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| Financial Update: FDIC, Federal Reserve, China, Geithner, Stimulus.. | | Print | |
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FDIC Insurance Fund: It Doesn’t Actually Exist When FDIC head Shelia Bair says her agency might have to bolster the FDIC’s insurance fund with Treasury borrowings to pay for the new spate of bank failures, a lot of us, this 40-year banking veteran included, assumed there’s an actual FDIC fund in need of bolstering. We were wrong. As a former FDIC chairman, Bill Isaac, points out here, the FDIC Insurance Fund is an accounting fiction. It takes in premiums from banks, then turns those premiums over to the Treasury, which adds the money to the government’s general coffers for “spending . . . on missiles, school lunches, water projects, and the like.” The insurance premiums aren’t really premiums at all, therefore. They’re a tax by another name. Actually, it’s worse than that. The FDIC, persisting in the myth that its fund really is an insurance pool, now proposes to raise the “premiums” it charges banks to make up for the “fund’s” coming shortfall. The financially weakest banks will be hit with the biggest tax hikes. Read entire article The Federal Deposit Insurance Corp. is gearing up to handle a large number of bank failures expected as a result of bad mortgages, both in residential and commercial real estate, an economist said Tuesday. “They know they’re going to take down a large number of banks and they can’t do it until they’re staffed up,” said Mark Dotzour, chief economist and director of research for the Real Estate Center at Texas A&M University. Dotzour expects federal regulators to establish an agency, similar to the Resolution Trust Corp. that disposed of assets belonging to insolvent S&Ls in the late 1980s and early 1990s. “Once they start to sell [foreclosed real estate], we’ll find out what the market really is,” Dotzour told attendees at an economic summit hosted by a handful of real estate groups in Tampa, Fla. Read entire article As noted previously, China experts say that the Chinese government has been blowing a huge bubble (and see this). But the government is apparently going to switch off the bubble-blowing machine. China expert Michael Pettis writes: Today bank stocks were down, on rumors that the very high and clearly unsustainable loan growth rates would soon come to an end. Sources have said the dollar’s role probably will not be included in the final communique of a G8 meeting. Even if it does rate a mention, the language used would likely be extremely general to avoid destabilizing financial markets. Still, the symbolic importance would be immense, as it would underscore the determination of emerging economies, who will also be present in Italy for the talks, to win greater say in the global financial system and, over time, to reduce their dependence on the U.S. currency. Read entire article Max Keiser: “Does the US Secretary of the Treasury work for the people or does he work for the banking system on Wall Street?” Dr. Paul Craig Reports: “He works for Goldman Sachs.”
Congressman Ron Paul has vowed that he will not be stopped in his effort to audit the Federal Reserve, as he slammed Senate authorities for blocking the bill earlier this week. Appearing on Fox News’ Freedom Watch with Judge Napolitano Paul referred to Senate authorities blocking Jim DeMint’s attempt to attach the legislation, which already has 250 co-sponsors in the House, as a provision to a spending bill as a “facade”. The amendment was blocked by Senate authorities on Monday after they claimed that it violated rules for provisions attached to spending bills. “Technicalities are always ignored for things they want – this means they don’t want it and this is their organized effort now to stop us, but we’re not going to be stopped, it’s just going to energize everybody at the grass roots,” said the Congressman. Paul said that it made no sense to give the Fed more power when they had already created the bubble that led to the economic collapse in the first place. The Obama administration’s new regulatory reform plan, which will officially hand the Federal Reserve complete dictatorial control over the U.S. economy, will give the Fed the authority to “regulate” and shut down any company whose activity it believes could threaten the economy and the markets. Asked what the powers that be were afraid of should the Fed be audited, Paul listed a number of issues that would be brought to light with increased transparency. “I think the biggest thing is the cronyism, who got the benefits, who really got some of these Federal Reserve funds as well as TARP funds, and I don’t think they want people to know about it,” said Paul, adding, “I’d like to know what they’re doing internationally, what kind of agreements they have with international banks, with other governments, and also what they do in the gold market – how they manipulate the value of the dollar by manipulating gold prices.” As we have previously highlighted, the Fed has refused to disclose where trillions in bailout funds have gone despite a lawsuit filed by Bloomberg. Paul explained that nobody knows exactly what would be uncovered but that was the whole point of having an audit in the first place. The Congressman concluded that the Washington elite would do everything in their power to dig their heels in and prevent the bill from passing, because it represents the first major step in abolishing the Federal Reserve altogether. “When we discover what’s really going on, I think the American people are going to demand the next step, they’re going to demand honest money – it’s happened many times in history,” added Paul. Watch the clip below. US lurching towards ‘debt explosion’ with long-term interest rates on course to double The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case. Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”. |
