Tuesday, February 23, 2010

Your Savings Account

We received the Case Shiller home price index this morning and it reported the third straight monthly drop in prices.  It appears there was a bottom in home prices that everyone called for: A FALSE BOTTOM.  Things will get much, much, worse as we move forward.  To understand why please read; Why Home Prices Will Fall.

The chart below shows the top in home prices in September 09, and the three straight months we have now fallen:

This week the Congressional oversight panel put out a 190 page report on the commercial real estate market.  The report provides a tremendous amount of information and I will have a full summary prepared for you this weekend.

To give you a little taste in one sentence or less:  The problem is far greater than anyone imagined and no one has a solution.

The commercial real estate collapse which will begin this year will continue to close the doors for hundreds and hundreds of smaller banks throughout the country that have a large exposure to those loans.

Have no fear, however, because the FDIC is going from bank to bank every Friday night and taking over those failed institutions.  The FDIC is also the firm that stands behind and guarantees every savings account for Americans in this country. (Up to $250,000)

So how is the FDIC doing?

We received word this morning that their deposit insurance fund plunged by $12.7 billion in the fourth quarter of 2009, taking it down to NEGATIVE $20.9 billion.

That is correct: The company that insures your bank account officially has no money, and they will continue to plunge further and further into the red.

Have no fear.  The government has already granted them a $500 billion emergency fund that Sheila Blair promised us six months ago would never be touched.

Ah, and here is where it gets fun......

Where will the government get the $500 billion?  They will add it to the deficit.  Let's review the numbers so everyone can keep up:

The banking system is insolvent and is backed by the FDIC which is also insolvent.

The FDIC is backed by the Federal Government who is currently bankrupt. ($13 trillion in debt, plus $60 trillion in social security and medicare promises)

The Federal government not only has to now provide for the FDIC, but they will have to come to the aid of the state governments who are now also insolvent.  This is in addition to supporting the entire housing market through Fannie and Freddie who will need trillions in bail out money.

The Federal government this morning announced a Supplementary Finance Program that will sell an additional $200 billion in government debt over the next 8 weeks to help cover the exploding deficit.

Before someone could even ask how this debt will be financed with foreign creditors all running away from the United States, a treasury official announced:

"We're committed to working with the Federal Reserve to ensure they have the flexibility to manage their balance sheet."

Please read that quote again, and again, and again.

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