FDIC DESPERATION UNMASKED
By Daniel at 27 August, 2009, 11:05 pm
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Loan loss reserves at US banks are at a shockingly miserable low level. They not only hide their badly impaired (ruined) credit assets, but they inadequately furnish their loan loss reserve accounts. Notice the trend in coverage ratio for loss reserves (in red) that trends down down down. Filling the loan loss reserves eats into stated earnings, a process forbidden if bank stock prices are to continue up up up. Resolution is sought. Bold lies about their shaky condition works at both ends. It is very difficult to give an accurate number of the failed US banks, when more are failing every week, on an accelerated basis. The failures of Colonial and Guaranty rocked the bank sector in the last two weeks, enough to set back the Federal Deposit Insurance Corp by over $5 billion. Their fund is dead broke empty. They already raised bank fees once this year, and are likely to do so again. That should crimp bank lending, in reports out just today. The declared official list of troubled banks stands at 416. Surely, the true number is closer to 1000. Lying is better for the markets.
The FDIC has responded in two ways. They have opened the door for foreign financial firms to rescue the growing list of insolvent US banks, taking equity in exchange for infused funds as capital. This is unprecedented. Could this be due to the general insolvency of the great majority of big US banks? Yes! The FDIC also announced it might appeal to the US Congress for more funds, sure to spark heavy debate. The FDIC is designed to be a self-sufficient company, but it is a basket case instead. Worse, the FDIC head Sheila Bair, despite her valiant resistance to the US Dept Treasury lordship, has its own ethical problems. The FDIC has avoided bank shutdowns on a broad basis. They have thus permitted losing situations to grow much worse. Case in point is the Colonial asset portfolio, some of which are to be liquidated at 65% losses. Where was the FDIC several months ago? The answer is not pretty. The FDIC in my opinion has acted as the new investment banker harlot for Wall Street. They have not shut down banks and liquidated them. They rather seek to feed assets to the Wall Street syndicate and thus avert more FDIC fund drainage.
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