Liberty Maven

The Seattle-based Washington Mutual Bank is shut down by the FDIC. The Raiders from the last Great Depression, JP Morgan, Strike Again. Have you protected yourself?

by Jake, the Champion of the Constitution
Originally published September 26, 2008 at http://www.nolanchart.com/article5007.html

As foretold in my last article Yes, West Virginia, There is a Banking, Housing, and Financial Crisis – FDIC Closes Ameribank, Washington Mutual failed Thursday, September 25 per this New York Times article. FDIC Chairman Sheila Bair stated that it was a rapidly deteriorating condition that forced the FDIC to move in before Friday. The failure of the $307 billion lender is the largest in American history.

JP Morgan Chase moved in and purchased the bank in a secret shotgun sale done at the cigar-smoke-filled betting saloon that passes for Washington DC these days. The move is definitely excellent news for the FDIC as JP Morgan Chase will absorb the $31 billion loss towards insuring the deposits that would have fell to the FDIC. A hit of this magnitude would have sunk the FDIC funds into the $10-15 billion range, a 75% drop since the start of 2008. We taxpayers can thank the lucky stars that JP Morgan Chase moved in, or can we? Keep your ears pealed for more details on the deal made by the Washington insiders with this bank. JP Morgan Chase devoured failed investment bank Bear Stearns in another shady dealing earlier this year.  Here is Dr. Ellen Brown’s idea on what transpired there.

WaMu shareholders will be wiped out. The New York Times reported:

“The seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept completely in the dark: the company’s new chief executive, Alan H Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered, according to people briefed on the situation. Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus.”

Whew, thank heavens the CEO will be OK. The author also wonders if this was a political move to shove the currently reluctant Congress towards approving the Give-$700-Billion-to-Investment-Banks-and-Make-Paulson-Absolute-Dictator bailout package.

Just for kicks, I predict GMAC’s lending arm will be the next bank failure, although I conceded it will probably be another more minor bank. From my amateur investigation of news, stock capitalization, and balance sheets, it looks like Bank of America, Citigroup, Wachovia and Wells Fargo have at least a few more months left in them, but you never know.

Again, HAVE YOU PROTECTED YOURSELF?

If just one reader leaves a ‘yes’ below, I will chalk up this column as a winner.

First understand the FDIC and the nature of the banking system. Here’s the fastest lesson I can manage. Try my other writings or just search the net for more information.

In brief, the FDIC is a relic of the Great Depression designed to give depositors the assurance that the government will bail them out if the bank fails. It is funded by small fees on all deposits its member banks hold. The FDIC started 2008 with about $53 billion in reserves. Due to the failures at IndyMac and others, the FDIC fund most likely has about $40 billion left. In August, the Federal Reserve reported that all savings deposits, small-denomination time deposits, and retail money funds (more or less the banking system insured by the FDIC) was $6,334 billion. So if bank failures exceed just half-of-a-percent of the system, the FDIC will be broke. That is, until the government decides to unwisely print more money (aka debase the dollar or inflation or indirectly tax us) or directly tax us, the taxpayers, yet again.

Our banking system operates on a fractional reserve system. This means that banks only have to keep a certain amount of deposits and can lend the rest. In the USA, the deposit requirement is just 10%. For more detail, read this.

Next, the American banking system is in serious trouble. Check out this graph of Non-Borrowed Reserves of Depository Institutions from the Federal Reserve. Note the plummet in 2008 from, historically speaking, a fairly stable chart. What the chart means is that, as a whole, American banks are borrowing from the Federal Reserve in order to maintain their deposit requirements. The shift from +$40 billion to -$130 billion is $170 billion, which is greater than 1% of our GDP (which is the total market value of all goods and services produced in our country this year). This may at first sound insignificant to some of you, but I tend to agree with the degree of angst the Financial Ninja expresses here: “Oh sweet baby Jesus, you better hope Ben Helicopter’ Bernanke really really knows what he’s doing.” Of course, which banks are doing poorly is a closely guarded Fed secret, but please keep in mind there are 117 banks on the FDIC’s secret crash list, out of a total of 8500 FDIC-insured banks. The FDIC updates the number of banks monthly, but do not list any specific banks as this would cause bank runs.

After the last three articles, I no longer hesitate to hand out advice, I find myself again in a situation where its fairly bleak, so not providing some solutions would make me seem a bit like Chicken Little running around with his head cut off, so here you go! Take a look and decide for yourself, but all of my advice is fairly conservative. Remember, this is not a time to be placid and just mull around, it is time to be realistic, do some research and take action if necessary. Please protect yourself and your family.

1. First know if your bank(s) are FDIC insured or not. If not, get your money and close the account ASAP as its a sign that the FDIC may have refused to insure it. If yes, you can read the FDIC rules here, and see if any of the exceptions or limits apply to your family.
2. Second, consider moving your money to multiple banks in the event one would fail. This is called diversification of risk. At any bank, you can request their financial statement and check out the status of their loans and deposits. In general, credit unions will be safer than larger banks, mainly since its loans are limited to only the union members. Large banks like Bank of America, Wells Fargo, Citibank, Wachovia, etc. loan out to a wide range of borrowers, which are subject to failure due to the housing crisis.
3. Third, withdraw enough currency to cover expenses for several months. My reasoning for this is that even if all of your money is FDIC insured, if the bank fails, there is no guarantee you will get your money immediately. It may take months. If you decide to do this, it is best to also request small bills ($20 or smaller) as if a crisis develops larger denominations some vendors may have issues with handling $50 or $100 bills. Instead of paper money, I advise taking out nickels as the worth of the metal matches the face value, where the paper money has no intrinsic value. It’s also fairly amusing and trust me, it will take a thief quite a while to lug out several thousand dollars in nickels.
4. Fourth, try reading the Money Matrix series below. Decide for yourself what to do to protect your family’s financial well-being.
5. Five, spread the word. For obvious reasons, you won’t find this advice from the mainstream media.

If you want a political solution to this, it will not be McBama. Try www.CampaignForLiberty.com. Our fearless grandfather, Dr. Ron Paul, issued a YouTube warning last week on the bailouts that everyone should heed.

In Liberty,

Jake, the Champion of the Constitution

[Reach the Author Here!]

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.

Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.

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A Money Matrix Addendum: Citigroup and GATA Call for an End to the Suppression of the Gold Market
Published: September 22, 2008
The Suppression of the Gold Market Goes Mainstream, Thanks to Citigroup. And a few interesting back-of-envelope calculations about where the price of gold could go.

Yes, West Virginia, There is a Banking, Housing, and Financial Crisis – FDIC Closes Ameribank
Published: September 22, 2008
FDIC Closes Bank #12 for 2008, Ameribank, a Small WV Bank Gets the Axe. Have you protected your family? Learn how.

US Treasury Seizes Fannie Mae and Freddie Mac! And What It Means
Published: September 8, 2008
“You poor kid, there have been centuries of philosophers plotting to turn the world into just that – to destroy people’s minds by making them believe that that’s what they are seeing. But you don’t have to accept it. You don’t have to see through the eyes of others, hold on to yours, stand on your own judgment, you know what that is, IS – say it aloud, like the holiest of prayers, and don’t let anyone tell you otherwise.” – Ayn Rand

FDIC Closes the Silver State Bank in Nevada as a McCain Resigns in Disgrace
Published: September 7, 2008
Andrew McCain, son of John McCain, resigns from the board just before yet another small bank goes under. $20 million in uninsured deposits lost. And by the way, did you know the American banking system may crash? Learn how to protect yourself and your family.

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The Money Matrix Series

America, Were Michael Phelps’ Eight Olympic Gold Medals Worth Winning?
Published: August 24, 2008
Michael Phelps and other American athletes are bringing back loads of Gold, Silver, and Bronze Medals from the Beijing Olympics. A young libertarian economist asks if it was worth it.

The Money Matrix – Prelude (PART 1/15)
Published: August 1, 2008
Prelude and Source List to a Series on Global Monetary Policy of Control and Explaining Big Government’s Finances

The Money Matrix – What is a Dollar Bill Worth? (PART 2/15)
Published: August 2, 2008
“Living so free is a tragedy when you can’t see what you need to see!” – Powerman 5000 ‘Free’

The Money Matrix – What Makes Money Money? (PART 3/15)
Published: August 3, 2008
A quick history of money per Rothbard followed by the properties of money per Ron Paul

The Money Matrix – If You Don’t Know Who the Sucker Is, Then It’s You! (PART 4/15)
Published: August 7, 2008
The Money Matrix series rolls on by asking ‘What are the Types of Money?’ and ‘What is the “Best” Currency and Why?’

The Money Matrix Explores Seigniorage – Do not give in to evil, but proceed ever more boldly against it. (PART 5/15)
Published: August 24, 2008
The Money Matrix explores Seigniorage as Legalized Silent Plunder with an introduction into medieval and modern banking.