Friday, September 18, 2009

Taxpayer Bailout of the FDIC on Deck...

"The Federal Deposit Insurance Corp. is considering tapping a Treasury Department line of credit as the agency examines ways to replenish a reserve fund depleted by 92 bank failures this year, Chairman Sheila Bair said."  Here's the link:   Open Up Your Checkbook, People

Some things to consider:  Anyone find it strange that every week only 3 or 4 banks are closed?  I know for a fact that the Government has the manpower to shut down only 3 or 4 per week, although hundreds need to be closed down.   When a bank is closed, you need manpower FOR EACH BANK BRANCH to clear out all employees, secure the vault, secure the books, secure the cash and guard the door, plus all the beancounters to go over the books.

But it's not only lack of manpower, the FDIC is dragging its feet on closures to conserve cash, presumably praying for some kind of economic miracle.  But the fact of the matter is that 100's possibly 1000's of banks need to be closed down or rescued and this going to be a multi-trillion dollar exercise.  At some point, we may actually face a bank holiday in order to prevent an inevitable run on the banks.  My advice would be to keep minimal cash balances at your local bank - your bank could be next - and move as much money as possible into gold and silver.

Prediction:  Wells Fargo will be the next big bank to blow up.


  1. Dave - Noob question: Is there anyway to truly verify my financial institution's solvency? I'm with a relatively small credit union (Wescom) and as far as I know they were pretty good about staying out of the whole sub-prime nightmare but your comments here have me concerned. Not being in the financial sector I've no idea where to get accurate information regarding their stability.

  2. Hi Bobby. Most credit unions couldn't compete with the big banks on mortgages. But they made up for it by overloading on commercial real estate loans. My parents just closed out their credit union account.

    I wouldn't trust any bank, but you can minimize the risk by keeping just enough in the bank to cover your monthly expenses. I would recommend keeping cash and some gold and silver on hand.

    It sounds crazy, but then again how many people 5 years ago would have been willing to believe that all these big banks would blow up or require trillions in bailout? Or that FNM and FRE would have to be taken over by the Govt?

    It's best to play defense rather than hope for the best.

  3. Dave,
    here comes the IMF dumping 1/8th of their gold for "support of operations" or something. Short story, gold (and silver) get clobbered over the next month, then its load the boat time as that gold was sold either to China or strong hands and we will have to wait for the next assault on gold by the central banks. So sad really, cannot have 4 digit gold, it scares the fiat world!

  4. Think you may be right!

  5. You won't have to wait a month for gold to make its next move higher.

  6. Agree Edwardo...Lori/gyc, I did conservative mark to market analysis of WFC way before they took on Wachovia and I demonstrated, using asset valuation analysis that was very generous with price assumptions, that WFC was hopelessly insolvent.

    My analysis didn't evaluate off-balance-sheet crap because it's impossible to get accurate information on that. However, enough data has been posted, including the latest commercial RE CDS trades that Wachovia had off-balance-sheet that I may do a more thorough analysis and post it here.

    The problem is, WFC is insolvent just based on its $122+ billion pay-option ARM paper. So I'm not sure it's really worth the time.

    I'd rather post some analysis of junior silver mining stocks that are at least 10-baggers from here. One of which I met w/management at the Denver Gold Forum last week.

  7. Dave, thanks for the great blog and the steady drip of reality! And yes, please direct your energies to undervalued miners over bloated and coddled bankers; how better for the little guy to secure revenge on the leeching bankers than via some good gold and silver juniors?

  8. Dave,
    I am a HUGE fan of silver and look forward to any idea you have on the sector.
    disclosure: Very long physical siver, and a position in PAAS

  9. gyc, I don't like PAAS because I think the management is mediocre and they've employed hedging in the past (I don't know if they have hedges on right now). I like SSRI instead of PAAS for a large cap play.

    The real money in silver is with the juniors. I love Aquiline Resources (met w/manangement at the Denver Gold Forum). We have a big position in our fund we put in July.

    I also like ECU Silver.

    Oh, another large cap play that is going to be a home run is SLW. They have one of the best mining managements in the industry.

  10. Dave,
    you are so right about PAAS management! Still, I think they are the best of the bigs, but I am looking to add juniors here, so thanks for the information.