The FDIC Is Broke

The Market Ticker ^ | 11/24/09 | Karl Denninger

[FromLori]

Yes, really.

Off the wire this morning:

FDIC Deposit fund had negative $8.2B balance in Q3

That's broke. Bankrupt. Kaput. Gone. Poof. Dead. Rotting. A corpse.

Yes, yes, I know, Treasury has their back. But let's not forget - The FDIC does not have a legal "full faith and credit" guarantee from the US Federal Government and Treasury.

It has a "sense of Congress" resolution, but not a formal, legally-binding guarantee.

I am not, by the way, predicting an actual FDIC failure to pay. Should such an event happen it would be tantamount to a declaration of revolutionary war (by the government about to be deposed!) as if there is one thing that would cause Granny to reach for her shotgun, it would be getting screwed out of her life savings after Sheila Bair and everyone else in our government has trotted out how their money is "fully safe" and that "nobody has ever lost a penny of insured deposits and never will" for more than 20 years, including lots of pronouncements of exactly that mantra over the last year.

Nonetheless this outlines the underlying problem the FDIC has - it has willfully and intentionally ignored the fact that banks have mismarked their "assets" to overstate their values, it has refused to demand that accounting be done on a strict "mark to market" basis by bank examiners, and indeed, it has backed the "extend and pretend" commercial real estate "rollover" provisions of recent months, all of which is manifestly unsound, intentionally misleading, a consequence of willful refusal to enforce 12 USC Ch 16 Sec 1831o ("Prompt Corrective Action"), and has led to enormous losses being absorbed by the Deposit Insurance Fund that should have never happened.

The result?

THE FDIC IS BROKE.

Let's put this in common-man terms:

YOUR SO-CALLED "DEPOSIT INSURANCE" AND THE SEVERAL TRILLION IN CITIZEN BANK DEPOSITS ARE BACKED BY THE SAME AMOUNT OF CAPITAL THAT AIG HAD TO BACK THEIR CREDIT DEFAULT SWAPS: BUPKIS.

Congratulations Sheila - is that your resignation I see in your hand or is that your promotion from Obama - after all, we all know that in Government the more you screw up and screw the taxpayer, the better the job you're offered.

One final question: Is the only thing preventing panic and bank runs the sheer stupidity of The American People?

[bmwcyle]

The FDIC went broke in the early 1990’s during the RTC days. The spent $10,000,000,000 in a week.

[1776 Reborn]

Why would I run to the bank, to pay off my mortgage?

[Petronski]

I was just reading that thread.

Now-needy FDIC collected little in premiums
With fund going strong, banks didn't pay for decade
By Michael Kranish
Globe Staff / March 11, 2009

WASHINGTON - The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.



The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Link

Any decent society would have pole-axed those bastards years ago.

[going hot]

Liberalism, when taken to it's logical conclusion, is not pretty.

This nation is so precariously balanced, financially, politically, morally, won't take much of a ripple to bring the whole thing down.

The only question is, will it be a peaceful take down and rebuild, or will there be tanks in the streets?

[AGreatPer]

"The FDIC went broke in the early 1990’s during the RTC days"

Oh how I remember this. We were discussing this standing in front of the White House protesting Clinton.

[PGalt]

Great post. HOORAY Karl! The vehicle of choice for scumbag socialists...insurance...social securtity insurance, medicaid insurance, medicare insurance, credit default swap insurance, unions (job insurance), national health care insurance, fdic (your money insurance)...I’m beginning to detect a pattern here.

[SMARTY]

Why do you think they want your guns?

[FromLori]

I remember that thread do you have the fr link I think it had a lot of other info. Did you see Ron Paul’s latest interview?

http://bluelori.blogspot.com/2009/11/ron-paul-cnbc-112309-on-audit-fed.html

[FromLori]

ping

[going hot]

Well, they want a lot of things.

What they may get is something else entirely.

[Boiler Plate]

This FDIC has gone to see its maker.

[bmwcyle]

Yes we were.

[Starboard]

But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Absolutely true. What insurance company could survive without collecting premius? Infinite government stupidity. Good post.

[blam]

The FDIC Is $8.2 Billion In The Hole

[FromLori]

Frightening and here is what people do not realize

http://www.chrismartenson.com/martensonreport/how-safe-my-fdic-insured-bank-account

http://www.chrismartenson.com/blog/fdic-broke-now-what/25274

[LomanBill]

>>Why would I run to the bank, to pay off my mortgage?

Because your local Sheriff still has a retirement fund heavily invested in CDO’s?