Saturday, March 7, 2009

Bank Failure Friday – Freedom Bank no longer Free, FDIC seeks Funding through Fees…

Every week another one bites the dust – or two, or three, or four. Yesterday it was only one – appropriately it was Freedom Bank that failed. How fitting that a bank that propagates and survives from the issuance of debt would name itself “Freedom” only to die because it had issued so much “freedom” that people couldn’t pay it all back.

Freedom Bank of Georgia Seized, 17th Failure in 2009 (Update3)

By Margaret Chadbourn and Ari Levy

March 6 (Bloomberg) -- Freedom Bank of Georgia was seized by regulators, the 17th bank closed this year, as the recession persists and a jump in unemployment pushed more borrowers behind on home loan payments.

Freedom Bank, in Commerce, Georgia, with $173 million in assets and $161 million in deposits, was shut by the state’s Department of Banking and Finance and the Federal Deposit Insurance Corp. was named receiver. Northeast Georgia Bank of Lavonia, Georgia, will assume deposits, the FDIC said.

“Customers of both banks should continue to use their existing branches until Northeast Georgia Bank can fully integrate the deposit records of Freedom Bank of Georgia,” the FDIC said.

Closely held Northeast Georgia Bank will buy about $167 million in assets at a discount of $13.7 million and the bank agreed to share with the FDIC in any losses on about $96.5 million in assets. The FDIC estimates the transaction will cost the deposit insurance fund, supported by fees on insured banks, about $36.2 million.

Bank Losses
FDIC-insured banks lost $26.2 billion in the fourth quarter, the first loss for a three-month period since 1990. U.S. banks and other financial companies have reported about $800 billion in writedowns and credit losses since 2007 in the worst financial crisis since the Great Depression.

“There is no question that this is one of the most difficult periods we have encountered during the FDIC’s 75 years of operation,” FDIC Chairman Sheila Bair said at a news conference on Feb. 26 after the industry report was released.

The FDIC predicted that bank failures will cost the fund $65 billion through 2013, up from the $40 billion estimated in October. The fund, drained by 25 bank shutdowns last year, dropped 45 percent to $18.9 billion in the fourth quarter from $34.6 billion in the preceding three-month period.

The Washington-based agency classified 252 banks as “problem” in the fourth quarter, a 47 percent jump from the third quarter. It doesn’t name the “problem” banks.

New FDIC Fee
The FDIC approved a one-time emergency fee of 20 cents per $100 of insured deposits on banks to bolster the insurance fund at a board meeting on Feb 27. Bair wrote a letter to Senate Banking Committee Chairman Christopher Dodd, saying she may cut the new levy if lawmakers expand the amount of credit the agency can draw from the Treasury Department.

Dodd, a Connecticut Democrat, introduced a bill to permanently raise the FDIC’s borrowing authority from Treasury to $100 billion and temporarily increase it to $500 billion through Dec. 31, 2010. The House of Representatives this week passed a measure that would triple the FDIC’s credit line to $100 billion and permanently raise the deposit-insurance limit to $250,000.

The FDIC prompted a banking industry outcry over the new assessment. Camden Fine, president of the Independent Community Bankers of America, said on March 3 he’s received more than 1,000 messages from executives complaining that the one-time fee could significantly reduce 2009 earnings.
I’m developing less and less sympathy for the banks as this crisis deepens, not that I had much to begin with. They are now borrowing money at near zero and yet are charging usurious rates to their customers. The big banks, and smaller ones, permeated the globe with debt and now they are choking on it. Too bad.

The banks have run amok. They create credit at will and without limit which people have mistaken for money. But it’s not money, it’s debt that must be repaid and serviced with future earnings. ALL of America’s future earning have been pulled forward in time – all of it. That’s what the math says. Please consider Death by Numbers.

Thus, the system will not survive in its present form, change of some type is coming – major change.

And as shocking as this sounds, that major change can’t come fast enough from my perspective. Bring it.

I know, “be careful what you ask for.” I am.

I want the central bank returned to the people to whom it rightly belongs. I want a money system that is based upon productivity, not debt. I want people like Madoff behind bars, but then again, I also want to see traitors like Paulson and other central bankers behind bars.

Radical? We are living a mass psychosis where people who rob billions from the people are allowed to live in multi-million dollar penthouses, while those who rob thousands out of desperation are locked up for years and years.

Not that I condone bank robbing or especially violence, but look at the treatment this “average guy” is getting for robbing a bank – 30 years and they are going to make an example of him!
CNN – Average Guy Robs Bank

So, he'll get 30 years, meanwhile the greatest robbery in the history of mankind is transpiring by the very people whose money is used to influence politicians and write the laws that prevent the use of alternate currencies, “counterfeiting” (which is exactly what they do – study the history of money and our Constitution), and they of course must make an example of any direct attacks on their system. Again, yes, bank robbers deserve jail time, but no, they don’t deserve more jail time than the white collar mega criminals. The economic and criminal justice system is clearly practicing favoritism on all levels.

This type of thing can go on for quite some time, but at some point the people won’t stand for it. Desperate people do desperate things. This is a trend that you will see more of and requires your serious attention.

The entire system is not just at risk of failing, it has already failed. The FDIC who “insures” deposits is yet another Ponzi scheme. They take in fees to pay in case of bank failure, but the money they take in is NOT SAVED AND DOES NOT EXIST. It is made a part of the government’s budget and is spent! Their “balance sheet” while it shows money, is actually false. There is NO MONEY THERE. What’s there is I.O.U.’s from the Federal Government. And even those are not enough so the FDIC is looking for more:
Washington plans for big bank failure

A bill introduced in the Senate would give FDIC chief, Sheila Bair, a huge loan to handle 'emergency situations' in the banking sector.

Colin Barr, senior writer
Last Updated: March 7, 2009: 7:44 AM ET

NEW YORK (Fortune) -- The government is bracing for a big bank failure.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans' bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

The bill -- the Depositor Protection Act of 2009, backed by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho -- wouldn't change the status of individual bank accounts, which through the end of this year are insured up to $250,000.

But the Dodd-Crapo bill acknowledges what the financial markets have been signaling for the past month -- that the government must take the lead in a costly cleanup of the mess in the financial sector.

"I think it's a commendable start," said Simon Johnson, a former International Monetary Fund chief economist who tracks the crisis on his blog.

Dodd said he introduced the legislation at the behest of other regulators, notably Federal Deposit Insurance Corp. chief Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner. All three recently wrote Dodd to support an emergency expansion of the FDIC's capacity to borrow from the Treasury.

"This mechanism would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system," Bernanke wrote in a Feb. 2 letter to Dodd.

The Senate bill is being introduced at a time of rising market stress about the health of the banking industry. Seventeen relatively small banks have already failed this year and 25 went under in 2008. Last year's failures included the July demise of mortgage lender IndyMac and the September collapse of Washington Mutual, which was the sixth-biggest depository institution in the nation at the time it failed.

Shares of Citigroup (C, Fortune 500), the giant financial company that last week received a third round of government aid, have fallen 58% since the government outlined a plan to convert the bank's preferred shares to common stock. The stock even dropped below $1 Thursday.

The Citi plan aimed to ease market concerns about the bank's health. But fears have only increased, judging by the swoon in financial stocks this week and the sharp rise in the cost of protecting financial-sector debt against default.

Fear of a big collapse continues to rise
The Credit Derivatives Research counterparty risk index -- a measure of the annual cost of insuring the bonds of 14 global financial companies against default -- surged nearly 30% this week as investors rushed to protect themselves against possible defaults at giant institutions.

It now costs an average of $289,000 per year to buy insurance on $10 million's worth of bank debt, according to the CDR index. That's just shy of the $300,000 average premium in force the day the index hit its all time high -- Sept. 17, 2008.

That was the day after the government's $85 billion first bailout of AIG (AIG, Fortune 500), two days after the failure of broker-dealer Lehman Brothers and a week before WaMu was seized by regulators.

The current degree of stress in the financial sector is "totally shocking," said Johnson, given the massive resources governments around the globe have devoted to reducing fears of a major collapse.

The financial fears point to the need for the Obama administration to produce a detailed plan of how it will deal with troubled too-big-to-fail institutions and bad assets in the banking sector, said Johnson, who teaches in the business school at MIT.

"If you don't do a systemic plan fast, you set up a target for speculators," said Johnson.
The market's reaction to Geithner's failure to produce an adequately articulated proposal as promised on Feb. 10 stands as a cautionary tale. The Dow Jones Industrial Average has dropped 20% since then.

FDIC may need to hit Congressional ATM
The insurance that the FDIC provides to bank depositors is funded by annual assessments on banks. But the fund has been depleted by a sharp rise in bank failures over the past year, and efforts to raise the fees that support the deposit fund have been complicated by the poor health of the banking industry.

The deposit fund's balance fell 64% in 2008 to $19 billion, putting deposit fund assets at just 0.4% of banking industry assets. That's barely a third of the 1.15% statutory minimum.

Despite the welcome signs that policymakers are coming to grips with the extent of the U.S. banking crisis, observers say officials have yet to make clear that they fully grasp the scope of the financial industry's problems.

A $500 billion loan to the FDIC "begins to approximate the maximum loss from resolving the top four banks," said Chris Whalen, a managing director at Institutional Risk Analytics, a financial research and hedge fund advice firm.

The five biggest U.S. bank holding companies - Bank of America (BAC, Fortune 500), Citi, JPMorgan Chase (JPM, Fortune 500), Wells Fargo and Wachovia, which is now owned by Wells - had domestic deposits of between $271 billion and $701 billion at the end of the second quarter of 2008, according to the most recent data available from the FDIC.

With credit costs, which reflect expenses tied to bad mortgage and credit card loans, on the way to doubling the levels reached in the 1991 recession, Whalen expects the cost of fixing troubled banks to hit $1 trillion.

Whalen adds that he believes regulators may have to swing into action in coming weeks. With bad loans rising sharply even at the better managed banks, the next round of financial reports from the most troubled banks, due out in April, could be truly horrific.
"Does anybody really want to see Citi's first-quarter numbers?" Whalen said.
The FDIC cannot possibly extract enough in fees from banks that are failing to cover their own losses. The guarantees are false, the money behind them is not there. Thus it is yet another circle jerk Ponzi scheme.

In the end, the guarantees come from the taxpayers. Who are the guarantees protecting? The same taxpayers! Who will ultimately pay for higher FDIC fees? The Taxpayers! Who owes all the debt at all levels, personal, corporate, and governmental? The Taxpayers!

The same 305 million people owe it all and the math simply doesn’t work. All attempts to use more debt money to bail out the system is circular. Like all Ponzi schemes, this one, too, will fail. No, the world won’t end, but change is coming.

In honor of Sheila Bair…

Donovan - Season Of The Witch