Bernanke: Banks Will Fail. FDIC Rehires Retired Bank Examiners

[Mike03]

who are experts in navigating the closure of banks from the crisis of the 80s and 90s.

http://www.marketwatch.com/news/story/ultimate-sell-signal-part-ii/story.aspx?guid=%7BA2FE5E59%2D337F%2D4F6C%2DA974%2D470D6FD8B553%7D

The FDIC has about 233 employees, and is scrambling to bring in another hundred or so, and this can only be for one reason: to oversee the dismantling of banks. There is a lot of speculation about whether these will be big banks or small banks. I am worried at least one major bank will fail in 2008, because it doesn't take fifty bank examiners to supervise the closure of a small bank--such a transition can occur over a weekend.

In addition to this, I was listening to the FNN (Financial News Network) and Doug Fabian was warning investors to move, if not entirely than largely, to cash positions. He advised investors to make absolutely certain they had no bank-invested funds that are not insured. And he said that although he sees no crisis with money market funds at this moment, he expects them.

Fabian's show was good today. He also said "Any sector that has dropped more than 10% this past year has exposure to sub-prime..."

I offer this for what it's worth. Many of us have been expecting a very, very dismal and serious financial crisis in the U.S. for some time, but it now appears that it could be more serious than even the most flagrant of us doomsday sayers (myself included) were fearing.

ON EDIT:

Fabian's proposed safe harbors are ETFs (exchange traded funds). I agree with him on this, as well as his advice to avoid certificates of deposit and municipal funds.

But why does he advise against annuities, at least for people who are, say, 65 or older?

[Hydra]

1. Of course it's worse than you projected

Did you project that it would be deliberate? I'd be surprised if you did.

[Ilsa]

2. I worked in one of the major failed bank's workout out bank.

It was good career security for about five years, we had so much to do, like collect and foreclosure upon $8 billion in loan/real estate assets.

Shorting the staffs for bank exams is a recipe for disaster.

[Warpy]

3. Again, bad loans given to marginal borrowers aren't the real problem

The problem is the exotic "investments" these loans were chopped apart and laundered into. All institutional investors: banks, brokerages, pension funds, insurance companies, will feel losses greater than the original loans would have cost because those "investments" were bidded up with every trade once they'd been laundered into assets instead of debts.

The hedge funds are at the bottom of the whole mess since they're the ones who created the ever more exotic "financial instruments" that nobody knew the origin of or how to price, if at all.

The emperor has no clothes and the economy has been held up with hot air and wishful thinking as long as it can be.

The landing is going to be a very rough one, I'm afraid, but the marginal borrowers desperate for housing weren't the problem. It was what lenders and hedge funds did to their loans that is the problem.

[AX10]

4. Alot of idiots are out there.

That is what you call someone who invested in a hedge fund.

[DemReadingDU]

5. Why avoid certificates of deposit?

Aren't CDs insured by FDIC at a bank?

[IndyOp]

6. Move to cash positions means what? Sell all stocks? Please translate for the

financially illiterate?

I kissed the stocks in my retirement account bye-bye a year ago - I can't cash them unless I quit my job, which isn't the right thing to do just now.

[MilesColtrane]

7. Annuities are not FDIC insured.

I think a great many insurance companies have at least some exposure to subprime mortgages in their portfolios.

They are supposed to be the masters of analyzing risk though, so nothing can go wrong.

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