October Bank Closures Jump to 20

Highest since July.

And as Chairman Bair of FDIC expresses her anger against banks "resisting the reform" (the article is linked below the chart), her own organization remains technically insolvent. In fact, it has been insolvent since June 2008 when the reserve ratio dipped below the mandated 1.15% (see my post), and all the while she has kept repeating the mantra "No one lost money with us, your money is safe with us." (Of course it is safe, who does she think it is ultimately back-stopped by? Us! We pay money so that we may have our money back.)

Anyway, bank closures in October ballooned toward the end of the month to 20, the second highest this year after July (24). By their own admission, DIF was already negative at the end of September.

And here's Chairman Bair's anger, as summarized by an article by Reuters:

"Sheila Bair, chairman of the Federal Deposit Insurance Corp, said on Monday that some in the financial services sector are trying to argue that regulatory reform would stifle innovation and impede economic growth.

""That makes me angry," Bair said in a text of remarks prepared for a lecture at Kansas State University.

"Bair said the extreme market interventions that have occurred during the recent financial crisis have been difficult for her as a life-long Republican and market advocate.

"But she said they were necessary and that government needs even more tools to discourage financial firms from getting so large that taxpayers are forced to provide assistance if the firms become unstable.

""The government has been going into places where we don't want to be," Bair said, but she added: "We simply cannot afford to maintain the status quo.""

Her institution bends over backward to maintain the status quo by helping big banks in every way she can so that they not only survive but prosper. Remember the backdoor deal that almost went through last year regarding Wachovia? Citigroup was going to get that bank at a bargain price, with all the bad assets backstopped by FDIC.

And talk about financial innovation. Again, her institution is on top of that too. FDIC has been backstopping assets of the failed banks as purchased by new owners and backstopping bond issues by financial institutions while failing to maintain even a ridiculously low reserve. Compared to FDIC, Bear Stearns and AIG are the paragons of conservative operation.

One of the unintended consequences of FDIC's backstopping the mortgage losses of the failed banks is that the new owners would rather foreclose on the property because it is so much more profitable for them. It's free money. (For more, please read the first link (Is FDIC Killing Short Sales?) in my post in early October.)

To me, for her to say she is angry at the financial institutions is totally laughable. I even get angry myself when I hear her squawk about protecting consumers while FDIC backstops mortgage losses for billionaire investors who foreclose on the homeowners. I share the sentiment that Karl Denninger has about her.

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