Friday, October 23, 2009

FINANCEHYPE: No Worries, Your Money Is Fine

There are no problems with the banking system right now. Things may be a little rough, but that's nothing major. Your insured deposits are fully insured. The government ensures it. There's no reason to panic. Nothing bad will happen. Nobody has ever lost a dime.

In other news, it's Bank Failure Friday, and the FDIC has closed 106 banks so far this year, including 10 in the past week (as of today, October 23, 2009). But don't take our word for it - CNN has more on the bank failures as the number passed 100 today, along with a nifty thematic bank failure map. Or, as the AP story says:
WASHINGTON -- The cascade of bank failures this year surpassed 100 on Friday, the most in nearly two decades. And the trouble in the banking system from bad loans and the recession goes even deeper than the number suggests.

Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively — partly to avoid inciting panic and partly because buyers for bad banks are hard to find. Going slow buys time. An economic recovery could save some banks that would otherwise go under. But if the recovery is slow and smaller banks' finances get even worse, it could wind up costing even more.

The bank failures, 106 in all, are the most in any year since 181 collapsed in 1992, at the end of the savings-and-loan crisis. On Friday, regulators took over three small Florida banks — Partners Bank and Hillcrest Bank Florida, both of Naples, and Flagship National Bank in Bradenton — along with American United Bank of Lawrenceville, Ga., Bank of Elmwood in Racine, Wis., Riverview Community Bank in Otsego, Minn., and First Dupage Bank in Westmont, Ill. When a bank fails, the Federal Deposit Insurance Corp. swoops in, usually on a Friday afternoon. It tries to sell off the bank's assets to buyers and cover its liabilities, primarily customer deposits. It taps the insurance fund to cover the rest.

Bank failures have cost the FDIC's fund that insures deposits an estimated $25 billion this year and are expected to cost $100 billion through 2013. To replenish the fund, the agency wants banks to pay in advance $45 billion in premiums that would have been due over the next three years.

The FDIC won't say how deep a hole its deposit insurance fund is in. It can tap a credit line from the Treasury of up to a half-trillion dollars to cover the gap. The list of banks in trouble is getting longer. At the end of June, the FDIC had flagged 416 as being at risk of failure, up from 305 at the end of March and 252 at the beginning of the year.
In fact, don't even take their word for it - have a look at the official FDIC failed bank list itself. The 7 that were closed just today caused the FDIC's deposit insurance fund to take a loss of $356.7 million.

Sorry, back to the party line... A bank failure, even if it might happen to you, is a non-event. Really. There's nothing to worry about. But don't take our word for it, here's the head of the FDIC, Chairman Sheila Bair, to tell you all of this herself. And she's from the government, so she must be right. No, really, your money is totally safe. That must be why this video was posted today:

We notice something interesting about this video, however. Check out her body language at certain points in the clip. At 0:24 we have a "no" shake of the head after saying "I want to take this opportunity to reassure consumers that their insured deposits are absolutely safe". That may be a subconscious reaction to telling a lie.

Additional head shakes appear at 0:33 ("their money is fully protected, no matter what happens"), 0:42, 0:46, 0:58 ("there are many signs that our economy is recovering"), 1:13, 1:32 ("depositors have nothing to worry about"), 1:35, 1:43 ("a bank failure is a non-event"), 2:07 ("we cannot run out of money"), 2:17 ("our resources run deep"), 2:42, 2:54 (an obvious one; "I do not anticipate having to use this line of credit"), 3:04, 3:24, and 3:28 (another obvious one). It's likely that not all of these are lies, but it's interesting that these head shakes coincide with certain types of statements (those meant to reassure) and not others (statements of fact about past events).

It may be useful to recall some of the doom-and-gloom prognostications made recently. In July, we discussed the Harry Schultz Letter's prediction of an upcoming bank holiday (FINANCEHYPE: Bank Holidays, FDR Style). We also touched on the massive increase in US debt levels (FINANCEHYPE: The Debt Clock) and the likelihood that the taxpayer will be on the hook for most of that (POLITICSHYPE: Uncle Sam Speaks). Another it'd-be-funny-if-this-wasn't-so-serious thing to see is the FDIC's commercial from August 2009 encouraging people to keep their money in a bank instead of in the mattress at home:

The folks over at Zero Hedge are also having a great discussion on this latest announcement. They also have a great piece on how your dollars, safe in the bank or elsewhere, have been devalued 25% over the past 12 years (DOW 10,000!!!! Oh Wait, Make That 7,537).

And whatever you do, don't go take all your money out of the bank! It's safer there - the government says so.

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