Wake Up America Your Banks Are Dying

[seemslikeadream]

Banking System Collapse: Wake Up America Your Banks Are Dying

U.S. banks are being shut down by federal regulators at a staggering pace this year, and yet most Americans seem completely oblivious to it. In fact, federal officials have already shut down 81 U.S. banks this year, which is about double the number that were shut down at this time last year. So why aren't more people upset about this? Well, part of the reason is because the FDIC is doing it very, very quietly. The bank closings for each week are announced every Friday, which means that they pass through the news cycle over the weekend almost unnoticed. For example, banks in Nebraska, Mississippi and Illinois with total deposits of almost $2.3 billion were shut down by federal regulators on Friday. So did you hear about it before now? If not, why not? Shouldn't the fact that we are experiencing a banking system collapse be headline news? But most Americans are more than happy to remain blissfully ignorant of what is going on. In fact, most Americans seem far more interested in what is happening on American Idol or Dancing With The Stars. But when the American Dream starts dying for tens of millions of Americans as the economy collapses perhaps more people will start to care.

So just how bad is the banking system crisis?

Well, FDIC Chairman Sheila Bair says that 775 banks (approximately ten percent of all banks in the United States) are now on the Federal Deposit Insurance Corporation's list of "problem" banks.

So should we be alarmed by that?

Well, there were only 252 U.S. banks on the FDIC's problem list at the end of 2008.

There were 702 U.S. banks on the FDIC's problem list at the end of 2009.

Now there are 775.

Do you know if your bank is on the verge of failing?

You might want to check.

But even if all of our banks fail the FDIC has plenty of money to cover our federally-insured banking accounts, don't they?

Unfortunately, they do not.

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

It was recently reported that 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.

But the bank failures on Friday drained another $313.6 million from the FDIC’s deposit-insurance fund.

And the way things are trending, the banking crisis could get a whole lot worse?

Why?

Well, Americans 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.

16 quarters in a row.

Just let that sink in.

If that is not a trend, then what is?

Oh, but the U.S. government will never let the entire banking system fail, right?

Well, they won't let the "too big to fail" banks go under, we have seen that.

But the small and mid size banks?

They fall into the "not big enough to bail out" category.

And where in the world is the U.S. government going to get more money to bail anyone out?

The reality is that the U.S. government is now over 13 trillion dollars in debt.

To give you an idea of just how horrific that is, if you started spending a million dollars a day on the day that Christ was born, you still would not have spent a trillion dollars by now.

That is how big a trillion is.

But for this year alone it is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars.

So, yes, pretty much wherever you turn we are facing a financial nightmare.

What should we do about all this? Feel free to leave a comment with your thoughts....

[Peregrine]

Well, part of the reason is because the FDIC is doing it very, very quietly. The bank closings for each week are announced every Friday, which means that they pass through the news cycle over the weekend almost unnoticed.

I have read this or heard it somewhere before, where big things like this tend to happen on a Friday so as to slip past the news radar.

Do you know if your bank is on the verge of failing?

You might want to check.

There is a reason I don't have a bank account & why I deal mostly with cash.

The reality is that the U.S. government is now over 13 trillion dollars in debt.

To give you an idea of just how horrific that is, if you started spending a million dollars a day on the day that Christ was born, you still would not have spent a trillion dollars by now.

That is how big a trillion is.

Wow. Does that ever put things into perspective.

[chiggerbit]

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

It was recently reported that 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.

But the bank failures on Friday drained another $313.6 million from the FDIC’s deposit-insurance fund.

In other words, you might be lucky if your bank tanks earlier rather than later.

[JackRiddler]

The reality is that the U.S. government is now over 13 trillion dollars in debt.

To give you an idea of just how horrific that is, if you started spending a million dollars a day on the day that Christ was born, you still would not have spent a trillion dollars by now.

That is how big a trillion is.

Wow. Does that ever put things into perspective.

The "spending since Christ was born" analogy is highly misleading. "13 trillion dollars in debt" came about because of spending by a nation of 300 million people, and cannot be compared to a nominal "you" who is now 2000 years old.

Let's look at the problem in context because it's all much more complex than the propaganda that emphasizes public debt as the greatest evil would have us believe:

Prior to 2008 most public debt was accumulated starting in the 1980s due to the shift of the tax burden away from the rich and to the working class (tax cuts for high incomes, rise in Social Security and Medicare charges) and the massive rises in military spending.

This accelerated with the advent of the Bush regime and its further massive cuts in taxes on the rich and rise in spending for wars and "national security." The regime created most of the US sovereign debt burden prior to 2008.

Almost one-third of the total has been accumulated since 2008 as a result of the bankster fraud, the bailouts, and the resulting depression necessitating stimulus spending. That is private debt passing into public debt due to the actions of private actors and the government's obedient service to their support. It's ironic that the same class of private actors now show their gratitude by attacking the government for the private debt for which they are actually partly responsible.

"13 trillion" is gross public debt, which means it includes intergovernmental debt. Intergovernmental debt is what the discretionary budget (Pentagon and other military-related items including wars, debt service, and assorted actual social programs) has borrowed from the mandatory budget (Social Security fund and Medicare, which have always been in surplus until now).

Actual government debt to the private sector and foreign creditors is about 7 trillion dollars.

Public debt is a fraction of total debt - household, corporate, and financial sector debt far exceed it.

viewtopic.php?f=8&t=21495&start=420

Puts the public sector debts in perspective, don't it now?

To create this chart, someone helpfully plugged in the numbers from the table at Federal Reserve, "Flow of Funds Accounts of the United States," Release Z.1, March 2010: Table D3, "Debt Outstanding by Sector" (1978-2009). The full report is at http://www.federalreserve.gov/releases/ ... ent/z1.pdf. I recommend that table to anyone who wants to get a grasp of the real situation.

Using numbers from that chart, I see that starting in 1978, debt for all domestic non-financial sectors (household, business and public) tripled during the first decade, then almost doubled and doubled again in the two that followed, from 3,211 billion in 1978 to 34,702 billion in 2009, or a growth factor of almost 11. Mortgage debt grew by a factor of 14 (708 to 10,484), federal debt by a factor of 12.5 (621 to 7805), so that it's now equal to 90 percent of GDP. Mortgage debt equals federal debt as a percentage of GDP. It is largely a function of the artificial inflation of housing prices and irresponsible bank-lending policies over the last decade prior to 2008.

For reference, GDP unadjusted for inflation (nominal dollars, or what was actually in the books at each stage) went up from 2,417 billion in 1978 to 14,453 billion in 2009 (both Q4), or a growth factor of about 6.
Nominal-dollar GDP numbers from http://www.data360.org/dataset.aspx?Data_Set_Id=352

Thus the debt burden of the non-financial sectors has nearly doubled relative to GDP since 1978.

Now look at the Fed's total debts chart again and the chart derived from it above. Note the blue piece - that's the debt of domestic financial sectors, most of which is what banks owe to banks or other financial entities, much of which is the fabled leverage.

From 412 bn in 1978 domestic financial sector debt rose to 17,083 bn in 2008, or a growth factor of 41! Then came the crash, and deleveraging, meaning a lot of banks paying off what they owed to banks (with more than a little help from you), resulting in a drop to 15,651 bn in 2009, or still a growth since 1978 by a factor of THIRTY-EIGHT, or 3.5 times more than the growth factor for the non-financial sectors. Relative to GDP, the financial sector debt outstanding has gone up from about 20 percent of GDP in 1978 to more than 110 percent.

That figure is a measure of the runaway growth in financial speculation independent of real production since the dawn of the neoliberal era with its removal of capital controls and banking regulations. Total financial sector debt is higher than the GDP and almost double the Federal debt. This is the big useless monster weighing down on the rest, and if it can't find profitable outlet before continued develeraging, it will cause a renewed crash.

As to who holds the grand total of FIFTY TRILLION DOLLARS IN ALL SECTOR DEBT (as of 2009): Fed Res Z.1, Table L.1 establishes that 75 percent of that is owed to the US financial sector, with the rest split 60/40 between households and rest of world.

About 8 trillion or more of that is supposedly in the hands of the top 6 banks. That would be the entities that would have crashed in 2008, and should have been taken over and liquidated by the government at that time, except they were "too big to fail."

Anyway, I felt like injecting some "real" numbers here. (Given that the Fed may be playing, relies on other statistical agencies and banks that may be playing, and anyway XX percent of the economy is underground, unaccounted, hidden or offshored.)

[JackRiddler]

Then there is the fact that US debt is denominated in the US fiat currency printed by the US central bank. FDIC should be considered too big to fail, and if it "runs out of money" to cover deposits that will be a conscious policy decision (and an insane one), not any kind of forced necessity. A rational government would never fail to cover all deposits as insured. It also wouldn't be rescuing the banks who fucked up due to their own fraud and profit-seeking recklessness, but only their depositors.

[Simulist]

Wake Up America your Banks Are Dying

When the oceans are dying, it's a little hard for me to ramp up too much more concern for the banks.

[chiggerbit]

When the oceans are dying, it's a little hard for me to ramp up too much more concern for the banks.

You might want to consider how the oil spill is going to affect the areas along the gulf--this could trash the economy of many areas along the coast, which, I would imagine, will lead to an increase in foreclosures, bank failures, etc.

[Simulist]

When the oceans are dying, it's a little hard for me to ramp up too much more concern for the banks.

You might want to consider how the oil spill is going to affect the areas along the gulf--this could trash the economy of many areas along the coast, which, I would imagine, will lead to an increase in foreclosures, bank failures, etc.

The economy is important, but the oceans are vital — not for just this generation, but for all life on earth and for all possible future generations.

[82_28]

When the oceans are dying, it's a little hard for me to ramp up too much more concern for the banks.

You might want to consider how the oil spill is going to affect the areas along the gulf--this could trash the economy of many areas along the coast, which, I would imagine, will lead to an increase in foreclosures, bank failures, etc.

As if fuck-all wasn't trashed as it was in the first place.

[chiggerbit]

Well, as I've said before, I am illiterate when it comes to economics. Most of what I've learned has come from this board. But it seems to me that one of the issues of concern with regard to bank failures is bank consolidation, something that I just instinctively react against. When banks fail, are they bought up by equal-sized banks that were just smarter, or are they bought up by bigger banks? And will those banks be eaten by even bigger banks?

[justdrew]

it's a miracle more banks aren't failing, the stock market is flat or down for years now, the last decade has produced nothing in gross tangible value for this country, soon it'll start to really crash, because a ton of people living on debt are going to learn what a non-easy money economy is like. They might even start to have to find real jobs. Capital might even be forced to invest in productive activities.

and people might have to instead of invest their spare money, pay it in taxes, and the return on that investment is a functional government and civil infrastructure.

[JackRiddler]

it's a miracle more banks aren't failing, the stock market is flat or down for years now, the last decade has produced nothing in gross tangible value for this country, soon it'll start to really crash, because a ton of people living on debt are going to learn what a non-easy money economy is like. They might even start to have to find real jobs. Capital might even be forced to invest in productive activities.

and people might have to instead of invest their spare money, pay it in taxes, and the return on that investment is a functional government and civil infrastructure.

The stock market went up by 50 percent last year (sucker's rally but it did) and the Federal Reserve lends unlimited money at almost zero percent, which the banks can put into T-bills at a 2.5+ percent higher spread for a guaranteed profit. And since March 2009 they've been allowed to value their assets entirely independent of the actual market price. And they're still playing the derivatives and this has allowed them to launch a series of attacks on sovereign debt. This is why they're still alive - as zombies fed apparently infinite blood at the expense of higher public debt, increased volability and increasingly degraded currencies.

You have to think the worst of the crash is still ahead.