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The FDIC, are you REALLY ensured?

Discussion in 'Off Topic' started by Miguel Gonzalez, Apr 23, 2013.

  1. Miguel Gonzalez

    Miguel Gonzalez

    Is your money deposited in FDIC ensured banks really safe? Lets take a look at the scale of the sums of money we'll talk about.

    Hundred Bucks.
    1 Million Dollars
    100 Million Dollars, That couch is the equivalent of 46.7 Million.

    Lets put some of that into perspective.
    Below you see 2000 people standing shoulder to shoulder, looking for a job.

    The Federal Reserve's mandate is to maintain price stability and low unemployment. The Fed prints money based on their theory that increasing the money supply will boost U.S. out of recession by boosting jobs.
    The Arrow is pointing at the Pallet of 100 Million dollars that could employ 2000 people at 50,000$ a year Salary.

    $1,000,000,000 - You will need some help when robbing the bank. Interesting fact: $1 million dollars weights 10kg exactly.
    You are looking at 10 tons of money on those pallets.

    Now that we have an idea of the sums of money we're dealing with lets take a look at the FDIC.

    FDIC - Federal Deposit Insurance Corporation Fund: 25 Billion
    FDIC insures 7,181 financial institutions. The FDIC is funded by financial institutions that pay for deposit insurance coverage.
    During the 1980's/1990's savings and loan crisis, a parallel insurer- the FSLIC (Federal Savings and Loan Insurance Corporation) went bankrupt.The FSLIC replacement named RTC was merged into the FDIC. The savings and loan crisis cost tax payers $150 Billion.
    The FDIC takes control of failed banks and financial institutions, where it first moves to find a buyer of all the bank's assets including the toxic ones, after the sale of assets (including toxic, usually at discounted price) it must cover the losses. The FDIC will first pay-out all insured accounts, followed by applying hair-cut' to uninsured deposits.
    Safe Deposit boxes, fraud, bond holders, stocks, money funds, etc. are not insured by FDIC.
    Due to bank failures during 2008/2009 bank crisis the FDIC fund fell to $0.648 Billion in August of 2009, subsequent bank failures almost made the FDIC go bankrupt and FDIC demanded a 3 year pre-payment from banks to shore up its capital.
    Wikipedia - "According to the FDIC.gov website (as of March 2013), "FDIC deposit insurance is backed by the full faith and credit of the United States government" "
    This is less than clear, since there are no laws binding US Government to make good on FDIC insurance liabilities.


    So the FDIC has 25 billion on hand to ensure all of their members accounts up to 250,000 Dollars. Lets see just how much money is deposited in the top 9 banks in the US: Citi, Wells Fargo, JP Morgan Chase, Bank of America, Bank of NY Mellon, State Street Financial, Morgan Stanley, HSBC and Goldman Sachs.


    1.1 Trillion Dollars and coins in US circulation. 9.3 TRILLION Dollars currently deposited into US banks.
    The discrepancy between deposits and currency in circulation is shown above. This means in the case of a nationwide bank run in United States, the Cyprus-style hair-cut on deposits ( a.k.a. deposit confiscation) would be over 80% for US commercial bank deposits. There is not enough dollars circulating to cover all deposits if they were to be pulled at the same time. In case of bank runs this means withdrawal limits at ATM's and FDIC trying to help out to cover the losses.

    So what do the banks do with so much of our money? Where is it going? Derivatives.

    A derivative is a legal bet (contract) that derives its value from another asset, such as the future or current value of oil, government bonds or anything else. Ex- A derivative buys you the option (but not obligation) to buy oil in 6 months for today's price/any agreed price, hoping that oil will cost more in future. (I'll bet you it'll cost more in 6 months). Derivative can also be used as insurance, betting that a loan will or won't default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative.
    Most large banks try to prevent smaller investors from gaining access to the derivative market on the basis of there being too much risk. Deriv. market has blown a galactic bubble, just like the real estate bubble or stock market bubble (that's going on right now). Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don't know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system since the 9 largest banks shown below hold a total of $228.72 trillion in Derivatives - Approximately 3 times the entire world economy. No government in world has money for this bailout. Lets take a look at what banks have the biggest Derivative Exposures and what scandals they've been lately involved in. Derivative Data Source: ZeroHedge.


    9 Biggest banks' Derivative Exposure: 228.72 TRILLION

    Note the little man standing in front of white house. The little worm next to last football field is a truck with $2 billion dollars.
    There is no government in the world that has this kind of money. This is roughly 3 times the entire world economy. The unregulated market presents a massive financial risk. The corruption and immorality of the banks makes the situation worse.

    If you don't want to bank with these banks, but want to have access to free ATM's anywhere-- most Credit Unions in USA are in the CO-OP ATM network, where all ATM's are free to any COOP CU member and most support depositing checks. The Credit Unions are like banks, but invest all their profits to give members lower rates and better service. They don't have shareholders to worry about or have derivatives to purchase and sell.

    Keep an eye out in the news for "derivative crisis", as the crisis is inevitable with current falling value of most real assets.
    Derivative Data Source: ZeroHedge

    Check out more economic infographics at Demoncracy.info

    I've been reading a lot about the events in Cyprus and how they're spreading to other nations. Part 2 will cover that. Coming soon. :)