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FDIC asks Americans to keep their money in the banks

March 25, 2020

FDIC asks Americans to keep their money in the banks

Yesterday the Chair of the FDIC released an astonishing video asking Americans to keep their money in the bank.

Accompanied by soft piano music playing in the background, the official said:

“Your money is safe at the banks. The last thing you should be doing is pulling your money out of the banks thinking it’s going to be safer somewhere else.”

Amazing. I was half expecting her to waive her hand and say, “These aren’t the droids you’re looking for…”

As I’ve written before, there’s $250 TRILLION worth of debt in the world right now: student debt, housing debt, credit card debt, government debt, corporate debt, etc.

And let’s be honest, some of that debt is simply not going to be paid.

Millions of people have already lost their jobs. Millions more (like the 10 million waiters and bartenders across America) are barely earning anything right now because their businesses are closed.

A lot of those folks have no emergency savings to fall back on during times of crisis, so they’re going to be forced to choose: pay the rent, or buy food.

The government has already suspended evictions and foreclosures, which is a green light for people to stop paying the rent or mortgage.

And that means banks will take it in the teeth.

This is what happened back in 2008– millions of people across the country stopped paying their mortgages, and the banking system nearly collapsed as a result.

Today it’s a similar situation; a lot of people are going to stop paying their mortgages, credit cards, auto loans, etc. And that directly impacts the banks.

…click on the above link to read the rest of the article…

Farmageddon: Farm Loan Delinquencies And Bankruptcies Soar, Incomes Plunge

August 11, 2019

Farmageddon: Farm Loan Delinquencies And Bankruptcies Soar, Incomes Plunge

Following years of depressed farm income and rising debt levels, a review of the Federal Deposit Insurance Corporation (FDIC) quarterly report by Tri-State Livestock News reveals that “delinquency rates for commercial agricultural loans in both the real estate and non-real estate lending sectors are at a six-year high.”

About 2.5% of commercial real estate loans in agriculture were 30 days past due in 1Q19, up from 2.1% in the prior quarter and above the historical average of 2.1%. 2.3% of non-real estate loans in agriculture held by commercial lenders were 30 days past due, up from 1.5% in the previous quarter and above the historical average of 1.7%. Delinquency rates for commercial lenders haven’t been this high since 2013.

Delinquency rates of agriculture loans aren’t at crisis levels yet but have trended above historical averages in the last several years as farm incomes in the Midwest and Mid-Southern states have collapsed over the previous six years.

Net farm income, a broad measure of profits, has fallen 45% since a high of $123.4 billion in 2013 to about $63 billion last year, according to the US Department of Agriculture (USDA).

Farm incomes are expected to be significantly lower in 2019 as record floods devastated large parts of the Farm Belt this year.

About two-thirds of agriculture banks surveyed by the St. Louis Fed said their farm clients were severely affected by the flooding and other adverse weather conditions through summer.

Farm incomes in several regions of the Midwest have become stable this year thanks to President Trump’s farm bailout(s) and elevated corn prices that started in May due to yield concerns following wet weather, according to bankers surveyed by the Kansas City Fed.

 …click on the above link to read the rest of the article…

Free-Riding Investors Set up Markets for a Major Collapse

September 25, 2018

Free-Riding Investors Set up Markets for a Major Collapse

Free-Riding Investors Set up Markets for a Major Collapse

Free riding is one of the oldest problems in economics and in society in general. Simply put, free riding describes a situation where one party takes the benefits of an economic condition without contributing anything to sustain that condition.

The best example is a parasite on an elephant. The parasite sucks the elephant’s blood to survive but contributes nothing to the elephant’s well-being.

A few parasites on an elephant are a harmless annoyance. But sooner or later the word spreads and more parasites arrive. After a while, the parasites begin to weaken the host elephant’s stamina, but the elephant carries on.

Eventually a tipping point arrives when there are so many parasites that the elephant dies. At that point, the parasites die too. It’s a question of short-run benefit versus long-run sustainability. Parasites only think about the short run.

A driver who uses a highway without paying tolls or taxes is a free rider. An investor who snaps up brokerage research without opening an account or paying advisory fees is another example.

Actually, free-riding problems appear in almost every form of human endeavor. The trick is to keep the free riders to a minimum so they do not overwhelm the service being provided and ruin that service for those paying their fair share.

The biggest free riders in the financial system are bank executives such as Jamie Dimon, the CEO of J.P. Morgan. Bank liabilities are guaranteed by the FDIC up to $250,000 per account.

Liabilities in excess of that are implicitly guaranteed by the “too big to fail” policy of the Federal Reserve. The big banks can engage in swap and other derivative contracts “off the books” without providing adequate capital for the market risk involved.

…click on the above link to read the rest of the article…

Oops, It’s Starting, Says This Chart from the FDIC

May 24, 2018

Oops, It’s Starting, Says This Chart from the FDIC

And its eerie exhortations to the banks to prepare for a downturn to avoid “undue disruption to the financial system.”

The FDIC’s quarterly report on commercial banks and savings institutions was cited in the media mostly for the $56 billion in profits that FDIC-insured commercial banks and savings institutions made in the first quarter, which was up 27% from a year ago. An estimated $6.6 billion of the profits were due to the tax-law changes.

It remained mostly unmentioned that this increase in profits came after the huge charge-offs banks took in the fourth quarter mostly due to write-downs of tax assets, also a result of the new tax law. These write-downs slashed bank profits in Q4 to $25 billion, the worst quarter since the Great Recession.

Overall, Q1 was really exciting. Banks were firing on all cylinders, according to the FDIC: Net income jumped, loan balances rose, net interest margins improved, and the number of “problem banks” edged down. But worries are creeping up:

The interest-rate environment and competitive lending conditions continue to pose challenges for many institutions. Some banks have responded by “reaching for yield” through investing in higher-risk and longer-term assets.

Going forward, the industry must manage interest-rate risk, liquidity risk, and credit risk carefully to continue to grow on a long-run, sustainable path.

The industry also must be prepared to manage the inevitable economic downturn, whenever it comes, smoothly and without undue disruption to the financial system.

I added the bold. This is a goodie. We had an “undue disruption to the financial system” during the last downturn, and we don’t want another one, the FDIC says.

“Undue disruption” would be when banks stop lending. That’s when credit freezes up in a credit-dependent economy. Everything comes to a halt. Paychecks start bouncing. So, don’t do that again.

…click on the above link to read the rest of the article…

The Fed Sends a Frightening Letter to JPMorgan and Corporate Media Yawns

April 15, 2016

The Fed Sends a Frightening Letter to JPMorgan and Corporate Media Yawns

Jamie Dimon, Testifying Before the Senate Banking Committee on June 13, 2012

Jamie Dimon, Testifying Before the Senate Banking Committee on June 13, 2012 Over Massive Derivative Losses at the Depository Bank of JPMorgan Chase

Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.

A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.

At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?

It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”

…click on the above link to read the rest of the article…

Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout

April 13, 2016

Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout

Perhaps the biggest farce to result from the Dodd-Frank legislation designed to “rein in” banks was the ridiculous notion of “living wills” –  a concept that makes zero sense in an environment where the failure of even one bank assures a systemic crisis and could – as the Lehman financial crisis showed – lead to the collapse of all other interlinked financial institutions.

Which is why we were not surprised to read this morning that federal regulators announced that five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money.

Which is precisely the point: now that the precedent has been set and banks know they can rely on the generosity of taxpayers (with the blessing of legislators) why should they even bother planning; they know very well that if just one bank fails, all would face collapse, and the only recourse would be trillions more in taxpayer aid.

As Reuters writes, the “living wills” that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed were not credible came from Bank of America, Bank of New York Mellon, J.P. Morgan Chase, State Street, Wells Fargo. What is more impressive is that the Fed and FDIC found any living will to be credible.

Also amusing: it was only the FDIC which alone determined that the plan submitted by Goldman Sachs was not credible while the Goldman-dominated Fed gave its blessing; alternatively, the Federal Reserve Board on its own found that the plan of Morgan Stanley – Goldman’s arch rival in investment banking – not credible. Citigroup’s living will did pass, but the regulators noted it had “shortcomings.”

…click on the above link to read the rest of the article…

The $4.6 Trillion Leveraged Loan Market—–Next Crisis In The Making

November 22, 2015

The $4.6 Trillion Leveraged Loan Market—–Next Crisis In The Making

Financial crises take about a decade to be born. Having lived through four of them, I see the raw materials for a fifth one — flowing from the collapse of so-called leveraged loans — debt piled on top of companies with weak credit ratings.

Before examining the latest news on leveraged loans, let’s take a quick tour down the memory lane of financial crises I’ve lived through.

My first one was in 1982 — that’s when banks lent too much money to oil and gas developers in Oklahoma and Texas as well as local real estate developers.

At the suggestion of McKinsey, money-center banks like Chemical Bank thought it would be a great idea to buy a piece of those loans. It’s all described nicely in a wonderful book — Belly Up.

Too bad the price of oil and gas tumbled, leaving lenders in the lurch and causing a spike in bank failures that gave me the chance to spend a balmy summer in Washington helping the FDIC develop a system to manage the liquidationof those failed banks.

By 1989, it was time for another banking crisis — this one was pinned to too much lending to commercial real estate developers in New England and junk-bond-backed loans for what used to be known as leveraged buyouts.

The government shut down Bank of New England and was threatening my employer, Bank of Boston, with the same. I worked on a government-mandated strategic plan intended to save the bank from a similar fate.

Next up— the dot-com bust — which introduced me to the idea that not all bubbles are bad if you can get in when they’re forming and exit before they burst. I invested in six dot-coms and had a mixed record — the three winners offset the three wipe outs.

…click on the above link to read the rest of the article…

Shoot Bank Of America Now—-The Case For Super Glass-Steagall Is Overwhelming

February 12, 2015

Shoot Bank Of America Now—-The Case For Super Glass-Steagall Is Overwhelming

The mainstream narrative about “recovery” from the financial crisis is a giant con job. And nowhere does the mendacity run deeper than in the “banks are fixed” meme—an insidious cover story that has been concocted by the crony capitalist cabals that thrive at the intersection of Wall Street and Washington.

So this morning comes yet another expose in the Wall Street Journal about the depredations of Bank America (BAC). Not surprisingly, at the center of this latest malefaction is still another set of schemes to grossly abuse the deposit insurance safety net and enlist the American taxpayer in the risky business of financing high-rolling London hedge funds.

In this case, the abuse consisted of BAC funded and enabled tax avoidance schemes with respect to stock dividends—–arrangements which happen to be illegal in the US.  No matter. BAC simply arranged for them to be executed for clients in London where they apparently are kosher, but with funds from BAC’s US insured banking entity called BANA, which most definitely was not kosher at all.

As to the narrow offense involved—-that is, the use of insured deposits to cheat the tax man—-the one honest official to come out of Washington’s 2008-2009 bank bailout spree, former FDIC head Sheila Bair, had this to say:

…click on the above link to read the rest of the article…

 

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