FedUpUSA

Archive for the ‘Bank Failures’ Category

The tragedy of the too big to fail banking sector – over $1 trillion in deposits are over the $250,000 FDIC limit.  $6.5 trillion in insured deposits backed by $3.9 billion.

It is amazing how much ill placed faith is thrown into the current banking system when there is plenty of evidence of insatiable malfeasance.  The FDIC recently released its quarterly banking report and somehow dismal information was twisted as being positive.  Take for example the reality that $6.5 trillion in insured deposits are backed by $3.9 billion.  Does this give anyone any comfort?  What is even more staggering is you have $1 trillion in deposits above the $250,000 FDIC protection limit riding it out with absolutely no protection.  The banking sector is going to face dramatic problems ahead because the past issues of bad loans have yet to be realized.  Sure, accounting trickery and fancy financial magic can buy you a few years but ultimately you have to come to terms with the deep issues in the balance sheet.  The FDIC is overseeing an industry with $13 trillion in “assets” and only carries a $3.9 billion insurance fund.  It appears the wizard behind the curtain is blowing more smoke than ever.

$1 trillion in deposits with no protection

One of the upsetting revelations in the quarterly report is the fact that over $1 trillion in deposits are not insured by the $250,000 limit.  Most of these deposits are placed in the too big to fail institutions.  As you can see from the table above, the U.S. has over 7,500 banking institutions but only 19 with over $100 billion in assets.  Incredibly, these are the most problematic banks as well.  The vast majority of these deposits are simply out to sea with no sail.  This only brings up the issue of potentially more bailouts as if the trillions of dollars given to the banking sector were not enough already.  Look at how well the bailouts have helped the wilting economy.

Contrary to what the public is told, the banking sector is not in healthy shape.  Take a look at these too big to fail banks and how well they have done in 2011:

Many of the biggest banks in the country are down from 12 percent all the way up to 38 percent including the recent rally.  Bank of America with over $2 trillion in banking assets has fallen by a jaw dropping 38 percent.

Read the rest at My Budget 360

In a Washington Post report this week, the Obama Administration was said to have decided to adopted a proposal to continue a major government presence in financing mortgages.  The Treasury subsequently denied this report in a statement posted by Deputy Secretary Neal S. Wolin:

“The Obama Administration believes that the private sector – subject to strong oversight and consumer protection – should be the dominant provider of mortgage credit.  That’s why, in each of the three options we outlined in our report to Congress, the government’s footprint in the housing finance market will shrink substantially.  That’s why, in each of the options, any government support for housing finance will be targeted and limited. This will help ensure that taxpayers are protected and the private sector bears the burden for losses.”

Would that any of this were really true.  Let’s go through this statement and pick out some of the more notable canards and omissions of fact.  First and foremost is the idea that the private sector is willing to take a leading role in housing finance in the U.S.

Since the 1930s, the U.S. has used a full-faith-and-credit guarantee for housing finance to turn disparate home mortgage notes into commodities attractive to investors.  The private mortgage market prior to the Great Depression and the New Deal is not comparable to the government-sponsored market for agency securities today, investment paper that is a close surrogate for Treasury debt itself.

The largest portion of the market for residential mortgage backed securities or RMBS has been government sponsored for 80 years.  By extending guarantees to private mortgage paper, banks were able to package the notes from each home mortgage and sell securities to investors backed by these notes.  This virtuous cycle provided liquidity for the banks, which recovered their principal and then were able to make additional home loans.  That cycle is now broken.

The role of the private sector in the RMBS market has been limited at best with private investors buying significant quantities of non-guaranteed paper only during times of market exuberance in the past decade.  Today banks are avoiding “first loss” risk on U.S. real estate and instead write almost all of their loan production to be guaranteed by one of the three housing agencies — the FHA, Fannie Mae or Freddie Mac.  Almost all of this flow of “new” loan business is refinancing for better borrowers.

This brings us to the second fallacy in the debate over the future of the government role in housing, namely that the current policy is meant to protect the taxpayer and the public generally.  You may have noticed that the Obama Administration has started to talk about creating opportunities to turn foreclosed properties into rental housing, a common-sense initiative that is born of necessity.  Hold that thought.

Empty homes represent tens of billions in future losses to the Treasury.  When the house is sold, the government takes the loss.  Thus the last thing either the Treasury or the White House wants to see is any effort to move the restructuring of the housing sector or the largest banks before the 2012 election.  Delay means higher cost to the taxpayer.

We talked about the need to restructure Bank of America as a precursor to clearing the U.S. housing market in an earlier post on Reuters.com, “Uncertainty and indecision threaten Bank America and global markets.” But given the recent debate over the debt ceiling, President Obama does not want to tell Congress that he needs at least a $1 trillion in borrowing authority to fix the GSEs and the largest banks.  Politics is the chief obstacle to fixing the housing mess.

Attorney Fred Feldkamp reminds us that “we knew virtually all the Texas S&Ls and banks were broke by 1984, but we could not get Congress to permit enough coverage in the federal debt limits and restructuring costs to close the vast bulk of them until FIRREA was passed in August of 1989,” he recalls.  “Even then, Congress tried to renege on the 1988 deals that kept the S&L problem from becoming twice as large.  It wasn’t until 1996-2004 that the people who were promised the 1988 deals received what they bargained for.”

One of the reasons that I have pushed for an FDIC resolution of some of the huge housing exposures facing the largest banks is that the cost can be kept off the federal budget.  FDIC is an industry funded mutual insurance scheme with powerful receivership and debt issuing authority, especially with the Dodd-Frank legislation.  The U.S. banking industry, not the taxpayer, has always paid to clean up the mess in previous crises via the FDIC.  The present housing crisis demands a similar response.

If the banking industry were to use the FDIC to restructure BAC and other large lenders, then immediately spin the smaller, better capitalized banks back into private hands, this would not only help Washington to focus scarce public resources on the losses inside the major housing agencies but would also greatly rehabilitate the industry’s public image.

Americans need to see some good examples of civic action, instances of private people and companies moving with purpose to solve our national problems.  A private sector approach to the housing problem, using the industry funded vehicle at the FDIC to restructure some of the largest banks and breath life into moribund housing assets, could be a powerful tool to that end.  But do we have the courage and the vision to make it happen?

Chris Whalen, cofounder – Institutional Risk Analytics

A brave new banking system – while public is told banking system is healthy FDIC quietly grows troubled bank list by 180 and adds over 1,600 employees in the last two years to deal with bank failures.

The banking system in the United States rests on a very thin layer of faith and that faith has been shaken by the current financial crisis.  The retail banking system is largely a facade that now latches on to taxpayer bailouts to fund speculative investments through their investment banking divisions.  The repeal of Glass-Steagall has been an absolute failure for allowing this commingling of financial functions.  I find it interesting that while we get a public stance that all is well on the banking front, we find that the FDIC keeps adding employees to handle bank failures and the number of problem institutions continues to grow.  Of course this is the kind of information that is buried deep in websites and financial statements while most of the press focuses on distractions.

Why would FDIC keep expanding through recovery?

I was digging through FDIC data and found the below information rather enlightening.  While we are told that the condition of our financial system is getting better, we find that the FDIC is adding more and more employees while the number of banks deemed “problems” continues to grow:

Source:  FDIC

In the last two years the number of problem institutions jumped from 702 in 2008 to 888 currently.  We have also added many more FDIC employees (from 6,557 to 8,233).  What I find illuminating is that in 2007, at the peak of the credit bubble only 50 institutions were regarded as problematic.  In other words, the main institution overseeing our banking system and deposits had no clue at the apex of the bubble that a problem was imminent.  Should we now be surprised that we are told that banking conditions are healthy while the above data tells us a very different story?

Too big to succeed

In the 1990s we had anywhere from 20 to 30 banks with total assets larger than $20 billion.  At the peak of the crisis we had closer to 55 but today we are nearly back to 50.  The too big to fail banks have gotten even bigger. This was always an interesting argument taken by the financial sector.  We were told that too big to fail was part of the problem and caused a systemic meltdown.  The solution?  Make the too big to fail even bigger.  So it is no surprise that while the middle class becomes smaller and pays for the bailouts this select group of banks become even bigger and more profitable. The list of giant banks is troubling:

Read more at My Budget360

I warned last year:

Anyone   who thinks that Congress will use the current financial regulation -    Dodd-Frank – to break up banks in the middle of an even bigger crisis  is  dreaming.   If the giant  banks aren’t broken up now – when they are threatening to take down the  world economy – they won’t be broken up next time they become insolvent either.   And see this.  In other words, there is no better time than today to break them up.

Standard and Poors is providing evidence for this assertion.

As the Financial Times notes today:

Officials fighting the next financial crisis may again bail out banks using the public purse, S&P has said, in an opinion that casts doubt on one of the fundamental tenets of US financial reform.

The rating agency said on Wednesday that the US Treasury, Federal  Reserve and Congress might rescue a large financial group rather than  allow it to fail like Lehman Brothers. Dodd-Frank, the legislation  signed into law a year ago next week, was supposed to prevent bail-outs  by allowing the government to seize and wind down safely an ailing “systemically important financial institution”, or Sifi.
 

But  in a research note, S&P said: “We believe the government may try to  avoid contagion and a domino effect if a Sifi finds itself in a  financially weakened position in a future crisis.”The agencies’ views are crucial to the fight over whether the  phenomenon of “too big to fail” has been ended. If not, the largest  banks will continue to enjoy a funding advantage over their smaller  rivals.

And see this (written after the passage of Dodd-Frank).

Why Break Up the Giant Banks?

Virtually all independent economists and financial experts say that the giant banks are too big, and that their very size is hurting the economy:

• Nobel prize-winning economist, Joseph Stiglitz

• Nobel prize-winning economist, Ed Prescott

• Nobel prize-winning economist, Paul Krugman

• Former chairman of the Federal Reserve, Alan Greenspan

• Former chairman of the Federal Reserve, Paul Volcker

• Former Secretary of Labor Robert Reich

• Dean     and professor of finance and economics at Columbia Business School,    and  chairman of the Council of Economic Advisers under President  George   W.  Bush, R. Glenn Hubbard

• Former Director of the National Economic Council Larry Summers

• Former chief IMF economist and economics professor Simon Johnson (and see this)

• President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)

• President of the Federal Reserve Bank of Dallas, Richard Fisher (and see this)

• President of the Federal Reserve Bank of St. Louis,  Thomas Bullard

• Deputy Treasury Secretary, Neal S. Wolin

• The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine

• The Congressional panel overseeing the bailout (and see this)

• The head of the FDIC, Sheila Bair

• Former Tarp overseer and creator of the Consumer Financial Protection Bureau, Elizabeth Warren

• The head of the Bank of England, Mervyn King

• The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz

• Economics professor and creator of the “efficient market hypothesis”, Eugene Fama

• Economics professor and senior regulator during the S & L crisis, William K. Black

• Economics professor, Nouriel Roubini

• Economics professor, James Galbraith

• Economist, Marc Faber

• Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales

• Economics professor, Thomas F. Cooley

• Economist Dean Baker

• Economist Arnold Kling

• Former investment banker, Philip Augar

• Chairman of the Commons Treasury, John McFall

• Leading bank analyst, Chris Whalen

Why do these experts say the giant banks need to be broken up?

Well, small banks have been lending much more than the big boys.  The giant banks which received taxpayer bailouts have been harming the economy by slashing lending, giving higher bonuses, and operating at higher costs than banks which didn’t get bailed out.

As Fortune pointed out, the only reason that smaller banks haven’t been able to expand and thrive is that the too-big-to-fails have decreased competition:

Growth    for the nation’s smaller banks represents a reversal of trends from   the  last twenty years, when the biggest banks got much bigger and many   of  the smallest players were gobbled up or driven under…

As  big   banks struggle to find a way forward and rising loan losses  threaten  to  punish poorly run banks of all sizes, smaller but well  capitalized   institutions have a long-awaited chance to expand.

So the very size of the giants squashes competition, and prevents the small and medium size banks to start lending to Main Street again.

And as I noted in December 2008, the big banks are the major reason why sovereign debt has become a crisis:

The   Bank for International Settlements (BIS) is often called the “central   banks’ central bank”, as it coordinates transactions between central   banks.

BIS points out in a new report that the bank rescue packages have transferred significant risks onto   government balance sheets, which is reflected in the corresponding   widening of sovereign credit default swaps:

The   scope and magnitude of the bank rescue packages also meant that   significant risks had been transferred onto government balance sheets.   This was particularly apparent in the market for CDS referencing   sovereigns involved either in large individual bank rescues or in   broad-based support packages for the financial sector, including the   United States. While such CDS were thinly traded prior to the announced   rescue packages, spreads widened suddenly on increased demand for  credit  protection, while corresponding financial sector spreads  tightened.

In  other words, by assuming huge portions of  the risk from banks trading  in toxic derivatives, and by spending  trillions that they don’t have,  central banks have put their countries  at risk from default.

A study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:

Existing  empirical research has shown that providing assistance to banks  and  their borrowers can be counterproductive, resulting in increased  losses  to banks, which often abuse forbearance to take unproductive  risks at government expense. The typical result of forbearance is a  deeper hole in the net worth of banks, crippling tax burdens to finance  bank bailouts, and even more severe credit supply contraction and  economic decline than would have occurred in the absence of forbearance.

Cross-country   analysis to date also shows that accommodative policy  measures (such   as substantial liquidity support, explicit government  guarantee on   financial institutions’ liabilities and forbearance from  prudential   regulations) tend to be fiscally costly and that these  particular policies do not necessarily accelerate the speed of economic  recovery.

***

All too often, central banks privilege stability over cost  in the heat of the containment phase: if so, they may too liberally  extend loans to an illiquid bank which is almost certain to prove  insolvent anyway.   Also, closure of a nonviable bank is often delayed for  too long, even   when there are clear signs of insolvency (Lindgren,  2003). Since bank   closures face many obstacles, there is a tendency to  rely instead on   blanket government guarantees which, if the government’s  fiscal and   political position makes them credible, can work albeit at  the cost of placing the burden on the budget, typically squeezing future  provision of needed public services.

Now,  Greece, Ireland, Portugal, Spain, Italy and many other European countries – as well as  the U.S. and Japan – are facing serious debt crises. We are no longer  wealthy enough to keep bailing out the bloated banks.

Indeed, the top independent experts say that the biggest banks are insolvent (see this, for example), as they have been many times before. By failing to break up the giant banks, the government will keep taking emergency measures (see this and this) to try to cover up their insolvency.  But those measures drain the life blood out of the real economy.

And by failing to break them up, the government is guaranteeing that they will take crazily risky bets again and again, and the government will wrack up more and more debt bailing them out in the future.

Moreover, Richard Alford – former New York Fed economist, trading floor economist and strategist – recently showed that banks that get too big benefit from “information asymmetry” which disrupts the free market.

Indeed, Nobel prize-winning economist Joseph Stiglitz has noted that giants like Goldman are using their size to manipulate the market:

“The    main problem that Goldman raises is a question of size: ‘too big to    fail.’ In some markets, they have a significant fraction of trades. Why    is that important? They trade both on their proprietary desk and on    behalf of customers. When you do that and you have a significant    fraction of all trades, you have a lot of information.”

Further,    he says, “That raises the potential of conflicts of interest, problems    of front-running, using that inside information for your proprietary    desk. And that’s why the Volcker report came out and said that we need    to restrict the kinds of activity that these large institutions have.  If   you’re going to trade on behalf of others, if you’re going to be a    commercial bank, you can’t engage in certain kinds of risk-taking    behavior.”

The giants (especially Goldman Sachs) have also used high-frequency program trading  which not only distorts the markets – making up more than 70% of stock trades – but which also lets the    program trading giants take a sneak peak at what the real (that is,    human)  traders are buying and selling, and then trade on the insider    information. See this, this, this, this and this. (This is  frontrunning,    which is illegal; but it is a lot bigger than garden variety    frontrunning, because the program traders are not only trading based on    inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).  Goldman also admitted that its proprietary trading program can “manipulate the markets in  unfair ways”.

Moreover, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country’s derivatives risk, and 96% of the exposure to credit derivatives. Experts say that derivatives will never be reined in until the mega-banks are broken up – and see this – even though the lack of transparency in derivatives is one of the main risks to the economy.

The giant banks have also allegedly used  their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated  mutually beneficial actions, all with the government’s blessings.

Again, size matters.  If a bunch of small banks did this,  manipulation   by numerous small players would tend to cancel each other  out.  But  with  a handful of giants doing it, it can manipulate the  entire economy  in  ways which are not good for the American citizen.

Further, fraud was one of the main causes of the Great Depression and the current financial crisis.  The banks are so big that they are buying off politicians so that it has become official policy not to prosecute fraud.   Indeed, everyone from Paul Krugman to Simon Johnson has said that the banks are so big and politically powerful that they have bought the politicians and captured the regulators. So their very size is allowing economy-killing corruption to flourish.

Moreover, the banks’ enormous size means that the executives make orders of magnitude more in bonuses and salary than the executives of small banks.  They are so big that their executives are living like kings.  This is making inequality worse … and rampant inequality was another primary cause of the Great Depression and the current financial crisis.

Indeed, failing to break up the big banks will result in the sale of national assets and the looting of national treasuries in order to pay off debts to the giant banks.  This, in turn, will destroy the national sovereignty of virtually every country.

Leading independent bank analyst Christopher  Whalen argues:

The  fraud and obfuscation now  underway in  Washington to protect the    TBTF  [i.e. giant or "too big  to fail"] banks … totals into the   trillions of dollars and rises to     the level of treason.

Just look at Greece.  That is our future – and see this – unless we break up the “too big to fails”.

These concepts have been known for hundreds of years:

“When a government is dependent upon bankers for money, they and not   the leaders of the government control the situation, since the hand that   gives is above the hand that takes… Money has no motherland;   financiers are without patriotism and without decency; their sole object   is gain.”
- Napoleon Bonaparte

“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
- John Adams

“If   the American people ever allow the banks to control issuance of their   currency, first by inflation and then by deflation, the banks and   corporations that grow up around them will deprive the people of all   property until their children will wake up homeless on the continent   their fathers occupied”.
— Thomas Jefferson

“I  believe that   banking institutions are more dangerous to our liberties  than standing   armies…The issuing power should be taken from the banks  and restored   to the Government, to whom it properly belongs.”
- Thomas Jefferson

“[It was] the poverty caused by the bad influence of the English     bankers on the Parliament which has caused in the colonies hatred of the     English and . . . the Revolutionary War.”
- Benjamin Franklin

“The   Founding Fathers of this great land had no difficulty whatsoever    understanding the agenda of bankers, and they frequently referred to    them and their kind as, quote, ‘friends of paper money. They hated the    Bank of England, in particular, and felt that even were we successful  in   winning our independence from England and King George, we could  never   truly be a nation of freemen, unless we had an honest money  system. ”
-Peter Kershaw, author of the 1994 booklet “Economic Solutions”

“[T]he   creation and circulation of bills of credit by revolutionary    assemblies…coming as they did upon the heels of the strenuous efforts    made by the Crown to suppress paper money in America [were] acts of    defiance so contemptuous and insulting to the Crown that forgiveness was    thereafter impossible . . . [T]here was but one course for the crown   to  pursue and that was to suppress and punish these acts of    rebellion…Thus the Bills of Credit of this era, which ignorance and    prejudice have attempted to belittle into the mere instruments of a    reckless financial policy were really the standards of the Revolution.     they were more than this: they were the Revolution itself!”
- Historian Alexander Del Mar

“The   British Parliament took away from America its  representative money,   forbade any further issue of bills of credit,  these bills ceasing to be   legal tender, and ordered that all taxes  should be paid in coins …   Ruin took place in these once flourishing  Colonies . . . discontent   became desperation, and reached a point . . .  when human nature rises  up  and asserts itself.”
- British historian John Twells

People psychologically are programmed to believe in financial realities that benefit their own cause even if they have no merit in empirical data.  Many also forget that banks, especially the investment kind have a notorious track record of running amok when allowed to.  The FDIC and US banking is a perfect example of a system built on nothing more than faith.  Currently the FDIC insures individual deposit accounts up to $250,000.  Given that most average Americans only have $2,000 saved up this is rarely an issue.  However, FDIC insured banks have $5.4 trillion through insured deposits yet have a deposit insurance fund (DIF) that is in the negative to the tune of $8 billion.  Is this a Ponzi scheme you ask?  Not exactly but it shows that the entire financial edifice that we call US banking is built on largely a foundation of sand being held together by pure psychological confidence.  Just look at this chart below; as insured deposits grow the insurance fund actually dwindles:

Source: FDIC

How is this even possible you may ask?  Well at a very basic level we have fractional reserve banking.  In the US banks have a 12 to 1 leverage ratio.  This number is derived by assets divided by net worth.  Yet banks have the benefit of calling over priced real estate loans “assets” even though all of us fully understand that much of what they have on the books is cooked at bubble level prices.  Banks are hoping the public is naïve enough to allow this game to go on for long enough where time and the Federal Reserve can inflate away the debt at the expense of the middle class.  Inflation is not the answer and we have many ruined economies throughout the old chapters of history to serve as testimony.  The FDIC backs more bread and butter banks but the top investment banks that were the largest beneficiaries of taxpayer bailouts have some of the most outrageous leverage:

Only two of the five now stand (Goldman Sachs and Morgan Stanley) as standalone investment banks.  Merrill Lynch is now part of Bank of America while Bear Stearns and Lehman Brothers are both gone.  Yet we are not better off because what has occurred is the too big to fail have become even bigger.  Take for example the number of FDIC banks:

In 1992 over 12,000 banks and savings institutions were backed by the FDIC.  Today that number is slightly above 7,700 yet total assets are even larger on a percentage basis.  More and more banks fail but where tiny regional banks go down another too big to fail bank takes over and sets up shop.  You’ve probably seen this in your own neighborhood.  These are the same banks that created most of the toxic debt that infected the financial system to begin with.  Now we are allowing them to setup shop all around the country.  The FDIC is backing over $5 trillion in deposits purely on faith.  Let us assume there is a bank run.  Who will be there to bailout the FDIC?  The US Treasury and Federal Reserve but since the nation is in the hole to the tune of $14 trillion in national debt this would only dilute the currency even further.  In the end you would get paid back but with deflated dollars.  This is why inflation is never really a solid option out of economic malaise.  Otherwise we should just print and send $1 million to each American household.

Debt problems continue to plague the economy:

Source:  Federal Reserve

This is stunning data.  Nearly 14 percent of all credit card accounts are 90 days or more delinquent.  Given that there is $850 billion in this market alone, this is cause for concern.  The next biggest delinquent category by percent of all loans isn’t mortgages but student loan debt.  We’ve discussed the higher education bubble and here you are seeing the end results.  Ultimately what the above shows is a country that fueled its last decade largely on massive amounts of debt.  That debt is now due and many people are unable to pay.  Keep in mind what this signifies.  We aren’t talking about paying off the entire balance.  You have people unable to make the $200 payment on their $7,000 credit card debt.  Or you have people unable to pay the $1,500 mortgage on their $175,000 home.  This debt is actually an asset to the banking system.  Does the above chart make you feel confident that the value of banking assets is increasing overall?

Look at the total debt outstanding:

Source:  Federal Reserve

Currently US households have $11.4 trillion in debt outstanding.  This is off from the $12.5 trillion peak in Q3 of 2008.  The big difference is also the amount of equity Americans have in their home.  That $11.4 trillion in debt seems more painful when overall US housing has fallen by over 30 percent and has chopped into the biggest asset of average Americans.  Home prices are down by 30 percent while overall debt levels are down by 8.8 percent.  That is simply unsustainable and that is why banks keep failing on a weekly basis.  But the banks that have the most fantasy in their balance sheets, the too big to fail continue to eat away at taxpayer money through the hidden cost of quantitative easing and the destruction of the US dollar.  These aren’t speculative notions but just look at where your financial life is today versus where it was over a decade ago.

As people struggle with extremely high unemployment many are jumping into the higher education bubble and getting into massive debt:

Many of these graduates will have no savings with FDIC insured banks but will owe the government and banks money they don’t have.  How will they pay this off?  The high delinquency rate is telling us they can’t.  In the end you need a sustainable economy but right now the FDIC is merely the Wizard of Oz.  We are pretending that over $5 trillion in deposits is actually backed by some “lock box” fund somewhere.  It isn’t.  It is simply faith in a system that has largely failed the middle class.  As we see protests around the world when will Americans protest against this banking system that has led them down this path of debt servitude?  Is robbing your financial future or your kid’s financial future not enough to call for serious reforms in the system?  Let us just keep pretending that the $13 trillion in “assets” at FDIC insured institutions is really worth that and keep going on with our business.  Just like everyone believed real estate was actually worth what it was at the peak just because it inflated balance sheets all around the country.

My Budget 360

Hint To Other Nations: Here’s The Bill

Posted by Karl Denninger

For your coddling of the banker cabal, that is.

Yes, that’s my view.  This sort of bluster and bullshit must not stand:

Dutch Finance Minister Wouter Bos would not be drawn into speculation on steps against Iceland. “But this can’t go on forever. We want our money back. We negotiated reasonably.”

Mr. Bos, go perform an indecent act on yourself.

You, along with the rest of the “western world”, were complicit in and willing partners with the criminal banking cabal that ripped off the entire world with their worthless securities.

You “negotiated” for the right to steal even more after you failed to lock up the banksters for their criminal conduct – for intentional concealment and fraud in their “marketing” of these securities to investors worldwide.

You, just as with those here in Washington DC, were fully complicit in the looting of the public that took place over the last decade and more.

YOUR GOVERNMENT has allowed institutions in your nation (and elsewhere) to claim that “debt is output” and that speculation constitutes GDP.  That’s a willful, knowing lie.

Britain is also weighing in with the following threat:

Myners (the British Financial Services Minister) told the BBC that if Iceland voted against the deal, it would cut itself off from the global financial system and from International Monetary Fund aid for its economy, one of the worst hit by the world bank crisis.

‘The Icelandic people, if they were to reach that conclusion, would effectively be saying that Iceland does not want to be part of the international financial system, that Iceland doesn’t want to have access to multi-national, national and bilateral funding and doesn’t want to be regarded as a safe counter-party with whom to do business,’ Myners said.

Mr. Myners, with all due respect (that is, none), may you be fornicated by a stallion.

“The City” has for literal hundreds of years been the hotbed of bankster corruption, greed and fraud.  Your nation is on record (in The Congressional Record no less!) as having sent bankster “representatives” over to this country shortly after it was formed for the explicit purpose of bribing our Congress into being recaptured after you lost the Revolutionary War!

I, for one, am tired of this game of “captured government” and it appears so is Iceland and its people.

It’s about damn time.

You and your ilk had every ability to stop the fraud and looting over the last several decades.  You could have prevented the blowing of your own property bubble and destruction of your federal budget, along with the insane expansion of leverage and “yield seeking” through fraudulent misrepresentation of risk and leverage but you didn’t do so.  Instead you, like the so-called “government regulators” in The United States, knelt before the banking cartels and performed obscene acts so frequently that you wore out sets of kneepads at a rate that kept Home Depot’s profit margins at a record during the decade of the 2000s.  

Now that the bubble has burst you’re whining that you’re going to have to eat the product of your own cooking and willful blindness.

To that I say: Tough crap.

Start locking up the jackasses who did this to the global economy instead of kneeling before Zod for yet more obscenities.  You know who they are.  Just walk down any of your much-vaunted “streets” in “The City” and where you see a $5,000 suit apply a pair of handcuffs.

If you won’t and don’t I predict that it will not be long before the reaction of the Icelandic people spreads – including to the UK.

Whether the people of your country will give you the opportunity to do the right thing when, not if that sentiment spreads is something you may wish to ponder.