It’s Save Your Banker Week
by Bill Sardi
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It’s "Save Your Banker Week." Make a donation to your friendly bankster today. Call it a donation. Call it a deposit. Call it what you want. FDIC chairwoman Sheila (whose-side-is-she-on?) Bair calls it a way for Americans to invest in their own future by increasing their savings. Her agency has kicked off "America Saves Week." Well, it’s more like taking a loss while bailing out irresponsible bankers week.
With 700 US banks in dire financial shape, and all 8000 US banks essentially leaning on borrowed money for required reserves, FDIC chairman Sheila Bair wants Americans to put more money in federally insured savings accounts "to help families withstand sudden changes in their economic well being," as she says it.
Banks not on the rebound
Don’t believe this for one moment. American bankers have played fast and loose with your banked money, leaving 19 million vacant homes in their wake, and an economy with millions of unemployed workers. Bair works for the bankers, not you.
The savings campaign is all about re-capitalizing insolvent banks for free! In fact, depositors lose money while the banksters make money. This is because the low rate of interest (~2.8%) offered on interest-bearing accounts is far less than the current rate of inflation. (A bit more about this below.)
The FDIC has also launched a program to reach the unbanked (households that do not have a checking or a savings account). An estimated 7.7 percent of U.S. households, approximately 9 million, are unbanked and instead rely upon money orders, payday loans, rent-to-own agreements, pawn shops, or refund anticipation loans, to pay their bills. The FDIC wants these unbanked households to begin placing their trust in US banks at a time when trust in bankers is at an all-time low. Since 2007, trust in US banks plummeted 39 percentage points — from 68 to 29.
Oh, it is being said that Americans have lost trillions of dollars of wealth in the collapse of the US economy now underway. But actually, this was imaginary wealth, or over-valued wealth. The economic bubble, intentionally created by the Federal Reserve Bank by making it too easy for Americans to obtain cheap loans, and by local bankers who cast aside traditional conservative banking principles, allowing non-credit worthy individuals to purchase homes, has resulted in a total collapse of the US banking system. US bankers have put the entire $9.226 trillion of their depositors’ saved money at total risk.
It’s a total collapse
The FDIC 4thQ 2009 report says 29.5% of US banks are unprofitable (~2400 of them), not the 700 figure widely circulated today. In reality, most of the remaining banks rely upon money borrowed from the Federal Reserve to stay in business. As more home mortgages go into foreclosure, banks are forced to write-down the value of the real estate assets. US banks lost $731 in equity and wrote-down $186 billion in home loans in 2009. The difference in these two figures gives you a hint at how much bankers have yet to write down in overvalued real estate assets.
It is said most of what are non-performing home mortgages are being kept off the accounting books and banks are delaying foreclosure for a year or two to make their financial picture look artificially rosier. So don’t believe any misleading statement that US banks or the economy are headed back from the grave. American banking needs a miraculous resurrection which is incredulously only as far away as reestablishment of a gold standard. But that idea isn’t being seriously discussed.
Bankers on edge
It’s a miracle Americans have exhibited restraint and not pulled all their money out of US banks by now. Certainly the mother of all banks runs looms at any moment. This is why Citibank recently said they have the right to hold your money for 7 days in the event of massive withdrawals from the bank. Bankers know depositors are edgy.
Recognizing there is no safe place to invest money these days, Americans have pulled billions of dollars from the stock market, 401Ks, bonds and other investments, and deposited their funds in US banks, relying upon the imagined security provided by the FDIC, and have also begun a spontaneous campaign to pay down credit card debts, all to the benefit of bankers.
While US banks have thin reserves, Americans have unwittingly cast themselves into the role of enablers of reckless banksters who have yet to turn from their usurious ways. Irresponsible bankers are being capitalized at the expense of their depositors. Look at the figures. In the 4th quarter of 2009 domestic savings and interest-bearing checking accounts increased by $194 billion (5.4%).
No fairness in banking
In a bad year, interest income in 2009 was $541 billion for US bankers. Most of it this past year was set aside for anticipated real estate loan losses, but it is still gross profit on the books.
Depositors were paid $145 billion (~1.5%) on their $9.2 trillion of banked money, for a $395 billion net profit for the banks. To put it another way, in a bad year, US banks made 4.75% on their depositors’ money, paid out 1.28% interest to depositors and netted a 3.47% difference, according to FDIC reports.
This sounds fair. Depositors place their money in a saving account, make 1.28% interest while the bank makes 3.47%. But Americans are never informed of the fractional banking privilege that banksters enjoy. They take $1000 of your money and via fractional banking have the right to make it into $10,000 (make money out of thin air). So your $1000 in a saving account allows bankers to loan out $9000 of newly created money, keep your $1000 in reserve, and make 4.75% interest. So you, the depositor, make $12.80 on $1000 and the bank makes ~$428.00 on your banked money (which has become $9000 of new money). Sound fair? Remember now, your money is losing purchasing power due to inflation, which exceeds your rate of interest on your savings. Today, when you deposit your money in a saving account you are essentially making a donation to the bank.
As an aside, you may wonder how US banks have gained the privilege to create money out of thin air and then loan this electronic money to home buyers? Under contractual law, this conjured up money does not represent "consideration" (the thing exchanged) and therefore nullifies all mortgage contracts. Actually, every mortgage contract would meet the Biblical definition of usury (onerous interest rates). Every home mortgage should be deemed null and void. If you don’t believe this, read here.
Inflation: stealing your money out the back door of the bank
Back to the topic of inflation, according to the government’s own CPI (consumer price index) inflation calculator, $1000 in the bank has already lost about $10 of purchasing power in the first two-months of 2010. However, the government’s reported CPI differs significantly from the real rate of inflation, which is more like 10—12%.
The federal government often says the CPI rose a half-percent over a short time period of time. But what has happened to the value of the US dollar since the Federal Reserve took over the job of fighting inflation and stabilizing our currency? You might be surprised. Go to the CPI Inflation Calculator (link provided above) and type in "$1000 has the same purchasing power as $xxxx.xx in 2010." You will be dismayed to see how much the value of the US dollar has plunged. Inflation has only averaged 3.42% annually since 1913, but it has totaled over 2000% when compounded.
Imagine someone stealing their way into the bank and pilfering a little bit of your money out the back door of the bank. That is what inflation is. Inflation pilfers a small amount of the value of your banked money each year. Depositors are largely oblivious because their savings amount increases as a number, but its ability to purchase goods and services dissipates.
Bank runs and self-fulfilling prophecy
Of course Americans could all run down and pull their money out of the bank, in a replay of what happened in the 1946 film It’s A Wonderful Life, starring Jimmy Stewart. Stewart plays the part of banker George Bailey, who on Christmas Eve, faces an angry crowd in the bank lobby that wants to withdraw all their money from his bank. Many can recall the scene where actor Stewart makes an impassioned plea for depositors to leave their money in the bank.
The problem is, pulling cash out of the bank is a self-fulfilling prophecy — since most of the money has been loaned out and only a small amount is kept in reserve for daily use by depositors. A mass-scale run on American banks would destroy the banks and all the people’s money with it. Forget that the FDIC says your money is insured, neither the FDIC nor the US Treasury could possible make good on a demand for trillions of dollars.
It’s this very dilemma that forces Americans to live with their banksters much as a kidnapped person makes imagined peace with their captors. Bankers across the globe consider their depositors’ money to be the banks’ money. The peons just get to use a small portion of it and the rest is for the bankers to plunder. Lift a finger in opposition of the bankers and they will threaten to bring down the whole banking system, as they did while pressuring Congress to pass the recent bank bailout scheme. We are a bank-captured country.
Are mega-sized banks runs a possibility? I hope you don’t get too nervous reading this, but recall that, in a span of just two hours, $550 billion was drawn out of money market accounts in an electric run on the banks in mid-September of 2008. Representative Paul Kanjorski said "would have been the end of our economic system and our political system as we know it." You can hear and see his statement here.
This electronic bank run was quelled by an immediate increase in the insured coverage limit from $100,000 to $250,000. But now, according to the FDIC 4thQ 2009 report, an additional $641 billion in saved money has to be covered by the FDIC. The FDIC finished December of 2009 about $20.9 billion in the red.