dark and are left to figure things out after the debacle.

Nov 02 04:05 PM

[5142152-337:]

Keep on writing the truth, Jeff. Thank you!

Nov 02 05:16 PM

[Jeff Nielson:]

Hi El Pedro.

Yes good point. Not only are the "too big to fail" oligarchs being allowed to get bigger, but they have the "inside track" when it comes to acquiring those banks that are cannibalized AND being allowed to use taxpayer subsidies and hand-outs to do it.


On Nov 02 04:05 PM El Pedro wrote:

> I understand why some of the unhealthy banks aren't disclosed, but,
> what ticks me off is that the connected wall street firms and large
> banks do know and they can positions themselves for profit, while
> us saps stay in the dark and are left to figure things out after
> the debacle.

Nov 02 06:01 PM