This week, the Federal Deposit Insurance Corporation closed only one bank: Georgian Bank of Atlanta, Georgia. Total declared asset value of the closed bank was approximately $2,000,000,000, and total deposits were approximately $2,000,000,000. The cost to the FDIC is estimated at $892,000,000. According to our methodology, the recoverable value of Georgian Bank was $1,108,000,000, or only 55.40% of the declared asset value.
Cumulative cost-to-FDIC was brought to $45,704,800,000. This closure brings the total declared assets of FDIC-failed banks (since December of 2007) to $478,389,780,000, and total FDIC-insured deposits to $320,552,620,000. This includes the assets and deposits of Washington Mutual, which can now be included in data analysis due to our new methodology. The recoverable value of all failed banks was only $274,847,820,000, or 57.45% of the declared value.
***
This week's closure was below the national average of failed banks, but it is far from attractive. Such a low recoverable value is a sign of some serious problems within the U.S. banking system; problems which have not, by any stretch of the imagination, been worked out or 'TARPed' from existence.
Since there is a distinct likelihood that a good chunk of the banking system is overvalued to about this degree (e.g. 55% recoverability or so), we can only assume that the FDIC is purposefully dragging its feet on closing those banks which are in the worst shape. This would make sense, especially considering if approximately half of the entire banking system's assets are toxic waste!
Given that scenario, though, a serious problem arises: it means that the FDIC's exhaulted insurance is nothing but a Ponzi scheme. If indeed the banking system is that insolvent, or even approxmiately that insolvent, then the money paid out on FDIC closures is simply the money which has been recently paid in by banks for the deposit insurance. Perhaps the FDIC chooses which bank to close, not based on how insolvent or zombiod it is, but rather how much money is on hand to cover deposits...
***
On the basis of the ratio of bank closures to population (i.e. simply the number of failures in the State, with no account of assets or deposits), the ten most afflicted states are:
1. Georgia
2. Nevada
3. Illinois
4. Utah
5. Kansas
6. Oregon
7. Minnesota
8. Missouri
9. Washington
10. Florida
We are replacing the losses-to-assets analysis by State, with a recoverable value analysis by State. However, we are still retooling our data, but we expect that we will be ready to provide this analysis with next week's closures.
Saturday, September 26, 2009
Wednesday, September 23, 2009
Changes to the FDIC Bank Failure Report
In our last FDIC Bank Failure Report, we took a look at Corus Bank's assets and the consequent FDIC losses, and smelled a rat. Corus' $7 billion in assets had cost the FDIC $1.7 billion... but the FDIC sold off $3 billion of those assets to an unwitting sucker in the form of MB Financial Bank. So, the $1.7 billion cost-to-DIF was actually on the $4 billion in ex-Corus assets which the FDIC kept, giving Corus Bank a losses-to-assets ratio of 42.50%. Bad, quite bad, and made worse so in our eyes, as Corus' raw losses-to-assets originally came up at a paltry 24.29%.
But then, we started thinking. How could it be that Corus' $7 billion in assets didn't cover the $7 billion in FDIC-insured deposits? Why was it that the FDIC had to spend $1.7 billion on a bank which should have been able to be liquidated and be able to pay out?
The answer is obvious, of course: Corus' reported assets were overvalued. But just how overvalued were they? It's around this point when we realised we had been looking at the answer for months, now, without it having sunk into our thick skull: the assets were overvalued by the amount of money the FDIC admitted it had to spend on the failed bank!
So... forget everything about losses-to-assets, we've got something new to look at: recoverable value. Simply put, what percentage of declared value the bank's assets are really worth when they're put up on the FDIC's auction block.
As an example, we'll take Corus. The $7 billion in declared assets were supposed to cover the $7 billion in FDIC- insured deposits. They didn't, to the tune of $1.7 billion (i.e. cost-to-Deposit Insurance Fund). This means that the assets on Corus' books were reported overvalued by $1.7 billion. Doing the math, Corus' assets were only worth $5.3 billion or so.
And lo, the recoverable value appears: the declared value of Corus' assets was only 75.71% recoverable.
This is horrible, with a capital H, O, R, R, I, B, L, and E! To see a major bank have assets whose market value is only 75.71% of their declared value is unbelievably bad. Why Corus wasn't shut down months ago, we have a few dark suspicions – a topic for a later post. Suffice it to say, Corus Bank was insolvent, out of cash, massively overvalued, and otherwise scum-of-the-earth as far as a bank goes.
Did we forget to mention it gets much, much worse? Let's hop onto a time machine, and look at some bank failures from the past. First stop, Washington Mutual, the FDIC's whack-job for our friends over at JPMorgan Chase. The two 'divisions' of WaMu had combined assets of $307 billion, and combined deposits of $188 billion. The FDIC, at the time of WaMu's assassination – or closure, if you prefer – made a great fanfare about how the failure was not going to cost the DIF a single cent.
That all might be true, but we read in the FDIC's press release that JPMorgan Chase gave the FDIC $1.9 billion. For what, we wonder? Perhaps to cover costs to the DIF, so that the FDIC could have a media coup? Hmmm... we suspect that it is indeed just that: the true cost of the failure, conveniently hidden by JPMorgan Chase's willing assistance; so, we count that $1.9 billion as the actual cost-to-DIF.
Using our new methodology – subtract cost-to-DIF from total FDIC-insured deposits – we find that WaMu's assets were only worth about $186.1 billion; recoverable value was only 60.62%. Yes, dear Reader, that is worse than Corus, and much bigger too! However, a happy moment can be found in WaMu: the FDIC didn't just gift several hundred billion dollars to JPMorgan Chase, it actually gave it a bag of bad assets and rotting derivatives. You know, the usual fare at JPMorgan.
Anyway, one more failure to visit, this one even deeper in the past: IndyMac F.S.B. It had assets at a declared value of $32.01 billion, and total deposits of $18.06 billion. From the day that the FDIC closed the bank, until the FDIC sold off the successor zombie-bank, the total cost-to-DIF was a lovely $10.7 billion – making IndyMac the most costly bank failure in raw dollars this far in the Depression, as an aside.
But now, the scary part... Using our new methodology – subtract cost-to-DIF from total FDIC-insured deposits – we find that IndyMac's assets were only worth about $7.36 billion.
Pause a moment, dear Reader, and ponder that number. That's a bad number. Compare to the dlecared asset value of $32.01 billion. IndyMac's recoverable value, after all was said and done, was a chillingly slender 22.99% of declared asset value. This makes IndyMac the biggest loser so far in the Depression; a bottomless pit into which the FDIC shoveled money.
So ends today's time-travelling. We hope it was enlightening for you, as it was quite eye-opening for us. A final bit of bad news: using our new methodology on the total declared assets of all banks closed since December 2007, the recoverable value of all 119 of these banks was 57.46%. Although the comparison is not exact, one can suggest that it is possible that the entire United States' banking system will only be about 57% recoverable, or so. We must be honest here: we fully expect that this will get worse in the future. Much worse.
Thursday, September 17, 2009
Housing Price Report for September
Our result for the first four months of our North American Housing Price Index is a drop of 13.34%. We are somewhat suspicious of this result, as it is skewed by the 'higher end' of the market. We are improving our data collection methods, and expect to have more significant results in the coming months. Stay tuned.
Monday, September 14, 2009
FDIC Bank Failure Report
Last week, the Federal Deposit Insurance Corporation closed three banks: Corus Bank (Chicago, Illinois); Brickwell Community Bank (Woodbury, Minnesota); and Venture Bank (Lacy, Washington). Total assets of the closed banks were $8,042,000,000. The cost to the FDIC is estimated at $2,020,000,000. The percentage of FDIC loss out of total assets is 25.12%.
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $471,296,780,000, with cost-to-FDIC brought to $38,783,800,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 8.23%, up from 7.87% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $164,296,780,000, and total cost is $38,783,800,000. The percentage of FDIC losses to total assets now stands at 23.61% up from 23.53% as of last report.
The situation with Corus Bank requires additional examination. The acquiring institution, MB Financial Bank, agreed to take ownership of $3 billion (out of $7 billion) of ex-Corus assets, leaving $4 billion in the capable hands of the FDIC. The raw losses-to-assets ration is 24.29%; however, taking MB Financial's actions into account, and the extimated cost-to-DIF of $1.7 billion, the actual losses-to-assets stands at an whopping 42.50%. Because of the severity of this different, we're going to be looking closer at past closures, as it is entirely possible that closures have been altogether worse than we previously thought.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Illinois
4. Utah
5. Kansas
6. Minnesota
7. Oregon
8. Missouri
9. Washington
10. Florida
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Pennsylvania - 50.75%
2. Utah - 40.32%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 37.62%
7. Iowa - 36.68%
8. West Virginia - 36.52%
9. Nevada - 35.56%
10. Arizona - 34.45%
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $471,296,780,000, with cost-to-FDIC brought to $38,783,800,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 8.23%, up from 7.87% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $164,296,780,000, and total cost is $38,783,800,000. The percentage of FDIC losses to total assets now stands at 23.61% up from 23.53% as of last report.
The situation with Corus Bank requires additional examination. The acquiring institution, MB Financial Bank, agreed to take ownership of $3 billion (out of $7 billion) of ex-Corus assets, leaving $4 billion in the capable hands of the FDIC. The raw losses-to-assets ration is 24.29%; however, taking MB Financial's actions into account, and the extimated cost-to-DIF of $1.7 billion, the actual losses-to-assets stands at an whopping 42.50%. Because of the severity of this different, we're going to be looking closer at past closures, as it is entirely possible that closures have been altogether worse than we previously thought.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Illinois
4. Utah
5. Kansas
6. Minnesota
7. Oregon
8. Missouri
9. Washington
10. Florida
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Pennsylvania - 50.75%
2. Utah - 40.32%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 37.62%
7. Iowa - 36.68%
8. West Virginia - 36.52%
9. Nevada - 35.56%
10. Arizona - 34.45%
Tuesday, September 8, 2009
The Worst-Off Places
Based on our proprietary stress index and the ongoing parade of bank failures, we are coming to the conclusion that the worst off states in the USA are (insert drum-roll, please) Arizona and Nevada. Both of these States are in the top ten of bank-failures-to-population, and losses-to-assets; additionally, unreleased data from our stress index shows that both States have moved into the top ten of stressed states. Further evidence includes the above-national-average unemployment rate in Nevada and house foreclosure rates in both states.
We suggest the acuteness of distress in these two states is a telling commentary on the nature of the present Depression. This Depression is not just about economics, but habitability itself - that is, the very appropriateness of a place for human habitation.
These two, desert states are the quintessence of artifice. They are full of cities that have no business being there and only exist because developers wanted to make a fast buck. Now the easy credit bubble which drove the process of unsustainable colonisation has popped, these states are entering a tailspin faster and harder than the rest of the Union. We posit that the drying-up-and-blowing-away process will be much shorter and more catastrophic than the aforementioned colonisation.
Generally speaking, people appear to have forgotten that Arizona and Nevada are predominantly deserts; indeed, they seem sublimely convinced that those states are somehow permanently sustainable. This can easily be contrasted with, say, Michigan, another severely distressed state, which has an enviable natural endowment - the Great Lakes, ample rainfall, fertile farmland, vast forests.
Simply put, however bleak the future might be, Michigan's population has one. The same can not be said for Arizona and Nevada. As the Federal highway, water, and electric systems upon which these two states are utterly dependent decline, the capacity of these two states to support human population will diminish and the dream of the Desert Paradise in the American Southwest will expire.
We suggest, as part of Depression preparedness, our readers ask themselves how habitable is it where they live? How would you get around without cars and highways? Where is the nearest source of fresh water? of electrical power? In the deserts, how would you manage without air conditioning? In colder climes, what if it cost four times as much to heat your house during winter?
What answers you might derive, dear Reader, informs whether or not any given area will be able to support people. This includes both basic foodways, as well as the economic systems necessary to facilitate their interaction in the larger economy. We feel the national (and global) economy will not have sufficient 'fat,' if you will, to support places which, in the end, contribute nothing of any value or importance.
We suggest the acuteness of distress in these two states is a telling commentary on the nature of the present Depression. This Depression is not just about economics, but habitability itself - that is, the very appropriateness of a place for human habitation.
These two, desert states are the quintessence of artifice. They are full of cities that have no business being there and only exist because developers wanted to make a fast buck. Now the easy credit bubble which drove the process of unsustainable colonisation has popped, these states are entering a tailspin faster and harder than the rest of the Union. We posit that the drying-up-and-blowing-away process will be much shorter and more catastrophic than the aforementioned colonisation.
Generally speaking, people appear to have forgotten that Arizona and Nevada are predominantly deserts; indeed, they seem sublimely convinced that those states are somehow permanently sustainable. This can easily be contrasted with, say, Michigan, another severely distressed state, which has an enviable natural endowment - the Great Lakes, ample rainfall, fertile farmland, vast forests.
Simply put, however bleak the future might be, Michigan's population has one. The same can not be said for Arizona and Nevada. As the Federal highway, water, and electric systems upon which these two states are utterly dependent decline, the capacity of these two states to support human population will diminish and the dream of the Desert Paradise in the American Southwest will expire.
We suggest, as part of Depression preparedness, our readers ask themselves how habitable is it where they live? How would you get around without cars and highways? Where is the nearest source of fresh water? of electrical power? In the deserts, how would you manage without air conditioning? In colder climes, what if it cost four times as much to heat your house during winter?
What answers you might derive, dear Reader, informs whether or not any given area will be able to support people. This includes both basic foodways, as well as the economic systems necessary to facilitate their interaction in the larger economy. We feel the national (and global) economy will not have sufficient 'fat,' if you will, to support places which, in the end, contribute nothing of any value or importance.
FDIC Bank Failure Report - Unbelievably Extra-Late Edition
Last week, the Federal Deposit Insurance Corporation closed five banks: First Bank of Kansas City (Kansas City, Missouri); InBank (Oak Forest, Illinois); Vantus Bank (Sioux City, Iowa); Platinum Community Bank (Rolling Meadows, Illinois); and First State Bank (Flagstaff, Arizona). Total assets of the closed banks were $1,136,600,000. The cost to the FDIC is estimated at $401,300,000. The percentage of FDIC loss out of total assets is 35.31%.
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $463,254,780,000, with cost-to-FDIC brought to $36,763,800,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 7.94%, up from 7.87% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $156,254,780,000, and total cost is $36,763,800,000. The percentage of FDIC losses to total assets now stands at 23.53% up from 23.44% as of last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Illinois
4. Utah
5. Kansas
6. Oregon
7. Minnesota
8. Missouri
9. Florida
10. Colorado
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Pennsylvania - 50.75%
2. Utah - 40.32%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 37.62%
7. Iowa - 36.68%
8. West Virginia - 36.52%
9. Nevada - 35.56%
10. Arizona - 34.45%
This closure brings the total assets of FDIC-failed banks (since December of 2007) to $463,254,780,000, with cost-to-FDIC brought to $36,763,800,000 - this includes the assets of Washington Mutual, whose closing offered no cost to the FDIC. The percentage of FDIC losses to total assets presently stands at 7.94%, up from 7.87% as of last report.
Upon elimination of WaMu's assets from the analysis, total assets are $156,254,780,000, and total cost is $36,763,800,000. The percentage of FDIC losses to total assets now stands at 23.53% up from 23.44% as of last report.
On the basis of the ratio of bank closures to population, and the ten most afflicted states are:
1. Nevada
2. Georgia
3. Illinois
4. Utah
5. Kansas
6. Oregon
7. Minnesota
8. Missouri
9. Florida
10. Colorado
On the basis of the total losses-to-assets ratio in each state, the worst are as follows:
1. Pennsylvania - 50.75%
2. Utah - 40.32%
3. Idaho - 39.11%
4. Michigan - 39.03%
5. Wyoming - 38.57%
6. Florida - 37.62%
7. Iowa - 36.68%
8. West Virginia - 36.52%
9. Nevada - 35.56%
10. Arizona - 34.45%
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