The era of mega banks – The growth of too big to fail. American banking system still backing over $13 trillion in assets with a negative deposit insurance fund. 7,760 banks but 19 banks make up 50 percent of the asset base.
The growth of the too big to fail bank is something that is modern to this era. In the 1990s there were fewer than 40 institutions that had total assets above $20 billion. In the late part of the 1980s and 1990s this number was below 20. The peak was reached in 2005 with 55 institutions having more than $20 billion in total assets. That number has fallen in recent years because of the crisis yet we have a handful of banks that control most of the nation’s banking assets. The total U.S. banking system as of today supports over $13 trillion in total assets. The FDIC insures these deposits with a deposit fund that is negative so it might as well be supported by pure faith. What makes up most of these assets are residential and commercial real estate loans. As we have discussed banks have yet to come to terms with the reality that many of these loans are not worth what they claim they are. First, let us look at the growth of too big to fail.
Catch 22 economics – The U.S. economy has 7,400,000 less workers than the peak in late 2007 yet nominal GDP is at a record. What does that mean for those without jobs?
The Friday jobs report was significant for a variety of reasons but one key theme is that it shows the true fragility of the state of the economy. Even though it was a net add of 39,000 jobs we need to remember that the nation needs to add roughly 150,000 jobs per month just to keep pace with population growth. Many economists agree that an unemployment rate over 8 percent is felt by virtually everyone in the economy. The average American is facing some of the most dramatic changes to our employment market in over a generation. While the recession on paper has been over since summer of 2009 most Americans would agree that the economy is still in deep problems. This is because most Americans would view a recovery with actual job growth. Yet when we look at the Gross Domestic Product (GDP) or the aggregate production of the U.S. we are back and growing. This dichotomy raises some troubling questions moving forward. Do we need as many workers to grow? GDP tells us that we don’t.
The con of the century – Federal Reserve made $9 trillion in short-term loans to only 18 financial institutions. Since 2000 the US dollar has fallen by 33 percent. The hidden cost of the bailouts.
The Federal Reserve released a stunning report showing the details of bailouts that occurred during the peak of the credit crisis. They won’t call it “bailouts” but giving money when others won’t is exactly that. What the report shows is that the Fed operated as a global pawnshop taking in practically anything the banks had for collateral. What is even more disturbing is that the Federal Reserve did not enact any punitive charges to these borrowers so you had banks like Goldman Sachs utilizing the crisis to siphon off cheap collateral. The Fed is quick to point out that “taxpayers were fully protected” but mention little of the destruction they have caused to the US dollar. This is a hidden cost to Americans and it also didn’t help that they were the fuel that set off the biggest global housing bubble ever witnessed by humanity. A total of $9 trillion in short-term loans were made to 18 financial institutions. Still think the banking bailout didn’t happen or cost us nothing? Let us first look at the explosion of assets on the Fed balance sheet.
The magical 2.2 housing ratio between median nationwide home prices and household income – Nationwide home prices still inflated by 30 percent based on 50 years of household data.
The typical American family is facing the biggest economic uncertainty since the Great Depression and must feel like their lives are in a washer spin cycle. Many unemployed Americans are now entering a stage where unemployment insurance is being cut off which will send tens of thousands of people into the street. The mainstream media won’t cover this because they rather gossip about the next tan face to drink themselves into a gutter at a nightclub. 43 million Americans are receiving some kind of food assistance yet this is some kind of recovery? Many are wondering how banks can produce such large profits without actually producing anything real or of substance in the economy. Yet banks are largely casinos that now operate to siphon off real wealth from the economy through bailouts, frauds, and other activities that harm the overall economy. In a decade where banks were unleashed to do what they may with limited regulation and a cozy Fed, we are now left with an economy in tatters but a banking sector that is still healthy based on oversized bonuses. I wanted to gather data over the last 60 years and measure how most Americans are now fairing. The data shows a largely underwater nation.
The shadow bailout of the commercial real estate industry – bailing out the Ritz, failed million dollar unit condo projects, and buying empty shopping malls. Why the Fed wants to destroy the US dollar and continue the failed bailouts of the banking sector.
It is amazing that so little information about commercial real estate has made it onto the mainstream media. Few in the public realize that commercial real estate (CRE) has actually fallen harder than residential real estate yet 99.9 percent of all media coverage has been strictly on residential real estate. The CRE market is enormous with over $3 trillion in CRE loans still outstanding and festering on the balance sheet of banks. At one point, CRE values reached over $6 trillion in the US with $3 trillion in loans. Today, CRE values are down to roughly $3.3 trillion yet the loan amount still hovers at $3 trillion. This is the disastrous end game of being underwater in real estate. While people fill the stores this holiday season consuming money they don’t have (after all nothing says thank you America like buying imported goods) property values are still in the dark levels of the trough. The banking sector is doing a complicated shadow bailout through quantitative easing, ignoring missed payments, rolling over CRE loans, and ultimately trying to sucker taxpayers into paying the entire bill. Ultimately this shadow bailout has been going on for years and no one seems to even care.
The infection of massive global debt and the era of permanent bailouts – Global bankers on a mission to dilute currencies around the world. Ireland GDP equal to Louisiana GDP.
The problems plaguing Ireland are common and something very familiar with Americans. Irish banks got drunk on housing bubble beer and loans were made without any actual thoughtful analysis of whether the loans would be paid back. Now the European Union is stepping in with the IMF to bailout Ireland not because it has a soft heart or cares about the people in the Celtic country but because it is trying to protect the big interconnected web of banking interests of German, Spanish, English, and US banks. That is the ultimate issue at hand. After all, Ireland has a GDP of $222 billion or roughly the same amount as Louisiana so it doesn’t seem like such a small country could captivate financial news for weeks on end. But if you look at the external debt of Ireland it just blows you away in relation to the size of the country. Let us take a look at these metrics:
When peak credit implodes on the consumer balance sheet – $1 trillion in consumer debt has been removed from the market since 2008. Only consumer debt category growing is student loan debt.
The U.S. insatiable consumer machine has reached a peak debt scenario. Household balance sheets are simply unable to take on more debt on their already financially sore shoulders. At the core of the Federal Reserve quantitative easing actions is the mission to lower the interest rate since consumers simply are unable to borrow more. By lowering interest rates, it provides a shadow boost to purchasing power. The way this occurs is through allowing borrowers to pay more for assets yet keep their monthly payments low enough to coincide to their now lower standard of living and stagnant wages. Being in a position like this is troubling to most Americans who hold very dearly the idea that the core mission of their government and financial institutions is to grow a healthy middle class. Many are starting to painfully realize that the government and banks are primarily looking out for their bottom line and this translates to exporting the U.S. middle class standard of living. As you will see with the chart below, consumer debt peaked early in 2008.