Saturday, April 11, 2009

FDIC Friday and Glimmers of Hope?

FDIC Friday is a nickname investors (and financial industry insiders) have given to bank closures and/or forced sales that usually occur late on a Friday after markets have closed and public attention is focused elsewhere.

I don't truly understand why one bank is shut down or allowed to fail while another gets "bailed out" by the Feds. Supposedly, they have some kind of magic formula. They announced last week that the stress tests have been completed. Needless to say, they are keeping those results away from public eyes. (So much for transparency in this Administration. Ha-ha-ha.)

Since I haven't covered the FDIC Friday bank failures of late, I thought maybe I should see where we are at so far this year.

It turns out North regulators closed North Carolina's eight-branch Cape Fear Bank Friday (it will reopen Monday as a First National) and also shut down New Frontier Bank, one of Colorado state's biggest banks, which is the latest casualty. On reading the announcement about them, one alarming statistic leaped out at me...

Bank failures in 2005: 0
Bank failures in 2006: 0
Bank failures in 2007: 3
Bank failures in 2008: 25
Bank failures (as of April 10) in 2009: 23

Colorado bank biggest US bank failure of 2009"
"Banks in North Carolina, Colorado Die on Good Friday"

I hear all the media and Federal Government hype about glimmers of hope -- then I look at the statistics above, and I'm thinking, "Hey, something just isn't adding up here!"

The above numbers tell me bank failures are escalating, not declining.

So, what really has the TARP, TALF and the $7+ Billion-dollar-boondoggle Stimulack really accomplished so far? Why are the Feds, albeit cautiously, prancing around waving "glimmers of hope" banners while quietly plotting a way to bailout the insurance companies (like life insurance companies, etc.) next? What's really up? ...or should I ask, what's really going down?

Yes, I understand why they shut the failing banks down on a Friday. They are trying to prevent a rerun of the run on banks that occurred back in the Great Depression. By shutting the failing banks down (and/or negotiating/forcing their sale) on a Friday, things open up on a Monday almost like it's business as usual -- like nothing happened.

"Nothing to see here, folks. Move along, now, and go about your regular business."

The interesting difference in the New Frontier Bank closure is that this time, they are just shutting the doors on it... and to do so, they're creating a NATIONAL BANK:
Unable to have a rival bank take charge of New Frontier's credits and deposits, the FDIC said it "created the Deposit Insurance National Bank of Greeley (DINB), which will remain open for approximately 30 days to allow depositors time to open accounts at other insured institutions." [link]
There was also this:
“All insured depositors of New Frontier are encouraged to transfer their insured funds to other banks,” the FDIC said in a press release. [link]
Assuming it was toxic debts (supposedly mortgages gone bad) that got most of our banks into trouble in the first place, let's see what the Feds have accomplished with their "Hope for Homeowners" plan (launched last fall)...

I take a walk over to this blog and find:
The score is like something from of a cricket match gone horribly wrong: 3,675,971 to 1.

Sadly, it’s not sports. That is the tally as of April 8th for the number of mortgage modifications performed under competing public and private plans.

Private sector (Hope Now):3,675,971

Government (Hope for Homeowners): 1

The government figure is not a misprint. Exactly one - one - mortgage has been successfully modified and endorsed by the FHA under the Hope for Homeowners plan. While the Hope Now Web site clearly shows the successes, don’t bother looking on the government page, you won’t find the ‘one’ anywhere.

Those numbers - while disputed in an interview I did with HUD Secretary Shaun Donovan - came directly from HUD itself on Wednesday afternoon. I posted the email chain with a HUD official to clearly indicate that those numbers came from the agency itself.

The loneliest number is even more bizarre given the other figures involved: $300 billion, $20 billion, 400,000, and 865. Those are the other figures for the “Hope for Homeowners” government mortgage plan:
$300 billion dollars in loans insured by the FHA
$20 billion dollar credit subsidy to help fund the plan
400,000 is the estimated number of homeowners the program was said to benefit
865 is the number of applications received by the government under the plan

So what’s the problem? [read the rest of the article through this link]
What is the problem, indeed!

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