Archive for August, 2009

“416 Make the List!”

Why write a follow-up to the Bank Failure Series when, on Friday, the FDIC seized only three (3) more banks?

The three (3) seized banks were nothing spectacular, average takeovers in a series of larger, more dramatic bank foreclosures. The three banks closed this week brought the total through August to 84 compared to just 10 seized by this time in 2008.

But the most significant announcement from the FDIC came on Thursday. The FDIC announced that the bank watch list increased this quarter to 416 banks that they are monitoring for possible collapse and foreclosure. That is an increase of 111 from the 305 on the list last quarter, and the highest figure since the second quarter of 1994, near the end of the Savings and Loan Crisis.

It’s difficult to assess the impact of a 35% increase in the list but, by any measure, it should be cause for deep concern. I have predicted that 2009 could see the failure of 200 banks, but some are now predicting the loss of over 1,000 banks before this crisis is over.

Watch next week for an update on the state of the banks and the impact that it will have on our fragile economy.

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“An Opinion on Mark to Market” (reposted)

In April the Financial Accounting Standards Board, FASB, changed Mark to Market. They are now considering reinstating the Mark to Market rules.

Some are opposed to FASB getting involved, claiming it will destroy our economic recovery. But the important aspect of reinstatement is a better accounting of toxic assets still on the books of many BIG banks.

In April I commented on how rescinding Mark to Market would allow banks to hide toxic assets and mask their earnings for a couple of quarters. Here is the actual article I posted on It’s Worth and Opinion:

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Originally posted – April 6, 2009

Was the new change in Mark to Market accounting a positive thing?

The move last week by FASB the Financial Accounting Standards Board was met with a positive reaction by the markets. On Wednesday markets advanced in anticipation of a change in the Mark to Market rule. On Thursday the markets advanced even further after the board’s announcement (Dow up 201, 2%; S&P up 18, 2.3%) driven by what traders thought would be good for the banks, even those that are still deeply troubled.

Was the decision by the FASB Board more beneficial to the banks? Does it adequately protect investors? Will it be good or bad for the economy?

Read the rest of this entry »

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Posted in Banking, Economy, Opinion, Too Big to Bail | Comments Off

“Thomas Jefferson Warned Us!”

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 – 1826)

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Posted in Banking, Economy, Letters, Too Big to Bail | Comments Off

“No Guaranty on the Banks!”

Guaranty Bank of Austin, Texas finally found a buyer after three weeks on the edge of bankruptcy.

The purchase of Guaranty along with the takeover of three new banks, two more in Georgia, brings the total to 81 in 2009. On August 29th of last year, by comparison, the FDIC had taken over just 10 banks. There is still one Friday in August which could add another five or more banks to the foreclosure list.

Guaranty Financial Group  has been near bankruptcy for over a month. The FDIC was unable to intercede due to the bank’s negative capital position after steep losses in the previous quarter. Losses on mortgage-backed securities and other credit losses forced them to take $1.45 billion in write-downs leaving them with a negative capital ratio.

BBVA Compass (Banco Bilbao Vizcaya Argentaria SA) was the winning bidder for the troubled Austin bank. An August 20 Wall Street Journal article by Jeffrey McCracken, David Enrich and Robin Sidel, “BBVA Likely Is Winner of Guaranty Financial,”  was confirmed today.

BBVA will take over Guaranty’s 160 branches in Texas and California.

Guaranty Financial had nearly $15 billion in assets and is now the 10th largest bank failure in U.S. history.

But, there was another significant detail in the seizures today. The 19th and 20th banks to fall in Georgia, since December 5, were two of the banks seized by the FDIC today. Georgia’s difficulties continue and once Silverton Bank in Atlanta is closed, several others may follow.

The number of closed banks continues on a large scale and could reach 200 failed banks by the end of this year. Hold onto your money, it’s going to be a wild ride!

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“Phil Gramm @ the Vortex!”

As the economic meltdown threatened the world economy, one name kept boiling to the surface. Ex-Senator Phil Gramm.

A growing controversy and crisis—the U.S. government’s negotiations with Swiss bank UBS and the Swiss government over the release of account information on Americans suspected of evading tax regulations—finds the ubiquitous Gramm involved in the seemingly nefarious activities.

This ex-Senator has been at the center of every financial crisis since 1999. Gramm was the author of the Gramm/Leach/Bliley Bill passed in November of ’99, abetted by Congress and President Bill Clinton.

That bill, along with the “Commodity Futures Modernization Act,” passed in 2000, have put the entire global economy at risk. Enron and WorldCom were manifestations of the Commodities Act, and the Banking Crisis was the result of the Gramm/Leach/Bliley Bill.

Gramm is now involved in the middle of the battle between UBS and the IRS  as the Vice Chairman of UBS’ investment banking. He is now either exceptionally naive or complicit in the scheme perpetrated by UBS employees to defraud the U.S. Government of taxes from American citizens.

Gramm’s 20 year push as a U.S. Senator to deregulate the financial and commodities markets has allowed energy companies and financial services groups to steal from the American people.

I wrote about Gramm’s duplicity in the financial crisis in September of last year in an article entitled: “Thank You Milton, Alan, and Phil,” which you might enjoy reading and could put the financial crisis in a little better perspective.

In his new role at UBS, it appears that Phil Gramm is again involved in stealing from American taxpayers. More will be written as the story unfolds.

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“A Lot of Bull on Wall Street”

The market has stampeded the last five months toward what the bulls would like to refer to as a bull market.

But, more realistically speaking, the market is full of bull.

The current rise in the markets has been fueled by false exuberance. The unrealistic euphoria could end up devastating millions of people when the markets free fall back to their March lows.

The concern should be, who’s left holding the proverbial bag?

Read the rest of this entry »

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“Seized Banks at 77 Plus”

Bank closures continue at a worrisome pace. The FDIC had to takeover five (5) more banks on Friday bringing the total banks seized to 77 plus in 2009. The plus is Guaranty Financial, a large Texas bank, which may now have a buyer.

BB&T Corp. was this week’s recipient of a sweet deal from the FDIC.

Though BB&T’s deal to take over Alabama based Colonial Bank is a great opportunity, a sweet deal with ‘minimal risk,’ BB&T appears to be a worthwhile receiver. BB&T receives 356 branches, mostly in Florida and Alabama, $20 billion in deposits, and will purchase $22 billion in assets. For its part the FDIC agrees to loss sharing of $15 billion.

The FDIC estimates that the failure of Colonial will cost $2.8 billion from the Deposit Insurance Fund.

The other four banks, two in Arizona, one in Pennsylvania, and Community Bank in Las Vegas, were dealt with in different ways by the FDIC. The Arizona and Pennsylvania banks were assumed by other banks, but the Las Vegas bank required the creation of a Deposit Insurance National Bank to facilitate resolution.

The forming of a Deposit Insurance National Bank could signal future hurdles for banking in Nevada.

Nevada is currently the state with the highest ratio of home foreclosures in the country, one in every 47 properties. And Nevada could become one of the most volatile markets in the rising commercial and construction loan defaults putting even more pressure on the state’s banking system.

The FDIC has done a stellar job and, unlike other government agencies, learned a lot from their successful unwinding of the Savings and Loan Crisis. The application of those lessons to the current crisis has surely prevented a deepening of the crisis.

The future of banking continues to look ominous and could remain a problem for many years to come.

But the biggest problem looming in banking today, and a potentially huge problem for the American taxpayer, is BIG Banks.

Until Congress does something to break-up these behemoths that caused the banking crisis in an efficient and least destructive manner the economy will remain in a dangerous and precarious state.

There are still hidden and shadowy toxic assets in the big banks that could still bring down the entire global economy.  The government needs to go through a forensic accounting to clear out all the lies and omissions of these predatory institutions. The stress test went only so far and is already obsolete. If they are allowed to continue to operate without a clear accounting then the Fed and Treasury have again failed at their jobs.

Until then expect a continuing slide into the abyss in the banking system.

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“The Pain on Main” (reposted)

In April, the 16th, when the Dow had risen 20% I posted this article on It’s Worth an Opinion and sent it as an Op-Ed, to The Wall Street Journal. I predicted the market would decline by the end of April, based on the disconnect between Wall Street and Main Street. I was off by a few months, but now is the time to reread the reasons for that prediction. Though written last April the information, with different numbers, applies today:

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Originally posted – April 16, 2009

Over 610 thousand people applied for first time jobless claims today, and continuing claims surpassed six million; workers who are still seeking employment while collecting benefits.

The headline number, an improvement over last week, but during a holiday adjusted week, brought some level of excitement. It was “not as bad as expected” but it still translates to more Pain on Main Street. The ‘real’ impact will be lost on Wall Street.

The market has been on a tear for the last five weeks. The historic 20% rise in March continued well into April and hopes of a permanent turn in the economy was evident in the voices of the CNBC hosts, and the traders and analysts on Wall Street.

But, that euphoria, one of green shoots and mustard seeds, will be short-lived. The bear will again dominate the market much to the chagrin of hopeful and optimistic bulls.

No matter how traders and analysts evaluate the bits of perceived news in the economic data, they fail to see the disconnect between Wall Street and Main Street.

Main Street is in extreme pain, anguished by declining home prices and job losses that have a tremendous affect on the consumer, and an undetermined destructive force on the economy. Read the rest of this entry »

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Posted in Economy, Uncategorized, Wall Street | 8 Comments »

“Less Is More!”

This country needs to heal. But it does not need another layer of bureaucracy. We do not need a Consumer Finance Protection Agency.

Yes, the consumer does need protection from predatory capitalism; from the banks and the financial services community. But adding another complicated layer of protection is not what this country needs.

We have regulators in place, at one time strong regulators. But over the last 10 years the power of those regulators has been systematically stripped from those agencies by an unwitting Congress and an uncaring administration.

The past administration, either out of incompetence, stupidity, or through a diabolical plan, placed impotent individuals in charge of regulatory agencies charged with protecting the consumer—American taxpayers. Not only did we get little for our money, but got screwed in the process.

At a time when deficits are skyrocketing, leaving untenable debt for our children and grandchildren, this administration wants to add more government employees to the already too large bureaucracy.

But, the problem lies with Congress.

How does Congress legislate industry’s that they rely upon to get reelected? How do Congressmen and women protect their constituents from predatory corporations that are counting on considerations for their largess; huge campaign donations? Read the rest of this entry »

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Bank Seizures Approach 70 in ’09

Five (5) more banks were seized by the FDIC last Friday which brought the total in 2009 to sixty-nine (69).

The five banks taken over this week were in five different states, but one was in Illinois lifting Illinois’ total to thirteen (13). Thankfully, Georgia escaped the FDIC padlocks this week remaining at 18 bank foreclosures this year.

The FDIC turned over millions in deposits and quality assets to the assuming banks but, again, guarantees millions in protection against toxic assets.

But last Thursday an even bigger problem loomed on the horizon. Guaranty Financial, the second-largest publicly traded financial-services holding company in Texas has become insolvent according to MarketWatch. After a writing down $1.45 billion in mortgage-backed securities and taking a goodwill charge of $107 million, Guaranty was left with negative capital at the end of March.

The FDIC has been unable to assist Guaranty, backing away when the losses made it untenable to effect a take-over of the bank. It is likely, given the statement by Guaranty’s Board, that they will be unable to continue without the help of the FDIC.

Guaranty is only the second bank in Texas to fail this year but, it will be the largest failure this year and has over 150 branches in Texas and California.

Guaranty’s failure will make July the biggest month of failures this year at 24. Could August end up being a bank foreclosed every day?

At some point this year, bank failures just might become a problem!

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