Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

FDIC To Raid Federal Reserve Coffers

Stock-Markets / Credit Crisis 2008 Sep 04, 2008 - 10:30 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: The "Bailout Bens" are at it again.

I'm talking, of course, about U.S. Federal Reserve Chairman Ben S. Bernanke, who's clearly decided it will be " bailouts for all ."

Why is this problematic? Federal Deposit Insurance Corp. Chairman Sheila C. Bair last week said that the government agency "may need to tap into [short-term] lines of credit with the Treasury for working capital," but "not to cover our losses," The Wall Street Journal reported .

After all, why hit up Treasury when you can have the taxpayer cover your losses?

In a bid to shore up a bank-insurance fund that's been drawn down by the U.S. credit crisis, not only is the FDIC planning to raid the Federal Reserve's coffers; it's also apparently making plans to increase the premiums it charges the 8,500 banks and thrifts that are required to pay into the fund. According to an industry insider that I've spoken to about this, the FDIC also is planning to charge a significantly higher premium to those institutions engaged in "riskier" lending practices.

The danger is that both of these actions could squeeze profit margins in the already-fragile banking industry and that any embryonic sector recovery from the credit crisis would be nipped in bud.

What matters and what concerns me about Chairman Bair's news conference remarks is that nobody ever goes broke from so-called " accrual accounting ."

Working capital indeed.

The reality is that the FDIC hasn't got enough cold hard cash on hand to insure the deposits it is supposed to be overseeing - even with a record $50.2 billion in funds at its disposal. Despite the fact that reserves are four times the $11.4 billion the FDIC thought it needed a year ago, $50.2 billion is only 64% of the $78 billion in troubled assets listed as of the second-quarter's close.

And it's only going to get worse - much worse, in fact.

First, you can bet that only a fraction of the assets from other troubled institutions will show up on that list in the quarters to come. By my back-of-the-envelope calculations, the FDIC could need as much as $124 billion in the next six months to shore up the assets of "problem institutions" - which is Fedspeak for banks on the brink.

So, in as much as Chairman Bair may believe she's got things under control, her comments strike me as straight from the Ministry of Whitewash when she says such a scenario is unlikely in the "near term."

Indeed, while speaking at the news conference, Bair told reporters that she and her FDIC compatriots "don't think the credit cycle has bottomed out yet," and don't believe that U.S. banks will return to high levels of earnings anytime soon. Bair said she expects that banks and thrifts will keep building up their reserves for the next several quarters.

The industry is already paying a full third of its net operating revenue into the system to build up reserves, meaning the Fed is the only place left to turn to.

Which, of course, means that taxpayers like you and me are once again going to be put even deeper in hock to bail out the financial institutions that created this mess in the first place.

Nearly two years ago, I heard laughter when I suggested that the global credit crisis would be a trillion-dollar problem . Well, they're not laughing now. Especially when I tell them that I'm now predicting that the total fallout from the credit crisis will exceed $2 trillion.

It seems quite clear from Chairman Bair's comments that "Bailout Ben" is just getting started - even though the Fed is already pumping $170 billion a year into the financial system.

Other federal agencies are in trouble and so are legions of banks - and not just from subprime-mortgage debt, either. Factor in inadequate reserves for credit-card defaults, home-equity lines of credit, automobile loans and other forms of consumer debt and it becomes very clear that this could get a whole lot worse before it gets better.

In fact, as banks panic and consumers hunker down, money flows could dry up, signaling still further economic contraction. It's a viscous circle and one that feeds on itself. And that's what former Vice President Al Gore would label as " an inconvenient truth ."

But we taxpayers are the ones who will be experiencing the inconvenience.

News and Related Story Links :

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules