Adam Sharp's  Instablog

The biggest bank closure of the year was announced last Thursday, when Bank United of Florida finally kicked the bucket.  Estimated cost to the FDIC: $4.9 billion. That's a sizable chunk of the FDIC's total reserves. With estimates of up to 1,000 banks failing over the next 3 years, how is the FDIC going to cover its obligations?

According to the LA Times, Governor Schwarzenegger has proposed eliminating all State Welfare Programs in California. If true, the long-inevitable CA budget crisis may be starting. Citizens don't want higher taxes, politicians don't want to cut programs. We appear to be headed for more state bailouts, or social unrest as state-provided services fail.

I don't envy the Governator here. While he did preside over a 40% increase in CA's budget, all the blame does not rest with him. California's economy has been a ticking time bomb for a while. Here is the meat from a breaking article on the LA Times' website:

With stress test results out, people are abuzz about the various measures of capital, liquidity ratios, and other ways to evaluate banks. But what really determines the fortunes of a bank? I would argue the most important factor for a big bank is this: How much influence they have with the Fed and relevant politicians.

Has the economy turned a corner? Have I come up with the best goof on "green shoots" yet? Unfortunately, the latter is more likely, even though I'm not a very witty writer.

There are a lot of nasty catalysts on the horizon: Stress test results next week, car companies going bankrupt, and more. Plus, the S&P 500 has run about 28% from March lows. I bought back into Grizzly Short Fund (GRZZX) on Friday. If you don't have the cash for a hedge fund, Grizzly provides an easy way to purchase a  diversified basket of shorts, managed by a team of professionals.

I think all investors should have some exposure to short equities. A short mutual fund can be a good choice. It’s insurance for bad times. When the economy gets whalloped, stocks go down. You might lose your job. But with exposure to shorts, you have an extra cushion. If things are bleak, and you need cash, sell the short fund. Voila, some extra cash in your pocket just when you need it most.

The Congressional Budget Office (CBO) has added Nouriel Roubini and Simon Johnson to their advisory panel. This is good. They should bring some badly-needed outside perspective to Congress. Here's a quick overview of panel's role (more on Roubini and Simon below):