Saturday, July 26, 2008

It's Friday Night. Do You Know Where Yor Money Is?

Two Western regional banks failed yesterday. Their losses will be subsidized by the FDIC. Over the weekend, their depositor's accounts will be transferred to a small banking subsidiary of a major insurance corporation, presumably one not in danger of failing itself. Under this arrangement, no depositors will lose any money but the taxpayers will assume responsibility for more bad debt than they are required to under FDIC rules. The reason they are doing this, is that it is unlikely they can liquidate any of these bank's loan portfolios currently. This way they will make good all of the approximately 3 1/2 billion dollars of deposits and hope they can get something for the banks assets at a later date. Much later. Or not.

Look for several more of these "stealth" bank failures weekly, in the coming months, as the Federal government tries to keep the collapse of the American banking industry under wraps. They are apparently only going to comment when one of the big boys goes tits up. Notice how they waited 'til Friday afternoon to leak out the word. Smart.

No use upsetting all those foolish Chicken Little types.

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