1 Month, 24 Bank Failures: Random Event or Wilting Economy?

Reading - 1 Month, 24 Bank Failures: Random Event or Wilting Economy? http://tinyurl.com/xiam007-9

In what has become as much a staple of Friday nights as drunkenness itself, the FDIC on Friday conducted "seizures" of the following five banks:

1. Mutual Bank (Harvey, IL)
2. First BankAmericano (Elizabeth, NJ)
3. Peoples Community Bank (West Chester, OH)
4. Integrity Bank (Jupiter, FL)
5. First State Bank of Altus (Altus, OK)

Despite the fact that JP Morgan (JPM) and Goldman Sachs (GS) continue to earn (?) healthy profits, the plight of the nation's small community banks appears substantially more imperiled.

The familiar Fridays that used to feature a single bank failure are now characterized by a new tradition which dictates that at least four - and possibly five banks must fail each Friday. The rate and magnitude of recent bank failures does not correspond well with the popular belief of the day; being that we have "turned a corner", "stopped the tailspin", "stabilized" or any other number of foolish statements currently in vogue.

To take a look at some data that slaps the recovery hypothesis right in its face, let's take a look at the past thirteen months' bank failures, by the number that have occurred each month (source: FDIC: Failed Bank List):

Month / Number of Bank Failures

• July 2008 - 3
• August 2008 - 3
• September 2008 - 4
• October 2008 - 4
• November 2008 - 5
• December 2008 - 3
• January 2009 - 6
• February 2009 - 10
• March 2009 - 5
• April 2009 - 8
• May 2009 - 7
• June 2009 - 9
• July 2009 - 24

It's immediately apparent that July's number of failures represents a severe departure from normal.

The question is, did we just experience a run of the mill anomaly that occurred independently of economic conditions, or do the numbers indicate something more troublesome? To say that 24 bank failures in one month alone is NOT an indication of economic deterioration, one would have to suppose that there is an element of randomness to the number of failures that occur each month.

If that is so, we should be able to apply some elementary statistics to the situation to discern just how probable it is that July would randomly produce 24 bank failings.

Running the numbers on the 12 months ended June 2009, we calculate that the mean number of bank failures for a single month is 5.58, and the population standard deviation is 2.33. For the uninitiated, this means that - assuming the Failures are distributed normally - the number of financial institutions collapsing in a single month will be between 3.2 and 7.9, approximately 68% of the time.

Taking the exercise a step further, we can state that 97.5% of the time, a given month will produce 10.23 or fewer Friday night FDIC raids. To calculate the probability of the 13th month in the series (July 2009) bearing witness to a full 24 FDIC seizures, one must first arm himself with spreadsheet software capable of displaying results to the Quadrillionth (Google's spreadsheet program is just barely able to do so).

The probability-value associated with such an event is 1.18755X10^-15, or 0.0000000000000018755.

Based upon the monthly rate of bank closings during the most recent 13 periods, it's apparent that the random forces of nature are, in all likelihood, not responsible for the FDIC's hectic July schedule. We must then conclude that the responsible party is none other than a deteriorating economy.

To be more specific, the recent spike in bank failures is a reflection of the rapidly deteriorating economy on Main Street a.k.a those who did not receive a bailout and continue to either fear or experience job losses; consequently, straining the ability of these individuals to honor the obligations made to many smaller, community oriented banks.

Tim Geithner Won’t Rule Out New Taxes for Middle Class

Reading - Tim Geithner Won’t Rule Out New Taxes for Middle Class http://tinyurl.com/xiam007-8

To get the economy back on track, will President Barack Obama have to break his pledge not to raise taxes on 95 percent of Americans? In a “This Week” exclusive, Treasury Secretary Tim Geithner told me, "We’re going to have to do what’s necessary.”

Geithner was clear that he believes a key component of economic recovery is deficit reduction. When I gave him several opportunities to rule out a middle class tax hike, he wouldn’t do it.

“We have to bring these deficits down very dramatically,” Geithner told me. “And that’s going to require some very hard choices.”

“We will not get this economy back on track, recovery will be not strong and sustained, unless we convince the American people that we are going to have the will to bring these deficits down once recovery is firmly established,” he said.

While Geithner told me, “There are signs the recession is easing,” he warned that, “We have a ways to go.”

“I want to emphasize the basic reality that unemployment is very high in this country,” the secretary said. But, he underlined that the administration is “going to do what is necessary to bring growth back on track.”

Turning to the bank bailout, he told me it is “quite unlikely” that the U.S. Treasury will go back to Congress to ask for more funding for the financial rescue package.

"We do not plan to ask for more money and I think it’s quite unlikely that we do," Geithner said in his most blunt language to date on TARP funding. The secretary said that today the TARP has roughly $130 billion, in part due to more than $70 billion that has already come back into the government.

Geithner also strongly endorsed legislation currently pending in the House that would increase the power of the SEC and give shareholders more rights to vote on executive compensation. He insisted that Republican criticism that the government is overly involved in the financial system is unfounded.

"Everybody understands that we cannot have our financial system go back to the practices that brought this economy to the brink of collapse," he told me. "It is going to take fundamental reform."

Click HERE for the full transcript of my interview.

U.S. Marshals Seize Sanitizer Made by Utah Company

Reading - U.S. Marshals Seize Sanitizer Made by Utah Company http://tinyurl.com/xiam007-7

WASHINGTON — Officers with the U.S. Marshals Service have seized all skin sanitizers and skin protectants, including ingredients and components, at Clarcon Biological Chemistry Laboratory's facility in Roy, Utah, the Food and Drug Administration said.

The FDA also warned the public Saturday not to use any Clarcon products because they contain harmful bacteria and are promoted as antimicrobial agents that claim to treat open wounds, damaged skin, and protect against various infectious diseases. No cases have been reported to the FDA.

Clarcon voluntarily recalled the affected products, marketed under several different brand names, in June 2009, following an FDA inspection that revealed high levels of potentially disease-causing bacteria in the products.

The inspection also uncovered serious deviations from the FDA's regulations, including poor practices that permitted the contamination. The FDA's seizure of these products, along with their ingredients, occurred after Clarcon did not agree to promptly destroy them. The FDA said it is protecting the public by preventing these products from entering the marketplace.

"The FDA is committed to taking enforcement action against firms that do not manufacture drugs in accordance with our current good manufacturing practice requirements," said Deborah M. Autor, director of the FDA's Center for Drug Evaluation and Research Office of Compliance.

Clarcon produced and distributed over 800,000 bottles of these products in multiple regions of the country since 2007. Consumers should not use any Clarcon products and should dispose of them in their household trash.

Analyses of several samples of the topical antimicrobial skin sanitizer and skin protectant products revealed high levels of various bacteria. Some of these bacteria can cause opportunistic infections of the skin and underlying tissues. Such infections may need medical or surgical attention and may result in permanent damage, the FDA said.

Cash for Clunkers May Cost Up to $45,354 Per Vehicle

Reading - Cash for Clunkers May Cost Up to $45,354 Per Vehicle http://seekingalpha.com/a/39zh

The "Cash for Clunkers" program has been a "great success", at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally be traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government's money. At $3,500, 286,000 vehicles will have been sold.

I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the "cash for clunkers" program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.

If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, Edmunds.com estimates that the average cost to the taxpayer will be about $20,000 per vehicle.

Even most of the marginally extra sales really represent people who were going to buy a new car eventually anyway. They are just buying a bit sooner than they expected. Old clunkers don't last forever, and they are almost all eventually replaced. The government is shifting tomorrow's demand to today, stealing from tomorrow to pay for today, but at great cost to the taxpayer.

The "cash for clunkers" program is yet another boondoogle - an expensive waste of precious taxpayer dollars. Government spending should be reined in, in light of the multi-trillion dollar unsustainable deficits that this nation now faces. However, if we must increase government spending, the money would be better spent on infrastructure and education improvements that might help bring jobs back to America, and encourage long term growth, rather than cosmetic improvements to the short term earnings of makers of high mileage automobiles, many of which are foreign companies.

This government is, unfortunately, a reflection of the current state of economic immaturity that prevails in America. The vast majority of people, including most people in Congress, do not understand the forces that drive the real economy, and see only the short term view. That is how they get manipulated into allowing the Federal Reserve to behave like a slush fund for big banks, passing programs like TARP into law, and enacting programs like "cash for clunkers" which all abuse the taxpayers.

Cars.gov: Login and the Government Owns Your Computer

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Ron Paul: Why Is The Fed So Afraid?

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Congressman Paul: Millions Of Americans Have Had Enough Of The Fed

Reading - Congressman Paul: Millions Of Americans Have Had Enough Of The Fed http://tinyurl.com/xiam007-6

Texas Congressman Ron Paul, the driving force behind HR 1207, legislation that would see an audit of the Federal Reserve, joined Alex Jones live on air yesterday to provide a short update on the progress of the bill.

“I think it’s rather amazing,” the Congressman told listeners, “a year or two ago I imagine very few people even thought about the Federal Reserve.”

“But I think because of the economic crisis, because of the blundering with TARP funds, when the American people said we need to know what you guys are doing with and how you’re wasting the money, we saw an opening that we could call attention to about what kind of shenanigans has been going on at the Federal Reserve.” Paul commented.

The Federal Reserve Transparency Act now has 279 co-sponsors in the House and 20 in the Senate, meaning that more than 64% of the House of Representatives is already co-sponsoring the bill.

“There’s a lot more yet to come.” Congressman Paul said. “We need to know what they are doing, that’s why our audit bill is so important, but eventually though we need a sound monetary system, and I think that if we continue with our progress, hopefully we’ll reach that point some day.

There is strong bipartisan support for the bill with both Republicans and Democrats getting behind the legislation.

In addition, recent polls conducted by Gallup and Rasmussen have found that a vast majority of the public are suspicious of the Federal Reserve, with 75% in favour of an audit.

“The new survey finds that an overwhelming majority of Americans in every demographic category – including age, gender, political affiliation, race and income – disagree with Bernanke and favor auditing the Fed to make its secretive deliberations public.” Rasmussen writes.

“The Fed feels so much on the defense that they send the Chairman of the Federal Reserve Board out to hold town hall meetings.” Congressman Paul told listeners, chuckling. “That is hilarious.”

Paul spoke of bigger challenges to come.

“The dollar crisis will be a ten times bigger event than the financial collapse, and then the big deal will be which way are we going to go. Are we going to say as Americans that we had a taste of freedom, we want our freedom back? Or are we going to be complacent and the majority of people say ‘yes let the government do whatever they want, they take care of us, we trust the government’?”

“Right now in Washington everybody is still pushing more government.” Paul told listeners. “Just look at what Obama is doing with more war, more spending, more borrowing, more socialized medicine, more cap and trade, more taxes. But when I go home or go around the country or talk on radio shows, I find there’s not tens of thousands but literally millions of people who understand exactly what is going on and they’ve had enough.”

“We have truth on our side, the absurdity that they can control us forever by just printing money and claiming that they will always have wealth by printing money is so absurd that the people realise. Since we have honest money, truth, limited government and freedom on our side, if we don’t win there’s something awfully wrong.” Paul said.

The Congressman also warned, however, that the Obama administration has the wherewithal to use staged events to their advantage in order to dissolve growing public dissent.

“It may be an accident that they play on or blow up, or react to, so it doesn’t necessarily have to be absolutely contrived. They may have an accidental confrontation or sometimes they’ll just go out and something gets blown up and this will incite the people.” Paul urged.

“I don’t have any immediate insights, but I’m always on the alert and vigilant… If there isn’t enough fear in the hearts of the people, they will create the fear because people succumb and they give up their liberties when they are very fearful.” he commented.

Listen to the interview below:

Let’s Break up the Fed

Reading - Let’s Break up the Fed http://online.wsj.com/artic...

The Obama administration’s plan to increase the powers of the Federal Reserve, says one critic, is like giving a teenager “a bigger, faster car right after he crashed the family station wagon.” Treasury Secretary Timothy Geithner disagrees. He argues that the Fed is “best positioned” to oversee key financial companies, and that the Obama plan would give the Fed only “modest additional authority.”

Mr. Geithner is right about one thing: The Fed’s power is already vast.But it wasn’t even well-positioned to supervise the likes of Citicorp. Broadening the Fed’s responsibilities won’t help. Instead, we should think of how best to dismantle an overextended Fed.

Though advanced economies like ours require organizations capable of taking on a wide range of activities, there are limits. As Frank Knight, the great Chicago economist, pointed out in his 1921 classic “Risk, Uncertainty, and Profit,” individuals who control large organizations have to delegate many decisions to subordinates. Entities like hedge funds, where individuals such as George Soros make most of the consequential choices, are exceptions.

Therefore, good judgments about people—picking the right subordinates, refereeing staff conflicts, evaluating performance, and so on—are crucial.

Good judgment requires experience, not just exceptional intelligence or raw ability. Although many lessons about managing people can be applied to different fields, good judgment also requires some specific expertise. You can’t manage plumbers without knowing something about plumbing.

Unfortunately no one can learn everything about everything. Yes, Lou Gerstner turned around IBM without any prior experience in the computer business. But he had decades of general management experience, was an exceptionally quick study, and had to come up to speed in just one industry. Individuals who can learn how to effectively lead conglomerates, especially during periods of transition, are exceedingly rare.

This mismatch between what even the most talented minds can learn and the challenges of controlling widely disparate businesses has helped bring our financial system to the brink of collapse. The great names in finance once had distinctive identities and capabilities: Salomon Brothers was the champion in bond trading; Merrill Lynch’s thundering herd was tops in retail brokerage; Morgan Stanley and J.P. Morgan’s white-shoe bankers built formidable blue-chip client lists; and Bear Stearns’s PSDs—poor, smart and driven staff—cultivated scrappy entrepreneurs. Willy-nilly diversification turned these focused outfits into highly leveraged, unwieldy agglomerations of unrelated fiefdoms.

Likewise, the Fed has been incapacitated by its transformation into an omnibus enterprise with responsibilities ranging from boots-on-the-ground regulation to high-level monetary policy. The Federal Reserve Act of 1913, which created the Federal Reserve System, did so to forestall financial panics rather than pursue macroeconomic policies. The gold standard defined monetary policy. The Fed was merely meant to “provide an elastic currency” by serving as lender of last resort in times of crisis. The Act also assigned the Fed routine responsibilities for maintaining and improving the financial system—examining banks, issuing currency notes, and helping clear checks.

The adoption of Keynesian and monetarist ideas by central bankers and elected officials subsequently cast the Fed in a proactive macroeconomic role. William McChesney Martin, who served as chairman from 1951 to 1970, said that the job of the Fed was “to take away the punch bowl just as the party gets going.” This might have been wise in theory, but it wasn’t mandated by the law. In 1977, an amendment to the 1913 Act explicitly charged the Fed with promoting “maximum” employment and “stable” prices. The Humphrey-Hawkins Full Employment Act that followed in 1978 mandated the Fed to promote “full” employment and while maintaining “reasonable” price stability.

Legislation also has increased the Fed’s responsibilities for overseeing the mechanics of the financial system. The Bank Holding Company Act of 1956 gave the Fed responsibility over holding companies designed to circumvent restrictions placed on individual banks. It was tasked with regulating the formation and acquisition of such companies.

Congress further tasked the Fed with enforcing consumer-protection and fair-lending rules. The Fed was made the primary regulator of the 1968 Truth in Lending Act that required proper disclosure of interest rates and terms. Similarly, the Community Reinvestment Act of 1977 forced the Fed to address discrimination against borrowers from poor neighborhoods.

The expansion of bank holding companies into activities such as investment banking and off-balance-sheet exposures to complex instruments such as credit-default swaps also required the Fed to increase the scope of its supervisory capabilities.

In principle, an exceptionally talented theorist might capably run a Fed focused just on monetary policy. Setting the discount rate and regulating the money supply are centralized, top-down activities that do not require much administrative capacity. But without deep managerial experience and considerable industry knowledge, effective chairmanship of a Fed that relies on far-flung staff to regulate financial institutions and practices is almost unimaginable. The vast territory the Fed covers would challenge the most exceptional and experienced executives.

As it happens, the Fed has been led for more than 20 years by chairmen who had no senior management experience. Prior to running the Fed, Alan Greenspan started a small consulting firm and Ben Bernanke was head of Princeton’s economics department. Given their understandable preoccupation with monetary and macroeconomic matters, how much attention could they be expected to devote to mastering and managing the plumbing side of the Fed? While the record of the Fed’s monetary policy has been mixed, its supervision of financial institutions has been a predictable and comprehensive failure.

The Fed’s excessively broad mandate also has thwarted accountability. The CEOs of Citibank, AIG, Bear Stearns, Lehman and Countrywide are all gone—albeit with too much delay and with no clawback of unmerited compensation. At the Fed, no high-level heads have rolled. Mr. Geithner was promoted to treasury secretary. Mr. Bernanke is treated with great deference as he solemnly testifies that if it weren’t for the Fed, the crisis would have been much worse. But then, how can anyone be held responsible for failing at a job no human could do?

At the very least we should split the monetary policy and regulatory functions of the Fed, as was done through the Maastricht Treaty that established the European Central Bank. What we need now is a debate about how to break up the Fed—and some of the sprawling financial institutions it supervises—in order to make both the regulator and the regulated more manageable and accountable.

Bernanke: Why are we still listening to this guy?

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Sticker Shock: $23.7 Trillion Bailout?

Reading - Sticker Shock: $23.7 Trillion Bailout? http://bit.ly/1LXViV

"If you spent a million dollars a day going back to the birth of Christ, that wouldn't even come close to just $1 trillion

"The total potential federal government support could reach up to $23.7 trillion," says Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, in a report released today on thegovernment's efforts to fix the financial system.

Yes, $23.7 trillion.

"The potential financial commitment the American taxpayers could be responsible for is of a size and scope that isn't even imaginable," said Rep. Darrell Issa, R-Calif., ranking member on the House Oversight and Government Reform Committee.

"If you spent a million dollars a day going back to the birth of Christ, that wouldn't even come close to just $1 trillion -- $23.7 trillion is a staggering figure."

To be sure, we aren't there yet.

The government has about 50 different programs to fight the current recession, including programs to bail out ailing banks and automakers, boost lending and beat back the housing crisis. So far they've cost taxpayers around $4 trillion.

Continue reading - http://abcnews.go.com/Business/Politics/story?id=8140184