Here are a couple articles from Elliott Wave International on bank safety, credit expansion and the FDIC. – Ilene
The FDIC Anesthesia Is Wearing Off
Courtesy of Robert Prechter of Elliott Wave International
The following article is an excerpt from Robert Prechter’s Elliott Wave Theorist. For more information from Robert Prechter on bank safety, download his free report, Discover the Top 100 Safest U.S. Banks.
Perhaps the single greatest reason for the unbridled expansion of credit over the past 50 years is the existence of the Federal Deposit Insurance Corporation, another government-sponsored enterprise created by Congress. The coming rush of bank failures is an outcome made inevitable the very day that Congress created the FDIC. The reason is that the creation of the FDIC allowed savers to believe that their deposits at banks are “insured” against loss.
But the FDIC is not really an insurance company. No enterprise, absent fraud, could possibly insure all the banking deposits in a nation. Nor does the FDIC do so, despite its claims. The FDIC is like AIG, the company that sold too many credit-default swaps. It contracted for more insurance than it could pay upon. Because depositors believe the sticker on the door of the bank, they have abdicated their responsibility to make sure that their banks’ officers handle their deposits prudently. This abdication allowed banks to lend with impunity for decades until they became saturated with unpayable debts.
Today, most banks are insolvent, and the FDIC is broke. This condition is deflationary for three reasons: (1) Banks are coming to realize that the FDIC cannot bail them out in a systemic crisis, so they have become highly conservative in their lending policies, as described above. (2) The main way that the FDIC gets its money is to dun marginally healthy banks for more “premiums” (meaning transfer payments) to bail out their disastrously run competitors. The more money the FDIC sucks out of marginally healthy banks, the less money those banks have on hand to lend, which is deflationary. (3) The banks that have to cough up all this money will become more impoverished at the margin, so banks that otherwise might have survived a credit crunch will be thrown even closer to the brink of failure. This is another deflationary risk.
A friend of mine whose family owns a bank told me that the FDIC recently raised its 6-month assessment from $17,000 to $600,000. In the FDIC’s latest announcement, it is considering requiring banks to pre-pay three years’ worth of “premiums,” i.e. triple the normal annual fee in a single year. It will be a miracle if the money lasts through 2010. When these funds are gone, the FDIC will have two more options: to issue its own bonds and pressure banks to buy them; and to tap its “credit line” of up to half a trillion dollars with the U.S. Treasury. It’s the same old solution: take on more new debt to back up failing old debt. More debt will not cure the debt crisis.
Meanwhile, the FDIC is contributing to the deflationary trend. It has “tightened rules on required capital levels,” which forces banks’ loan ratios to fall; and it has “extended its extra monitoring of new banks from the first three years of operation to seven years” (AJC, 11/19), meaning that banks will now have to wait four additional years before they can go crazy with loans.
For more information from Robert Prechter on bank safety, download his free report, Discover the Top 100 Safest U.S. Banks. You’ll learn how to find a safe bank, the critical difference between lending and banking, tips on international banking, and more.
More than 130 banks will have failed by the end of 2009. Is Your Bank Safe?
By Gary Grimes, courtesy of Elliott Wave International
Please understand that this article is about more than safeguarding your money; it’s about saving you headache and heartache. It’s about giving you peace of mind.
Before I explain, please allow me to ask a few questions:
- Have you given much thought about the money in your banking accounts lately? Do you know if it’s safe?
- Have you thought about what might happen if your bank fails?
- Did you know you could be left in the lurch for days, weeks, even months before you get your money back from the FDIC?
- What happens if the FDIC can’t cover your funds?
- How do you find a safe bank to protect your deposits right now?
I hope you’ve given these questions some serious thought.
I have to be honest: These questions were about the farthest things from my mind until about a year ago, when I downloaded the free "Safe Banks" report from my colleagues at Elliott Wave International. At first, the report scared me: I thought, "Oh My Gosh! I could lose all of my money if my bank fails. What would I do?"
But as I read on, I figured out that the report was not only about making my money safe; it was about giving me peace of mind.
If you’ve read any of the following news items, perhaps you understand the fear of learning your money might not be safe. Here’s a recent story from Bloomberg:
Sept. 24 (Bloomberg) — In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.
The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
Of course, we now know it means nothing when the FDIC or any other regulator labels a bank “well-capitalized.” Most banks that failed during this crisis were considered well-capitalized just before their failure.
By the end of 2009, more than 130 banks will have failed. Most depositors will have little clue their bank was even at risk. Worse yet, the string-pullers in Washington are doing everything in their power to hide information about the safety of your bank from you.
So far, the FDIC has had enough money to cover insured depositors. But that money is quickly running out.
Just last week, the FDIC voted to mandate early payment of insurance premiums to help cover at-risk banks. But only time will tell if this move will provide the funds needed in the years ahead. Here’s what the Associated Press reported on Thursday, Nov. 12:
WASHINGTON (AP) — U.S. banks will prepay about $45 billion in premiums to replenish a federal deposit insurance fund now in the red, under a plan adopted Thursday by federal regulators.
The Federal Deposit Insurance Corp. board voted to mandate the early payments of premiums for 2010 through 2012. Amid the struggling economy and rising loan defaults, 120 banks have failed so far this year, costing the insurance fund more than $28 billion.
Worse yet, three more banks failed the very next day, Friday, Nov. 13.
This is a very real problem and a direct threat to your money. It’s more important now than ever to personally ensure the safety of your bank. The free 10-page "Safe Banks" report can help. It includes the very latest bank safety ratings from the third quarter of 2009 to help you prepare for what’s still to come this year and next.
Inside the revealing free report, you’ll discover:
- The 100 Safest U.S. Banks (2 for each state)
- Where your money goes after you make a deposit
- How your fractional-reserve bank works
- What risks you might be taking by relying on the FDIC’s guarantee
Please protect your money. Download the free 10-page "Safe Banks" report: Learn more about the "Safe Banks" report, and download it for free here.
Gary Grimes focuses on mass psychology, U.S. stocks and the U.S. economy. Gary has a bachelor’s degree in journalism from Auburn University in Auburn, AL, where he was first turned on to the Austrian School of economics by way of the world-famous Mises Institute. His study of classical liberalism eventually led him to discover the Elliott Wave Principle and Robert Prechter’s theory of socionomics.
Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.
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