Friday, October 23, 2009

When Sheila Bair has to publically reassure us...

1. There is a problem she is not telling us about
2. she is playing the party line
3. she is close to running out of money

When Sheila Bair tells us that the FDIC is adequately funded:

1. is she actually reassuring us that there is plenty of money?
2. is she lying to us for our own good?
3. is she attempting to instill the state that created this mess - complacency?

Well, the answer is: ALL OF THE ABOVE and then a FEW...

Given the statements made in this video and the misguided effort to release it - it indicates that Sheila Bair is either a liar or a hack. But, I suspect the qualifications to be an accomplished hack would be to to be an accomplished liar.

Lets examine this.

The FDIC does not have adequate funding nor does the Treasury have 500 billion to lend to the FDIC. For that to occur the debt ceiling for the US will need to be raised...hence the need for the FDIC to borrow money from banks like JPM, Well Fargo, BAC directly.

Additionally, Sheila Bair states that she has asked banks to prepay premiums for the next three years in advance. I can tell you one thing, if my insurance company asked me to pay three years in advance, I would be very unhappy and deeply suspicious. Without some sort of compensation I would refuse. Additionally, if she thinks that it is reassuring for people to know that the FDIC needs to ask for three years of premiums in advance - I think she is mistaken. What's next, asking for 10 years of premiums? Why not 20 years? And what do you do next year when all the premium has already been paid in advanace? This is a game of musical chair shells. First, distract them with the music. Second, the slight of hand. Third, the change in strategy and finally followed by the trick - no music, no magician, no chair, no seat and no shell. But my question is, what happened to the last 75 years of premiums? There have been years when the FDIC miraculously abated any premiums since its reserves were supposedly met with credit from the treasury and premiums already on deposit. But, even in that case, how could the FDIC possibly be so mismanged that they need special premiums now? If the FDIC can not run itself, how can they manage a confidence game and ponzi scheme. (Please see my previous articles below regarding the FDIC)

Additionally, she indicates that the FDIC has 42 billion of reserves. Raising an additional 45 billion from advance payment of insurance premiums should do it right? Well, 89 billion, (according to her math) is still a small number especially given that they figure their projections based on $100,000 coverage per account even though they insure $250,000. This is the case, since the 250,000 number is supposedly only temporary so they can just ignore it for budget and accounting purposes...I think their math is fuzzy - to say the least. Incidentally, their reserve number is NOT the number that I come up with.

As if that is not enough, just how many banks does Ms. Bair expect to fail? Remember that IndyMac wasn't even on their list 2 weeks before it failed? Well, I will hazard a guess. There will be thousands of the 8,200 banks in the US that will fail... I will not be surprised with up to two thirds of our banks failing, given the counter-party defaults and liabilities of the the banking system as a whole. More importantly the riskiest banks are the largest ones - you know, the ones that the FDIC is planning on borrowing from...and, ironically, can least afford to support.

Sheila Bair, in my opinion, IS a hack and a liar. Her reassurances aside - the reality is that people will loose lots of pennies (lots and lots and lots of them) because of the FDIC, the ideal that it has fostered and is seeking to further - complacency.

see also: FDIC, is rapidly running out of money because of a wave of bank failures and FDIC incompetence - where did all the money go?
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