Banking Crisis

103 U.S. Banks Have Collapsed So Far In 2010 – Do You Know If Your Bank Will Survive?

July 26, 2010July 26, 2010 by Michael

Have you ever noticed how almost all U.S. bank closings are now announced over the weekend? It is almost as if someone wants to keep the increasing number of bank closures out of the news cycle as much as possible. The Obama administration continues to use phrases like “green shoots” and “economic recovery”, but the truth is that the U.S. banking system is in the middle of a meltdown. On Friday, federal regulators shut down 7 more banks. That means that the total number of U.S. bank failures has reached 103 for 2010 so far. Last year (which was a really bad year for bank closings), we did not break 100 until October. Of course federal officials promise that “the worst is almost over”, but can we really trust anything that they tell us at this point?

When it comes to the health of the U.S. banking system, the statistical trends certainly do not look promising.

At the end of 2008, there were 252 U.S. banks on the FDIC’s problem list.

At the end of 2009, there were 702 U.S. banks on the FDIC’s problem list.

About halfway through 2010, FDIC Chairman Sheila Bair said that 775 banks (approximately 10% of all U.S. banks) were on the problem list.

Does anyone else notice a trend developing?

It is time for everyone in the financial world to admit that the U.S. banking system is dying.

Do you know if your bank if on the problem list?

You might want to go check.

Not that your money is going to suddenly disappear.

Even if your local bank fails, the FDIC will guarantee your bank account, right?

Yes, it will.

But the FDIC is far from healthy at this point.

The FDIC is backing approximately 8,000 U.S. banks that have a total of about $13 trillion in assets with a deposit insurance fund that is pretty close to empty.

Well, actually “empty” is not quite the right word.

It was recently reported that the FDIC’s deposit insurance fund is sitting at negative 20.7 billion dollars.

And the FDIC estimates that the seven bank failures on Friday will reduce the fund by another $431 million.

Ouch.

The truth is that the FDIC is rapidly turning into a gigantic financial black hole.

The red ink just seems to be endless.

The FDIC now estimates that their funds will experience a $60 billion reduction due to additional bank closings between now and 2014.

And to be honest, that figure is way too optimistic.

So who is going to bail the FDIC out?

The same source that bails everyone out.

The U.S. taxpayers.

But isn’t that bad?

Yes, all of these bailouts are going to cause the U.S. national debt to continue to explode, but what else can we do?

Are we just going to shut down the FDIC?

That wouldn’t go over too well with anyone.

No, the truth is that this is the system that we have built.

All the crap flows downhill and ultimately ends up in the laps of U.S. taxpayers.

The bad news is that it looks like large numbers of banks are going to continue to fail.

You see, right now the American people are simply not doing a very good job of paying their bills.

During the first quarter of 2010, the total number of loans at U.S. banks that were at least three months past due increased for the 16th consecutive quarter.

Just think about that for a moment.

Would you consider 16 in a row to be a trend?

In an economic system built on credit, it is absolutely imperative that most people pay their debts or the whole thing will come crashing down very quickly.

And right now it is undeniable that things are unraveling at a staggering pace.

So who is benefiting from all this?

Well, there is one segment of the banking industry that is actually performing quite nicely in the midst of all of this chaos.

Many of the largest banks in the U.S. have been reporting very large profits as they gobble up larger and larger shares of the U.S. banking market.

In a previous article entitled “Are We About To Witness The Greatest Banking Consolidation In U.S. History?”, we noted the rapidly growing power of America’s megabanks….

Back in 2000, the “Big Four” U.S. banks – Citigroup, JPMorgan Chase, Bank of America and Wells Fargo – held approximately 22 percent of all deposits in FDIC-insured institutions. As of June 30th of last year that figure was up to 39 percent.

The Founding Fathers of this country warned us of the danger of big banks getting too much power, but we have not listened to their warnings.

Now we have monolithic global banks that are so immense in size that we seem almost powerless to control them.

In fact, the six biggest banks in the United States (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to 60 percent of America’s gross national product.

The truth is that these sharks aren’t shedding any tears when your local banks die off.

Why?

Because they know that many of the customers from the banks that have died will soon come their way.

The reality is that all of the legislation and regulations implemented during the past 30 or 40 years have rigged the game massively in favor of the big global banks.

So dozens upon dozens of smaller banks are going to continue to die and the megabanks are going to continue to eat up increasingly larger portions of market share.

So if you still have money in a small local bank, enjoy it while you can.

From now on, the small bank in America is an endangered species.

9 Reasons Why Spain Is A Dead Economy Walking

January 3, 2012June 15, 2010 by Michael

Barring an economic bailout of mammoth proportions, the economy of Spain is completely and totally doomed. The socialist government of Spain is drowning in debt, unemployment is running rampant and everywhere you turn there are major economic problems. So will Spain be the next Greece? No. When the economy of Spain implodes it is going to be a whole lot worse for the world economy. The economy of Spain is more than four times the size of the economy of Greece. Spain accounts for 11.5 percent of eurozone GDP while Greece only accounts for approximately 2.5 percent. Spain is the 4th largest economy in the 16 nation eurozone and it is the 10th largest economy in the world. If the economy of Spain fails it will cause a shockwave that will be felt in every corner of the globe. In fact, there are quite a few analysts that believe if Spain defaults it would ultimately lead to the breakup of the eurozone.

So will the EU step up and bail out Spain? Well, there are rumors that EU officials have begun work on a bailout package for Spain which is likely to run into the hundreds of billions of dollars, but on Monday the European Commission, the Spanish government and the German government all denied that the European Union was preparing a bailout for the Spanish economy.

Of course we all know that politicians don’t always tell us the truth.

So who knows what is going on over there right now.

But the reality is that the economy of Spain is not going to make it much longer without serious help, and some EU officials are already using apocalyptic language to describe what an economic collapse in Spain would mean.

For example, EU Commission President Jose Manuel Barroso recently warned that democracy could completely collapse in Greece, Spain and Portugal unless urgent action is taken to tackle the burgeoning European debt crisis.

So could democracy actually fail in those nations?

Well, considering the fact that Greece, Spain and Portugal only became democracies in the 1970s, and that all three of those countries have a history of military coups, such a scenario is not that far-fetched.

Without a doubt there would be serious public unrest in those nations if public services collapsed because their governments ran out of money.

So are there signs that the economy of Spain is about to collapse?

Well, yes, there are quite a few of them.

The following are 9 reasons why Spain is a dead economy walking….

#1) Even before this most recent crisis, unemployment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren’t working they can’t pay taxes and they can’t provide for their families.

#2) In an effort to stimulate the economy, Spain’s socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.

#3) The total of all public and private debt in Spain has now reached 270 percent of GDP.

#4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can’t afford to pay more interest on their debt.

#5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.

#6) The new “green economy” in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a “green economy” would result in a flood of “green jobs”. But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the “green economy” has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new “green economy” in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.

#7) Spain’s national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a “no win” situation.

#8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain’s economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.

#9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain’s two main unions are calling for a major one day general strike to protest the government’s planned reforms of the country’s labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain’s socialist government will be forced to call early elections.

So what is going to happen in Spain?

The truth is that nobody can predict for sure how things are going to play out over the coming weeks and months.

But what everyone can agree on is that the stakes are incredibly high.

Speaking at the World Economic Forum in Davos, Switzerland, world famous economist Nouriel Roubini put it this way: “If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster.”

But right now the entire population of Spain (along with much of the rest of the world) is completely distracted by the World Cup. As long as the Spanish team does well, that is likely to keep the Spanish population sedated. But if the Spanish team gets knocked out of the tournament early that will put the entire Spanish population in a really, really bad mood and that could mean a really chaotic summer for the nation of Spain.

Europe’s Coming Summer Of Discontent

May 3, 2013June 1, 2010 by Michael

The summer of 2010 promises to be the most tumultuous summer in the short history of the European Union. The sovereign debt crisis sweeping the continent threatens to cause economic and political instability on a scale not seen in Europe for decades. The truth is that governments across the eurozone have accumulated gigantic piles of debt that simply are not sustainable. Prior to the implementation of the euro, these European governments often “printed” their way out of messes like this, but now they can’t do that. Now they either have to dramatically cut government expenses or they have to default. But the austerity measures that the IMF and the ECB are pressuring these European governments to adopt are likely to have some very painful side effects. Not only will these austerity measures cause a significant slowdown in economic growth, they are also likely to cause the same kinds of protests, strikes and riots that we saw in Greece to erupt all over Europe.

You see, most Europeans have become very accustomed to the social welfare state. Tens of millions of Europeans aren’t about to let anyone cut their welfare payments or the wages on their cushy government jobs. In most of the European nations that are experiencing big financial problems there are very powerful unions and labor organizations that do not want anything to do with austerity measures and that are already mobilizing.

As the IMF and the ECB continue to push austerity measures all over Europe this summer, the chaos that we witnessed in Greece could end up being repeated over and over again across the continent. This could truly be Europe’s summer of discontent.

The following are just a few of the countries that we should be watching very carefully in the months ahead….

Spain

In many ways, the economic situation in Spain is now even worse than the economic situation in Greece. Spain’s unemployment was already above 20 percent even before this recent crisis. There are now 4.6 million people without jobs in Spain. There are 1.6 million unsold properties in Spain, six times the level per capita in the United States. Total public/private debt in Spain has reached 270 percent of GDP.

But this past week things really started to spin out of control in Spain. Ambrose Evans-Pritchard of The Telegraph describes the current situation in Spain this way….

For Spain it has been a horrible week. The central bank seized CajaSur and imposed draconian write-down rules on banks to restore confidence. The Spanish Socialist and Workers Party (PSOE) of Jose Luis Zapatero then rammed a 5pc cut in public wages through the Cortes by a single vote, shattering consensus. The government cannot hope to pass a budget. Its own trade union base is planning a general strike.

The austerity measures that Spain has been pressured to implement have proven so unpopular in Spain that many are now projecting that Spain’s socialist government will be forced to call early elections.

Spain finds itself in a very difficult position. They have a debt that they cannot possibly handle, the IMF and the ECB are pressuring Spain to implement austerity measures which are wildly unpopular with the public, and if Spain does implement those austerity measures it may send the Spanish economy into a downward spiral.

In addition, the fact that Fitch Ratings has stripped Spain of its AAA status has pushed Spain to the edge of financial oblivion.

A recent editorial inEl Pais spoke of the “perverse spiral” that Spain’s economy is entering….

“The Fitch note drives home the apparently unsolvable contradiction in which the Spanish economy finds itself. To maintain debt solvency Spain must squeeze public spending: yet this policy undermines the chances of recovery which itself causes further loss of confidence.”

And Spain’s very powerful labor organizations are not about to take these austerity measures sitting down. In fact, the two largest trade unions in Spain are already calling for a general strike.

So could Spain end up being the next Greece?

France

France admitted on Sunday that keeping its top-notch credit rating would be “a stretch” without some tough budget decisions.

But French citizens are not too keen on belt-tightening. We all remember the massive riots in France a few years ago when it was proposed the the work week should be shortened. It certainly seems unlikely that the French will accept “tough budget decisions” without making some serious noise.

Italy

The Italian government recently approved austerity measures worth 24 billion euros for the years 2011-2012. But the Italian public is less than thrilled about it.

In fact, Italy’s largest union has announced that it will propose to its members a general strike at the end of June to protest these measures.

Portugal

Under pressure from the IMF and the ECB, Portugal has agreed to impose fresh austerity measures that include much higher taxes and very deep budget cuts.

And the truth is that Portugal desperately needs to do something to get their finances under control. Recent EU data shows that Portugal’s total debt is 331 percent of GDP, compared to only 224 percent for Greece.

So will the Portuguese public accept these austerity measures?

It doesn’t seem likely.

In fact, Fernando Texeira dos Santos, Portugal’s finance minister, says that he expects “violent episodes” comparable to those in Greece but insists that there is no other option.

So it promises to be a wild summer in Portugal. The CGTP trade union federation in Portugal has promised to mobilize their members….

“Either we come up with a very strong reaction or we will be reduced to bread and water.”

Romania

They have already been rioting in the streets in Romania.

Tens of thousands of workers and pensioners recently took to the streets in Romania to protest the harsh austerity measures that the Romanian government is imposing at the request of the International Monetary Fund.

The Romanian people have been through incredibly hard times before, and they aren’t about to let the IMF and the ECB impose strict austerity measures on them without a fight.

Germany

It is being reported that Germans are bracing themselves for a “bitter” round of government budget cuts. It seems that even Germany has some belt-tightening to do.

In addition, resentment is rising fast in Germany as the population there realizes that it is Germany that is going to be the one funding a large portion of the bailouts for these other European nations.

How long will the German people be able to control their tempers?

Ireland

The Wall Street Journal is warning that Ireland could be Europe’s next financial basket case.

Why?

Well, the Irish have gotten into a ton of debt, and they are now finding it very expensive to finance new debt. The Irish government is now paying approximately 2.2 percentage points more than Germany is to borrow money for 10 years, while Spain (even with their economy in such a state of disaster) only has to pay 1.6 percentage points more than Germany.

But if “austerity measures” come to Ireland, how do you think the public will react?

It likely would not be pretty.

The United Kingdom

The exploding debt situation in the U.K. was a major issue in the most recent election. David Cameron promised the voters to get the U.K.’s exploding debt situation under control. But the coming budget cuts are likely to be incredibly painful. In fact, Bank of England governor Mervyn King has even gone so far as to warn that public anger over the coming austerity measures will be so painful that whichever party is seen as responsible will be out of power for a generation.

But it isn’t just national governments that are in trouble in Europe. The European Central Bank is warning that eurozone banks could face up to 195 billion euros in losses during a “second wave” of economic problems over the next 18 months.

The truth is that almost everyone is expecting the next couple of years to be very tough economically all across Europe.

But the vast majority of the European public is not going to understand the economics behind what is happening. All most of them are going to know is that the budget reductions, tax increases and pay cuts really, really hurt and that is likely to result in a whole lot of anger.

When Europeans get really angry it isn’t pretty. If what happened in Greece is any indication, this upcoming summer and fall could be a really wild one throughout Europe.

“Euroland, burned down. A continent on the way to bankruptcy”
-The front page of Der Spiegel, May 5th, 2010

The U.S. Economic Collapse Top 20 Countdown

May 5, 2013May 31, 2010 by Michael

So just how bad is the U.S. economy? Well, the truth is that sometimes it is hard to put into words. We have squandered the great wealth left to us by our forefathers, we have almost totally dismantled the world’s greatest manufacturing base, we have shipped millions of good jobs overseas and we have piled up the biggest mountain of debt in the history of mankind. We have taken the greatest free enterprise economy that was ever created and have turned it into a gigantic house of cards delicately balanced on a never-ending spiral of paper money and debt. For decades, all of this paper money and debt has enabled us to enjoy the greatest party in the history of the world, but now the bills are coming due and the party is nearly over.

In fact, things are already so bad that you can pick almost every number and find a corresponding statistic that shows just how bad the economy is getting.

You doubt it?

Well, check this out….

20 – Gallup’s measure of underemployment hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year.

19 – According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.

18 – According to the Bureau of Labor Statistics, in March the national rate of unemployment in the United States was 9.7%, but for Americans younger than 25 it was well above 18 percent.

17 – The FDIC’s list of problem banks recently hit a 17-year high.

16 – During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

15 – The Spanish government has just approved a 15 billion euro austerity plan.

14 – The U.S. Congress recently approved an increase in the debt cap of the U.S. government to over 14 trillion dollars.

13 – The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke. In fact, the FDIC’s deposit insurance fund now has negative 20.7 billion dollars in it, which actually represents a slight improvement from the end of 2009.

12 – The U.S. national debt soared from the $12 trillion mark to the $13 trillion mark in a frighteningly short period of time.

11– It is being reported that a massive network of big banks and financial institutions have been involved in blatant bid-rigging fraud that cost taxpayers across the U.S. billions of dollars. The U.S. Justice Department is charging that financial advisers to municipalities colluded with Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Wachovia and 11 other banks in a conspiracy to rig bids on municipal financial instruments.

10 – The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January-March time period. That was a record high and up from 9.1 percent a year ago.

9 – The official U.S. unemployment number is 9.9%, although the truth is that many economists consider the true unemployment rate to be much, much higher than that.

8 – The French government says that its deficit will increase to 8 percent of GDP in 2010, but by implementing substantial budget cuts they hope that they can get it to within the European Union’s 3 percent limit by the year 2013.

7 – The biggest banks in the U.S. cut their collective small business lending balance by another $1 billion in November. That drop was the seventh monthly decline in a row.

6 – The six biggest banks in the United States now possess assets equivalent to 60 percent of America’s gross national product.

5 – That is the number of U.S. banks that federal regulators closed on Friday. That brings that total number of banks that have been shut down this year in the United States to a total of 78.

4 – According to a study published by Texas A&M University Press, the four biggest industries in the Gulf of Mexico region are oil, tourism, fishing and shipping. Together, those four industries account for approximately $234 billion in economic activity each year. Now those four industries have been absolutely decimated by the Gulf of Mexico oil spill and will probably not fully recover for years, if not decades.

3 – Decent three bedroom homes in the city of Detroit can be bought for $10,000, but no one wants to buy them.

2 – A massive “second wave” of adjustable rate mortgages is scheduled to reset over the next two to three years. If this second wave is anything like the first wave, the U.S. housing market is about to be absolutely crushed.

1 – The bottom 40 percent of all income earners in the United States now collectively own less than 1 percent of the nation’s wealth. But of course many on Wall Street and in the government would argue that there is nothing wrong with an economy where nearly half the people are dividing up 1 percent of the benefits.

One Out Of Every Ten U.S. Banks Is Now On The FDIC’s Problem List – Do You Know If Your Bank Is Safe?

July 3, 2012May 29, 2010 by Michael

Do you know if your bank will be there next month? For a growing number of Americans, that is becoming a very real question. The Wall Street Journal is reporting that 775 banks (approximately ten percent of all U.S. banks) are now on the Federal Deposit Insurance Corporation’s list of “problem” banks. This year we have already seen more than six dozen banks fail, and the frightening thing is that we are seeing a rapid acceleration in bank failures even though we are supposedly in a “recovery” right now. So what happens if the economy takes a bad turn and hundreds of these banks that are barely surviving start failing?

Right now an increasing number of Americans are not paying their loans, and this is shredding the balance sheets of small and medium size banks all over the United States. In fact, during the first quarter of 2010, the total number of loans that are at least three months past due increased for the 16th consecutive quarter.

16 consecutive quarters?

Once is a coincidence.

Twice is a trend.

Sixteen times in a row is a total nightmare.

Is there anyone out there that is still convinced that the economy is getting better?

If so, perhaps this will convince you otherwise….

There were 252 banks on the FDIC’s “problem list” at the end of 2008.

There were 702 banks on the FDIC’s “problem list” at the end of 2009.

Now there are 775 banks of the FDIC’s “problem list”.

Are you starting to see a trend?

Federal regulators have already closed 73 banks in 2010, more than double the number shut down at this time last year.

The truth is that the U.S. banking system is coming apart like a 20 dollar suit.

So is the FDIC worried?

No, they insist that they have plenty of money to cover all of the banks that are going to fail.

After all, the FDIC’s deposit insurance fund now has negative 20.7 billion dollars in it, which represents a slight improvement from the end of 2009.

Yes, you read that correctly.

Negative 20.7 billion dollars.

That should be enough to cover the hundreds of banks that are in the process of failing, right?

Well, if not, the FDIC can just run out and ask the U.S. government for a big, juicy bailout.

After all, can’t the U.S. government borrow an endless amount of money with absolutely no consequences?

Well, no.

Debt always catches up with you sooner or later.

In fact, the IMF is warning that that the gross public debt of the United States will hit 97 percent of GDP in 2011 and 110 percent of GDP in 2015.

Meanwhile, the U.S. financial system continues to shrink even after the unprecedented amount of “stimulus money” that the U.S. government has been shoveling into the economy.

The M3 money supply is now contracting at a frightening pace.

In fact, the current rate of monetary contraction now matches the average rate of monetary contraction the U.S. experienced between 1929 and 1933.

But don’t worry.

We aren’t going into a Depression.

Everything is going to be just fine.

Just look deep into Obama’s eyes and keep repeating the word “change” to yourself over and over.

According to a report in The Telegraph, the M3 money supply declined from $14.2 trillion to $13.9 trillion in the first quarter of 2010.

That represents an annual rate of contraction of 9.6 percent.

In case you were wondering, that is a lot.

Not only that, but the assets of institutional money market funds declined at a 37 percent annual rate.

That was the sharpest drop ever.

Yes, it is time for the alarm bells to start going off.

The Telegraph recently quoted Professor Tim Congdon from International Monetary Research as saying the following about the deep problems that the U.S. is facing….

“The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly.”

If banks continue to cut their lending, the M3 is going to continue to shrink.

But as noted above, Americans are increasingly getting behind on their loans, so why should banks loan money to a bunch of deadbeats?

Right now U.S. banks are increasingly tightening their lending standards, and this is making it much tougher to get a loan.

In fact, in 2009 the biggest U.S. banks posted their sharpest decline in lending since 1942.

But there is only one problem.

The U.S. economy is completely and totally dependent on credit.

Without easy credit, the entire U.S. economic machine is going to slowly grind to a halt.

So what do you do?

The reality is that we have one gigantic financial mess on our hands, and in many ways it is starting to look like the 1930s all over again.

But perhaps someone out there has a way to get us out of this nightmare. Please feel free to leave a comment with your thoughts, opinions or solutions….

Are We About To Witness The Greatest Banking Consolidation In U.S. History?

January 9, 2012May 26, 2010 by Michael

As the number of bank failures in the United States continues to accelerate, many analysts are warning that we could soon see unprecedented changes in the U.S. banking industry. In fact, there are some economists that are warning that we could be about to witness the greatest banking consolidation in U.S. history. As dozens of small and medium size banks have failed, the megabanks have systematically been gobbling up larger and larger slices of market share. In fact, if current trends continue, it doesn’t take much imagination to foresee a future where the entire U.S. banking industry has been consolidated down to between 5 and 10 “superbanks”. So would that be so bad? Well, yes it would. It would represent a massive shift in financial power away from the American people to big, global corporate banks. But if you happen to be a fan of big, global corporate banks perhaps you will really love what is about to happen to the U.S. banking industry.

On Friday, federal regulators seized Pinehurst Bank, which brought the total number of U.S. banks closed this year to 73. At this point in 2009, only 36 banks had failed.

That means that the number of bank failures has doubled compared to the same time period a year ago.

Is that a good trend?

Well, it is a good trend if you are one of the megabanks that is gobbling up the remnants of these banks that were “small enough to fail”.

And the sad thing is that we are likely to see dozens and dozens more small and medium size banks fail in the coming months.

The FDIC recently announced that the number of banks on its “problem list” climbed to 702 at the end of 2009. That is extremely alarming considering the fact that only 552 banks were on the problem list at the end of September 2009 and only 252 banks that were on the problem list at the end of 2008.

In fact, the FDIC is expecting so many banks to fail that they are opening up new offices just to handle all the expected failures. The FDIC has opened a massive 100,000 square foot satellite office near Chicago that will house up to 500 temporary staffers and contractors to manage receiverships and liquidate assets from what they are expecting will be a gigantic wave of failed Midwest banks. Not only that, but the FDIC has also opened similar offices in Irvine, California and Jacksonville, Florida.

But can the FDIC realistically handle all of these bank failures?

No.

The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke.

So if the FDIC completely runs out of money, where will all the necessary funds come from?

From U.S. taxpayers of course.

It seems that we are the ultimate bailout machine.

Meanwhile, the biggest U.S. banks are hoarding cash in preparation for hard times. In fact, the biggest banks in the United States cut their collective small business lending balance by another 1 billion dollars in November 2009. That drop was the seventh monthly decline in a row.

The truth is that in 2009, the biggest U.S. banks posted their sharpest decline in lending since 1942.

So what were they doing with their money?

Well, thanks to the Federal Reserve, the megabanks were using the U.S. Treasury carry trade to make huge gobs of cash. In fact, the little game that they are playing with U.S. Treasuries is working so well that four of the biggest U.S. banks (Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup) had a “perfect quarter” with zero days of trading losses during the first quarter of 2010.

The truth is that the game is rigged to benefit the largest financial institutions, and they are slowly but surely gobbling up the entire U.S. banking market.

The Founding Fathers of this country warned us of the danger of big banks getting too much power, but we have not listened to their warnings.

Now we have monolithic global banks that are so immense in size that we seem almost powerless to control them.

In fact, the six biggest banks in the United States (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to 60 percent of America’s gross national product.

And there is every indication that they are only going to get bigger and more dominant – especially if there is a major economic downturn ahead.

Unfortunately, that is what a number of respected economists are forecasting.

For example, Bob Chapman of the International Forecaster recently warned his readers that things could get really, really bad by the end of 2010….

It should interest you to know that my Intel source inside the Fed says absolutely no later than November the banking system should implode. Presently 75% of banks have problems and that the top 5 banks will take over all the others in a general nationalization. There is tremendous fear and uneasiness in the banking world.

Now, let us hope that Bob Chapman’s source is wrong. Certainly the U.S. banking system is in a state of complete and total chaos, but hopefully we can make it into 2011 without a complete implosion of the banking industry.

However, Bob Chapman has been in the industry for decades and he would not have put out a warning like this without good reason. Let us just pray that what this source is warning of does not actually come to pass.

But Bob Chapman is not the only one warning of difficult times ahead.

CNBC recently quoted Brian Kelly, the founder of Kanundrum Capital, as saying that the chances of a global depression breaking out have increased dramatically in recent days….

“Two weeks ago I would give the global depression scenario a one percent chance, but the chances have increased to 10 percent today.”

In fact, world famous economist Nouriel Roubini is absolutely convinced that there is a good deal of economic trouble ahead of us….

“We are still in the middle of this crisis and there is more trouble ahead of us, even if there is a recovery. During the great depression the economy contracted between 1929 and 1933, there was the beginning of a recovery, but then a second recession from 1937 to 1939. If you don’t address the issues, you risk having a double-dip recession and one which is at least as severe as the first one.”

So will the end of 2010 be a very difficult time for the U.S. economy?

Only time will tell.

But what does seem certain is that small and medium size banks will continue to fail in large numbers, and the big dominant banks will continue to gobble up market share.

We are witnessing a dramatic consolidation of the U.S. banking industry, and the only question seems to be how fast it is all going to play out.

25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real

May 25, 2010 by Michael

If you listen to the mainstream media long enough, you just might be tempted to believe that the United States has emerged from the recession and is now in the middle of a full-fledged economic recovery. In fact, according to Obama administration officials, the great American economic machine has roared back to life, stronger and more vibrant than ever before. But is that really the case? Of course not. You would have to be delusional to believe that. What did happen was that all of the stimulus packages and government spending and new debt that Obama and the U.S. Congress pumped into the economy bought us a little bit of time. But they have also made our long-term economic problems far worse. The reality is that the U.S. cannot keep supporting an economy on an ocean of red ink forever. At some point the charade is going to come crashing down.

And GDP is not a really good measure of the economic health of a nation. For example, if you would have looked at the growth of GDP in the Weimar republic in the early 1930s, you may have been tempted to think that the German economy was really thriving. German citizens were spending increasingly massive amounts of money. But of course that money was becoming increasingly worthless at the same time as hyperinflation spiralled out of control.

Well, today the purchasing power of our dollar is rapidly eroding as the price of food and other necessities continues to increase. So just because Americans are spending a little bit more money than before really doesn’t mean much of anything. As you will see below, there are a whole bunch of other signs that the U.S. economy is in very, very serious trouble.

Any “recovery” that the U.S. economy is experiencing is illusory and will be quite temporary. The entire financial system of the United States is falling apart, and the powers that be can try to patch it up and prop it up for a while, but in the end this thing is going to come crashing down.

But as obvious as that may seem to most of us, there are still quite a few people out there that are absolutely convinced that the U.S. economy will fully recover and will soon be stronger than ever.

So the following are 25 questions to ask anyone who is delusional enough to believe that this economic recovery is real….

#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy? In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011. Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?

#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005. So can you please explain again how the U.S. real estate market is getting better?

#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period. That was a record high and up from 9.1 percent a year ago. Do you think that is an indication that the U.S. housing market is recovering?

#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?

#5) With the U.S. Congress planning to quadruple oil taxes, what do you think that is going to do to the price of gasoline in the United States and how do you think that will affect the U.S. economy?

#6) Do you think that it is a good sign that Arnold Schwarzenegger, the governor of the state of California, says that “terrible cuts” are urgently needed in order to avoid a complete financial disaster in his state?

#7) But it just isn’t California that is in trouble. Dozens of U.S. states are in such bad financial shape that they are getting ready for their biggest budget cuts in decades. What do you think all of those budget cuts will do to the economy?

#8) In March, the U.S. trade deficit widened to its highest level since December 2008. Month after month after month we buy much more from the rest of the world than they buy from us. Wealth is draining out of the United States at an unprecedented rate. So is the fact that the gigantic U.S. trade deficit is actually getting bigger a good sign or a bad sign for the U.S. economy?

#9) Considering the fact that the U.S. government is projected to have a 1.6 trillion dollar deficit in 2010, and considering the fact that if you went out and spent one dollar every single second it would take you more than 31,000 years to spend a trillion dollars, how can anyone in their right mind claim that the U.S. economy is getting healthier when we are getting into so much debt?

#10) The U.S. Treasury Department recently announced that the U.S. government suffered a wider-than-expected budget deficit of 82.69 billion dollars in April. So is the fact that the red ink of the U.S. government is actually worse than projected a good sign or a bad sign?

#11) According to one new report, the U.S. national debt will reach 100 percent of GDP by the year 2015. So is that a sign of economic recovery or of economic disaster?

#12) Monstrous amounts of oil continue to gush freely into the Gulf of Mexico, and analysts are already projecting that the seafood and tourism industries along the Gulf coast will be devastated for decades by this unprecedented environmental disaster. In light of those facts, how in the world can anyone project that the U.S. economy will soon be stronger than ever?

#13) The FDIC’s list of problem banks recently hit a 17-year high. Do you think that an increasing number of small banks failing is a good sign or a bad sign for the U.S. economy?

#14) The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke. So what do you think will happen if a significant number of small banks do start failing?

#15) Existing home sales in the United States jumped 7.6 percent in April. That is the good news. The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming. So now that there is no more tax credit for home buyers, what will that do to home sales?

#16) Both Fannie Mae and Freddie Mac recently told the U.S. government that they are going to need even more bailout money. So what does it say about the U.S. economy when the two “pillars” of the U.S. mortgage industry are government-backed financial black holes that the U.S. government has to relentlessly pour money into?

#17) 43 percent of Americans have less than $10,000 saved for retirement. Tens of millions of Americans find themselves just one lawsuit, one really bad traffic accident or one very serious illness away from financial ruin. With so many Americans living on the edge, how can you say that the economy is healthy?

#18) The mayor of Detroit says that the real unemployment rate in his city is somewhere around 50 percent. So can the U.S. really be experiencing an economic recovery when so many are still unemployed in one of America’s biggest cities?

#19) Gallup’s measure of underemployment hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year. Do you think that is a good trend or a bad trend?

#20) One new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession. So are the vast majority of Americans just stupid or could we still actually be in a recession?

#21) The bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth. So is Barack Obama’s mantra that “what is good for Wall Street is good for Main Street” actually true?

#22) Richard Russell, the famous author of the Dow Theory Letters, says that Americans should sell anything they can sell in order to get liquid because of the economic trouble that is coming. Do you think that Richard Russell is delusional or could he possibly have a point?

#23) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. In fact, that was almost twice the level of a year earlier. Does that look like a good trend to you?

#24) In March, the price of fresh and dried vegetables in the United States soared 49.3% – the most in 16 years. Is it a sign of a healthy economy when food prices are increasing so dramatically?

#25) 1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008. Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005. So shouldn’t we at least wait until the number of Americans filing for bankruptcy is not setting new all-time records before we even dare whisper the words “economic recovery”?

Wow! The SEC Formally Charges Goldman Sachs With Fraud

October 3, 2014April 16, 2010 by Michael

Wow! Just when you think the U.S. government is entirely incompetent and toothless when it comes to controlling the corruption on Wall Street something like this happens. For those who have not heard yet, on Friday the Securities and Exchange Commission filed a civil suit accusing Goldman Sachs of securities fraud. We’ll get into the details below, but first it is important to note how stunning all of this is. Goldman Sachs has had an extremely chummy relationship with the U.S. government over the past couple of decades. A whole host of former Goldman Sachs executives have been appointed to key government positions by both Republicans and Democrats in recent years. In addition, Goldman Sachs was Barack Obama’s number one campaign donor, and its employees gave $981,000 to his campaign. But in spite of all that, the SEC has decided to go after Goldman Sachs.

Someone out there has a lot of guts. Although to be honest it is far too soon to pass final judgment on this while thing. Let’s see how it plays out. It could end up being a “white wash” after all. But at least this is a hopeful sign that justice will be done.

You can see a copy of the official charges filed by the SEC right here.

These charges are a huge blow to the reputation of what is widely regarded as the most powerful firm on Wall Street. Goldman Sachs earned a record $4.79 billion last quarter, and for years it has seemed as if they could do no wrong.

But all of that has suddenly changed.

After the announcement of these charges by the SEC, Goldman’s shares fell more than 13 percent.

The heart of the charges involves the failure by Goldman Sachs to disclose conflicts in the 2007 sale of a collateralized debt obligation. According to the SEC, investors in the collateralized debt obligation ended up losing approximately 1 billion dollars.

So what did Goldman Sachs do that was so wrong?

Well, it turns out that Goldman Sachs allowed hedge fund Paulson & Co. (run by John Paulson – not related to Henry Paulson) to help select the securities that were to be included in the CDO.

The SEC says Paulson & Co. paid Goldman around 15 million dollars in 2007 to put together a collateralized debt obligation that included mortgage-related securities that Paulson & Co. believed were very likely to decline in value. Then Paulson & Co. placed huge bets against the CDO.

When Goldman Sachs presented the collateralized debt obligation to potential investors, they did not tell them that Paulson & Co. was shorting the CDO.

In essence, what happened is that Paulson & Co. helped select mortgage-related securities for the CDO that they thought would definitely fail and then they bet big money that they would fail. Then Goldman went out and marketed the CDO as a worthy investment to investors and did not tell them that Paulson & Co. were betting big money that the CDO would fail.

When the value of the CDO plunged dramatically just a few months after it was issued, Paulson & Co. walked off with about a billion dollars.

According to the SEC, within 6 months of the issuance of the CDO, 83% of the residential mortgage-backed securities in the portfolio had been downgraded.

Within nine months of the issuance of the CDO, 99% of the residential mortgage-backed securities in the portfolio had been downgraded.

Two major European banks were left holding the bag. ABN Amro, a major Dutch bank, and IKB, a German commercial bank, combined to lose nearly a billion dollars.

The SEC says that it is trying to recoup profits reaped on the deal.

Also being charged by the SEC is a 31 year old Goldman Sachs vice president, Fabrice Tourre. The SEC alleges that he was principally responsible for putting together the deal and marketing the securities.

You see, this is what happens when you let a young kid play around with hundreds of millions of dollars.

In an almost unbelievable email to a friend, Tourre described himself as “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

That is the level of maturity that we can apparently expect from Wall Street executives these days.

No wonder our financial system is falling apart.

In a statement, Goldman Sachs responded to the SEC charges by saying the following: “the SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

But of course Goldman Sachs never admits that they are wrong.

“Our short positions were not a ‘bet against our clients,”‘ Goldman Sachs said in a recent letter to shareholders that discussed Goldman’s behavior during the recent housing crash. “Rather, they served to offset our long positions. Our goal was, and is, to be in a position to make markets for our clients while managing our risk within prescribed limits.”

But other financial analysts are applauding this action by the SEC….

In a note to his clients on Friday, Chris Whalen, a bank analyst at Institutional Risk Analytics noted the following….

“This litigation exposes the cynical, savage culture of Wall Street that allows a dealer to commit fraud on one customer to benefit another.”

A brief video news report about these charges against Goldman Sachs is posted below….

So will there be additional charges against Goldman Sachs?

Let’s hope so.

The truth is that the misbehavior documented above is just the tip of the iceberg.

Goldman Sachs helped create the housing collapse by selling mortgage-related securities that were absolute garbage to trusting clients at vastly overinflated prices. Then Goldman Sachs placed huge bets against those same mortgage-related securities and also placed huge bets against the U.S. housing market. When the U.S. economy collapsed in 2008 and 2009 they ended up making huge profits.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,”Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, told The New York Times. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Even with today’s action by the SEC, it still seems extremely unlikely that Goldman Sachs will ever be held fully accountable for all that they have done. They are just too big and too powerful and they have too many big and powerful friends.

But at least today is a beginning.

For years Goldman has been considered almost untouchable. They have been considered an almost “all-powerful” financial monster that pretty much does whatever it wants.

An article in Rolling Stone described it this way….

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

But perhaps today will start to change that.

Let’s hope so.

For much more on Goldman Sachs and all of the mischief that they have been involved in, please read our recent article entitled “How Goldman Sachs Made Tens Of Billions Of Dollars From The Economic Collapse Of America In Four Easy Steps”.

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