I called the death of Indymac Bancorp on Monday, July 7th. The Federal Deposit Insurance Corporation seized Indymac on Friday, July 11th.
The FDIC says there are 90 more troubled banks out of the 8,500 they insure, but other sources say it’s more like 850 facing certain doom and another 1,200 to 1,300 that are likely to get sucked under
Two more of the walking wounded got picked up Friday after close of business – I learned of this via a note from Ed over at Credit Writedowns, who beat the mighty Bank Implode-O-Meter to the punch on this one.
Like Bear Stearns, like Fannie Mae and Freddie Mac, the FDIC is about to get attached to the U.S. Treasury in a way that will be pitched as a benefit for the common man, but it’s totally Welfare for Wall Street.
First, the tidbit from Ed that got me writing this:
1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California were taken over by the FDIC on Friday. They always wait until Friday night to do their business. This marks the first FDIC closure action since the FDIC closed the much bigger IndyMac.
The Federal Deposit Insurance Corporation is a bank deposit insurance operation. Remember when the home insurance companies got into all sorts of trouble after Katrina by trying to dodge their responsibilities in the Gulf Coast region? Well, hurricane Hedge Fund is about to come onshore and the FDIC will behave only a little differently. They can’t dodge, so they’re going to need a bailout ... which means access to the treasury ... which means your tax dollars pay for failed banks and your dollar is devalued and your oil goes up not due to speculation but instead due to corruption.
As for the FDIC and its "problem" list of 90 of the 8500-9000 banks it allegedly insures, Christopher Whalen at Institutional Risk Analytics thinks there are "a few" more: "Of about 9,000 institutions, "we have identified about 10 percent that are in significant distress and another 10 to 15 percent headed in that direction".
So first we see Indymac, the second largest bank failure ever, then two more flies drop in the troubled southwest (Indymac was centered in California), and now we get a report from a very credible blogger citing an analyst from a very reputable risk management firm indicating that those ongoing reports of 1,500 troubled banks we've been seeing are pretty much a median number.
National City Corporation - $82 billion insured, $9 billion in writedowns.
Fifth Third Bancorp - $66 billion insured, $2 billion in writedowns.
Suntrust Banks - $114 billion insured, $1.5 billion in writedowns.
Wachovia - $392 billion insured, $30 billion in writedowns.
Bank of America - $598 billion insured, $30 billion in writedowns.
The Bank Implode-O-Meter reports news chronologically. I started at the top of the list and went down until I hit the names of the two cited as most likely to fail – Wachovia and Bank of America. Washington Mutual should be on the list, too, but they used to be a credit union before they became publicly traded, I’m not sure where to track down their deposit numbers, and even if I did credit union insurance is different than bank insurance.
Please understand this - there isn't a linear relationship between the deposits insured and those writedowns. If a bank is up on that list with a writedown in billions that is only what they've admitted. Qualifying for a slot on the Bank Implode-O-Meter is almost the human equivalent of a diagnosis of pancreatic cancer; the one year survivorship numbers are not comforting.
So ... the last two have just shy of a trillion dollars in deposits, the vast majority of those will be under the $100,000 FDIC limit, and FDIC has a piddling $51 billion to cover failures. And these are just two of the estimated 2,200 banking failures coming. I can practically write myself Henry Paulson’s sober sounding statement as to why the FDIC will have direct access to the treasury in order to stem the panic ...
This "bailout" will be pitched as a way to stabilize the market, as a benefit for you and me, and as responsible operation ensuring the dollar remains a reserve currency. The people who have contributed the most to this mess will be sure to get their paychecks, their bonuses, and their golden parachutes. You and I, and our children and grandchildren, will be made to tote the note and the whole thing will hatch out either right at the end of Bush’s administration, or if they play it just right, it will come as Obama arrives in office, and they'll be hoping they can lay the blame for the mess on him.
This is worse than what we faced in 1929 due to our being wrapped up in Iraq and Afghanistan and facing oil production declining globally rather than the rise of the 1930s that helped pull us out of the Great Depression. 2008 in the United States seems rather like 1990 in the Soviet Union, right before their empire collapsed.