Alabama regional lender, Colonial Bank, just became the 6th largest bank
failure in U.S. history and the largest since Washington Mutual last
year.
Regulators seized Colonial last Friday,
selling the bank’s deposits and assets to their competitor BB&T.
Colonial was founded by real estate developer, Robert E. Lowder in 1981.
The bank stayed true to its roots, right to the end (of the housing
bubble).
In a 2006 interview, Lowder said, “We’ve always been a real estate bank.
We understand real estate lending. For us, we think it’s a good safe
market to be in.” Evidently, they didn’t understand the market as well
as they thought. The bank sunk under the weight of $1.7 billion in
losses on bad real estate loans.
The real question regarding the failure of Colonial, is what this will
do to the Deposit Insurance Fund (DIF) maintained by the FDIC.
The FDIC Deposit Insurance Fund started 2008
with $53 billion. By March 31st of this year it had dwindled to
approximately $13 billion. But there have been 56 bank and savings and
loan failures since then. In fact, there were five bank failures last
Friday.
So, how much is left of the Deposit Insurance Fund? A
report published by Saxo Bank Research two days before the Colonial
failure suggested that the DIF was down to $648.1 million. Colonial is
expected to take a $2.8 billion bite out of the fund. And Community Bank
of Nevada, which also failed on Friday, took a $781 million slice from
the pie.
If that’s true, it means the FDIC insurance fund is technically
bankrupt. But FDIC Chairman, Sheila Bair says it’s nothing to worry
about. “The FDIC's guarantee is as certain as ever,” she says. “Our
industry-funded reserves have covered all losses to date.”
But should you be worried about your deposits in the bank? After all,
those deposits are “insured” up to $250,000… right?
We take issue with the notion of the
government “insuring” bank deposits. It’s nothing more than a confidence
scam. It holds up only as long as the depositors have confidence in the
system.
How can you insure the base of deposits, when banks are allowed to loan
out $10 for every $1 on deposit? You can’t. It’s mathematically
impossible. The same way it would be impossible for every depositor to
get their money back if they all showed up at the bank on the same day.
When swindlers and crooks pull a scam like this we call it a “pyramid
scheme”. When the banks do it, it’s called “fractional reserve banking.”
When the government does it, it’s called “Social Security.”
While the Deposit Insurance Fund may be temporarily depleted, the FDIC
is unlikely to become truly bankrupt anytime soon…
In May, Congress authorized the Treasury to
set aside $100 billion as a “backup insurance” fund for the FDIC. And
they’re going to need it. A Royal Bank of Canada report suggests that
there will be “thousands” of bank failures in the U.S before this crisis
is over.
While your bank deposits might relatively safe… the dollar is not.
When the speed of the printing press is the
only limitation on money creation, the government will never run out of
dollars to fund their programs – FDIC “insurance” included. But what
about the value of those dollars?
That’s a different story. And that’s why you should protect your wealth
and savings by holding percentage of your assets in gold and silver
bullion. How much is prudent? That’s up to you. But with every passing
day, holding dollars for the long-term becomes more imprudent.
Bullion is for savings and a store of wealth. But for life-changing
profits, look to the precious metals miners, royalty companies and
select exploration outfits. And Investor’s Daily Edge analyst Rusty
McDougal has made it his life’s work to identify the best of the best.
To learn more about his latest ideas, click here.
If you need to purchase a decent amount of bullion, why pay the hefty
premium most people pay to buy it? Steve McDonald has a better idea…
Whether coins or bars, most people pay a fat
premium for physical gold. With these dealer markups, you would have to
make a return of anywhere from 5% to 30% just to break even.
But
Sound Profits editor Steve McDonald has a better idea. The advice
comes by way of Steve Belmont of RMB Group in Chicago, an analyst who
Steve says “has nailed every major price move in gold and oil for the
eight years I have known him.”
Here’s what he’s saying now. You should own physical gold – not gold
held in an ETF. And if you want to buy it with no markup or premium, buy
a near month futures contract on gold and take delivery. This allows you
to purchase around $30,000 in gold, and only pay $100 for delivery and
about a $50 commission.
This is exactly how banks and mints buy their gold, and it’s available
to you at the same price! According to Steve, “Gold has never looked
better and this is the cheapest way I have found to own it.”
A buying opportunity… or the first major cracks in the rally?
Bank failures and lousy consumer confidence
numbers on Friday, and another sell-off in the Asian markets contributed
to the biggest decline in U.S. markets in more than a month. The Dow
lost 186 points yesterday.
It was enough to get the attention of the talking heads. They wonder
aloud whether this pullback is a buying opportunity, or the start of
something serious. We suspect the latter.
A true bull market (as opposed to a fleeting bear market rally) and a
genuine recovery need an economic boom. But where is the boom? From the
data points that cross the newswires to the stories at the barbershop,
there is far more evidence of recession than recovery.
Even the “improving” employment numbers are no cause for celebration...
We are inherently distrustful of government
statistics. The reporting is often manipulated and the results are
notoriously skewed to fit the bias of the state. The inflation numbers
are the most often cited, since the government removed food and fuel
from the “core” inflation calculation.
The employment numbers are no different. One of the ways the numbers of
“unemployed” are kept down is by removing “discouraged workers” from the
total. That’s how the national unemployment rate “fell slightly” from
9.5% to 9.4% earlier this month – even as 247,000 more workers were
given pink slips.
According to government statisticians, the size of the American
workforce declined by 422,000 in July. These people were removed from
the official count, because they have given up their active job search.
Thanks to a little government math, we got a “slight improvement” in the
unemployment numbers. But don’t try to tell that to the guy who’s been
looking for work for six months.
Good Investing,
Bob Irish
Investment Director
Investor’s Daily Edge
