Correction on FDIC Friday Fun

Posted by Ray on July 31, 2009 under Main | Be the First to Comment

There was another late closing, Mutual Bank was added late. Updated Story below:

Tonight 4 more banks were closed down which brings the total to 69 banks seized by the FDIC this year. While this is not a record it is also not getting enough press. One might wonder why the media is not reporting these seizures, but the explanation is simple, its embarrassing and they say that these are “small” banks which have little relevance to the economy, which is not true at all. Each closure pulls money out of the system and costs Americans money, period.

Tonight’s closures are:
_______________________________State________ASSETS___________DEPOSITS

First Bank of Americano___________NJ__________$166M__________$157M

Peoples Community Bank________OH_________$705M___________$598M

Integrity Bank_____________________FL__________$119M__________$102M

First State Bank of Altus____________OK__________$103M__________$98M

Mutual Bank______________________IL___________$1.6B___________$1.6B

The costs to the FDIC are as follows:

First Bank of Americano estimated cost of $15 million to the FDIC
Peoples Community Bank entered into a loss-share transaction with the FDIC on approximately $657.6 million
Integrity Bank estimated cost is $46 million to the FDIC
First State Bank of Altus estimated cost of $25 million
Mutual Bank entered into a loss-share transaction on approximately $696 million

The total estimated losses or loss-share-agreements total $1.439 billion this week. That estimated loss number continues to grow as last week we had estimated losses of $1.705 billion bringing the 2 week total to $3.144 billion.

So, 68 banks seized by the FDIC and little to no media coverage and we had the President and the CNBC cheerleaders saying everything is so much better than a year ago. Do you really believe this? I sure don’t as we are barely half way through the year. At this rate we will have over 120 seizures by the end of the year.

The ban on bonuses passes

Posted by Ray on under Main, Politics | Be the First to Comment

The bill is targeting bonuses of top executives of banks, but could have wide implications. I agree that the bill is a nice gesture to pacify the populist outrage of Americans who funded the recovery of such institutions as Goldman Sachs, which we still fund through the FDIC guarantee program and the fed discount window, but this bill could impact hedge funds as well.

Government is meant to put some restrictions on bad behavior and to watch out for the people, but they have failed, repeatedly and miserably. Mostly because these people looking out for the people are taking campaign money from the people who are out to bilk us and consistently pass laws to help them or strip away legislation that kept their risk under wraps, Glass-Steagall.

Now they want to pass this new bill that will restrict bonuses for top executives in the banks, which will never get past the Senate and Obama will definitely veto it, he received $23 million from financial services firms during the elections. While you may be for such restrictions you have to remember that this is a slippery slope and could have unintended consequences to be determined in the future. Additionally, how much government do you really want in business?

The only good thing about the bill is the shareholder vote on pay, but the shareholder vote is merely ceremonial and can be rejected by the company. Shareholders are the only ones that should have a voice on compensation, with the exception of firms who take government funds to survive. However, Congress took the only thing good about the bill and made it nonbinding, which is where the populist outrage should be directed towards.

Lastly, the populist outrage should be directed towards Congress as they sat by and let these banks get away with murder over the last decade. Most of the people responsible for this mess have consistently been reelected for decades, Barney Frank, Chris Dodd, etc. and since the people reelect these clowns they only need to be mad at themselves.

We need term limits simply because the longer one stays in government the more corrupt they become. This is not a government by the people and for the people, but rather for who can raise the most money for their campaign or, simply, who gave me the most money and what do they want. We went from a country that treated its citizens extremely well to a country that has taken away its basic freedoms, see the P.A.T.R.I.O.T., Providing Appropriate Tools Required to Intercept and Obstruct Terrorism, Act. We voted for change, but all we got was more of the same with way more government than we ever expected.

Friday Night Fun at the FDIC

Posted by Ray on under FDIC, Main | Be the First to Comment

Tonight 4 more banks were closed down which brings the total to 69 banks seized by the FDIC this year. While this is not a record it is also not getting enough press. One might wonder why the media is not reporting these seizures, but the explanation is simple, its embarrassing and they say that these are “small” banks which have little relevance to the economy, which is not true at all. Each closure pulls money out of the system and costs Americans money, period.

Tonight’s closures are:
_______________________________State________ASSETS___________DEPOSITS

First Bank of Americano___________NJ__________$166M__________$157M

Peoples Community Bank________OH_________$705M___________$598M

Integrity Bank_____________________FL__________$119M__________$102M

First State Bank of Altus____________OK__________$103M__________$98M

Mutual Bank______________________IL___________$1.6B___________$1.6B
The costs to the FDIC are as follows:

First Bank of Americano estimated cost of $15 million to the FDIC
Peoples Community Bank entered into a loss-share transaction with the FDIC on approximately $657.6 million
Integrity Bank estimated cost is $46 million to the FDIC
First State Bank of Altus estimated cost of $25 million
Mutual Bank entered into a loss-share transaction on approximately $696 million

The total estimated losses or loss-share-agreements total $1.439 billion this week. That estimated loss number continues to grow as last week we had estimated losses of $1.705 billion bringing the 2 week total to $3.144 billion.

So, 68 banks seized by the FDIC and little to no media coverage and we had the President and the CNBC cheerleaders saying everything is so much better than a year ago. Do you really believe this? I sure don’t as we are barely half way through the year. At this rate we will have over 120 seizures by the end of the year.

Ever hear of Capco?

Posted by Ray on under Economy, Main | Be the First to Comment

Either have I and I am in the insurance business, but this was a black hole insurance carrier set up by 14 of the largest banks to offer unlimited account coverage for failed brokerage firms, on top of SIPC coverage. The new York Times had a good piece on the firm and raised some interesting questions. The primary reason for the construction of such an insurance company was because forms like Travelers stopped offering such coverage because it was difficult to calculate the risk.

Lloyds of London does offer such insurance, but only up to $150 million per account with a firm maximum of $600 million. Other insurers in the US stopped offering coverage because the risk was too difficult to calculate. This, apparently, was unacceptable to our financial institutions who decided to start Capco and provide unlimited coverage to accounts if a firm failed.

This was done to attract hedge fund and institutional clients who would lose billions if a firm collapsed. The reason other insurers gave for dropping coverage is apparently 100% correct. Capco will likely have issues and possibly fail because of the collapse of Lehman. It is reported that the firm, who keeps their books private and the policy owners, i.e. brokerage firms, are the owners of the company, has only $150 million in assets, but about $11 billion in claims from Lehman.

I guess this just goes to show how smart our leading banks are and how shady some of their dealings can be. This was probably a pretty sweet deal at first, offer coverage to brokerage houses for a nice fee and the likelihood of a failure was low. No one expected Lehman to collapse, that is for sure, but clearly this firm did not have actuaries working for them, otherwise they would have much more than $150 million in reserve.

The firm was contacted, but said they are fine and they will have no problems. However, their main number, when called, goes to a nonworking Morgan Stanley line. Considering this insurer moved to Vermont from New York makes it suspect. New York has strict laws for insurers and Vermont has a less restrictive insurance regulator so the move made sense, especially if pesky customers want financial information.

Their lawyers came out with this statement:

Dewey & LeBoeuf, the law firm that represents Capco, said in a statement that Capco had no current policies outstanding and was “preserving all assets to address claims that might arise out of the insolvency of Lehman Brothers Inc. and Lehman Brothers International (Europe).”

The law firm called worries about Capco’s potential exposure to Lehman “speculation.”

Capco, which is private, is something of a financial mystery. Its members include Wall Street giants like Morgan Stanley and Goldman Sachs, banks like JPMorgan Chase and Wells Fargo, smaller brokerage firms like Robert W. Baird & Company and Edward Jones, and Fidelity, the mutual fund giant.

Other firms such as Schwab , UBS and Merrill didn’t go for such policies because Capco did not furnish their financials to them. As they put it, they did not pass their smell test ad it seemed suspect to say to clients that here is an insurance policy and by the way we are part owners f the company. Clearly there was a problem with the firm and I am sure they will make headlines in the near future. However, they did stop selling policies earlier in the year, I wonder why.

The masters of the universe are not smarter than insurance companies and had no business setting up this firm. Insurers know what risk is and how to manage it and investment firms do not know anything about risk, clearly the last 12 months told us that. This thing is likely to get very ugly as here is what foreign pension funds had to say:

Owners of the assets tied up in Lehman’s London unit, including pension funds and university endowments, believe they may have claims against Capco if all of their money is not returned by Lehman’s liquidator. If Capco can’t pay out the claims and files for bankruptcy, several customers said they would bring lawsuits against the other brokerage houses.

Is this a systemic risk? No, but I am sure we will see some type of bailout because it is a moral hazard or some other nonsense. After all, S&P which helped create our disaster first gave the firm high ratings, then downgraded them to junk before ceasing coverage earlier this year. Because of that fact alone there should be no bailout of talk of a bailout, but I digress.

It goes to show how careful you need to be when you hear something that is too good to be true.

Obama, our savior

Posted by Ray on under Main, Politics | Be the First to Comment

After watching Obama a few minutes ago it really disturbed me. I am fully aware that government spending created a “less bad” GDP report, but, as I have stated earlier, it is unsustainable. The stimulus has created a temporary works program accompanied by cash for clunkers and other miscellaneous programs, but is not a solid long-term solution.

I understand that the President has a deep desire to be loved and in the media everyday, I do not remember any President having this many press conferences, however, I find his optimism troubling. Since he misread didn’t have all the facts about the economy he has lost substantial credibility with me. The simple fact is that everyone knew how bad things were in 2008 i.e. $700 billion bank bailout and several prominent economists saying the trouble was only growing and going to get worse, so to deny that is disingenuous at best and a flat out lie at the worst.

I fully believe that he and his economic team had very little clue about what was really going on which is evident now. Even worse is that Obama and Co. went ahead with such a large stimulus that he did not want anyone to read in detail and urged a quick passage of the bill, contrary to his campaign promise to allow Congress 5 days to review any bill before voting on it to ensure all understood the contents of the bill. We now know why they weren’t given time to read it, it was all pet and one off projects with no real long-term solutions.

In a nutshell, he, in classic Obama fashion, moved too fast without having the “complete picture” or all the facts. Now, he wants us to trust him on health care as he urged Congress to get a bill together before the August recess which is very little time for such a huge undertaking. This is unbelievable to think our government is simply rushing bills through without giving ample time to read them let alone understand them when Obama himself seems to never have all the facts.

There is also talk about a second stimulus on top of the trillion dollar waste of money we already have. His narcissistic behavior has to go and he needs to make sure he has all the facts instead of just rushing things through. He is our representative and while we wanted change from Bush we did not want change for what America stood for and least of all we do not want a showboat President who loves himself more than out country.

To sum it up, this guy is dangerous for our economy long-term and the sooner we recognize this the better off we will be. President Obama, government spending is the propping up of the economy and not real growth. You are not responsible for this growth, American taxpayers are through your irresponsible spending. You have not fixed anything and it is unlikely that you will. You do not believe in real change, you are more of the same, but worse because you lack the knowledge of how money works and put in place who destroyed our banking system. You also have more lobbyists and Washington insiders in your administration than other Presidents which goes against your campaign promise. Get over yourself because at this rate you are going to make Carter look good.

While I did vote for the other guy, I am a political atheist as I voted for Clinton in the 90′s and Bush in 2000 so this is not a partisan hit piece, it is from a concerned citizen.