Liberty Maven

“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson

by Jake, the Champion of the Constitution
Originally published November 9, 2008 at http://www.nolanchart.com/article5438.html

In my last update “FDIC Gives Alpha Bank the Axe!“, I predicted a drought of closures with a possible drizzle (one or at most two minor banks) until November 4th, after that, regardless of the bailout, to expect a steady drizzle and possible downpour (few more major banks and a bunch of smaller ones to kick the bucket) before we close 2008.  Looks like we are on the way! (logo)

With the addition of the three banks below, the FDIC’s Bank Body Count (BBC) for 2008 now stands at 19, most notably the recent closure of Houston’s Franklin Bank.  [I admittedly cringed a little when I saw they used an image of Ben Franklin on their logo.]  Another credit union has recently given up the ghost, making it 13 on the year.

• Franklin Bank, Houston, Texas ($5.1 billion in assets, $3.7 billion in deposits, ~$1.5 billion cost to the FDIC)  Date of Demise: 11/07/2008
• Security Pacific Bank, Los Angeles, CA ($561 million in assets, $450 million in deposits, ~$210 million cost to the FDIC) Date of Demise: 11/07/2008
• Freedom Bank, Bradenton, Florida ($287 million in assets, $254 million in deposits, ~$95 million cost to the FDIC) Date of Demise: 10/31/2008
• High Desert Federal Credit Union, Apple Valley, California ($149 million in assets, cost to NCUA not stated)  The credit union is now under the new dictionary term, “conservatorship.” Date of Government Takeover: 10/16/2008

Again, HAVE YOU PROTECTED YOURSELF?

First understand the FDIC, the NCUA, 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 (Federal Deposit Insurance Corporation) 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 8,451 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.  The FDIC last reported on June 30, 2008, that they have $45 billion covering $4,462 billion in insured deposits, so they are now below the 1% reserve ratio.  Converted to English, this means that less than $1 out of every $100 that you have on deposit is insured.  Bloomberg estimates the total assets of these banks to be $13,300 billion, so $40 billion is really a pittance.

The NCUA (National Credit Union Administration) is the FDIC counterpart for federal credit unions.  Federal credit unions are cooperative financial institutions chartered by the federal government and owned by its members.  Credit unions are intended to promote savings and prudent borrowing, and any group of people can start one, read this brochure.  The pool of borrowers is usually constricted to its members, and generally speaking credit unions are more likely to be more conservative than larger banks since they are run as a non-profit community service, but you need to verify this for yourself.  There are roughly 8,100 federal credit unions funded with roughly $7 billion in insurance for approximately $600 billion in deposits per this link.  The NCUA insurance reserve ratio is roughly 1.2%, and is mandated by law to be maintained between 1.0% and 1.5%.

My warning to you is that a major bank failure will eradicate the FDIC funds overnight.  As I noted here “WaMu Gets the FDIC WHAM-O!“, Washington Mutual would have cost the FDIC $31 billion if JP Morgan had not “saved” the bank.  Now, if the FDIC fails, you will probably still get your money back – in dollar terms.  However, to do this the government/Federal Reserve will simply print more money, and you will NOT be able to get your funds immediately. How long is anyone’s guess, my guess is months.  With all of the building potential for a hyperinflation or inflation spike, by the time you get your dollars back, you may not be able to buy much with them.

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 currently at 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. (photo)  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 -$333 billion (gulp!) is $373 billion, which is about 2.5% 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 8,451 FDIC-insured banks. The FDIC updates the number of banks monthly, but do not list any specific banks as this would cause bank runs.  [I note that due to the election/crisis, the FDIC has skipped the September and October end-of-month updates.  It does not take a genius to figure out that the number is increasing.  Also Citibank’s stock (NYSE: C) is looking like it wants to give up the ghost as well, perhaps it's time for either another bailout! or "conservatorship"!]

On November 5, the Financial Times reports that the Federal Reserve has altered its interbank interest rates.  The analysts’ opinions seem to be solid.  The United States may be headed for a Bank of Japan-style liquidity trap or “quantitative easing” strategy where the Fed’s Non-Borrowed Reserves statistic I referred to above is also accompanied by a $500+ billion increase in the banking system’s credit within the past month (google TOTBKCR).  What happened in Japan was that all the newly created electronic money piles up in the banking system’s servers since the banks have nowhere to safe to store the money or lend.  One analyst predicts that if this occurs, and Treasury bill interest rates approach zero (we are on the way on both counts) that then “cash becomes a competitive store of value.”  At any rate, the FED’s balance sheet, which used to consist primarily of Treasury securities a year ago, is, frankly speaking, looking like polluted junk per this chart from the Federal Reserve Bank of Atlanta.

I also note that the Federal Reserve M1 statistic’s annualized rate for the past 3 months is at nearly 20%.   This is highly unusual.  Since M1 is primarily the actual cash and coin in circulation, this may mean that people (I hope Americans, but could just as well be foreigners) are removing their money from banks accounts.

WHAT CAN YOU DO?

After the last five bank closure articles, I no longer hesitate to hand out advice since when you paint a bleak picture, it’s a little senseless to not share what I think are good ideas.  Otherwise I would seem a bit like Chicken Little running around with his head cut off, so here you go! (I’ve made some changes in bold since last time, and remember I am certainly fallible.) Take a look and decide for yourself, I view my advice as 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) or credit unions are FDIC/NCUA 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, the NCUA rules here, and see if any of the exceptions or limits apply to your family.
2. Second, consider moving your money to multiple banks or credit unions 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. You can check the financial statement of federal credit unions here. In general, credit unions will be safer than larger banks, mainly since its loans are limited to only the union members, but please be careful.  Large banks like Bank of America, Wells Fargo, Citibank, Wachovia, etc. loan out to a wide range of borrowers (both individual and commercial), which are subject to failure due to the housing crisis.
3. Third, withdraw enough currency to cover expenses for AT LEAST 4-6 months.  This is roughly the time necessary to make it through the winter, and survive any financial system fallout.  At this point, I urge you to decide for yourself if removing more is prudent and necessary. My reasoning for this is that even if all of your money is “deposit 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 (75% copper and 25% nickel) is worth pretty close to 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.  I also highly recommend the well-informed monetary policy articles from fellow Nolan Chart columnist Republicae.  They take a little while to absorb though.
5. Five, take a solid look at purchasing physical gold.  This will maintain purchasing power in case hyperinflation occurs.  Most of the alarmists recommend holding 25-50% of your savings in gold.  Please do what you like after researching, but in my humble opinion holding none or <5% of your net assets in gold will not be sufficient. One article I wrote in September  “Save Ron Paul’s Voice – A Money Matrix Addendum” has a source list of ‘goldbug’ and ‘silverbug’ sites.
6. Likewise, have a stock of nonperishable foods and water.  And exercise your Second Amendment privilege.  Trust me, no Americans, including myself, fully appreciate the shocking, disorienting speed at which hyperinflation can hit.  Unfortunately, our government has been priming the pump for exactly this to happen.  Remember I wrote this when they want to “save” us again.
7. Last, spread the word. For obvious reasons, you won’t find this advice from the mainstream media.

If you want a solution to this, I am sorry to say it will not be President-elect Obama.  We needed a President who would have taken a much harder line with investment bankers and the FED in defense of the Constitution.  I am sorry to say your vote on the Fourth of November will not solve ANY of our economic ills.  Try www.CampaignForLiberty.com.

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.  I intend to rout you out, and by the grace of the Eternal God, will rout you out.” – President Andrew Jackson, who succeeded.

“And Jesus entered the temple and drove out all those who were buying and selling in the temple, and overturned the tables of the money changers … And He said to them, “It is written, ‘MY HOUSE SHALL BE CALLED A HOUSE OF PRAYER’; but you are making it a ROBBERS’ DEN.”" -  Book of Mark, Chapter 21

In (secular) Liberty,

Jake, the Champion of the Constitution

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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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The Drones Did It!
Published: November 8, 2008
“The catch-all phrase – The War on Terror. In all honesty, has no more meaning than if you want to wage a War on criminal Gangsterism. Terrorism is a Tactic. You can’t have a War against a Tactic. It’s deliberately vague and nondefinable in order to justify and permit perpetual War anywhere and under any circumstances.” – Dr. Ron Paul. Pakistan’s Chaos Continues.

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Other “oooh-I’m-So-Scared-of-the-Fed-Time-to-Change-the-Diapers!” Articles by the Author [Reach the Author Here!]

The Real Battle of November isn’t for the White House
Published: November 6, 2008
The selection of McBama was a moot question. What will the G8 Financial Crisis Summit hold in store for everyone? Have the “Gods of Copybook Headings” returned?

Was the Paulson Plan a ‘SHAM’ of a ‘SCAM’?
Published: November 4, 2008
Sure looks that way! Here’s how We the People got shafted! And the FED hires Bear Stearns’ ex-Chief of Risk to “assess the safety and soundness of domestic banking institutions”

Calling All Wheelbarrows: Hyperinflation in America? (Part 2/2)
Published: July 16, 2008
“Let it not be said that No One Cared, that No One Objected, once it is realized that our Liberties and our Wealth are in Jeopardy.” – Dr. Ron Paul

NY Times Reports the Banks Say They Will Hoard their Bailout Cash-Loot
Published: October 23, 2008
And how to strike back.

An Anti-Ron Paul Deflationary Economic Theory
Published: October 21, 2008
Can you prove me wrong? A simple idea about how the bailout could lead to a deflationary, rather than inflationary environment, proving Ron Paul dead wrong.

Henry Paulson – A Quick Look at the Man
Published: September 27, 2008
Everyone in the country is talking about the Paulson Plan, wherein one clause would make Paulson de-facto financial dictator of the United States, accountable to no one. The article is a summary of my brief investigation and asks for help in finding out WHO IS THIS GUY?

WaMu Gets the FDIC WHAM-O!
Published: September 26, 2008
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?

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.

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

1. America, Were Michael Phelps’ Eight Olympic Gold Medals Worth Winning?
2. The Money Matrix – Prelude (PART 1/15)
3. The Money Matrix – What is a Dollar Bill Worth? (PART 2/15)
4. The Money Matrix – What Makes Money Money? (PART 3/15)
5. The Money Matrix – If You Don’t Know Who the Sucker Is, Then It’s You! (PART 4/15)
6. The Money Matrix Explores Seigniorage – Do not give in to evil, but proceed ever more boldly against it. (PART 5/15)
7. Save Ron Paul’s Voice – A Money Matrix Addendum
8. A Money Matrix Addendum: Citigroup and GATA Call for an End to the Suppression of the Gold Market
9. MY PROPHECY – The Federal Reserve Will End! A Money Matrix Addendum