Wednesday, September 30, 2009


Help me out here. First, the federal goverment (you and me) give billions in TARP funds to banks which made bad credit/investment decisions with orders to a) clean up their balance sheets, and; b) make loans to get the economy moving, the same economy they brought to a screeching halt. Soooo, the banks tried to clean up their balance sheets by shedding the 'toxic loans' on their books, selling many back to the government (us again) through various entities with acronyms. I'm not bright enough to solve that equation. They should put it on the ACT.

Didn't they/we just use our money to give to the banks, then use more of our money to buy the same bad loans we just bailed out? Did we somehow get Madoffed on that? On a parallel path down a different hole than Alice's, the federal government was ordering the banks (nicely, but sternly) to give a break to homeowners at risk of foreclosure. The banks are trying mightily to cleanse their balance sheets, but now they are risk averse, refusing many loan requests unless the risk of loss is virtually nil, i.e. a borrower has 99% equity. This posture is born of fear that bad loans may soil those very same sheets once again. Someone tell me again the rationale for banks getting to charge interest if no risk is taken. Oh, because they can.

Meanwhile, banks keep failing around the country. Hundreds more are expected to implode in the next year. Perhaps the blasts could be coordinated by the FDIC for July 4th thereby saving many communities the expense of a fireworks display. The only reason many banks haven't yet barred the doors is because the FDIC simply doesn't have enough people in its army to go in and take over. All it would take is one bank in some burg where rumors started followed by a 'run' complete with hysteria and civil unrest--pitchforks and torches. Wouldn't play well on the news. Oh, I forgot. The media wouldn't show it.

Virtually all of the sinking banks have depositors whose funds are insured against loss by the Federal Depositors Insurance Corporation, better known as the FDIC. The FDIC is funded primarly by assessing its member banks a fee, though the U.S. government (us yet again) is the insurer of last resort. In other words, if the FDIC doesn't have enough money and the blossoming banks can't pay assessments sufficient to cover all insured losses, then the federal government (yep, us) will have to make the angry depositors whole. Unfortunately for banks that cling to life, the FDIC's assets are at the lowest level since the early 1990's when the last lending debacle, known far and wide as the 'S&L Crisis', visited us. Remember the RTC? It was the government entity that used our money to purchase the toxic assets from the failed savings and loans nationwide, selling them for pennies on the dollar.

Now how do you suppose the FDIC is proposing to fill its coffers so it can absorb all the expected insured losses by depositors in the teetering banks? Why it is proposing a prepaid assessment for 2010 through 2012 on the banks which have been fortunate enough to survive either by having acted prudently during the American consumer's 'Ive Got Plenty But Not Enough' era or by taking a handout from us (isn't it odd that 'us' and 'U.S.' are spelled the same?). The FDIC is not asking for a handout. Only a hand. To the tune of $45 billion. Only $45 billion. So far. It likely won't be enough to get the FDIC through the next two and a half years. And this new proposed assessment comes on the heels of a hefty assessment already paid in 2009. But hey, the banks and the FDIC are like bacon and eggs. They go together, kind of like dating I suppose. Going steady. I can just hear the new anthem of the American Bankers Association, voices raised in song, "The FDIC ain't heavy, it's our brother."

Of course, all of these machinations will leave the banks with less capital as they tithe to the FDIC which in turn will deflate the assets on the old balance sheet leading to decreased lending because that would make the balance sheet even less acceptable to bank regulators. What, oh what is a banker to do? My supposition is that the federal bank regulators will 'relax' the rules or their enforcement or both, waving a magic wand as if to say, "I'm OK, you're OK."

My head is like a top. And a very merry unbirthday to all of you here in Wonderland. Care for some tea?

No comments:

Post a Comment