The Road to Hell is Paved with Dead Banks
12 Down…How Many more to Go? And the FDIC pulls a Fast one on the First Regional’s Retirees…
It’s just one month into 2010, and the FDIC has already seized 12 banks – the ultimate and embarrassing result of insolvency. Multiply that out by 12, and it would appear, on the surface, that the FDIC is on track to close about 144 banks this year.
In 2009, the FDIC closed a total of 140 banks. With the second wave of subprime and Alt-A mortgages set to hit in the later half of 2010, I’d expect a ramp-up in the number of banks that need to be seized…and my colleagues are expecting something much more sinister might be underway…
Already, I’ve compiled a list of the top 108 banks likely to fail this year. What makes them likely? They’ve all got Texas Ratios above 100. It sounds scary, but you won’t truly be frightened until you understand exactly what that means…
A full-fledged collapse in real estate occurred in Texas in 1980, as the high oil prices of the 1970’s drove up land values. A team of analysts at RBC Capital Markets, lead by Gerard Cassidy came up with a simple equation to determine a bank’s solvency, becoming this mysterious Texas Ratio.
The math is understandable. Simply divide the value of the lender’s non-performing assets (i.e., bad loans) by the total outstanding equity and loss reserves. When the ratio is at 1, the bank is insolvent.
That means that today there are over 100 banks that are insolvent 100 times over! Yikes!
Another startling aspect of these bank failures has been pointed out by our Offshore IRA guru, Larry Grossman.
On January 29th, the FDIC seized First Regional Bank in Los Angeles. While the bank’s traditional assets are being sold to another bank, the FDIC is keeping the Trust Administration Services (TAS) division.
Effectively, Larry points out, this gives the government direct control over any IRAs in the custodianship of TAS, and may indicate another small step on the government path to nationalizing your retirement accounts (something we’ll cover in the A-Letter in greater detail tomorrow and Wednesday)
With a beyond-bankrupt banking and financial system, and the ease with which government is stepping in, a bank move offshore and some long-dated put options on select banks may be the best steps you can take to save your retirement.
Andrew Packer Editor of Credit Crunch Short Report
P.S. For the full scoop on the US government’s plans to nationalize YOUR retirement assets, click here to read Chairman Pugsley’s full report. It may be news to you, but we’re trying to get the word out before it’s too late…