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Off a Cliff with No Airbags: The FED Banking System Quivers in Fright

"The system does not collapse but evaporate." - Trace Mayerby Jake, the Champion of the Constitution
Originally posted Tuesday, April 21, 2009 at

EVERYTOWN, USA - All over the United States last week, over-taxation "Tea Parties" protests broke out, rightly directed at Congress. Many Americans found themselves protesting on the streets and fields of their nation for the first time. This occurred despite the massive smokescreen put in place by the corporate mainstream media and Bureau of Labor and Statistics. Actual unemployment has hit 19%, not 8.5%. The actual consumer price inflation (NYSEARCA:CPI) is at +7%, not slightly below zero. On Saturday April 25, major END THE FED protests will break out at 38 cities directed at the nation's central bank, the Federal Reserve, who hold the real "money power," not Congress, as explained here: "The Money Matrix - How the FED Works (PART 6/15)". (photo)

My summary from December in "Rioting at the Gates of Thermopylae" has not changed: Despite whatever cherry-topped fairy-tales that pass for news these days that are delivered to the American public, the US banking situation continues to worsen. Most banks are not extending credit to businesses and individuals and have borrowed from the FED at rates exceeding 250,000% change from a year before. The graph below of balances the banking system has had to borrow from the FED shows nothing less than the death of the dollar and fractional reserve banking system.

In my opinion, the only true prop remaining is the psychological faith of the masses, both foreign and domestic. When this falters - for whatever reason - the entire world's fiat monetary system will spasm. The widespread belief that the dollar is still the strongest currency only means that much of the fiat infrastructure will be blown apart during the coming years instead of "just" the dollar. The IMF's frantic utilization of SDR's (Special Drawing Rights) will ultimately fail as these are simply a basket of the dollar (44%), euro (34%), yen (11%) and pound (11%).

The 2008 final body count was twenty-five (25) banks and fourteen (14) credit unions. In the first 3.5 months of 2009, the number of failed banks has already been equaled.  In addition, two federal credit unions have failed, plus the two largest wholesale corporate FCUs totaling $57 Billion in assets due to losses on mortgage-related securities being much larger than originally thought.

  • Valley Credit Union (Valley) of San Jose, California, ($205 million in assets, cost to the NCUA unknown.  Valley was placed in "conservatorship" in 2008)  Date of Demise: 1/2/2009
  • National Bank of Commerce, Berkeley, Illinois ($431 million in assets, $402 million in deposits, ~$97 million cost to the FDIC) Date of Demise: 1/16/2009
  • Bank of Clark County, Vancouver, Washington ($447 million in assets, $367 million in deposits, ~$132 million cost to the FDIC) Date of Demise: 1/16/2009
  • 1st Centennial Bank, Redlands, California ($803 million in assets, $677 million in deposits, ~$227 million cost to the FDIC) Date of Demise: 1/23/2009
  • MagnetBank, Salt Lake City, Utah ($293 million in assets, $283 million in deposits, ~$119 million cost to the FDIC) Date of Demise: 1/30/2009
  • Suburban Federal Savings Bank, Crofton, Maryland ($360 million in assets, $302 million in deposits, ~$126 million cost to the FDIC) Date of Demise: 1/30/2009
  • Ocala National Bank, Ocala, Florida ($224 million in assets, $205 million in deposits, ~$100 million cost to the FDIC) Date of Demise: 1/30/2009
  • FirstBank Financial Services, McDonough, Georgia ($337 million in assets, $279 million in deposits, ~$111 million cost to the FDIC) Date of Demise: 2/6/2009
  • Alliance Bank, Culver City, California ($1.14 Billion in assets, $951 million in deposits, ~$206 million cost to the FDIC) Date of Demise: 2/6/2009
  • County Bank, Merced, California ($1.7 Billion in assets, $1.3 Billion in deposits, ~$135 million cost to the FDIC) Date of Demise: 2/6/2009
  • Sherman County Bank, Loup City, Nebraska ($130 million in assets, $85 million in deposits, ~$28 million cost to the FDIC) Date of Demise: 2/13/2009
  • Riverside Bank of the Gulf Coast, Cape Coral, Florida ($539 million in assets, $424 million in deposits, ~$202 million cost to the FDIC) Date of Demise: 2/13/2009
  • Corn Belt Bank and Trust Company, Pittsfield, Illinois ($272 million in assets, $234 million in deposits, ~$100 million cost to the FDIC) Date of Demise: 2/13/2009
  • Pinnacle Bank, Beaverton, Oregon ($73 million in assets, $64 million in deposits, ~$12.1 million cost to the FDIC) Date of Demise: 2/13/2009
  • Center Valley Federal Credit Union, Wheeling, West Virginia ($8 million in assets, cost to the NCUA unknown)  Date of Demise: 2/13/2009
  • Silver Falls Bank, Silverton, Oregon ($131 million in assets, $116 million in deposits, ~$50 million cost to the FDIC) Date of Demise: 2/20/2009
  • Heritage Community Bank, Glenwood, Illinois ($233 million in assets, $219 million in deposits, ~$42 million cost to the FDIC) Date of Demise: 2/27/2009
  • Security Savings Bank, Henderson, Nevada ($238 million in assets, $175 million in deposits, ~$59 million cost to the FDIC) Date of Demise: 2/27/2009
  • Freedom Bank of Georgia, Commerce, Georgia ($173 million in assets, $161 million in deposits, ~$36 million cost to the FDIC) Date of Demise: 3/6/2009
  • FirstCity Bank, Stockbridge, Georgia ($297 million in assets, $278 million in deposits, ~$100 million cost to the FDIC) Date of Demise: 3/20/2009
  • Colorado National Bank, Colorado Springs, Colorado ($124 million in assets, $83 million in deposits, ~$9 million cost to the FDIC) Date of Demise: 3/20/2009
  • Teambank, National Association, Paola, Kansas ($670 million in assets, $493 million in deposits, ~$98 million cost to the FDIC) Date of Demise: 3/20/2009
  • U.S. Central Federal Credit Union, Lenexa, Kansas ($34 Billion in assets, unknown cost to the NCUA) Date of Conservatorship: 3/20/2009
  • Western Corporate Federal Credit Union, San Dimas, California ($23 Billion in assets, unknown cost to the NCUA)Date of Conservatorship: 3/20/2009
  • Omni National Bank, Atlanta, Georgia ($956 million in assets, $797 million in deposits, ~$290 million cost to the FDIC) Date of Demise: 3/27/2009
  • Cape Fear Bank, Wilmington, North Carolina ($492 million in assets, $403 million in deposits, ~$131 million cost to the FDIC) Date of Demise: 4/10/2009
  • New Frontier Bank, Greeley, Colorado ($2.0 Billion in assets, $1.5 Billion in deposits, ~$670 million cost to the FDIC) Date of Demise: 4/10/2009
  • American Sterling Bank, Sugar Creek, Missouri ($181 million in assets, $172 million in deposits, ~$42 million cost to the FDIC) Date of Demise: 4/17/2009
  • Great Basin Bank of Nevada, Elko, Nevada ($271 million in assets, $221 million in deposits, ~$42 million cost to the FDIC)Date of Demise: 4/17/2009


First understand the FDIC, the NCUA, and the nature of the banking system. Here's the fastest lesson I can manage. Try my other writings or just search the net for more information. (Photo courtesy Luc Viator)

In brief, the FDIC (Federal Deposit Insurance Corporation) is a relic of the Great Depression designed to give depositors psychological assurance that the government will bail them out if the bank fails. It is funded by small fees on all deposits its 8,305 member banks hold.

The FDIC started 2008 with about $53 billion in reserves and ended the year with $18.9 billion. Based on the closings since January 1, Captain Calculator reports less than $15.8 billion is left. The FDICended the year with a reserve ratio of 0.40%, covering $4,757 billion in insured deposits, so now they are at about a 0.34% reserve ratio (although the FDIC is increasing its collection rates from the banks).  (Converted to English, this means that  just $0.34 out of every $100 that you have on deposit is REALLY "insured.") The FDIC reported the total assets of these banks to be $13,847 billion, so $15.8 billion is really a pittance.  The FDIC reports there are 252 problem institutions with $159 billion in assets.  The FDIC does not list any specific banks as this (obviously) would cause bank runs.  (Source: FDIC December 2008 QBP report, pages 6+16/25)

Besides the blizzard of controversy surrounding the  infamous Geithner "stress tests" now due to be released to the public May 4th, there are very real signs of a breakdown.  For instance the largest financial institution in Florida, the $14 billion BankUnited of Coral Gables has publicly been given a "Prompt Corrective Action Directive" on April 14th by the Treasury's Office of Thrift Supervision.  Basically, this document instructs BankUnited to find a buyer within 20 days or be taken over (sorry, placed into "conservatorship") by the federal government.  And if you think I am negative, Weiss Research put out a damning 94-page free whitepaper entitled "Dangerous Unintended Consequences: How Banking Bailouts, Buyouts and Nationalization Can Only Prolong America’s Second Great Depression and Weaken Any Subsequent Recovery."  Particularly interesting (and common sense) solutions are recommended on pages 47-50, and readers may be interested in the appendices which chronicle 1,372 commercial banks with $1.79 Trillion in assets that are in danger of failing.  

The NCUA (National Credit Union Administration) is the FDIC counterpart for federal credit unions. Federal credit unions are cooperative financial institutions chartered by the federal government and owned by its members. Credit unions are intended to promote savings and prudent borrowing, and any group of people can start one, read this brochure. The pool of borrowers is usually constricted to its members, and generally speaking credit unions are more likely to be more conservative than larger banks since they are run as a non-profit community service, but you need to verify this for yourself. There are roughly 8,100 federal credit unions funded with roughly $7 billion in insurance for approximately $600 billion in deposits per this link. The NCUA insurance reserve ratio is roughly 1.2%, and is mandated by law to be maintained between 1.0% and 1.5%.

My warning to you is that a major bank failure will eradicate the FDIC funds overnight. As I noted here "WaMu Gets the FDIC WHAM-O!", last year Washington Mutual would have cost the FDIC $31 billion if JP Morgan had not "saved" the bank. Now, if the FDIC fails, you will probably still get your money back in dollar terms.  After all, the US government as already publicly stated that they would backup the next $30 billion in losses.  A disconcerting FACT is that FDIC Chairman Sheila Bair is on record as requesting an additional $500 BILLION for the insurance fund per the  April 14 Forbes article "A Captive FDIC."  However, to do this the government/Federal Reserve will simply print more money, and you will NOT be able to get your funds immediatelyHow long is anyone's guess, my guess is months. With all of the building potential for a hyperinflation or inflation spike, by the time you get your dollars back, you may not be able to buy much with them.

Our banking system operates on a fractional reserve system. This means that banks only have to keep a certain amount of deposits and can lend the rest. In the USA, the deposit requirement is currently at 10%. For more detail, "The Money Matrix - How the FED Works (PART 6/15)" is a must-read.

On November 5, 2008, the Financial Times reported that the Federal Reserve has altered its interbank interest rates. The analysts' opinions seem to be solid. The United States may be headed for a Bank of Japan-style liquidity trap or "quantitative easing" strategy where the Fed's the drop earlier this year in the Non-Borrowed Reserves statistic (google BOGNONBR) is fixed by a $500+ billion increase in the banking system's credit (google TOTBKCR). What happened in Japan was that all the newly created electronic money piles up in the banking system's servers since the banks have nowhere to safe to store the money or lend. As predicted by the FT article, the shorter-term Treasury bill interest rates reached zero and are now just slightly above, and the conclusion "cash becomes a competitive store of value" is now valid. At any rate, the FED's balance sheet, which used to consist primarily of Treasury securities a year ago, is, frankly speaking, looking like polluted junk.  The latest FED data as of 4/15 shows only 24% of the FED balance sheet consists of Treasuries.  Pre-bailout levels hovered around 90-95%.  This greatly impairs the FED's ability to control the money supply via Open Market Operations.

The overall effect of the Federal Reserve System was to force smaller banks into bankruptcy through by monopolizing the "money power" in a central bank.  I often offer an analogy to others that the FED is just like the One Ring in the "Lord of the Rings" trilogy: "One Ring to Rule them all... and in the Darkness Bind them."  By binding them together, the FED has been able to keep all but the worst banks afloat.  Therefore, instead of a trickle of bank failures growing slowly into a deluge - which would give the populace time to reassess their risks - what may happen instead is a massive default of the whole system at once.

If this occurs, then surely the most ignoble and hypocritical aspect of the FDIC will be that the "dumbest" citizens who deposited their currency at the very worst banks will have received all of their "insured" funds from the FDIC, while the rest who chose better banks will suffer.  The "dumb" few profiting at the expense of the many certainly appears to be a main theme of the new Administration, as seen in with the mortgage refinancing deals given to the riskiest home buyers by the federal government.

One last note - I have been researching this article by Eric deCarbonnel entitled "US Banks Operating Without Reserve Requirements" and from the analysis of both his evidence and a few random bank balance sheets, I now believe, to my chagrin, that he is correct.  The quick summary is that banks only have vault cash available of around 3% of deposits instead of reserve requirements of roughly 10% like I had once thought. 

When I read the FED's Purposes and Functions reserve requirement description (pages 50-54/146), I had not been aware of an accounting deception (no other way to describe it) that deCarbonnel discovered. This was the use of "deposit reclassification" where banks subdivide checking/NOW accounts into two subdivisions, and the major portion of checking accounts are used towards reserve requirements.  DeCarbonnel goes on from the following to describe how Citibank does it:

"This distinction only exists on the bank’s books: you will never see these subaccounts on your bank statements.

Deposit reclassification means that, at any point in time, most of the money in American checking accounts sits in invisible savings subaccounts. These savings subaccounts pay no interest, but allow banks to avoid reserve requirements. The public is completely unaware of this financial engineering."

This is like driving off a cliff with no airbags.  My interpretation of the above is that when the banking system goes under, the blow will not be cushioned  whatsoever.


I recently reviewed a few documents and want to share a few eye-openers concerning major US banks and derivatives. It may be helpful to read Parts 9-11 of my Money Matrix series starting with "The Money Matrix on "Credetary" Inflation and Deflation (PART 9/15)" if you do not have a good grasp of derivatives.

In the latest FDIC QBP report, they reported (p12/25) that 1,099 FDIC insured institutions, hold $201 Trillion in derivatives as of December 31, 2008 with just $7.1 Trillion (in OUR savings) backing these up.

Let's take a close look at Citigroup. On their latest March 31 quarterly (p4/33), they claim assets of $1,823 Billion. If my meager brain is reading the table properly, they only have cash and deposits amounting to $190 Billion Also, Citigroup lost almost $32 Billion in loans just for the quarter, and from the historical, this is only continuing to worsen. Then, as seen here, Citigroup holds $31,887 Billion in notional value in derivatives. Doesn't the latest bailout on November 24 for $20 billion capital injection and the $305-or-so billion guarantee for "toxic" assets now seem like a drop in the bucket?  Doesn't the Obama stimulus plan of around $800 Billion seem like a drop in the bucket?  (PS - It won't work anyways, as I explained in "The Oath of Obama, Why His Stimulus Plan Will Fail and What to Do Instead".)


After all my research and in my last seven bank closure articles, I no longer hesitate to hand out advice.  The banking system is falling apart and cannot be propped up. Therefore, each of us must become our own private bank.  This does not mean to stop usage of the current banks completely, but caution must be utilized in their use.

And since I've painted a bleak picture it's a little senseless to not share what I think are good ideas. Otherwise I would seem a bit like Chicken Little running around with his head cut off, so here you go! (Please remember I am just an engineer and certainly fallible.)  Take a look and decide for yourself, I actually view the below as conservative advice for most Americans.  Remember, this is not a time to be apathetic and just mull around, it is time to be realistic, do some research and take action if necessary. Please protect yourself and your family.

  1. First know if your bank(s) or credit unions are FDIC/NCUA insured or not. If not, get your money and close the account ASAP as it is a sign that the FDIC probably refused to insure it.  If yes, you can read the FDIC rules here, the NCUA rules here, and see if any of the exceptions or limits apply to your family.
  2. Second, consider moving your money to multiple banks or credit unions in the event one would fail.  Diversify your risk. At any bank, you can request their financial statement and check out the status of their loans and deposits. You can check the financial statement of all federal credit unions here. In general, credit unions will be safer than larger banks, mainly since its loans are limited to only the union members, but please be careful. Large banks like Bank of America, Wells Fargo, Citibank, Wachovia, etc. loan out to a wide range of borrowers (both individual and commercial), which are subject to failure due to the housing crisis.  A small, private, local bank which has not partaken in the mortgage bubble would certainly be the ideal solution.
  3. Third, withdraw enough currency to cover expenses for AT LEAST 6 months. I view this as a prudent move to survive any financial system fall-out.  My reasoning for this is that even if all of your money is "deposit insured," if the bank fails, there is no guarantee you will get your money immediately. It may take months. If you decide to do this, it is best to also request small bills ($20 or smaller) as if a crisis develops larger denominations some vendors may have issues with handling $50 or $100 bills. Instead of paper money, I advise taking out nickels as the worth of the metal (75% copper and 25% nickel) is by far worth the closest to face value, whereas the paper money has no value in its cotton/linen form. It's also fairly amusing and trust me, it will take a thief quite a while to lug out several thousand dollars in nickels.
  4. Educate yourself and others on economics and that once-boring subject of monetary policy.  My analysis in the Money Matrix series is that (price) deflation or inflation are both possible in the short-term as too little information is known about the $684+ Trillion of "dark" OTC derivatives.  I highly recommend checking out GATA's work on manipulation of the gold market and this 5-part series on how the gold and silver markets trade "The End for the Dollar and all Fiat Currencies (1/5)".  Quite possibly a mass psychology event such as hyperinflation is in store longer-term as well, as I surmised here "Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)".
  5. Try reading my Money Matrix series below. Decide for yourself what to do to protect your family's financial well-being. I also highly recommend the well-informed monetary policy articles from fellow Nolan Chart columnist Republicae.
  6. Take a solid look at changing your cash into physical gold and also silver. Some people will tell you this will make you rich as well; this is possible but I do not necessarily agree.  My idea is to survive and maintain purchasing power in case hyperinflation occurs. Most of the alarmists recommend holding 25-50% of your savings in gold. I also recommend holding physical silver, preferably in the form of "junk" silver or American Silver Eagles. Please do as you like after researching, but in my humble opinion holding none or <5% of your net assets in gold is not very intelligent. It is my researched understanding that the markets are manipulated, and as such the metal prices can fluctuate, even drop precipitously.  However, one troy ounce of gold today is still one troy ounce of gold tomorrow. A dollar bill is also a dollar bill the next day, but the purchasing power of the paper fluctuates madly, and its just a piece of paper that has no intrinsic worth.
  7. If you decide to purchase gold and silver, visit a US Mint authorized dealer near you and buy Silver or Gold 1oz. American Eagles, or "junk" silver, aka "bag silver." 'Bag Silver' are 1964-and-earlier silver coins (Halves, Quarters, Dimes) that are 90% silver by mass. For the troy ounce (31.1 grams) they will be about the spot price of silver and so will be cheaper than Silver Eagles. (The easiest way to remember this is that $1 of Face Value = approx 0.725 TOz silver, but it is typically sold at 0.715 TOz to account for wear and tear.)  These days, all coins are trading at high premiums to spot value but bargains can yet be found in 1942-1945 silver war nickels, 40% silver-clad 1965-1969 Kennedy halves, etc.  If you have enough funds to purchase 5,000 ounces of silver or 400 ounces of gold, you are 1) much richer than I am and 2) should work through a trader to take physical metal off the COMEX exchange. Read up and decide where to store it - thieves visiting my home won't find any silver and gold, but appropriate locations will vary from person to person. I do recommend diversifying and using multiple locations for your metal.
  8. If you hold US Treasury debt in the form of saving bonds or Treasuries, cash them out for physical cash and coin.  While Treasuries may preserve the nominal dollar amount, think purchasing power. However, sovereign default (or practical default, such as changing the terms of the bonds to, say, a perpetual 2% dividend) is certainly possible.
  9. Likewise, have a stock of non-perishable canned foods, water, and other essentials. I recommend this for two reasons. 1) No Americans, including myself, fully appreciate the shocking, disorienting speed at which hyperinflation can hit. Unfortunately, our government has been priming the pump for exactly this to happen. (Remember I wrote this when they want to "save" us again.) and 2) Based on US and world food stock levels and the low prospects for increasing strength in the dollar, it makes financial sense to purchase now and hold for consumption in the future.
  10. Exercise your Second Amendment privilege and peacefully bear arms.
  11. Start a Victory-over-Congress-and-the-FED garden. 
  12. Cut, cut, cut all unnecessary spending.  In the coming years, one of the lessons it may teach to us (for our benefit) is that you do not need money to be happy.
  13. Get to know your neighbors, and, if for some reason you haven't yet, your family. The more the merrier, there is still hope.  My hope is not a short-term one, it is long-term, for our children of today and to protect the lives of our parents.  I believe that once the current manner of government interventions is accepted as false and nonsensical, the recovery will be much swifter than any would dream.   
  14. Last, spread the word.  For obvious reasons, you won't find this advice from the mainstream media.  Join organizations such as the Campaign for Liberty, End the FED, and Young Americans for Liberty.  My fellow Americans, the worst storms have yet to arrive, but know there is hope and a bright future waiting for us - if we dare to choose it. 


Modern central bankers are being assaulted by their own Frankenstein creation, fiat money.  Is it any wonder that conditions in places such as Africa have changed very little over the past half-century?  The chained people of this earth are falling in battle, caused to a strong degree by the "Money Powers," the FED, BIS, IMF and other central bankers.  25,000 dead each day due to hunger and economic suppression when the War of Terror military funding could have fed, clothed, and sheltered each and every one. 7,328,200+ Americans are already imprisoned or on parole, many unjustly, by our "legal" system.  Every American who works has her/his wages stolen by the IRS to the tune of $1.2 Trillion in 2008 as I described in "Thank You for Paying Your "Voluntary" Income Tax! Love, The IRS".   Sure pales in comparison to the Trillions spent in bailouts so far, eh?  Many other Americans will struggle as well, but the end overall economic result is likely just a severe  (and temporary) drop in living standards.  Although, in my final analysis and worldview, our world leaders are clearly embarking us on a path to endless war, this is most likely completely accidental. 

At any rate, the clueless or corrupt politicians in Washington have chosen their comrades - and they are the Banksters, not We the People.  This did not start yesterday, or even in the last decade.  The US has not had free markets for at least 90 years.  We have been living in the Age of Marx and Keynes, and it is now time to move on.

A final victory for honest money will one day arrive, despite the efforts of the sad command & control governments and central banker allies that rule this planet today.

END THE FED!  Restore the Constitutional Republic!

Jake, the Champion of the Constitution


We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.

Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.

Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.

As a disclaimer of sorts, I am a supporter of owning physical gold, physical silver, and Any investment or financial views expressed in the article are mine and mine alone, so make your own financial decisions by educating yourself. All I am doing is sharing my views publicly to help you decide, even if its just to become aware that you do have a decision to make. These articles reflect my opinion and are by no means a guarantee of future economic conditions. My articles are provided for INFORMATIONAL PURPOSES ONLY and are actually NOT MEANT to provide investment advice to anyone.

Disclosure:  No position in Citibank or the other banks listed