Three Banks Closed on Friday, One With No Willing Acquirer

Utah's MagnetBank closed without an acquirer

MarketWatch
FDIC shuts down three banks in one day amid ongoing credit crisis
By John Letzing

Federal regulators closed three banks in a single day Friday, as the ongoing credit crisis showed no signs of abating.

Utah's MagnetBank became the fourth bank failure of the year, and the Federal Deposit Insurance Corp. was forced to directly refund depositors after being unable to find another institution willing to take over its operations.

That marked the first time the FDIC has been unable to find an acquirer for a failed bank in nearly five years, according to FDIC spokesman David Barr. "This bank did not have an attractive franchise value, and not many retail deposits or core deposits," Barr said. The FDIC had conducted an extensive marketing process for the bank's assets, he said.

Salt Lake City-based MagnetBank had total assets of $292.9 million as of Dec. 2, and $282.8 million in total deposits. "It is estimated that the bank did not have any uninsured funds," the FDIC said in a statement.

The FDIC later said it has also closed Maryland-based Suburban Federal Savings Bank, and Florida's Ocala National Bank.

Suburban Federal had total assets of roughly $360 million as of Sep. 30, and total deposits of $302 million, the FDIC said in a statement. Tappahannock, Va.-based Bank of Essex agreed to assume all of the failed bank's deposits, the FDIC said.

Ocala National had $223.5 million in total assets as of Dec. 31, and $205.2 million in total deposits, the FDIC said. Winter Haven, Fla.-based CenterState Bank has agreed to assume all of the failed bank's deposits.

The closures mark the fourth, fifth and sixth bank failures of 2009, bringing the total to 31 since the start of the credit crisis.

US Dollar Long Term Chart with Commitments of Traders

The divergence of gold from traditional relationships with the euro, dollar and oil suggest that it is becoming an alternative reserve currency, primarily at the expense of the euro.

The last thing the real economy needs right now is a stronger Dollar. Other nations are already weakening their currenices competitively. It will be interesting to see how gold reacts in this type of environment with the fiat currencies being manipulated lower in sympathy with one another.

Oil will not recover in price while the House of Saud has our back. But at some point even they will concede to market forces, or some exogenous event, and then we will have the appearance of inflation. This may not occur until late 2009 or early 2010 when we expect the economy to begin to show signs of recoverery, at least relatively speaking. Until then the resurgence of gold is almost entirely a monetary phenomenon.

We believe that the stimulus is too backend loaded and unimaginative to affect anything sooner. Adding liquidity to the banks is as useful as filling the tank of a car wrapped around a telephone pole. Who are the banks going to lend to? And increased spending on health care, with the highest and least efficient per capita cost in the world, is like giving the driver of that car a bottle of vodka to ease their pain.

The consumer is insolvent, and until the median wage turns around will not be inclined to borrow for consumption again, as they should not. The nation must shake off the legacy of the Greenspan era and the economic cargo cult of the Chicago School.

It could be a long, hot summer.

SP Futures Hourly Chart at 3:30

Postscript After the Close:
The Dow Jones Industrial Average finished January down 8.84% on the month. Previously, the worst January for the Dow had been that of 1916, when it fell 8.64%. Friday, the Dow dropped 148.15 points to 8000.86 after briefly dipping below the 8000 mark. The Dow has fallen five straight months and in 12 of the last 15.

Today is the last trading day for January. If we go out near the current lows of the day, this will be the worst January for US equities in the last 92 years.

There will be no sustained recovery in the economy until the median wage improves. Allowing the banks to lend again to support consumption is a complete waste of capital. The purpose of not allowing bank failures, as in the 1930's, is not to save the banks, but to preserve the funds of private savers.

We should back the pensions and the savings of individuals one hundred percent. Government support should not be given to banks that are insolvent. They should be restructured first, and then recapitalized.

Are We Ready to Change the System?

"The general spread of the light of science has already laid open to every view the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few, booted and spurred, ready to ride them..."
Thomas Jefferson

It is time to begin serious, and significant, systemic reforms in the financial system.

Maintaining the status quo will be fruitless because the system is broken. Trying to keep it from becoming 'more broken' is a nice short term fix, but we are beyond that now. This has been a long time in the works.

There has been a recent increase in noise from the Congress about changing a system which promotes excessive pay, and encourages the virtual looting of companies, by overpaid management and a corrupt financial system.

Rather than strike at the branches, and call a few individuals up before Congress for their ten minutes of tut-tutting, how about some serious change that cuts to the roots of the crisis?

One potential solution would be to institute a marginal income tax rate of, let's say, 80% at the 30 million dollar level of aggregate income in the AMT, with a significant raising of the minimum levels of income that trigger the AMT to about 4 million in aggregate income. It can graduate from 50% to 80% from the minimum to the maximum. The AMT was always intended to be a safeguard against loopholes for the highest income brackets. We can permit five year income averaging to allow the incredibly lucky to keep a bigger share. But rewarding luck encourages gambling and gaming the system, which is an open door to white collar crime and fraud.

And we have to ask, just how much is enough. Do you really think that having a 30 million dollar per year income is 'not enough?' Are we insane? Yes, allowing people to 'keep what they kill' is ingrained in our psyche by the last 100 years of a steady stream of propaganda, but its time to start thinking about social interaction and the protection of the innocent as well as the glorification of greed.

Yes, this will alarm the "Joe the Plumbers" out there who wish to fantasize about the looting of the system, or have pretensions of being the next American Idol, with a Pavlovian impulse to consider realistic expectations and a middle class life as socialism.

The top 1% of the wealthy Americans do not need additional incentive to take. They are, for the most part excepting the lucky and the idle heirs, psychologically driven to acquire beyond all rational need. What they need is restraint. And they will absolutely hate it.

But since most wannabe billionaires are delusional why let them drag us down under the bus with them? Let's stop legislating for the .1% probability, leaving the garden gate open for the pigs to come in.

We cannot continue to build and maintain this country if the most rewarding pursuits are gambling, gaming the system, fraud, and white collar crime. That game is over. We're done.

Reform the accounting rules for acquisitions and goodwill, inventory writedown with subsequent earnings effects. "Earnings management" is a tool of the price manipulation for stock option bonuses that is a source of market distortion.

Bring back Glass-Steagall. Let Goldman and Morgan get into the conventional banking business after passing through receivership. The point is to be solvent first BEFORE you get government support. And if you are not solvent we will help you become so through liquidation.

Back up the individuals, the savers and pensions, to the hilt, 100%, and put the financial institutions through the wringer, if not a meat-grinder. Stop beating this 'trickle down' approach in curing our problems by throwing money at the uber-wealthy and corporations. It does not work. It will not work. It is destroying our country.

Oh no, we cannot let honest people be limited in acquiring enormous wealth. Well, there probably aren't many completely honest people pulling down over 30 million per year in income. The criminal prosecution system is also horribly compromised, and we can fix it AFTER we stop the looting, and then the rules can be relaxed.

Direct the FBI and Justice Department to conduct a serious investigation of naked short selling and price manipulation. That aspect of the market is an open sore.

Institute aggregate position limits in commodities, and make them high enough so that they do not bother any legitimate speculators.

Refuse to admit any nation into the favored nation status unless their currency is open for trading on the world markets, free of pegs.

Stop the system of legalized bribery of the Congress and the Executive by lobbyists. That requires campaign funding reform, then let's do it now.

Stop selling this country short for the sake of 'competitiveness' and a perverted image of the "American Dream." If the Founding Fathers came back they would not be able to stop throwing up at what we now call 'freedom' and what we have done with their legacy for which they pledged their lives and sacred honor.

Europe needs to tell the Brits and the Yanks to piss off, fix the euro, take an enormous dose of humility, reform their financial system, and don't play the fool again so easily. Asia needs to take care of its own and grow a middle class, and stop treating its people as coolies. Australia needs to go walkabout with Europe. The Mideast is its own worst enemy. Africa is the shame of our world.

Too radical? Then you're not ready yet for the changes that are required to end this cycle of boom, loot and bust.

It is time to begin serious, and significant, systemic reforms in the financial system. It is preferable to the historically likely alternatives.