Banking Disaster Largely Ignored By Mainstream Media
By Greg Hunter’s
Last week, bank failures quietly passed the 100 milestone for the year. I say “quietly” because the bank failure story has gone largely unreported or, at least, under-reported by the mainstream media. Just to give you an idea of how fast the bank insolvency problem is accelerating, last year, at this time, 64 banks had been taken over by the Federal Deposit Insurance Corporation. So far, this year, 103 banks have already been taken over by the FDIC. There is no question the bank failures the FDIC will have to deal with will be greater than the 140 insolvent banks closed last year. At this point, we just don’t know how many more, but dozens more than last year for sure.
One big bank negative I see is the loss of business in the Gulf because of the oil spill catastrophe. I don’t think it is a stretch to say that the loss of revenue from fishing, deep-water oil drilling, tourism and spoiled coastal property will probably have a negative effect on the balance sheet of Gulf Coast banks. Just 2 weeks ago, a Wall Street Journal story documented tail spinning Florida banks asking for a break from federal regulators. It said, “Florida banks—already weakened by the real-estate bust and hit again by customers suffering from the BP PLC oil spill—are asking federal regulators for a reprieve from government-ordered capital raising as they struggle to stay alive.” (Click here for the more on the WSJ story.) There are currently 775 “problem” banks on the FDIC’s list, and I don’t think that list will be shrinking anytime soon.
In order for the FDIC to close the banks, it has to spend cash to make depositors whole. It is also entering into what are called “loss share” agreements. It is a way to keep problem loans and foreclosed property in a banking environment and not become the full responsibility of the government. It also caps the loss for the buying institution. Here’s how the “loss share” basically works. The FDIC writes down the assets to an estimated value. Then, the FDIC covers any potential losses in an 80/20 split, with the FDIC covering 80% of any potential loss. These loss share agreements were used in the S&L crisis in the early 90’s. Since this crisis began, there have been $173.5 billion of loss share agreements through May of 2010. (The total now stands at more than $178 billion.) According to FDIC spokesman David Barr, if loss share agreements were not used, the failed bank assets might sell for “pennies on the dollar.” The idea is to wait and sell the assets in the future when they might be worth more. Barr told me just last week, “As the FDIC turns those losses into real losses when we sell those, then the loss at the failed bank is adjusted accordingly, some go up and some go down.”
If the economy continues to tank, make no mistake, there will be some liability to the FDIC. We just will not know how much until the assets are sold. There might be no future liability at all, but I don’t think that’s likely given the serious and prolonged problems facing the economy. This is probably a multi-billion dollar future write down, but who knows?
The bank closings are also taking a toll on the FDIC’s Deposit Insurance Fund, or DIF. In May, it was reported to be $20.7 billion in the red. Back then, I wrote a post called, “FDIC Insurance Fund Still $20 Billion in the Hole.” I said, “I talked with FDIC spokesman David Barr yesterday about the shortfall in the DIF. He said, “The FDIC is not broke.” It has an additional “$63 billion in cash.” He told me there is about $46 billion in three years of prepaid deposit insurance premiums and an additional $17 billion in cash for a grand total of $63 billion in “liquid resources” to close insolvent banks.”
If you subtract the $20.7 billion deficit of the DIF from the roughly $63 billion in “liquid resources,” you end up with a little more than $42 billion. FDIC Chairman Sheila Bair was quoted, around the same time, saying the FDIC expects to spend “$40 billion” closing banks in the next year. (Remember, this was before anyone knew how big the Gulf oil spill calamity was going to be.) My math says that would leave a little more than $2 billion in “liquid resources.” According to an email from David Barr yesterday, after that $2 billion is used, there is a “. . . 100 billion line of credit (from the Treasury). The FDIC also has some $35 billion in assets from failed banks that we must sell.”
That means in about a year, the FDIC will be closing banks with borrowed money and what it can get from selling the assets of failed banks. If that doesn’t paint a dire picture of bank insolvency in this country, I don’t know what does. It is amazing to me how little time the mainstream media is spending on this unfolding financial disaster and how much time it is devoting to things like Mel Gibson’s rants.
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About the Author
Greg Hunter
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
The ignorance of the MSM is simple; they are hoping that by not reporting and raising anxiety levels everything will work out fine. Ms. Bair was on FOXNEWS and was not asked about the future prospects of the FDIC. She made it sound like closing banks was the fun part of her job and the a lot more were going to close this year.
It seems that our government knows exactly what is going on and is deliberately hoping no one else will care.
John,
That is why I often scream at the TV. It is so frustrating. Thank you.
Greg
Greg,
The true financial picture will continue to be painted over by the mainstream media as long as the American public chooses to ignore the situation at hand. Until we choose to be informed the media will continue to get away with stories regarding Mel Gibson and Lindsay Lohan.
Since you worked for the mainstream media at one time I would like your input on how certain stories get airtime and others do not. I have long suspected that the banking/financial institutions have incredible influence over the media and what it reports. Can you confirm this?
On another note, the banking system needs to completely collapse and fractional reserve banking needs to be made illegal. Fractional reserve banking combined with fiat currency creates inflation.
Stephen
Stephen,
You would be surprised how many stories come right out of the newspaper. Being a tough reporter is also work and some folks don’t want to work that hard. The networks do not tell people to be soft they just hire and keep people who will. Thank you for the comment and question.
Greg
Greg,
With all due respect, how did you get hired to work at CNN when you are obviously someone who will report the truth?
You must have had a good interview:)
Stephen
Stephen,
I guess I just got lucky. Thanks for all your support!
Greg
“It is amazing to me how little time the mainstream media is spending on this”, writes Hunter. I say – really seems like we’re drugged up by the ZOG. The ZOG controls everything. (Mainstream) media is it’s centerpiece.
I hate the USA being a ZOG. Thanks to the dispensationalist Christians – it may remain that way. How many innocent Iraqis children have been prayed for in American churches? Versus – how many pray for prosperity for Israel.
No, that Banks have gone unnoticed is not surprising.
Jeff,
I don’t agree with you but I’ll post your comment because all sides and views should be viewed by my readers.
Thank you.
Greg
“It is amazing to me how little time the mainstream media is spending on this unfolding financial disaster and how much time it is devoting to things like Mel Gibson’s rants.”
Really? … You’re surprised by this?… Really?
Dan,
Yes Really. I spent a career sticking my neck out and doing hard hitting stories. I should have said I am surprised and ashamed all at the same time. Thank you for your comment and question.
Greg
Dear Sir,
Why doesn’t some one explain about the “mark to the market” of mortgages that banks hold and how if this was still enforced how much the assets of the banks would be effected. On an interview a retiree of the Treasury Department said if JP Morgan did a mark to the market they would lose 37% of their net worth because of loans that had gone down in value and a lot of them to zero..
JL,
Quite simply, the rules have been changed by FASB so banks can value their assets to whatever they think they will be worth in the future even if they are worthless or worth alot less then they can get in the market today.
Greg
Greg, Thanks for paint a clear picture of all to see. Our banking system and our currency are “faith” based systems. When peope do not have faith, we call it a “run” on our banks. Our banks take your funds and loan them. Most people do not realize that their savings accounts and CD’s can take by law up to 90 days to withdraw. Laws were just changes so that in times of a government declared emergency, the government can limit the money you can with draw from money market accounts. All of this looks like government preparation for that financial iceberg that they KNOW were are going to hit.
JJ,
Good comment and info man!!
Greg
How can you be amazed when the answer is so simple and obvious: 1) the mainstream media is once again protecting their messiah (POTUS) and 2) number 1 assumes that the msm is even able to appreciate what is happening and its implications.
Michael,
The MSM did not just start this when Obama was elected. Remmember the time leading up to the last crisis in 08? The housing problem was going to be “contained.” I was running around the newsroom and on the air at CNN calling BS on this in 07 and 08. History is repeating itself again!! Thank you for your comment.
Greg
Here’s a couple of reasons for main-stream media news-blackouts:
1. The sword that hangs over every investigative journalist is what happened to Gary Webb.
http://en.wikipedia.org/wiki/Gary_Webb
2. JPMorganChase is the largest institutional holder of Gannett. Gannett controls 85 major daily newspapers, along with other media outlets. You don’t say bad things about your banker (or his friends) in your media if you want to exist.
http://finance.yahoo.com/q/mh?s=GCI+Major+Holders
Not too long ago, George Orwell said:
“In a time of universal deceit,
telling the truth is a revolutionary act.”
Edward,
Great info man!! Thank you for providing links to back up your story!!!
Greg
You meant to ewntitle this, “LAMEstream Media,” right?
They most certainly ARE under compleye control of their NWO overlords.
There is no excuse for this!
Come the Revolution, they MUST go and be REPLACED by true Freedom of the Press.
Please visit my web site.
Thank YOU!
Kenneth,
Thank you and good luck with your site!!
Greg
European banks aren’t much better off. I suppose they think that 3% capital reserve ratios are “adequate” to stem any future crisis. It appears we are entering never never land.
Good point Tater.
Greg
The Main Stream Media are owned by Big Money. Big Money owns the Big Banks. The Big Banks were bailed out by the US Federal Government. The small banks were not bailed out. The small banks go bankrupt but the BIg Banks do not. When the banks start lending again, there will be fewer small banks to take advantage of that business. Guess who will take up the slack? To understand how the BIg Banks work, read “The Creature Ftom Jekyll Island” by G. Edward Griffin. In a nutshell, the Big Banks create a crisis, apparently suffer from the crisis but in fact walk away undamaged and thereafter absorb more and more of the available business and earn more and more profit. How do you as the “little guy” benefit? If you do nothing, you do not benefit; you rather suffer from having the Big Banks control the economy. How could you benefit? The easiest way currently would be to buy shares of Citigroup Inc. They currently trade for around $4 a share but they were worth $60 a share four years ago. They will be worth at least $40 a share within the next four years. Why? Because the Big Banks own the country. They cannot fail. They are “too big to fail”. You might want to grab a piece of the pie. It beats working in Wal-Mart.
Dr. Zook.
Thank you but I just can’t bring myself to buy a single share of “C.” It is probably a good buy here and you are probably correct thank you.
Greg
Thanks for not censoring content Mr. Hunter.
I’ve read certain scientists have predicted an end result of the World Wide Web may be an increase in entropy. I concur, and consider it a mixed blessing. Those people who remain reliant upon conventional sources for their information will be left behind, while persons unafraid to consider all points of view while using critical thinking skills will prosper. This is definitely not the same as it ever was. Within the matrix, moneyed interests hold the upper hand, but cannot yet control content within cyberspace, save search engines. They recognize this, and have devoted vast sums of resources to build information analytical control facilities under the guise of fighting terrorism. The NSA is currently constructing unprecedented amounts of square footage devoted to this task, which will make the media consolidation of the eighties and nineties seem like child’s play.
http://cryptome.org/eyeball/index.html
Thank you RJ.
Greg
Where do you stand on killing the Fed? The Fed is a private corporation given the government’s blessing to legally counterfeit money.
In this system, very simply put, when the government issues bonds, the Fed creates money out of thin air. Thus, the people are indebted for every cent the Fed creates, even though the Fed creates the money out of thin air but expects the citizenry to produce real value to pay it back.
If the government issued coin (which is as easy to do as issue bonds) instead of the Fed, it could simply print money at no debt to anyone.
If this were the case, there would be no need for income tax. Income tax was created at the same time as the Fed in 1913, specifically, to cover the debt the Federal Reserve Act would predictably incur. Imagine the economic benefits of a non-debt monetary system and no income tax. Is that something worth discussing?
Stephan,
I was form HR1207. The “Real” Fed audit bill. We really do not need the Fed but what do you know, the Fed just got increased powers in the new FinReg bill signed int to law by O. Not a fan of the Fed.
Greg
Couldn’t agree more. We’re a society of morons. Even many educated people are morons, not caring about matters like this that will severely impact them down the road. Everyone is more interested in how Lindsay Lohan is feeling in prison and what freak show is unfolding on Jerry Springer. Many people are in for a rude awakening in the not too distant future. I hope its not as bad as I think its going to be, but I don’t see how it can be otherwise. All the while the government has everyone right where it wants them… fat, stupid, and dependent. God help us all.
William,
It is so frustrating to try to warn most people of what is coming. They will find out soon enough ready or not. Thank you for the comment.
Greg
Greg, this frustration is timeless, since at least Plato’s time. People are not ignorant nor stupid, they’ve just been lied-to and stolen-from for so long that it’s difficult and time-consuming to undo all the nonsense. Look how long it took us, and we worked at it! Here’s some explanations:
http://en.wikipedia.org/wiki/Allegory_of_the_cave
and
01/28/2010 – Noble Lies And Muddy Brains at
http://greatreddragon.com
My only wish is that these things would have been taught us in high school. It would have served me well for these last 45 years, rather than just now understanding such things at 63. Sigh.
Edward,
Good stuff man!!
Greg
Another great job Greg. I honestly dont think there is a math that has been invented yet…other than (black hole theory and thermodynamics with differential equations) that could possible give bull sh*t numbers that these “media” cats come up with. Ill bet you could get a bunch of m.i.t. grads to study the business plans and accounting practices of these criminal institutions and after a week they would look at each other and go “how the hell did these guys think this was ever gonna work?????” thanks, and thats all i got.
Youn are right Brian.
Greg
Nice article as usual, Greg.
Hope you’ll weigh in on the recent revelation regarding the SEC and the FOIA. That loud “thunk” you may have heard yesterday was my jaw hitting the floor after I heard about it.
MikeD,
That is on a growing and long list. Yes this is an outrage! I think it is a move to cover up past and future fraud.
Thank you for the comment.
Greg
Greg,
NEVER mentioned in any story about real estate collapse and forclosures is the PMI or private mortgage insurance. Millions of Americans have been paying for this insurance that was to protect the lender (not the home owner) in the event of a mortgage default. What has happened to the companies that the PMI was paid to? How many lenders has PMI reimbursed? Was there ever any real insurance or was this just a little fee that lender collected for their profit?
Tom
Western Colorado
Tom,
I’ve talked about some of what you mentioned in past posts but you bring up a good point about PMI!
Greg
Having all of your money, retirement accounts, etc. in the banks or stock market does not make much sense right now. It is not like the banks are paying interest rates even above actual inflation. This is one of the best reasons to buy some gold and have real investment diversification. It can’t hurt if things get worse.
Doug,
Having a portfolio without gold is like driving your care with no insurance. You are thinking right sir. Thank you for the comment.
Greg
Greg;
3 more biggest losers added on Friday. 106 for the year.
Thanks for the great articles. I run a small ammunition manufacturing company on the West Coast, and, like most small (and large) businessmen am afraid to further invest in my business as we have no idea what the lunatics in Washington and Sacramento are going to do next. Here in CA we have nearly 25% unemployment, nearly $40 billion in the hole, no state budget and they are arguing over the merits of banning single-use grocery bags!
Keep un the good work!
Steven,
The FDIC added a few more to the list of this weeks failures. Now 108 for the year. Thank you for watching this for us all!!
Greg
Are you a fan of the tea party? Do you believe Glenn Beck? Do you like Sara Palin? Do you like Newt? To all of these I say yes! Yes!
Clayton.
Do you not understand the deep financial problems the country is facing now? Do you not understand how pompous it is to take a vacation to Spain or throw a three million dollar wedding when a record 40.8 million Americans are on food stamps? Do you know how tired I am of all the partisan crap from both sides? Do you know I strongly feel both Democrats and Republicans are of equal blame for causing the depression we are in? To all of these I say, no, no, no and no. Thank you for your comment.
Greg
I understand the situation completely, like you, but if not the tea party, who would you choose to lead the country out of this mess. I have a good enough memory to know that it wasn’t Clinton that left us with a surplus. Most people didn’t know or care to remember that things were so bad after Clinton’s firt 2 years in office, that we had a Republican landslide which gave the Repubs control of the house and senate. Newt pushed the welfare reform and the skirt chaser vetoed the bill (twice I think) until there were enough votes to overide his veto, so knowing that the bill was going to pass anyway, he signed it with fanfare and it morphed into becoming “Bill Clinton’s Welfare Reform”.
I changed my registration from Republican to unafiliated 5 years ago, because I didn’t like the way things were going then. Now the Republicans are the lesser of the two evils. I wish we could elect more people like Jim Demint.
Clayton,
I thought your first comment was kinda giving me a hard time but I can now clearly see you were not. I am sorry I was harsh. You make excellent points here. I have often said Clinton was the most “Republican” Democrat in history. But I firmly believe both parties share equal blame for the catastrophe we face. At this point, I also believe we cannot avoid what is coming. It will be unlike ANY financial storm the country has ever faced. More coming on Monday about the timing of this financial storm on USAWatchdog. Thank you for your comments and support.
Greg
Pretty weak understanding of the loss share in the article. Also, pretty weak evidence that banks would sell for “pennies on the dollar” without it… as just a quote was given. Easy to contradict that where there have been several failed banks that have sold without loss share in the past 2 years for significant amounts. In these auctions, banks often submit loss share and non loss share bids at the same time. The FDIC picks the bids that result in the least amount of loss to the fund. Remember than the acquiring institution is taking on all of the liabilities (deposits) of the failed bank, which almost always exceed the asset values in these situations. Why would they do that? Because the FDIC either bridges the difference with cash (a non loss share bid) or they do it with 20% cash and 80% cash on the come when the expected losses are actually realized (a loss share bid).
Hey Jacko,
You know as well as I do the FDIC makes buying a bank a can’t-miss proposition. We can settle everything if we just go back to mark to market accounting. Thank you for your comment even though you disagree the bankers are robbing the country blind.
Greg