Topic: John McCain
FDIC Closes the Silver State Bank in Nevada as a McCain Resigns in Disgrace Andrew McCain, son of John McCain, resigns from the board just before yet another small bank goes under. $20 million in uninsured deposits lost. And by the way, did you know the American banking system may crash? Learn how to protect yourself and your family.by Jake Towne, the Champion of the Constitution
(libertarian)
Sunday, September 7, 2008
On Friday, the FDIC sent a task force to close down yet another small bank in Nevada, making it the 11th bank failure of 2008. Silver State Bank had $1.7 billion in deposits of which $20 million in 500 accounts was uninsured. Most likely these individuals will think twice before voting Republican as John McCain's adopted son from his first marriage, Andrew McCain, aged 46, was a director of the bank and resigned in July due to "personal reasons" as the Wall Street Journal reports here. McCain was part of a three-person audit team and was responsible for the financial health of the bank. If McCain had resigned four days later, he would have been required to sign off on the company's quarterly financial statement.
Andrew McCain had been involved with the bank since 2006 when he became director of Choice Bank, a small Arizona-based lender owned by Silver State where the McCain family was an early investor. He is currently employed by his adopted father's second wife, Cindy McCain, as the Chief Financial Officer of Hensley & Co., the family's main business which distributes beer. I want to add that there is no evidence that Andrew McCain has committed any crime besides ineptness.
It appears the FDIC tried to close the bank in August but was refused by the Nevada Division of Financial Institution until September. By June 30, the bank's borrowers had fallen behind on about $252 million worth of loans, compared to about $11.5 million from six months earlier. I speculate that the announcement was delayed until after the Republican Convention to help John McCain out.
John McCain, of course, is no stranger to prior banking scandals, the most infamous of which was the Savings and Loan scandal where he was one of the "Keating Five" Senators whom allegedly helped banker Charles Keating resist regulators. Keating was convicted and sent to jail, and McCain received a figurative slap on the wrist. Keating was a major contributor and supporter at the very start of McCain's political career. The S&L scandal resulted in a taxpayer-funded bailout of $125 billion.
How to protect yourself?
First understand the FDIC and the nature of the banking system. Here's the fastest lesson I can manage as I have limited time to write tonight.
In brief, the FDIC is a relic of the Great Depression designed to give depositors the assurance that the government will bail them out if the bank fails. It is funded by small fees on all deposits its member banks hold. The FDIC started 2008 with about $53 billion in reserves, and will lose roughly another $500 million due to the Silver State Bank failure. Due to the failures at IndyMac and others, the FDIC fund most likely has about $40 billion left. In August, the Federal Reserve reported that all savings deposits, small-denomination time deposits, and retail money funds (more or less the banking system insured by the FDIC) was $6,334 billion. So if bank failures exceed just half-of-a-percent of the system, the FDIC will be broke. That is, until the government decides to unwisely print more money (aka debase the dollar or inflation or indirectly tax us) or directly tax us, the taxpayers, yet again.
Our banking system operates on a fractional reserve system. This means that banks only have to keep a certain amount of deposits and can lend the rest. In the USA, the deposit requirement is just 10%. For more detail, read this.
Next, the American banking system is in serious trouble. Check out this graph of Non-Borrowed Reserves of Depository Institutions from the Federal Reserve. Note the plummet in 2008 from, historically speaking, a fairly stable chart. What the chart means is that, as a whole, American banks are borrowing from the Federal Reserve in order to maintain their deposit requirements. The shift from +$40 billion to -$130 billion is $170 billion, which is greater than 1% of our GDP (which is the total market value of all goods and services produced in our country this year). This may at first sound insignificant to some of you, but I tend to agree with the degree of angst the Financial Ninja expresses here: "Oh sweet baby Jesus, you better hope Ben Helicopter' Bernanke really really knows what he's doing." Of course, which banks are doing poorly is a closely guarded Fed secret, but please keep in mind there are over a 100 banks on the FDIC's secret crash list (they update the # of banks monthly, but do not list any specific banks as this would cause bank runs).
Although I hesitate to hand out advice, I find myself again in a situation where its fairly bleak, so not providing some solutions would make me seem a bit like Chicken Little running around with his head cut off, so here you go! Take a look and decide for yourself, but all of my advice is fairly conservative. Remember, this is not a time to be placid and just mull around, it is time to be realistic, do some research and take action if necessary. Please protect yourself and your family.
First know if your bank(s) are FDIC insured or not. If not, get your money and close the account ASAP as its a sign that the FDIC may have refused to insure it. If yes, you can read the FDIC rules here, and see if any of the exceptions or limits apply to your family.
Second, consider moving your money to multiple banks in the event one would fail. This is called diversification of risk. At any bank, you can request their financial statement and check out the status of their loans and deposits. In general, credit unions will be safer than larger banks, mainly since its loans are limited to only the union members. Large banks like Bank of America, Wells Fargo, Citibank, Wachovia, etc. loan out to a wide range of borrowers, which are subject to failure due to the housing crisis.
Third, withdraw enough currency to cover expenses for several months. My reasoning for this is that even if all of your money is FDIC insured, if the bank fails, there is no guarantee you will get your money immediately. It may take months. If you decide to do this, it is best to also request small bills ($20 or smaller) as if a crisis develops larger denominations some vendors may have issues with handling $50 or $100 bills. Instead of paper money, I advise taking out nickels as the worth of the metal matches the face value, where the paper money has no intrinsic value. It's also fairly amusing and trust me, it will take a thief quite a while to lug out several thousand dollars in nickels.
Fourth, try reading the Money Matrix series below. Decide for yourself what to do to protect your family's financial well-being.
Five, spread the word. For obvious reasons, you won't find this advice from the mainstream media.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.
Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.
US Treasury Seizes Fannie Mae and Freddie Mac! And What It Means Published: September 8, 2008 "You poor kid, there have been centuries of philosophers plotting to turn the world into just that - to destroy people's minds by making them believe that that's what they are seeing. But you don't have to accept it. You don't have to see through the eyes of others, hold on to yours, stand on your own judgment, you know what that is, IS - say it aloud, like the holiest of prayers, and don't let anyone tell you otherwise." - Ayn Rand
Tortured Twins: John McCain and the Trial of Khaled Sheikh Mohammed Published: September 2, 2008 To very little public fanfare from my beloved American media, a Mockery of a Trial of Khaled Sheikh Mohammed, alleged al-Qaeda mastermind, is getting underway in Guantanamo Bay, Cuba. Is John McCain losing any sleep over it? Doubt it.
America, Were Michael Phelps' Eight Olympic Gold Medals Worth Winning? Published: August 24, 2008 Michael Phelps and other American athletes are bringing back loads of Gold, Silver, and Bronze Medals from the Beijing Olympics. A young libertarian economist asks if it was worth it.
The Money Matrix - Prelude (PART 1/15) Published: August 1, 2008 Prelude and Source List to a Series on Global Monetary Policy of Control and Explaining Big Government's Finances
The views expressed in this
article are those of Jake Towne, the Champion of the Constitution only and do not represent
the views of Nolan Chart, LLC or its affiliates. Jake Towne, the Champion of the Constitution is
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employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Of course the government is broke too, but as you point out they can run the printing presses 24/7 if needed.
BTW2 cash reserves accounts with brokerage firms or mutual fund companies are usually not FDIC insured. And those funds may have a much exposure to mortgage defaults as the banks. If they go belly up you are outta luck, Chuck.
Posted By: Jake, the champion of the constitution
Date: 2008-09-08 04:12:49
David S -
That's funny, "full faith and credit" is exactly what the Federal Reserve wrote in their Banking Basics pamphlet, check out the below link.
You are right about the brokerage cash reserves and mutual fund money markets. Savers, really investors in those 2 cases, need to be just as careful about these.
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