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FDIC Chair Admits Agency May Need Emergency Bailout
 | By Patrick A. Heller, Market Update
September 02, 2008 |
On Tuesday, August 26, Sheila C. Bair, the Chair of the Federal Deposit Insurance Corporation (FDIC) said her agency may have to borrow money from the US Treasury Department to provide liquidity through an expected wave of bank failures.
In an interview, Bair said, "I would not rule out the possibility that at some point we may need to tap into lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes." She later stated that it was unlikely that the need to borrow from the Treasury would occur in the near term.
If this occurs, this would be the first time since the end of the savings and loan industry crisis in the early 1990s that the FDIC needed to borrow money to pay off insurance claims. In theory, these borrowings would be repaid later when the FDIC later resells the assets of the banks it seizes. In the current economic environment, there is no guarantee that this would be possible this time around.
That is not the only scary news about US financial institutions:
-- The FDIC recently admitted the preliminary $4-8 billion estimates of its losses from the IndyMac Bancorporation failure were too low and that final costs to the FDIC are now projected at $8.9 billion.
-- On Friday, August 29, Integrity Bank of Alpharetta, Georgia, became the 10th US bank to fail so far in 2008, after only three bank failures occurred in the three previous years combined.
-- The FDIC's most recent quarterly report of troubled banks now includes 117 institutions, up from only 90 three months earlier.
-- The Congressional Budget Office estimated that the government's (meaning "taxpayer's") cost of the bailout of the Fannie Mae and Freddie Mac to be only $25 billion. About a month ago, Steve Forbes in his column in Forbes projected that it would take about $400 billion of taxpayer money to cure the crises afflicting these two mortgage giants. In a report released August 22 titled "The Real Cost of a Full Bailout," analyst Don A. Rich stated, "the real cost of the bailouts will easily exceed $1.3 trillion. In fact, the real cost is likely to range between $1.3 trillion and $1.6 trillion, and is not unlikely to reach $2.5 trillion . . ."
These and many other fundamental problems in the US financial industry (and the overall weak economy, rising inflation, huge soaring federal budget deficits, and much more) point to continuing enormous downward pressure on the value of the US dollar in coming months.
Traditionally, physical ownership of precious metals has been a sound form of insurance against drops in the values of fiat currencies. Despite the appearance of a myriad of paper financial investments that supposedly protect against inflation and other calamities, I expect that the tried and true option of holding physical gold and silver will once again prove to offer superior asset protection in the next few years. With the price of gold now near its lowest levels of 2008, I think right now is an excellent time to build or expand your holding of physical precious metals.
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