Who is the FDIC? The Next step for banks

What you need to know about the agency that is assuming the vast majority of bank losses

The Federal Deposit Insurance Corporation (FDIC) is the Government agency providing insurance, which guarantees the safety of deposits in member banks.
Americans are hearing more and more about this once quiet agency, which was set up in 1933 to maintain consumer confidence.

In the last 12 months, the insurance fund that secures banks has seen a huge knock in its value. It fell by 20% to $10.4 Billion in the second quarter, as banks across the US collapsed at a combined cost of $3.7Billion. With 109 banks failing this year, the federal fund is at its lowest since the Savings & Loans Crisis of 1992.

With this current situation, economists believe that the agency may have to tap into Government money or worse - taxpayer dollars – to cover future bank losses.

It’s not a pretty picture, especially as the FDIC estimates that bank failures will cost the fund $70 billion through to 2013. This year with over one hundred banks collapsing, analysts have predicted there will be hundreds more that follow, especially as we still haven’t seen the effect of the real estate crash.

To top that the FDIC has made a pact with firms – many equity firms – that they will take on mortgage losses for companies that take over failed banks. They believe this is a cheaper option than letting banks liquidate their assets.

The prospect of easing losses or at least giving the FDIC more time, these pacts with firms could provide some protection for the agency fund. James Wigand, deputy director of the FDIC's division of resolutions and receivership's said: “It's a great opportunity for banks........It's a great opportunity for us."

The flipside to Mr Wigand’s optimism is if the economy doesn’t recover as quickly and effectively as we would like, then the FDIC will carry this burden for a long time and ultimately it could cost the taxpayer – because we are the ones paying for the losses now.

The time is now for banks to actively pursue acquisitions to achieve the market penetration they had prior to the financial crisis. The Cousins Group will help you identify the right bank, acquire and integrate to achieve your goals for growth and profitability

IS MICROFINANCE THE ANSWER FOR SMALL BUSINESS IN AMERICA?

Can We Learn How To Help America’s Entrepreneurs From Third World Countries?

American business has driven success, innovations and financial stability for this nation for as long as we can look back in history. It is the business spirit that brings about employment, prosperity and builds greater ties across continents.

This very notion of entrepreneurship is as American as ‘Apple Pie.’ But this building block of Americanism is being threatened because small and mid-sized businesses are finding it near impossible to find funding for start-ups and innovations.

For a very long time now, I have looked at how the developing nations have nurtured business and ultimately their economies. One of the most remarkable developments in the Third World has been the concept of microfinance. A system that has reached our shores, but has not been nurtured to its full potential.

Broadly speaking the ‘movement’ of microfinance is one that believes poorer households should have permanent access to high-quality financial services including credit, loans, savings, insurance and fund transfers. Advocates of the system believe microfinance will help people out of poverty by giving them financial freedoms, which in turn will be passed on to the wider community and economy.

This does not mean microfinance lenders should give loans to those that banks deem to be ‘risky,’ rather lenders of microfinance will be better able to judge the risks because they are not blindly accepting high risk – something we have seen rampant in the current crisis.

Now the system of microfinance seen in places like Bangladesh, India and many of the African countries is not necessarily the system that will work for us. In fact microfinance is not a ‘one size fits all’ practice. In the US it has to differ, because we do not see the levels of poverty and harsh political upheavals as the developing world. We are also a country that has a welfare system for the low-income.

The microfinance that should be fostered is a system geared to help the American entrepreneur in an America that is looking towards a new and better future. This ‘new’ form of microfinance should be able to work by giving start-ups and mid-sized business the monetary opportunities to bring about economic development in their communities. These businesses have always been the backbone of this country and are sadly being rejected by mainstream financial institutions.

Lets start today by helping American business. If you have a business idea, want to get a start-up off the ground or are already involved in microfinance, contact me at jay@thecousinsgroup.com Let’s get your idea working!

TOO BIG TO FAIL?

When do we stop using taxpayer’s money to save financial institutions that made bad decisions?

In today’s American, the one thing you can expect from Government, is if you are a big company that took unnecessary risk and gambled with people’s money and lives, then you will be rewarded with bailouts – so far over $ 3.5 Trillion worth of bailouts.

Tallying up the "true" cost of the bailout is difficult, and won't be known for months if not years. But considering $3.5 trillion is about 25% of the U.S. economy ($13.8 trillion in 2007) and the U.S. deficit may hit $1 trillion in fiscal 2009; hyperinflation and/or sharply higher interest rates seem likely outcomes down the road.

At the very least, the possibility of the U.S. losing its vaunted AAA credit rating - which determines the Treasury's borrowing costs - cannot be discounted.

As Americans and global champions of choice; hoping to make a difference in world politics, we should be asking when is it going to be enough? When do we stop helping institutions that are playing a part in our demise?

A great part of our history has taught us that we are a nation that was built on taking responsibility, standing accountable and always being the beacon for better decisions than those around us. For that reason it is incomprehensible to allow financial institutions (who have got us in this mess) to dictate the direction this country and world should take.

Last week, CIT was on the brink of collapse. The financial lender, which had already received $2.33 Billion of TARP, was refused another lifeline from the Government. A $3 Billion rescue from its debt-holders may still not be enough to prevent bankruptcy. What is interesting in all of this is the fact that the Government decided CIT was big enough to fail - whereas Wall Street institutions, which hold toxic debt from mortgages, credit default swaps and collateralized debt obligations, had to be rescued. CIT, which finances American businesses despite its failures, does not hold the above toxic debts.

I do not think we should have another taxpayer bailout for CIT, but I do see the discrepancy between one organization and another. It appears that the Government want to throw taxpayer money at the top tier of companies, who in turn award their failed leadership with bonuses.

This terrible disconnect is hurting the hard-working American businessperson and dividing a country into those that deserve Government assistance and those that have to learn to fen for themselves. The average American feels a disincentive to work when he sees people getting rewarded for failure at his expense.

AMERICAN INNOVATION WILL RESUSCITATE THE ECONOMY

But entrepreneurs need lenders to give them a helping hand

The one thing Americans have maintained is the resolve to dream up inventions, generate new ideas and ultimately provide the world with organizations like Google, Apple and Facebook.

The opportunity for innovation and improvement is stronger today than it has ever been. No-one should assume the American spirit for entrepreneurship is over. Far from it – today young businesses, new graduates and fresh-faced leaders are pioneering the way for the economy of the later part of the 21st Century.

It seems the only obstacle in their way is lending – or the lack of lending. Lenders are reluctant to supply credit for businesses especially new start-ups, despite the Government’s efforts to pump billions into banks.

Bank analysts are monitoring asset quality very closely—credit deterioration is occurring throughout the industry, raising concerns from both regulators and the market. In times like these, banks first must stop the bleeding, before they open up the purse strings and are willing to become more aggressive in their lending practices to small business.

Behind close doors the bankers will tell you that this will not happen anytime soon and we have yet to see the bottom of this downturn.

To further exasperate the situation, the bank’s lack of lending has provoked criticism of bailout programs like Troubled Asset Relief Program (TARP) and skepticism of whether Obama can really revive the banking system.

One certainty throughout all of this is the simple reality that if banks cannot support the country’s innovators, they will play a huge part in prolonging this economic downturn.

Banks have a duty to lend money to those who will drive this nation and the rest of the world – the one thing this nation has always done and always done well.