FDIC by another name

In my wildest dreams, as I am sure may of us have had at one point or another, was an image of me vacationing in the most exotic of places living up the big life from my fat bank account swelled by the winnings of the lotto. Ahh, the life of sipping pina coladas by the calm ocean side as I listen to the ramblings of my overly large-breasted cohort.

And I have to admit that, from time to time, these visions of doing nothing other than enjoying my winnings have kept me up at night trying to figure out what, in fact, that money would buy me.

After dwelling upon this luxurious lifestyle for more than a mere second or two, I would inevitably picture what would happen if these funds were to dry up. But then the thought of keeping smaller nest eggs of 100,000 planted in various bank accounts throughout the country came to mind, and the fear simply faded. A restful happy slumber would come soon after.

Of course, try as hard as one might to pick the lucky numbers each week, I have yet to hit the jackpot. As for me, not being a gambler at all, my odds are probably worse than most. One must play the game so to speak. But while I pay my respects at the gas pump, there is always that inner temptation and the seemingly endless wait to pay the cashier behind the long lines of other patrons whenever the Megabucks kitty sits at over 200 million or so.

Unlike other dreams and thoughts, striking it rich by dropping a dollar or two once a week, certainly isn't unique. And neither is the notion of diversification. After all, logic backed up by that special sticker on my bank tellers window tells me, and most everyone else, that's the smart way to go.

How hard it must have been to live in the days of the Great Depression without the assurance of the Federal Deposit Insurance Corporation backing up my deposits. As hard as I try to imagine, sleeping on top of my cash-hoarded nest egg just doesn't materialize. I mean, how much space does someone really need to have in order to protect 200 million? Possibly a Dick Cheney sized vault?

Surely, it has to be virtually impossible to protect your cash money when it sits somewhere hidden just out of sight in your own home. Especially, if you like to have guests, or plan on raising a family. I mean, what would happen if there was a fire, or for that matter, almost any natural disaster. Poof! There would be nothing left. Frightening thought.

But sadly, that is just what seems to be happening in the markets today, and there is the very real possibility that own our self-made financial disaster could lead to the possibility that the FDIC will not only be unable to protect us, but actually contribute to the problem itself.

All this talk about a vast storehouse of money stashed away by the Fed in case of rainy days like this, intended for the sole purpose of helping the American taxpayer out in times of need is just that. Talk.

Since its inception, banks have been contributing funds to the FDIC by charging us various fees. What contributions are made by an individual bank is calculated via a ratings system determined by the Fed that ranks each insured member based upon the likelihood of failure. And just like credit for you and me, the more risky the customer the higher the fee.

Now, you might think that hoard of money has got to be pretty big by now right? Well, not so fast. Turns out this money doesn't just go to some huge vault hidden underneath a mountain somewhere at all. And there isn't even a lock box, so to speak. For all this time, these small fees you and I have been paying, go directly to the Fed who in turn can decide to spend them as they please. Whatever amount the FDIC says they have on hand, well, it isn't really on hand at all. Most of it has already been spent on various other things anyway.

Bridge to nowhere anyone?

What is worse is that these small fees change as the conditions do. So as an insured bank begins to hit rough water, their fees increase as well. Of course, this all gets passed on to their customers who may or may not decide to shift their deposits somewhere else. It's a sort of self fulfilling prophecy. One that seems to be materializing right in front of us now.

Have your banks fees been rising of late? Well, now you know why. Want to know where your money is going? Not to some fortress of economic resurrection that is for sure.

So now there is talk that the FDIC is running out of cash because they have been using it to bailout so many of its members of late. The talk is that when the time comes, the FDIC will have to raise its rates even higher and possibly borrow additional money from the Fed.

Either way, these options are nothing more than additional taxation sifted through various government mechanisms to cloud our understanding of the truth.

And this can't be anything other than the notion of putting lipstick on a pig, could it?

How proud we must all be to know there is a nice sticker, and the fine-tuned words of officials assuring us we will all be protected in times of need!

Socialism American Style

Over the weekend, intense negotiations were taking place at the highest levels of our government attempting to solve this country's myriad of problems from environmental disaster and dwindling natural resources to economic catastrophe.

And it seemed as though some sensibility had come over the newly emerging socialist tendencies of our financial system when the Fed announced Sunday that it would not come to the aid of Lehman Brothers - even though it had rescued a string of similar companies in previous months. But by Wednesday, it had again decided to come to the aid of another company, AIG. Then shortly afterwords it announced a bailout of our automotive industry as well.

Yet, with all of this "rescuing" going on, by midday the stock market was still down by over 300 points.

It is certainly becoming hard to keep track of all the socialist firsts this government is making these days. Bailout after bailout from investment firms, banks, home lenders, insurance companies, and now our auto industry.

Taking into account that the fallout from Lehman Brothers will far outweigh the collapse of WorldCom, (which was previously the largest corporate bankruptcy in American history). The sheer number of companies that would have become bankrupt hadn't the government stepped in is becoming enormous, both in size and quantity.

Our economy, as reflected through Wall Streets books, would be well beyond tatters by now hadn't these bailouts occurred. This is not even accounting for the several regional banks, like WaMu and SunTrust that have also seen better days before playing the game of unregulated predatory lending.

And yet, just as in physics, these losses don't just vanish into nothing because of the governments massive bailout program. There still needs to be an accounting for every dollar whether its shifted from private to public coffers, or from liquid to gas.

You can change the substance of something, like water into steam, but it will always retain the identical mass.

So, in essence, these massive bailouts happening practically everyday are going to have to be paid for by someone. Welcome to socialism American style.

Now we as taxpayers won't have to pay for it all as there will be numerous vultures lurking in the wings just waiting to scoop up the stinking remains of the corporate victims left behind. Of course, we will also welcome foreign "investment" from Britain, Europe, China and the Middle East.

And the trend will continue for as long as there is money to be made in swooping in and taking what we think are failed businesses. Just like the sale of the Sears Tower in Chicago, it's happening all around us from Wall Street to Main Street, fire sale after fire sale. If not our government, it will be another American company, if not another American company, then it will be another foreign company, or even country.

While this is taking place, larger numbers of Americans will find themselves without employment and wondering how much their personal burden will be to the government come tax time. Doubt we will be getting any rebate checks anytime soon.

Funny to imagine all of this could have happened in just eight short years, but that is the nature of our economy. Change can happen fast.

Now, the bottom is far from being over and already the American taxpayer is left holding a pretty horrible bag of corporate debts, the FDIC is running out of "insured" money, and the Fed is suddenly finding itself backed into a corner without any good options.

In fact, the Fed is now finding out that it is not able to set its rates because they are being set for them at record high levels by a market that is more concerned with hording its reserves, or using them to pay off these bad bets made in the derivatives market.

At the same time, the American consumer is also left with little to no options itself. The job market, as weak as it is, is our saving grace and the inbred system of payroll deductions, FICA, Medicare, et. al. will ensure that the government gets the money it needs to keep ticking along saving the country from its own mistakes. However, as good paying jobs are being replaced by increasingly menial labor and lower paying positions in an ever decreasing job market, this is also becoming a slippery slope.

Unlike the 60s, we can't just burn our draft cards so to speak and decide not to support a government who has had little to no regard for its constituents because the same paper that feeds us feeds our government. It's just like a modern version of indentured servant-hood, a step away from slavery but a form of ownership never-the-less. That combined with out right to demonstrate or protest having been taken away, as is now the case, we have in effect become "sheeple".

If the government was held accountable for its actions, and we had a say, this wouldn't be the case as our money would most likely pay for things we wanted them to, but not anymore. Through the system of corporate news cycles, we are made to believe what we should think, and so our power is reduced further.

With all options seemingly off the table for the Fed, and the American people, it seems like the game is up and we have lost this bad game of poker. How big the loss becomes will certainly be much more than the devastation of Hurricane Ike and Katrina put together, but in similar fashion, we will be left holding the bag paying for the mistakes of greedy people who have effectively brainwashed our entire political system.

We can only hope that after this man-made disaster has come full circle the wasteful debris of human greed is washed away like the bad paper they helped to create.

Until then, comrades, I will save a seat for you in Siberia.

Comparisons of the Past

Several experts have recently said that our current economic crisis is unlike any other financial disaster in US history since the Great Depression, which began in 1930 and finally ended in 1954. A good comparison? Sorry, I don't buy it.

Now if my memory serves me correctly, the reason for the onset of the Great Depression can be attributed to just a few cliff notes. Everyday people were able to invest in the stock market due to the increasing use of telecommunications systems and mass urbanization. Investors were able to purchase on margin, often at a 10% rate. Our currency was pegged to an asset which could rise and fall in value - gold. There was literally no federal banking system in place, so people's deposits weren't insured.

When the stock market crashed, people went to withdraw their money from the local bank, and it just wasn't there and neither were their jobs when they got back. Of course, the environmental catastrophe called the Dust Bowl also played a factor. Unemployment at its peak hit around 30%.

While on the surface these two periods in American history can look similar, there are more reasons why they are very different.

Why are they so different? Today it's credit not margin that's killing us. After the roaring 20s, our government was sitting on a huge stockpile of wealth and enjoyed a substantial trade surplus (due to the export of oil and other natural resources). Now, our government is perhaps the largest holder of debit. Instead of being a net exporter, we are a nation that survives primarily from imported goods. Back then, there was no real system in place to regulate the financial industry. Now it's the industry itself that has spawned a legacy of greed through deregulation.

You might say things started looking bad for us around the time of Hurricane Katrina when so many people's lives were devastated never being able to recover. Unlike the Dust Bowl however, environmental disasters like Katrina are the result of a global climate crisis which shows no signs of recovery, not because of over-farming in soil depleted regions.

I guess I could go on, but suffice it to say we are looking at something much larger in scope than the problems faced by previous generations.

Great projects like the Hoover Dam, Mt. Rushmore and the Golden Gate Bridge were built as government projects that employed people and injected money into the the system by providing jobs. Currently, our government is seemingly committed to injecting money it doesn't have anyway (by simply printing, or borrowing more) into the capital market.

Now unlike then, it seems they have committed to bail out mortgage companies Fannie May and Freddie Mac as well as hundreds of banks and investment brokerage firms through the Fed and FDIC. According to this article, total debit could be in the range of 70+ trillion dollars. The FDIC has 54 billion in reserve. Social Security, at most, 11 trillion.

Try to picture this. You're going to the bank to take out all of your money in exchange for cash because credit doesn't look so good anymore. OK sounds good, there's no reason to panic. Now picture everyone doing this at the same time, and in effect shutting down the bank itself. Your bank. OK, still no problem because you'll manage to get some of it back seeing that your deposit is federally insured right? Wrong.

Looks like instead of building great projects and employing people putting wages back into our hands, our tax money is being used instead to bail out the very financial institutions that have played a role in creating this crisis.

Soon there won't be enough money left in our pockets to fuel the huge tanker ships that come from China which supply us with the meaningless trinkets we used to make ourselves.

This time it won't be like the last time and it shows every sign of being dramatically worse. So, until the entire nation wakes up and our government starts actually working for us, we as a nation will continue our perilous journey into uncharted territories.