You Can’t Make This Stuff Up, Folks!

Okay, I am not sure how to proceed here. When I pieced together this story, I was completely flabbergasted. Words failed me, and I had the sort of brain freeze you get from eating ice cream too fast. But here is the latest financial news, as bizarre as it may sound.

The FDIC is nearly broke. No, that isn’t a surprise, unfortunately. In addition, another 350 to 500 banks are forecasted to go belly up next year. Nope, this is still not surprising given the utter lack of any financial reform. Since January of this year, the FDIC has already seized 94 banks, and the failure of even one large bank could drain the remaining funds available. Boy, that sure gives you a warm and fuzzy feeling when you think about their ability to cover the $4 trillion plus in deposits that they currently insure.

No, the real surprise was that the New York Times reported that Sheila Bair, chairwoman of the FDIC, and “senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors.” Why were these ironic sources of funds being considered? Well, according to the same article, “Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” Camden R. Fine, president of the Independent Community Bankers, told the Times. “She’d do just about anything before going there.” The Treasury is, of course, the source that has set aside $100 billion for just this purpose, as per the bailout programs already in place. In fact, Ms. Bair would not even need permission to access those funds.

So, let me get this straight. We are dealing with a schoolyard rivalry between the Treasury and the FDIC? Oh, but it gets better. Treasury Secretary Geithner is apparently picking fights with the Federal Reserve as well. According to a recent article in Bloomberg Markets, “The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance.”  You see, children, it turns out that the Federal Reserve was created by an act of Congress and is not part of the executive branch of government. So, the Treasury secretary really had no authority to make this sort of request in the first place. But wait … isn’t he the guy that couldn’t figure out how to get his TurboTax to work right? I guess I am just wondering if he is the best guy we could get to review the “structure and governance of the Federal Reserve” anyway. I can hear you at home asking, “Dan, could this slow motion train wreck take any stranger twists?” You bet.

Senator Dodd (D–Conn.), the current Senate banking chairman (and close friend of Angelo Mozilo, recently charged by the SEC with fraud) must have found someone else to refinance his homes. And the “sweetheart deal” he got this time must be good. He is proposing a radically different structure for bank supervision than either the Administration, or the House Democrats are supporting. His plan would strip oversight authority from the FDIC, the Federal Reserve, the Office of Thrift Supervision, and the Comptroller of Currency; and create a new “super regulator.” Okay, I get it! These same four separate government agencies, designed specifically to oversee banking, failed to notice the top 10 banks leveraging themselves 40 to one (on average) leading up to this crisis. So, any sane person would naturally conclude that a fifth government agency would work much better. I mean, how could such a brilliant idea fail?

In conclusion, let me just say this: If you even remotely think you may need a mortgage to buy or refinance a home in the next several years, I am guessing you better do it now rather than wait.