18 Banks Inch Closer to the Precipice

bank-cracked_120x85Standard & Poor’s downgraded the creditworthiness of 22 18 banks [link] including:
Wells Fargo “AA-,
US Bank “A-,
Fifth Third Bank “BBB[what the ratings mean]

“We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions,” said Standard & Poor’s credit analyst Rodrigo Quintanilla.

Oh, this is getting interesting! The Street, Jim Cramer’s former company, offers free online bank ratings. I’ve checked ’em for years now.

Well, for 15+ years I had banked with Wells Fargo. There the nation’s second-largest bank by market cap, in deposits, home mortgage servicing, and debit card. I left them in 2006 when I discovered their outrageous exposure to derivatives. [Is Your Bank a Casino?]

I warned about WF (and others in the spring in 5 Banks Are “Dead Men Walking”.

Well, look where Wells Fargo is today:

Wells Fargo D+

Full report is here.

Anyone taking bets on how long they’ll last? I put my money on them being dead/sold off by Nov 26, 2009.

And if you bank with them don’t worry, the FDIC insures your deposits up to 250,000 per account owner.*

*The FDIC may take up to 99 years to return your money. [link] They (not you) will decide the payout schedule based on what they perceive as your need. And, only 1/4 of 1% of your deposit is actually backed with payout reserves. [link]


My Money’s Out

To my friends and relatives,

As of 2:35pm today I’ve successfully removed all* money from the two banks I have relationships with. I took it out in cash with no bills larger than fifties (the bank had insufficient number of twenties).

The personal banker we worked with quietly said she’s seeing a lot of withdrawal activity since last week.

*I have left enough money in my accounts to cover auto-withdrawals and expenses for which I must write checks for the next few months.
How to Rate Your Bank’s Safety

Now YOUR Bank Has No $

In the Bankster Bailout Bill just signed into law last week there is a change that, for the first time ever, allows any bank to operate WITHOUT keeping ANY cash on hand for its customers.

Back in the “good ol’ days” a bank was required by law to keep 3% of its customers’ total deposits in cash on-hand. If you have $1,000 in your account the bank had to keep $30 on hand in case you wanted to withdraw it. As long as most customers didn’t want to take out much cash everything worked fine.

Problem: late last year banks were having trouble even scraping together that much cash. The Fed made a change: for the first time they told the banks, “OK, if you’ve run out of cash reserves you can BORROW them from us.”

Yeah, I know, sounds dangerous. I wrote about it in Feb 2008 [“Like Money in the Bank”??].

Now, Congress has made a change hidden in the Bankster Bailout Bill. Banks DO NOT have to keep ANY cash whatsoever on hand for withdrawal by their customers.

When the average American wakes up and starts a massive RUN ON THE BANKS there won’t be any cash to withdraw. Legally.

Should you get your cash while you can? I sure am.

How to Rate Your Bank’s Safety
Gold and silver just keep lookin’ better every day.

◊◊◊◊ Now: Gold @ $869.50, Silver @ $11.07, USDX @ 81.51 ◊◊◊◊
◊◊◊◊ Now: DJIA 9,785.61

This post is based on this excellent research.

How to Rate Your Bank’s Safety

With the number of bank failures expected to increase it’s more important than ever to know if YOUR bank is in trouble. Here’s a simple way: go to TheStreet and find your bank. They provide a free report and letter grade:
E=Very weak

Because of the current extreme turmoil in the banking industry, financial experts such as Dr. Weiss suggest avoiding banks with any kind of “C” or below. His reasoning? With liquidity a problem along with unexpected counter-party risk (think the sudden collapse of Lehman) a bank can go from “C=Fair” to “dead” pretty quick.

Note: Wachovia Bank, the biggest bank failure in US history, had a rating of “C+” when they died last week. Washington Mutual was rated “B-” when it died two weeks ago.

But, you may ask, why worry–won’t the FDIC make sure get my money back? Well, only if the FDIC has the money to give. By some estimates they’ve already depleted HALF their insurance reserves.

If many more banks fail it is possible you will be told by the Secretary of the Treasury, “Your money is safe in your bank. Everyone’s money is safe. But, to ensure the smooth functioning of our banking system you are restricted to withdrawing no more than $2,000 per week.”