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The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday, it’s no easy feat for the FDIC to stay ahead of the game.

Please consider Bank of America, Major Banks’ FDIC Premiums May Top $10 Billion.

The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.

Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.

“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”

U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.

Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.

FDIC Is Bankrupt

Last month I wrote As of Friday August 14, 2009, FDIC is Bankrupt.

Although that is a realistically correct headline (Please see You Know The Banking System Is Unsound When…. for a justification), I did overlook things FDIC did to temporarily stay in the game.

Prepaid fees is yet another attempt to keep the game going. How much longer this can last is anyone’s guess. Those prepaid fees are going to hurt bank earnings 100% guaranteed. The fees may even push some struggling banks into bankruptcy.

Emails from a Bank Owner regarding FDIC

In regards to my post on FDIC bankruptcy I received Emails from a Bank Owner regarding FDIC and Under-Capitalized Banks.

ABO, who as been in the business 30 years, writes:

This will certainly mark the end of the banking model using wholesale funding and aggressive deposits to fund commercial real estate projects. In other words this is going to come down hard on the FIRE economy.

I have been in banking for over 30 years and from my perspective this is much worse than anything I have seen. God help us if cap and trade passes!

Newfound Praise For Shelia Bair

At times, I have been extremely hard on Shelia Bair. She has said many things that I strongly disagree with. However, I have to commend her for two things.

1) Shelia Bair stood up to Geithner regarding the PPIP and banks being allowed to bid on their own assets. Clearly she recognized banks bidding on their own assets at taxpayer risk was outright fraud. Of course, I think the whole PPIP proposal was (and still is) fraud, but in retrospect I have to wonder if her stance caused this ridiculous program to go on the back burner. If so, Bair deserves a salute. Note that PPIP is still not up and running.

2) Shelia Bair is now refusing to borrow money from the treasury (taxpayers) to shore up FDIC. Instead, she has been raising fees and now is proposing pre-paid fees. In other words, she strives to make the riskiest banks pony up for their mistakes, as opposed to dumping the risk on taxpayers.

The easy way out for Shelia would have been to simply take money from the Treasury. However, she is taking a much tougher stance, at least for now. I reserve the right to change my opinion down the road based on future actions.

Perhaps, like many of the rest of us she simply cannot stand Geithner. However, regardless of motivation, she is now doing the right thing by making risky banks pay for the risk they undertook.

Is the system fair?

Is the system fair? Of course not. Citigroup and Bank of America received debt guarantees from the Treasury making their debt appear to be less risky, and their FDIC insurance payments less than they should be. Wells Fargo was the beneficiary of huge tax breaks.

However, those items are not Bair’s doing, so she should not take the blame.

The scorecard of Geithner and Paulson is a big fat zero. Yet, this is now the second thing major thing Bair has gotten correct. This is the best we can realistically expect.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday, it’s no easy feat for the FDIC to stay ahead of the game.

Please consider Bank of America, Major Banks’ FDIC Premiums May Top $10 Billion.

The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.

Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.

“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”

U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.

Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.

FDIC Is Bankrupt

Last month I wrote As of Friday August 14, 2009, FDIC is Bankrupt.

Although that is a realistically correct headline (Please see You Know The Banking System Is Unsound When…. for a justification), I did overlook things FDIC did to temporarily stay in the game.

Prepaid fees is yet another attempt to keep the game going. How much longer this can last is anyone’s guess. Those prepaid fees are going to hurt bank earnings 100% guaranteed. The fees may even push some struggling banks into bankruptcy.

Emails from a Bank Owner regarding FDIC

In regards to my post on FDIC bankruptcy I received Emails from a Bank Owner regarding FDIC and Under-Capitalized Banks.

ABO, who as been in the business 30 years, writes:

This will certainly mark the end of the banking model using wholesale funding and aggressive deposits to fund commercial real estate projects. In other words this is going to come down hard on the FIRE economy.

I have been in banking for over 30 years and from my perspective this is much worse than anything I have seen. God help us if cap and trade passes!

Newfound Praise For Shelia Bair

At times, I have been extremely hard on Shelia Bair. She has said many things that I strongly disagree with. However, I have to commend her for two things.

1) Shelia Bair stood up to Geithner regarding the PPIP and banks being allowed to bid on their own assets. Clearly she recognized banks bidding on their own assets at taxpayer risk was outright fraud. Of course, I think the whole PPIP proposal was (and still is) fraud, but in retrospect I have to wonder if her stance caused this ridiculous program to go on the back burner. If so, Bair deserves a salute. Note that PPIP is still not up and running.

2) Shelia Bair is now refusing to borrow money from the treasury (taxpayers) to shore up FDIC. Instead, she has been raising fees and now is proposing pre-paid fees. In other words, she strives to make the riskiest banks pony up for their mistakes, as opposed to dumping the risk on taxpayers.

The easy way out for Shelia would have been to simply take money from the Treasury. However, she is taking a much tougher stance, at least for now. I reserve the right to change my opinion down the road based on future actions.

Perhaps, like many of the rest of us she simply cannot stand Geithner. However, regardless of motivation, she is now doing the right thing by making risky banks pay for the risk they undertook.

Is the system fair?

Is the system fair? Of course not. Citigroup and Bank of America received debt guarantees from the Treasury making their debt appear to be less risky, and their FDIC insurance payments less than they should be. Wells Fargo was the beneficiary of huge tax breaks.

However, those items are not Bair’s doing, so she should not take the blame.

The scorecard of Geithner and Paulson is a big fat zero. Yet, this is now the second thing major thing Bair has gotten correct. This is the best we can realistically expect.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Joshua from Kentucky thinks things are not going as well as they seem. Joshua writes:

Mish,

I wanted to write you in regards to what I see in the economic landscape here in Kentucky. I live in Hodgenville, KY (birthplace of Abraham Lincoln) and work in Elizabethtown which is 40 miles south of Louisville and about 10 miles from Fort Knox.

For about 2 years, up until December of 2007, I delivered pizza for Papa Johns here in the area and got to see many interesting sites. One feature that always caught my attention, as it did when I lived near Frankfort and Lexington, was all the “cookie cutter” neighborhoods that were springing up. I wondered then who was buying these cheaply built houses 2 feet from their neighbors and why. I soon found out shortly after I started reading your blog that it was everyone and because someone would give them the money.

I have returned to delivering pizza as a second income to increase the speed in which I can pay off my $9000 in debt I owe and become truly “free”! I have noticed an ENORMOUS change in the landscape since I am once again driving around. There are hundreds if not thousands of houses for sale in this city.

I am amazed at the number of houses are for sale in this the worst housing market in years if not generations. I went to one newly constructed neighborhood (built within the last 10 years) and ONE THIRD of the houses were up for sale and more than a couple looked empty. I do not know how many of these are short sales and foreclosures, but Fort Knox is supposed to be massively expanding and yet there is a glutton of housing, not to mention all the retail space!

To top it off, I only see about half the town as another store covers the rest, so I can only imagine the true state of housing here is much worse. These are not “poor” neighborhoods and even the upper end for this area have many for sale. I sold my house back in the summer of 2007 and went back to renting because I saw this coming, and man am I glad!! Kentucky seems to lag the rest of the country in nearly everything and this seems to be no exception despite what our worthless politicians say (minus Rand Paul). Thanks for your blog. I really enjoy it.

Thank you
Joshua

Appearances Can Deceive

I am on the road for the third consecutive week. Tonight I am typing from a hotel in St. Louis at a Sheraton Inn. I thought the place was reasonably crowded, at least for a Tuesday night.

However, being the inquisitive type, I asked the restaurant manager how things were and if things were getting any better. Based on the traffic I saw, I expected to hear that things were getting better or at least stabilizing.

Instead, I was told things are deteriorating, that there are fewer customers at both the restaurant and the bar (he was manager of both). He also said that customers are spending less per person, and even business types staying at the hotel are insisting on carrying their own bags so as to not have to pay the doorman for hauling their luggage.

Finally, the restaurant manager is also a part-time manager at the riverboat casino. He said the casino is doing just fine. High-roller traffic is way down, however the average Joe who cannot afford to lose, is gambling his paycheck away hoping to strike it rich.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Joshua from Kentucky thinks things are not going as well as they seem. Joshua writes:

Mish,

I wanted to write you in regards to what I see in the economic landscape here in Kentucky. I live in Hodgenville, KY (birthplace of Abraham Lincoln) and work in Elizabethtown which is 40 miles south of Louisville and about 10 miles from Fort Knox.

For about 2 years, up until December of 2007, I delivered pizza for Papa Johns here in the area and got to see many interesting sites. One feature that always caught my attention, as it did when I lived near Frankfort and Lexington, was all the “cookie cutter” neighborhoods that were springing up. I wondered then who was buying these cheaply built houses 2 feet from their neighbors and why. I soon found out shortly after I started reading your blog that it was everyone and because someone would give them the money.

I have returned to delivering pizza as a second income to increase the speed in which I can pay off my $9000 in debt I owe and become truly “free”! I have noticed an ENORMOUS change in the landscape since I am once again driving around. There are hundreds if not thousands of houses for sale in this city.

I am amazed at the number of houses are for sale in this the worst housing market in years if not generations. I went to one newly constructed neighborhood (built within the last 10 years) and ONE THIRD of the houses were up for sale and more than a couple looked empty. I do not know how many of these are short sales and foreclosures, but Fort Knox is supposed to be massively expanding and yet there is a glutton of housing, not to mention all the retail space!

To top it off, I only see about half the town as another store covers the rest, so I can only imagine the true state of housing here is much worse. These are not “poor” neighborhoods and even the upper end for this area have many for sale. I sold my house back in the summer of 2007 and went back to renting because I saw this coming, and man am I glad!! Kentucky seems to lag the rest of the country in nearly everything and this seems to be no exception despite what our worthless politicians say (minus Rand Paul). Thanks for your blog. I really enjoy it.

Thank you
Joshua

Appearances Can Deceive

I am on the road for the third consecutive week. Tonight I am typing from a hotel in St. Louis at a Sheraton Inn. I thought the place was reasonably crowded, at least for a Tuesday night.

However, being the inquisitive type, I asked the restaurant manager how things were and if things were getting any better. Based on the traffic I saw, I expected to hear that things were getting better or at least stabilizing.

Instead, I was told things are deteriorating, that there are fewer customers at both the restaurant and the bar (he was manager of both). He also said that customers are spending less per person, and even business types staying at the hotel are insisting on carrying their own bags so as to not have to pay the doorman for hauling their luggage.

Finally, the restaurant manager is also a part-time manager at the riverboat casino. He said the casino is doing just fine. High-roller traffic is way down, however the average Joe who cannot afford to lose, is gambling his paycheck away hoping to strike it rich.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

More and more cars now ofter steering wheel mounted shift levers for cars that have fully automatic transmissions. These are an imitation of the semi-automated manual transmissions typically used in high performance and full-bore race cars such as the Ferrari 430.

I think this is silly.

Real paddle-shift transmissions are basically automated mechanical transmissions which do not have torque converters; they have replaced the clutch and stick with the paddles. On a high-end sportscar, they makes sense, as an alternative to a traditional manual with 3 pedals on the floor.

On a consumer grade car with a torque converter type automatic transmission, the paddles are a gimmick, and I doubt anyone uses them.

If the car won’t stall because you forgot to shift with the paddles, it’s not authentic, in my book. If you don’t need to interact with it unless you feel “sporty” that day, it is a toy. Part of the fun of driving a true manual transmission car (which I do) is that you have to do your job ot make the car move. If my car had a dual-clutch automated manual transmission, I’d be thrilled, but I would probably never use the manual override. I’d put it in D and go.

More and more cars now offer steering wheel mounted shift levers for cars and NYC Limousine services that have fully automatic transmissions. These are an imitation of the semi-automated manual transmissions typically used in high performance and full-bore race cars such as the Ferrari 430.

I think this is silly.

Real paddle-shift transmissions are basically automated mechanical transmissions which do not have torque converters; they have replaced the clutch and stick with the paddles. On a high-end sportscar, they makes sense, as an alternative to a traditional manual with 3 pedals on the floor.

On a consumer grade car with a torque converter type automatic transmission, the paddles are a gimmick, and I doubt anyone uses them.

If the car won’t stall because you forgot to shift with the paddles, it’s not authentic, in my book. If you don’t need to interact with it unless you feel “sporty” that day, it is a toy. Part of the fun of driving a true manual transmission car (which I do) is that you have to do your job ot make the car move. If my car had a dual-clutch automated manual transmission, I’d be thrilled, but I would probably never use the manual override. I’d put it in D and go.