The Glade 4.0

Except in the cases where it doesn't ...

There are at least two posters on this forum who lost deposit accounts (and all contents) under the FDIC minimum when their banks were closed in the last 18 months. In fact, at least one poster's bank was put into receivership and all deposits frozen for a minimum of 36 months without any notice from the FDIC, which is apparently SOP now; they don't want people to be able to take their money out of the banks they are administering.

Oh, and the best part about one of those banks? The toxic assets that led to their closure were loans they were required to issue by Federal law.

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Probably about the same as the backstop created by Unemployment Insurance?

How brutally are the small businesses in other states getting hit by the steep increases in payments to replenish the funds?

Certain exempt employers are now required to pay into unemployment insurance funds (at least in some states) now, too ...

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Which banks? I haven't heard about that happening. To be clear - I'm not questioning the veracity of the claim; I just want to read up on it for the sake of interest.

But, on the bright side, your share is ~1/230millionth of *all* the foreclosed houses...


And we have people wondering why we say that government interference (even "good" types) promote malinvestment.

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"Aaaah! Emotions are weird!" - Amdee
"... Mirrorshades prevent the forces of normalcy from realizing that one is crazed and possibly dangerous. They are the symbol of the sun-staring visionary, the biker, the rocker, the policeman, and similar outlaws." - Bruce Sterling, preface to Mirrorshades

I was curious as well, so I did some quick looking and found this PDF from the Virginia Law and Business Review. While it didn't name specifics in the article (at least before I had to stop reading to get back to work), it did have this:



Khross didn't specify the types of accounts to which he was referencing, but this review (dated 2007) suggests it has only been an issue with uninsured deposits, up to that point.

I'd rather not tell you where I used to bank, RangerDave.

By the by, it took the FDIC 197 days to find a bank to assume ownership of the accounts in "good standing"; it took that bank another 7 or 8 months to start accepting transactions against the accounts or provide the money to the account holders.

And, in my case, a few other private accounts, and all commercial accounts: the assets were "not covered" by the FDIC per official statements. I actually have an affidavit from the FDIC saying they weren't returning my money.

I have no reason to trust the FDIC.

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Laying it at the feet of the ratings agencies is misplacing the blame, IMHO. As I stated previously, the ratings agencies are rating the odds that the securitization trust is going to default. Who are major players in the securitization of mortgages? FNMA (and FHLMC), you know, the Government Sponsored Enterprise that states: "The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS)." What are the odds that a GSE is going to default? That's why the MBS's got AAA's, on the back of the "full faith and credit of the United States Government".

Why were these GSE's interested in the sub-prime market? Not because the MBS's were AAA rated, because the Gov't told them they had to offer the loans. The Housing and Community Development Act of 1992 made it part of their charter that they: "have an affirmative obligation to facilitate the financing of affordable housing for low-income and moderate-income families." In 1999, they were pushed even further by our wise Gov't to provide loans in distressed inner city areas. You think that maybe because they were mandated by the Gov't to provide a greater and greater ratio of loans to those in the "inner-city" and those with "low incomes" that maybe they were looking to fulfill those goals by tapping the sub-prime market, rather than making those loans because they wanted to facilitate MBS's that involved sub-prime mortgages?

These GSE were explicitly backed by the Gov't. Additionally, these GSE's had, as their Gov't mandated goals, the need to increase low-income home-ownership and home-ownership in the inner-cities. I think it's fairly obvious how the whole "mortgage crisis" came about, and it's not because ratings agencies were giving AAA ratings to instruments backed by the "full faith and credit of the United States Government". The Gov't involvement in aspects of our lives in an attempt to create equality of outcomes is not a wise course.



That's a lot of vacation homes!

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"Dress cops up as soldiers, give them military equipment, train them in military tactics, tell them they’re fighting a ‘war,’ and the consequences are predictable." —Radley Balko

Ah, totally understand, Khross; didn't realize you were referring to your own bank. As Ladas notes, though, were these FDIC-insured accounts/deposits or were they uninsured? If the latter, it's understandable that there were delays and even non-payments - holders of uninsured accounts/deposits are basically just unsecured creditors in bankruptcy.

A standard checking-account in my case, RangerDave; so it was definitely insured, as were the two business accounts I had there which no longer have any money.

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The FDIC is not going to fail regardless of how much money the government has to print to keep it afloat. In fact I could easily argue that it's actually a terrible idea for people to investigate the creditworthiness of their banks, that is time and effort wasted on something that has no value. Someone who spends that effort elsewhere is much better off because if their bank fails they get to force everyone else to bail them out anyway.



Actually, I got those numbers by comparing the home ownership rates (percentage of housing units that are occupied by the unit's owner) in Germany and the US (Germany is 39-40%, the US sits at 67-68%) and then looking at the percentage of homeowners that have an outstanding mortgage, which is also much lower in Germany than it is in the US. It's by no means a perfectly accurate number but I never claimed it was.

I used Germany as an example because German banks, by first-world standards, have absolutely draconian mortgage terms and this is fairly well-known. They have these terms because Germany did not have government bank insurance prior to 2008 and as such Germans absolutely did not tolerate their banks taking any risks. The typical standard in Germany is that to qualify for a mortgage, you have to put 20% down and then your gross monthly income must be at least four times what the mortgage payment would be if the interest rate was five points higher than it actually is. To put that in perspective, under that standard if you want a 30-year mortgage at 5% to buy a $300,000 house, you need to have an annual salary of over $120,000. If you want a 15-year mortgage you need a salary of almost $150k. In the United States you can probably get those mortgages with less than half that salary, with less down. Hell in the US I doubt you would even be able to find a $300k home in a neighborhood where the median household income was $120k.

As for why this should be a consideration, you're the one that's telling the majority of homeowners in the US that they should never have bought their houses. While I don't know what your opinion of what "reasonably responsible" lending terms are, I take it from the tone of your post that you at least somewhat agree with the German system.

Is this correct, or is this a typo? If accurate, where did you find this number? Isn't this several times bigger thant he entire U.S. economy?

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"Hysterical children shrieking about right-wing anything need to go sit in the corner and be quiet while the adults are talking."

I'm not an economist, but I'm pretty sure BoA takes say $250k and underwrites a mortgage, then immediately sells that mortgage to someone else for say $300k or $350k with a promise to guarantee the payments. That makes them an immediate profit of $50k or $100k, but if the homeowner defaults, BoA has to pay the payments to whoever they sold it to. Then they take the $300k they got and underwrite another mortgage and repeat the process. So if 100% of every mortgage they've ever been involved with were to suddenly default, yeah they would owe a stupid amount of money, but that assumption is not reasonable.

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That's just the notional value of the trades, not the actual payments that would be due under them. For example, let's say a company has a $100 million loan with a floating rate of Prime + 2.5% per year, and it wants to protect against the risk that the Prime Rate (currently 3.25%) will go up. To do that, it enters into an interest rate hedge with BoA for a fixed rate of 7% per annum on a notional amount of $100 million.

Under the hedge, if the Floating Rate (Prime + 2.5%) is greater than the Fixed Rate (7%), then BoA pays the company the difference multiplied by the notional amount ($100 million). If the Floating Rate is less than the Fixed Rate, then the company pays BoA. So in this example, if Prime increased significantly from the current 3.25% to, say, 5%, BoA would have to pay the company about $500k: ([5% + 2.5%] - 7%) * $100mm = 0.5% * $100mm = $500k.

In short, even though the headline number is the notional amount, BoA's actual exposure is significantly less.

That happened like a week ago -old news the 75 trillion that is.

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"...but there exists also in the human heart a depraved taste for equality, which impels the weak to attempt to lower the powerful to their own level and reduces men to prefer equality in slavery to inequality with freedom." - De Tocqueville

Real exposure on that $75 trillion is somewhere between $15 and 20 trillion at a minimum; the problem with tracking derivatives and other anti-Fed securities comes from the fact that "banks" have more money to "move" than will ever possibly be called on.

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We need to arrange some nationwide timeshares!

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