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FDIC - Contradictions And Lies

Updated June 11, 2009

FDIC is supposed to help supervise the banking industry and protect trillions of our deposits.  Unfortunately, over 30 banks have already failed in 2009, with the Office of Inspector General documenting our regulatory agencies at fault in many cases.  There is absolutely no reason for Sheila Bair to go around seizing bank after bank, parading not a dime of deposit has been lost, when one of her agency's primary responsibilities is to "prevent" such system wide catastrophe from occurring.  FDIC’s DIF ratio shows it can pay only about $0.4 for every $100 insured.  Yet in spite of this pitiful reserve, FDIC is ready to dish out around $2.5 million more per year to relocate from Lower Manhattan to "[shorten] the commute" for some workers and "[o]ver the course of the past year, has shelled-out some $7.6 million in media buys and public relations activities as part of its 75th anniversary celebration."  Worse, Bair has chosen to further endanger our savings by backing at least $300 billion in TLGP bonds and $500 billion for the now delayed PPIP with that same meager reserve. 

We were all told Wamu failed, but I personally never read or heard Wamu asking for assistance in fear of bankruptcy like Bear Stearns, AIG, FRE, FNM, Chrysler, and GM did.  Upon closer analysis, Wamu had a tier I capital ratio of 8.4% and a TCE ratio of 7.8% around the time of seizure, meaning it probably could have passed the stress test recently conducted by our Treasury.  The company earlier had also just released positive news regarding its liquidity.  This meant a combination of events had to come together at precisely the same time and set up that small window of opportunity for OTS and FDIC to seize and sell Wamu.  This happened on September 25, 2008, with a quick week run at the bank, relentless downgrades by rating agencies, and probably a sudden cut in credit line by FHLB, among other factors. 

This was important because we saw how quickly another banking giant Wachovia collapsed as a result of FDIC's actions on Wamu.  With Wamu bondholders getting wiped out in an unprecedented move and the bond market crashing, together with soaring financing insurance costs, we watched, in disbelief, how Sheila Bair saved her agency by misusing its power and destroying two huge banks within a few days of each other.  With FDIC fire selling Wamu to JP Morgan for $1.9 billion and forcibly attempting a ridiculous deal between Wachovia and the obviously insolvent Citigroup, investors not just in the United States but all over the world lost confidence in our financial market and in our regulatory system.

How effective can a regulator be when the insitutitions you supervise no longer trust you?  Sheila Bair frustrated Citigroup in the Wachovia sale, hampered potential deals by the same banks she told to raise capital by conducting secret bidding sessions with sweetened FDIC guarantee and share losses, and more recently, according to several media outlets, tried to replace bank ceo's such as Vikram Pandit with threats of rating cut.

Who is regulating FDIC and its actions?  How do we know FDIC's claims of bank failures are true and the orders it gives result in the best interests of all parties involved?  On June 9, 2009, in a rare and bold move, Frontier State Bank in Oklahoma finally rose to the occasion and "challenged FDIC claims" by refusing to "sign off on... orders" given and demanding a hearing.  "The FDIC alleged the bank in operating its leverage strategy did not mitigate interest rate risk appropriately... [but] the bank disagrees with those contentions."  Further, an expert witness for the case, Keith Geary, said that " [a]t a time when banks are failing at a record pace because of loan losses, the FDIC is clearly misguided in their approach to attacking a strong, healthy bank like FSB... 'I'm certain there is quite a bit of admiration in the banking world that FSB is standing up for themselves and ultimately their customers and community.'"

Her inconsistent statements, decisions, and actions throughout this economic crisis have clearly demonstrated her priority: FDIC’s viability and power expansion.  She has no principle and follows no rules, and she has often used her weapon of "deposit and taxpayer protection" to get what she wants from the White House, Congress, and the innocent American public.  Sheila Bair is determined to keep her job intact at any cost, even if it means rights and benefits of taxpayers, bank employees, creditors, shareholders, and bondholders may be brutally violated and sacrificed.  
On September 26, 2008 Sheila Bair sold Wamu to make JP Morgan “the biggest bank by deposits.”  In her very next deal, she tried to force Wachovia to sell itself for $1 per share to Citigroup, after rejecting WB’s plea for government assistance to stay independent.  However, on May 29, she argued against making institutions too big to fail as she asked Congress for jurisdiction over holding companies.  These were clear examples of her actions speaking louder than, or AGAINST, her words.  Worse, despite its own admission that it is currently powerless over holding companies, FDIC has been fighting in court for the billions in deposits belonging to Washington Mutual Inc., Wamu's parent company.
September 26, 2009
"JPMorgan Chase & Co. became the [BIGGEST] U.S. bank by deposits, acquiring Washington Mutual Inc... will make a one- time payment of $1.9 billion to the FDIC as part of the deal"
April 28, 2009
"For its part, the FDIC has said in court papers it may have a claim on the $4 billion in deposits."
May 29, 2009
"Bair Attacks Too-Big-to-Fail... lobbying Congress to give the FDIC authority to wind down bank and thrift holding companies"
On September 25, 2008 Sheila Bair wiped out Wamu bondholders, but on October 14, she launched TLGP to guarantee bonds and help banks raise capital.  By April 20, 2009 FDIC already helped JP Morgan sell $38 billion worth of bonds, Goldman Sachs $29 billion, and BAC $44 billion, among others.  On May 7, President Barack Obama's 2010 budget proposal estimated FDIC would end up backing about $600 billion in total for this program.
September 25, 2008
"Subsequent to the closure, JPMorgan Chase acquired the assets and most of the liabilities, including covered bonds and other secured debt, of Washington Mutual Bank from the FDIC as Receiver for Washington Mutual Bank. Any claims by equity, subordinated and senior unsecured debt holders were not acquired."
October 14, 2008
"The Federal Deposit Insurance Corporation (FDIC) announces a new program—the Temporary Liquidity Guarantee Program—to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies."
April 20, 2009
"Goldman (ticker: GS) has issued $29 billion of low-cost debt through this FDIC program; Bank of America (NYSE:BAC), $44 billion; and JPMorgan (NYSE:JPM), $38 billion. In total, about $340 billion of debt has been sold under the six-month-old arrangement, called the FDIC Temporary Liquidity Guarantee Program (TLGP)."
May 7, 2009
"The U.S. Federal Deposit Insurance Corp is expected to guarantee about $600 billion in bank loans over the life of the temporary debt program"

On September 26, 2008 Sheila Bair boasted the Wamu-JPM deal did not cost taxpayer any money but on September 29, she decided to back over $300 billion in toxic WB loans for Citigroup.
September 26, 2008
"The seizure of Washington Mutual... and transfer of deposits to JPMorgan Chase has gone smoothly and will not cost taxpayers a dime, said Sheila Bair"
September 29, 2008
"As part of the deal, Citigroup will acquire Wachovia's massive deposit network... Of the more than $300 billion in loans it absorbs, Citigroup said it would cover up to $42 billion of losses on those loans, while the Federal Deposit Insurance Corporation will be on the hook for anything beyond that."
In September, 2008, after Wamu's seizure, Sheila Bair declared "business as usual" for all Wamu customers.  Unfortunately, that did not last long.  FDIC's destruction of the bond market led to a credit freeze worldwide.  In Europe, for example, daily deposits at European Central Bank (ECB) soared to a shocking $169 billion from $0.09 billion euros.  Banks were hoarding money and not even lending to each other.  Further, in March 2009, BusinessWeek acquired documents that showed credit lines of small business owners, many of whom were former Wamu and responsible customers who never missed a payment, were cut by JP Morgan
September 25, 2008
"For all depositors and other customers of Washington Mutual Bank... There will be no interruption in services"
January 2009
"The amounts deposited with the ECB rise from a daily average of 0.09 billion euros in the week starting September 1, 2008 to a daily average of 169.41 billion in the week of September 29, 2008... The amounts deposited with the ECB start rising after the collapse of Washington Mutual when the crisis spreads outside the investment banking realm."
May 8, 2009
"JP Morgan suspended credit lines for a large number of business owners... the move affected thousands of businesses... [who] had been clients of Washington Mutual... [and] had not missed loan payments."
On November 2, 2008 Sheila Bair argued passionately to prevent foreclosures but she then chose to terminate a number of NYC Wamu branch leases, not only leaving landlords millions in mortgage but also causing them to lose their properties.
November 2, 2008
"Bair was arguing with vigor, first in private meetings and then in public speeches, that the industry needed to modify loans on a massive scale — not only to help customers avoid foreclosure but also to help companies avoid the consequences of those foreclosures."
December 9, 2008
"F.D.I.C.'s October agreement with JPMorgan Chase and Washington Mutual allows Chase to pick and choose which of the city's 148 Washington Mutual branches it will keep. Chase will then turn over the rejects to the F.D.I.C. But here's the kicker: According to sources, the F.D.I.C. [CAN THEN SIMPLY TERMINATE THE LEASES OF THOSE REJECTED BRANCHES, ALL CONTRACTUAL OBLIGATIONS VOIDED]...
-I am Lanlord for on of the WAMU Location I don't know who to talk to about this Lease or how to pay my Mortgage. SOMEONE PLEASE HELP ME
-I believe we spoke with each other. WaMu moved out as of 2/10/,leaving me with an empty building and half a million loan with Chase-WaMu. FDIC legalized the cherry pick by Chase without obligations.Jamie Dimon is really a very smart banker and good bzman,but at the price of all WaMu contractors, landlords,shareholders...
-I got the same situtation. They stopped rent payment. I can not pay the mortgage and will lose the property."
On March 4, 2009 Sheila Bair rejected using tax money to prevent FDIC from failing but on March 6, she demanded more borrowing power from Congress to help FDIC funding in exchange for a reduction in fees to banks.  Bair decided, after all, it was better to “paint all banks with” what she had earlier mockingly called “the bailout brush.”
March 4, 2009
"No Taxpayer Funds Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion.“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.” 
March 6. 2009
"The Federal Deposit Insurance Corp. may reduce an emergency fee on banks to bolster reserves if Congress expands the agency’s borrowing authority with the Treasury Department to $100 billion, Chairman Sheila Bair said."
On March 4, 2009 Sheila Bair rejected small banks' argument on being charged the same fee as the big, corrupt banks, claiming such action was against FDIC statute but on May 22, she openly violated that restriction, one she herself had used earlier in defense of charging all banks equally.  Here we have the director of a government agency breaking its own statute, suddenly becoming a champion for small banks after her agency received an increase in borrowing power from Congress.
March 4, 2009
“Smaller banks are outraged over the one-time fee, Camden Fine, president of the Independent Community Bankers of America... Community bankers are feeling like they are paying for the incompetence and greed of Wall Street... Bair [DISMISSED] that suggestion... 'For risk-based assessments, our statute restricts us from discriminating against an institution because of size,' Bair wrote"
May 20, 2009
"Obama Signs Mortgage Law Expanding FDIC Credit Line"
May 22, 2009
"Big U.S. banks will shoulder a larger share of restoring the fund that guarantees bank deposits under a measure approved on Friday... Federal Deposit Insurance Corp Chairman Sheila Bair defended the formula saying large institutions deserved much of the blame for fueling the financial crisis by funding high-risk mortgages."
On April 10, 2009 FDIC seized New Frontier Bank in Colorado and threatened farmers with liquidation unless they found new "lending sources" within about a month.  However, in May, after state representatives intervened and USDA pledged to provide $253 million in emergency loans, FDIC denied the imposition of that deadline and the entire incident suddenly became a simple misunderstanding.
April 11, 2009
"On the morning after the federal government stepped in to take over the bank, customers and employees arrived early and often... it's scary when you wake up Saturday morning and see your bank has closed."
May 11, 2009
"Sheila Bair has agreed to meet with farmers immediately... Markey and U.S. Agriculture Secretary Tom Vilsack called Bair minutes after listening to farmers talked about the jeopardy their farms faced... A month is not enough time to find new lenders... Gary Teague... said the FDIC has threatened to liquidate his farm within two to three weeks... the federal government... provide $253 million in emergency loan funding to help about 2,500 Northeastern Colorado families whose livelihoods have been threatened by NFB's collapse."
May 18, 2009
"FDIC Director of the Division of Resolutions and Receiverships Ron Bieker said the agency had no policy which requires that borrowers pay off or refinance loans within that time period, implying that this was a misunderstanding... Windsor Mayor John Vazquez said he could show Bieker a letter which did say loan customers had only 30 days to do something about their loans."
First Bank of Idaho had a June 30, 2009 deadline to raise its capital level but on April 24 OTS appointed FDIC as the receiver.  On the same day FDIC seized the bank and sold it to US Bank.  Apparently FDIC had already found a buyer in secret just like it did with Wamu, therefore ignoring the deadline and the quick transaction.  On May 4 a bank board member Nancy Schauer argued against this action as being the least cost solution for FDIC and on May 9 Idaho state lawmakers demanded answers to such broken promises and reckless actions.  
April 24, 2009
"First Bank of Idaho in Ketchum was closed by the Office of Thrift Supervision. The Federal Deposit Insurance Corp. was named receiver... U.S. Bancorp... [assumes] First Bank of Idaho's deposits, excluding $112.8 million in brokered deposits.  U.S. Bank agreed to buy $17.8 million of the failed bank's assets, or less than 4 percent."
May 4, 2009
"'The FDIC says they will lose $191 million because of what has happened but if they'd waited a few weeks it never had to happen, ' said Schauer... Now the losses are incalculable."
May 9, 2009
"U.S. Reps. Mike Simpson and Walt Minnick sent letters Friday to the heads of the Federal Deposit Insurance Corp. and the Office of Thrift Supervision, asking for information about the decision to close the First Bank of Idaho... OTS gave the bank until June 30 to raise $10 million and bring its capital level to 12 percent.  But regulators moved to shut down the bank before that June deadline, shocking bank executives who contend they had investors lined up to give the bank a cash infusion and clear millions in bad loans... On April 24, the OTS appointed the FDIC receiver of the bank, and more than 60 FDIC officials seized it.  US Bank officials moved in that same day."
On March 11, 2009 Sheila Bair advocated Public- Private Investment Program as profit generating and in April, she told New York Times that her agency “project[ed] no losses" from this plan.  However, according to the latest data, FDIC's own auction clearing price deteriorated down to 46.4% in March, from 49.3% in January and Februrary. 
March 11, 2009
"A U.S. government plan for a public-private investment fund to buy distressed assets to help clean up banks' balance sheets is likely to generate a 'healthy" profit' for taxpayers and investors, the head of the Federal Deposit Insurance Corp said on Wednesday."
April 6, 2008
"The F.D.I.C. is insuring the program, called the Public-Private Investment Program... 'We project [NO LOSSES]'"
May 11, 2009
"The facts: in April, the average auction clearing price on the 331 loans the FDIC sold in January and February was 49.3%. In March, the number of loans FDIC sold in various auctions increased almost four-fold to 1,328, for a total of $470 million in book values of sales, with the average price dropping even more: the latest being at 46.4%"
FDIC seized and sold Wamu in a just few hours on a Thursday, not the normal Friday because "news of the failure had begun to leak out."  However, Bair waited until May 21, 2009 to seize and sell BKUNA, taking her time to find the best bidder and not on the same day that the BANK ITSELF actually announced a potential seizure.  This was not a leak: "BankUnited Financial, the largest lender based in Florida, warned earlier this week that it could be seized by regulators."
September 26, 2009
"Office of Thrift Supervision, had planned to declare Washington Mutual unsound on Friday, the normal day for bank closures, and turn it over to the FDIC for disposition, Bair said, but news of the failure had begun to leak out, so the action was moved up a day."
May 21, 2009
"Its troubles have been known for several months, but because of the potential value of its Florida franchise, regulators took time to line up as many bidders for the bank's assets as possible."
Sheila Bair further endangered many pension funds by heavily promoting the legacy asset program, "government’s latest plan to save banks to potential investors including Lone Star Funds and five state pension funds.”  As mentioned previous, FDIC itself was losing money on its own auction so whatever Bair has bragged about potential profit was obviously less than true.  The fact was, Bair did not even want to spend $30 billion to save Wamu even though she knew many pension funds across the United States would lose a fortune because of their heavy investments in this bank.  Instead, she chose to use FDIC reserve to back billions and billions of TLGP bonds in the bond market FDIC itself had helped crashed by wiping out Wamu bondholders, and the now delayed PPIPAs a result, millions of dollars including those that belong to pension funds have been wiped out, including New York State Common Retirement Fund, Illinois Teachers’ Retirement System, Los Angeles City Employees Retirement System, Florida Hurrican Catastrophe Fund, and Washington state Investment Board’s Funds. 
September 26, 2009
"Federal regulators had been trying to broker a deal for Washington Mutual because a takeover by the F.D.I.C. would have dealt a crushing blow to the federal government’s deposit insurance fund. The fund, which stood at $45.2 billion at the end of June, has been severely depleted after suffering a loss from the sudden collapse of IndyMac Bank. Analysts say that a failure of Washington Mutual would have cost the fund as much as $30 billion or more."
September 26, 2008
"The Washington State Investment Board's funds will lose about $47 million because of the failure of Washington Mutual, state officials tell KIRO 7 Eyewitness News."
September 27, 2008
"Florida's Pension, Hurricane Have Millions In Wamu Holdings...
•Total WaMu holdings in administration board accounts: $83.9 million, most of which was bonds and related securities; $9.1 million was in stock.
•The administration board's total unrealized or "paper losses" from WaMu holdings: $195 million
•Pension fund (Florida Retirement System): $42.18 million in WaMu holdings; $8.8 million was in stock
•Florida Hurricane Catastrophe Fund: $41.28 million, all bonds and related securities, no stock"
September 29, 2008
"At least seven pension funds lost their private equity investments in Washington Mutual, following its failure and subsequent purchase by JPMorgan Chase... Investors in the $19.8 billion TPG VI include CalPERS, New York State Common Retirement Fund, Illinois Teachers' Retirement System, Washington State Investment Board, Los Angeles City Employees Retirement System and the San Francisco City & County Retirement System."
On May 15, 2009 Sheila Bair denied her earlier comment, the same one that helped cause the stock market to drop, on Bloomberg about potential ceo changes in some institutions.  However, by June, news began to spread that she had been bullying Citigroup with an important rating cut unless it replaced its ceo like she wanted. 
May 15, 2009
"FDIC Says Bloomberg Story About Sheila Bair's Comments on Bank CEO's Was 'Misleading'"
June 6, 2009
"Citigroup decided to delay raising... capital after the Federal Deposit Insurance Corporation threatened to lower a crucial financial health rating as part of the regulator's drive to replace Vikram Pandit, chief executive."

It is truly unfortunate that Sheila Bair has continued to abuse her power and threaten institutions like Wachovia and Citigroup unless her demands were met.  As the last resort of protection for our savings, FDIC sadly chose to turn against all taxpayers and through various means destroy the values of our dollars in order to save itself and banks, or more specifically, banks in its best interests and not main street institutions like Wamu and Wachovia.  Given that most banks have acted recklessly, if Sheila Bair had not given Wamu to JP Morgan practically for free, we average Americans can still have the now elusive free checking with no minimum balance.

I am sure this is not what JFK had in mind in his "ask not what your country can do for you ask what you can do for your country" speech, though his quote ironically and perfectly describes the current state of relationship between the American public and FDIC.  Let us not ask Sheila Bair to protect our trillions in deposits.  Instead, let us taxpayers, state legislators, USDA and other government agencies, ask how many more billions of our tax dollars we should give to TLGP and other FDIC sponsored programs to help her correct her mistakes, some of which have potentially created systemic risks worldwide.