Saturday, July 26, 2008

Two more bank failures this weekend!

Hat tip to Patrick

Nervous US Banking System - Friday, July 25, 2008 -

1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

Well, it certainly looks as if Treasury Secretary Paulson has understated the problem:

Two more banks fail Friday; FDIC sells deposits

Mutual of Omaha Bank takes over accounts of California, Nevada lenders

SAN FRANCISCO (MarketWatch) -- Two more banks were shut down by federal regulators late Friday, who sold the banks' deposits to Mutual of Omaha Bank. It brings to seven the number of bank failures so far this year.

The Federal Deposit Insurance Corp. said it was appointed receiver of First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, Calif. - both units of First National Bank Holding Co., of Scottsdale, Ariz.

The Office of the Comptroller of the Currency, a division of the Treasury Department, said First National Bank of Nevada "was undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," according to a report in the online edition of The Wall Street Journal.

First National Bank of Nevada had 25 branches, 15 in Arizona and 10 in Nevada, some of which came from its June 30 merger with the First National Bank of Arizona.

First Heritage Bank, which specializes in commercial banking, operated three locations in the Los Angeles area. It had a first-quarter net loss of $1.9 million, according to a regulatory filing.

FDIC will retain most of First National's loan portfolio, Mutual of Omaha Bank said in a statement on its Web site.

The FDIC said the failures would likely cost the FDIC's deposit insurance fund roughly $862 million. The failed banks had combined assets of $3.6 billion, .03% of the $13.4 trillion in assets held by the 8,494 institutions insured by the FDIC.

"We would first like to reassure all customers of First National Bank of Nevada and First Heritage Bank that all their deposits are safe and accessible," Jeffrey R. Schmid, Mutual of Omaha Bank's chairman and chief executive, said in a statement. "Their deposits will automatically transition to Mutual of Omaha Bank and we will be open for business on Monday morning."

Earlier this month, IndyMac Bancorp Inc. became the biggest casualty of the subprime mortgage crisis over the weekend, as federal regulators shut down the troubled Pasadena, Calif.-based savings bank in one of the largest U.S. bank failures ever.

So, how safe is your bank and what happens when the FDIC runs out of money?

Note: The FDIC only had (before ~10% loss to IndyMac) $53 Billion (in insurance funds) backing total FDIC insured deposits of ~ $4.5 Trillion.

What happens then, when FDIC insurance is depleted - Another Gvt bailout?

As I stated in an earlier post ( Washington Mutual and National City Lead to Steepest EVER Bank Stock Decline) "Why not -- the Gvt will have already taken over Fannie and Freddie by then, so what's a few more trillion shared among the broke citizens of an already insolvent country."

So, is YOUR bank safe and do you have enough cash on hand in the event it closes? What if the FDIC goes broke and it takes 6-months or better to get your hyperinflated FDIC insurance money - compliments of our printing presses and another Gvt bailout? Are you prepared?

All the best


Anonymous said...

Hi Randy;

Keep money in my bank?! Only enough to pay next month's bills! The remainder of my assets is in gold...I cash in a little as I go.

Thanks for your continued blog and the pertinent information you provide. I particularly like the 'grouped' videos. Thanks again!


Anonymous said...

I remember Mike Panzner mentioned in his book "Financial Armageddon"
how fragile the FDIC system is and it is possible they will go bankrupt under lots of bank runs.

Christopher Laird also mentioned that it is possible that the govt will declare a national emergency and freeze bank accounts. Customers can only withdraw certain amount of cash from their banks.

If you read Ron Paul's most recent article "The crisis is upon us", you'll certainly get a sense of urgency.

But on the other hand, I feel good things will come out of the mess if you view this from a higher perspective: panic will not help. Do as much as you can to protect yourself and at the same time put things in perspective: The old order is collapsing and the new oder is on its way. Failing to see the latter will only make you more panic. If the whole world is going to collapse, what's the point of having a bunker mentality? We need to send out a positive energy to help the new order to set in motion.


Anonymous said...

Afternoon Randy....

Re. #1: How can you tell when Paulson is lying? His lips move....

#2: The fact that the 90-banks aren't identified is typical "fed-speak" for nothing - See #1 above

#3: I would imagine as more banks close (and there WILL be more closings), more people will run the banks as more worry will surface regarding FDIC/governmental stability, ESPECIALLY, if there are longer and longer delays in access to monies.

#4: WaMu customers 'mystify' me. One I know with MUCH familiarity has more than a few accounts in that institution with OVER 100K in them and states, "They (the government) will cover all debits and not let us lose our retirement". Such faith - especially from a physician!

My financial umbrella for years has been my non-existent debt, a free & clear home, land, garden, cow, clean water, eggs & 2-slaves (teenage boys). I deal with cash and trade some.

This might sound a little strange, but I find this economical scenario scary but exciting. I've prepared for it since the late 80s and feel it's time for the 'big game to begin'.


Anonymous said...


Can you explain to me what "dollar intervention" means? (As in the quote: "Dollar intervention may be justified in Disorderly Times."

Thanks again, keep up the great & concise info.....


Randy said...

Thanks David. I've been wanting to clean up/organize the blog for some time -- took me a while, but well worth it.

Chuckle, good links... read them this afternoon. thanks

BSR, good Paulson joke.

Regarding your intervention question: it means coordinated artifical support (not free market support) for the dollar; or: Central Bankers Propping up the dollar through purchases..

Hope these links help explain it better:

US Dollar Intervention

Scroll about 1/2 way through this next article to read about the PPT: Note: The dollar isn't the only thing being propped up. The PPT have their tentacles in numerous markets/places --trying to keep the charade going.

Plunge Protection Team


Captain Moroni said...


Can you explain to me in easy terms why the banks are failing? I know that it has some what to do with derivatives but I get lost in the concept and lingo! I'm not good with a lot of economic terms so could you define a lot of your terms if need be. I really appreciate your blog!

Randy said...


Too much leverage and too much toxic waste (i.e. Mortgate backed securities, Collateralized Debt Obligations, Structured Investmet Vehicles, ect on their books -- each significantly falling in value and wiping out underlying bank capital; thus reqiring the bank raise new capital to remain solvent. Problem is: Many banks have far too much of this garbage
and their is no way they can ever come clean.

Suggest you spend some time w/this briefing below and watch the film Money as Debt:
US Economic outlook 2008-11

Captain Moroni said...

Absolutely excellent slide show!! Well done!!

I have another question. To say that we are experiencing inflation today is incorrect, because inflation is in reality an increase in money supply (Not a rise in prices. A rise in prices is often a result of inflation). What we are experiencing is a credit crunch, deflation. Correct? So if we are indeed experiencing deflation (A decrease in the money supply) then Why are prices still rising??!!

Justin_n_IL said...

The plot thickens.

Justin_n_IL said...

This is an excellent read from the Mish. Here is a sample of it.

Sadly, we are moving in the wrong direction as predicted by the Fed Uncertainty Principle.

Uncertainty Principle Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Uncertainty Principle Corollary Number Three: Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.