Servias Ministries Blog

Though we have often looked at the economic crisis in the U.S., Europe has it own challenges as well:

Man’s attempt at a one world government is not working well.  Our Heavenly Father has a better answer!

Year to date:  The FDIC has closed 146 banks.

2007 to date:  311 banks.

Latest Details

August 6, 2010 to November 12, 2010:  38 Banks

Stated Assets:  $13.78 billion

Deposits:  $11.97 billion

FDIC’s estimated cost of closing all 38 banks:  $2.72 billion  (23% of deposits)

FDIC Year to date total estimated losses:   $21.6 billion.

Loss Share Agreements

Loss sharing is a feature that the Federal Deposit Insurance Corporation (FDIC) first introduced into selected purchase and assumption transactions in 1991. Under loss sharing, the FDIC absorbs a portion of the loss on a specified pool of assets which maximizes asset recoveries and minimizes FDIC losses through least-cost approaches. Loss sharing also reduces the FDIC’s immediate cash needs, is operationally simpler and more seamless to failed bank customers and moves assets quickly into the private sector.  Simply put, the FDIC may suffer more losses if the underlying assets degrade further.

In the most of closures (30 closings out of 38), the FDIC entering into loss share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these 30 closings, the FDIC entered into new loss-share agreements covering an additional $8.2 billion in assets.

That brings the total face value of assets covered by FDIC loss share agreements up to about $189 billion. Loss share agreements typically guarantee at least 80% of the value of assets over a period of eight to ten years.

This is “quantitative easing” being practiced by the federal government. This defers the day of reckoning when banks are forced to reconcile the inflated condition of their balance sheets.

Some Simple Math

Declared assets: $13.78 billion

Deposits of $11.97 billion

FDIC estimated closings cost:  $2.72 billion

True value of Declared Assets: $9.25 billion

Overstated value of Assets:  $4.53 billion (49% of Declared value)

Neither you nor I could get away with overstating our assets in order to get a mortgage (unlike 3 to 7 years ago).  Any overstatement would be classified as fraud, especially doubling the value.

Specific examples:

Maritime Savings Bank of West Allis, Wisconsin: stated assets of $350.5 million and deposits of $248.1 million. The FDIC estimated its closing cost $83.6 million. Overvalued by 113%.

ShoreBank of Chicago, Illinois: stated assets of $2.16 billion and deposits of $1.54 billion. The FDIC estimated its closing cost about $370 million. Overvalued by 84%.

Pace of Bank Closings Artificially Slow

The FDIC’s closure of 38 banks over three months is by no means an insignificant number. However, in the context of the FDIC’s overhang of troubled banks, it suggests the pace of bank closings is being kept artificially low.

As of April 2010, there were about 425 banks operating under serious FDIC enforcement orders that called into question the banks’ solvency. Since then, upwards of 25 new banks have come under such orders each month.

Therefore, closing 13 banks a month has done nothing to reduce the backlog of troubled banks operating in the Country. That backlog could only have grown.

Most likely, the pace of bank closings had been held back artificially by the need to keep up appearances for the benefit of the mid-term elections. With those now behind us, I would expect the pace of bank closings to accelerate considerably.

The last five decades converted Ford from a manufacturing company who dabbled in credit to a bank who built cars.  The F.I.R.E. economy (Finance, Insurance, Real Estate) resulted from the move away from the gold standard.  Unrestricted money creation attracted the corporate treasurers to the profits of financial engineering.  GM made more money in it GMAC lending unit than it did building cars.

The housing bubble was a debt based bubble.  When the housing prices fell, the debt level did not and the banks do not want to book the loss.  They want the consumers to absorb the loss instead, equal to about $1 Trillion per year.  We need a banking system but the banks moved away from their original mandate and became aggressive investors.  Their aggressive behavior created huge losses and they don’t want to be held accountable.  High unemployment hinders the ability of borrowers to pay back the inflated loans and most are now considering default.  That is the dilemma.

The Federal Reserve is trying to resurrect the broken FIRE economy but should be focused on creating new jobs by building a new energy-efficient infrastructure.  The FIRE economy is history.  The Transportation, Energy, Communications, Infrastructure (TECI) economy should now be the focus.

$300 Fluctuations?

Gold lost $40 on Friday and silver lost $1.64, about 5%.  But silver is up 54% for the year.  This metals bull market will try to buck timid investors off its back.  Was anything solved at the G20 summit?  No.  QE2 (Quantitative Easing #2) will push the dollar lower but there will be rallies on the way.  The Fed will use foreign intervention to keep the dollar from tanking immediately.  They want the dollar to decline, but in an orderly fashion.  The dollar rally this week needed to happen as the President participated in talks at the G20 summit to project “confidence” in U.S. policy.

The Banking System Flush

For those unfamiliar with how regulators process insolvent banks, it would be helpful provide a little discussion.  Regulators audit banks on an annual basis.  They track performance ratios on a continual basis.  When banks become weak, the regulators start looking for suitors to take over the bank.  This may take many months to solve the problem.  The regulators closely monitor the bank and keep it afloat while attempting to find another bank or a qualified group of investor to acquire the bank.  This allows regulators to “manage” bank closures so that it does alert the public to the seriousness of the insolvency in the system.  Thus a systematic approach to bank closure that manages perception is used.  Three banks were closed this week and more will be closed in coming weeks.

Living Beyond Our Means

Cut spending for others, but not for me.  The U.S. is spending beyond its ability to pay back the money it borrows to satisfy the accustomed lifestyle.  Americans are unwilling to choose austerity as a solution to the problem.  The only other solution is to inflate our way out of debt.  That is Ben Bernanke’s job.  Obama knows it, the Chinese know it, the Fed knows it, and now you know it.  What can we do as individuals?  Shift some of our assets into precious metals, store food for future consumption, pay off debt, reduce our monthly bills, and simplify.

The manipulation of the silver market has long been a frustrating drama for those of us who watch the metals prices on a daily basis.  Over the last several years, there have been many interviews and articles about the observed manipulation but it fell on legislative deaf ears.  It would appear that the time has finally arrived for the perpetrators to be brought to justice.  See: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8116143/Whistleblower-accuses-HSBC-and-JP-Morgan-of-silver-futures-scam.html

The problem is one of complexity and jurisdiction.  When traders are in the New York and London, it is not easy to follow the money trail.  The brightest financial engineers are not working for the regulatory agencies since they can make more money working in private industry.  Add a whistleblower to the mix, and you have some real potential.  The whistleblower can lead the regulators right to the detailed records that prove the crime.  Most likely the whistleblower was complicit in the crime but was shafted by the employer.

When gold & silver were used as currency, a 15 to 1 ratio was the standard valuation between the two metals.  Once we went off the gold standard, this ratio averaged 55:1.  That may change soon.  If we allow for a 30 to 1 ratio. silver should move to $50 per ounce soon.  However, if gold moves to $3,000 as many predict, $100 silver is not unrealistic.  Related silver stocks stand to gain rather nicely from this move.

The Day of Atonement was on the 260th day of this year and is the day Jesus was baptized and marked the trip to the wilderness.  On the 300th day of the year which marked the ending to the time of testing, the CFTC announced the investigation to the manipulation of silver (to the downside).  Silver represents redemption in Scripture.  The Ark was 300 cubits in length, another number of redemption of mankind.  Selah.

What a good looking chart below:

It seems that nobody has preached on this forty day cycle yet.  Jesus was in the wilderness during the Feast of Tabernacles takin’ care of business.  It wasn’t until His time of testing as a mature man (30 years old) could He celebrate that feast day.

The Chinese people are expected to buy 18 million new cars next year whereas the demand in the U.S. will be about 11.5 million.  Other developing countries are also on the upswing of energy consumption.  We are currently in the shoulder months for gasoline and natural gas but the oil prices have remained firm.  It appears that the market understands the increasing demand of the Far East and the inability to substantially increase global production of oil.

I expect an oil shock of some point within the next 48 months.  Suddenly the market will wake up to the fact that demand continues to outstrip supply.  As the price of oil rises, other energy prices will rise as well.  Energy supports growth, lack of energy resource restricts it.  The price of oil relative to other commodities has shown a strong correlation to U.S. economic cycles as being a primary reason for the rise and fall of the economy.

It took 24 months for the electorate to determine if Obama could turn this economy around.  All indications are that the time is up and tonight will tell the story.  Economies do not “turn on a dime” but sustained unemployment and fear of recession cause society to demand change.  The problem is that neither Democrats nor Republicans have the answer.  The mindset of the American people must change.

The Far East wants a standard of living similar to the rest of the world.  The problem is that the rest of the world attained the current standard with cheap energy and cheap food.  These commodities are no longer cheap.  The current infrastructure will no longer support the ways of the past.  Mankind must change.  Our Heavenly Father has all the answers and His Love will release those answers for the good off men whether they are His friends or enemies.  Our focus and direction should be toward His Heart.  His elect will have the answers as they mature into their calling.