FDIC Raises Fees, 5 Million Receiving Unemployment Benefits, And More Gloom

The usual mixture of news stories and other tidbits I think you may find interesting:

The FDIC is set to raise the fees charged to banks as part of an effort to shore-up its deposit-insurance fund:

(From the WSJ): “The FDIC had $18.8 billion in its deposit-insurance fund at the end of the fourth quarter to protect about $4.8 trillion in insured deposits at U.S. banks. This is the lowest insurance level since the savings-and-loan crisis, FDIC officials said. Fourteen banks have failed this year so far, bringing the total to 35 since July.

The FDIC is required by law to launch a plan to restore the fund any time it dips below 1.15% of insured deposits. It was at 0.4% of insured deposits at the end of the fourth quarter. The fund is entirely financed by fees levied on banks”

Needless to say the FDIC needs to raise some cash, and if banks continue to fail it may need to raise it by tapping credit lines AND by raising the fees it charges banks. Let’s not forget that there were concerns that the FDIC could face a funding short-fall in August, and things have worsened considerably since then.

A WSJ article discusses a pair of NYC money managers who were arrested on charges that they stole about $553 million from their clients, as well as several other pending fraud cases related to the financial sector.

I think the coming wave of corporate/financial fraud will be unlike anything we’ve ever seen before. When you have Hedge Funds charging clients fees based on paper profits determined by a model (AKA near legal fraud), it stands to reason that the real fraudsters are completely out of control. As the market downturn continues and these people are less able to hide their activities, more and more of these stories will come to light.

A Condo project in Florida is in severe jeopardy due to having lined up funding from Allen Stanford; the man had his hands in quite a few pies and it stands to reason that there will be quite a bit of collateral damage from the fraud charges he’s facing.

The number of people receiving unemployment benefits has crossed the 5 million barrier for the first time as the unemployment situation continues to worsen. However it’s important to view the number in its proper context as the work force is much larger now than it was in previous years, and we were so close to 5 million a few weeks ago that the latest development is largely symbolic.  Still in the coming months we may look back on 5 million people receiving unemployment as an improvement over the conditions we’ll face in the future.

More trouble in the newspaper industry as the Rocky Mountain News is closing as no buyers have emerged to save the paper. It’s staring to look like it’s not so much question of whether or not major city newspapers will close down, but a question of which major cities will be left without any newspapers at all.

Sources:

The Wall St. Journal: “FDIC Poised to Double Fees Charged to Lenders” — Damian Paletta, February 27, 2009.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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