Seeking Alpha
Profile| Send Message| ()  

The FDIC closed down eight banks last week bringing this year's total to 118 so far. Included in this week's closures was the notorious ShoreBank in Chicago. In a separate report, the U.S. Treasury has disclosed that the Obama administration's HAMP (Home Affordable Mortgage Program) seems to be rapidly falling apart. This could further weaken the U.S. banking system.

The FDIC is operating on both borrowed time and borrowed money. This agency is the bulwark protecting American's savings in the case of failed banks, but the FDIC itself is close to going broke. The eight closures this week alone cost the FDIC’s deposit-insurance fund $473.5 million. The deposit insurance fund was already $20.9 billion in the hole at the end of the fourth quarter in 2009. In order to plug the hole and keep going, the FDIC in December forced banks to prepay three years of insurance premiums and raised about $45 billion by doing so. That money had to pay off the deficit already accumulated and then last for the next 156 months of bailouts. There have been weeks this year when the FDIC has had to shell out close to $1 billion for bank rescues. That $45 billion isn't going to last much longer.

ShoreBank was the most significant bailout this week. The bank was founded in the South Side of Chicago in 1973 and was the nation's first community development and environmental bank. Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), Citigroup (C), Bank of America (BAC), American Express (AXP), GE Capital (GE), and Wells Fargo (WFC) were investors. The bank has indirect ties to a number of members of the Obama administration. The bank was under a cease-and-desist order from the FDIC for more than a year before it was finally closed down. Its remaining assets will be transferred to a newly created corporation, Urban Partnership Bank. Some of the same executives from ShoreBank will be running this newly chartered bank (once they drive Urban Partnership Bank into the ground, it too will be bailed out). It looks like the investments of the too-big-to-fail, or even lose any money, big bank funders will also be protected under this arrangement by transferring them to Urban Partnership Bank.

Meanwhile, the poorly thought out and even more poorly run HAMP program is not making a big dent in slowing foreclosures. Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have already fallen or more likely been pushed out. Mortgage holders blame the banks for not cooperating and banks blame the mortgage holders. According to RealtyTrac, the nation is headed toward more than one million foreclosures this year - a higher amount than the 900,000 homes repossessed in 2009. Boy, HAMP is certainly doing a great job in significantly reducing the number of foreclosures. Well, I guess it's just too much to expect that something will be accomplished for only $75 billion in taxpayer money.

Based on this week's events, I have written the following theme song for the FDIC (maybe Sheila Blair will sing it at the next board meeting) to be sung to the tune of the Beatles 'Eight Days a Week':

Oh I'll bail out your bank babe,
Guess you know it's through,
Hope you like the money banker,
When I'm funding you,
Spent it, Lost it, Pay Me, Save Me
Don't do nothing but bailouts,
Eight banks a week

Disclosure: No positions
Source: FDIC Swan Song: 8 Banks a Week