FDIC About to Become a Barren Wasteland of Dried Up FAIL?
As much I would love to go on and on about the epic failure of the FDIC - the moral hazard, the broken promise, the complete stupidity of an "insurance" fund that felt compelled to pass on collecting premiums from member banks for nearly a decade, the list goes on - I think the time has come for Congress to start slicing the tumors off of America's crippled host. In case there are no doctors in the house on Capitol Hill, let me simplify this: we are dying. Treasurys are showing extreme strain and without that little scheme to feed off of, we're fucked. Was that simple enough for everyone? Great!
The FDIC may soon have to put itself on its own watch list. If the 300+ "trouble" banks it is tracking don't take it down, Tim Geithner's retarded PPIP scheme (no offense to retards intended, of course) surely will. Why is a broke agency guaranteeing PPIP any damn way?
Yahoo finance is usually a joke. Oh who am I kidding? This is a joke too. Still, it's nice to see what the MSM are saying while wading around in the kiddie pool. Via Yahoo Finance, FDIC Fund Running Dry (no shit, huh!):
At the end of the first quarter there were 305 'problem institutions' with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.
Call me crazy but that doesn't look too well for the FDIC.
Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit. [my emphasis]
The prospect of the FDIC paying back that loan anytime soon from increased assessments on the banks is extremely remote. This is simply a back-door bailout of the FDIC, structured as a line of credit so it does not increase the reported budget deficit.
Using the FDIC to backstop the PPIP program is simply a way to bypass Congress. There is no way that Congress could not have approved the line of credit and let the FDIC become insolvent. By all rights, the assessments on the banks should be raised to make up for the shortfall in the FDIC, but now is not exactly the time to do it, since it would simply deplete their capital at a time when they desperately need to improve their capital base.
Isn't bypassing Congress illegal? I'm just sayin...
Curiously, the article goes into JPM/WaMu/FDIC and we all know where that particular rape and pillage is headed:
In the 12 months to 3/31/09 there have been 44 failures with $381.4 billion in assets at a total cost to the fund of $20.1 billion. The 5.3% of failed assets cost to the fund over the last year is somewhat misleading since by far the largest failure was Washington Mutual, which was bought by J.P. Morgan (JPM) at no cost to the FDIC (but very generously backstopped by the Fed).
That's kind of a lie. Why? The Fed isn't going to have to pay if a Delaware judge determines next month that the FDIC swept in and sold WaMu off under false pretenses, now will it?
Check this out and see if you can tell me what is wrong with this particular picture:
"Assets?" More like Fed liabilities plugged with unicorns and rainbows, wtf is this? It's all made up! Conjured from nowhere like the fair maiden crying as Rumpelstiltskin spins gold! That's probably a good analogy now that I think about it; soon, the Fed will accept first-borns as collateral for TALF loans right along with questions CMBSs and pieces of paper with "thanks for the bailout, bitches" written on them.
Damn! We are going to need a miracle at this point. Or a whole hell of a lot more drugs to keep the market on crack. Whatcha gonna do, Bair? Looks to me as if you have a huge mess on your hands!