FDIC, Creative Financing
Research for Online Investors

by John Dalt

9/29/09

The FDIC is meeting today to decide how to raise money to cover expected bank closures and demands on the insurance fund.  They have developed a new twist to raise money.  They are going to require banks to “prepay” three years of FDIC insurance fees.  This allows the FDIC to avoid borrowing from the Treasury, which Sheila Bair does not want to do.  Last week they floated the idea of borrowing from large banks, but this would create the appearance of a conflict of interest.  Borrowing from the banks that you regulate does not pass the smell test.

What is the difference in a “special assessment” and “prepaid premium”?  Normally a prepayment receives a discount and is not required.  The banks could show this as an asset on their books, expensing it in the year it was actually ‘due.’  This would help to prop up their balance sheets with money that they do not have!  Sounds like a good government plan.  The Associated Press article covers, “FDIC Expected to Ask Banks to Prepay $36 billion in Fees.”

This program should raise $45 billion.  At their present rate of bank closures and the burn rate on the insurance fund, this will last six to eight months.   You can read our earlier article, "FDIC, Going for Broke."

The U.S. Chamber of Commerce, and some of their members, need to read “Atlas Shrugged.”  Exelon announced they would leave the Chamber because of the Chamber’s opposition to Climate Change regulations by the EPA.  Other notable companies have announced the same or similar actions recently.  Among the politicaly active are Pacific Gas & Electric, PNM Resources, Nike, Duke Energy, Alcoa, and Johnson & Johnson.

In most cases, they are seeking a competitive advantage for their business by regulation, or playing to their target market’s political views.

This is another example of managers rather than visionary leadership.  They will learn the lessons learned by so many before them, when you curry favor with bureaucrats you will be burned.

One can understand a consumer product company’s sensitivity to customer political views.  It is disconcerting to see a utility sell their customers down the tube.  Electricity rates are going to go up with any additional regulations on generation.  Do they think they will gain financially because they rely on nuclear?  How does Alcoa think higher energy prices are going to help them?  Do they honestly think they can raise the price of aluminum cans?

It seems our business schools do not teach the importance of controlling costs.  The New York Times has the story, “Exelon to Quit Chamber of Climate Bill.”

If this weren’t true, it would be funny.  The Senate was ready to approve stimulus money to fight forest fires last week.  Wyoming Senator John Barrasso read the bill and questioned why Washington, D.C. needed money to fight forest fires.  There was $2.8 million in the bill for a non-profit group to conduct “green education projects.”  When brought to light, the money was removed from the bill.  Probably another ACORN earmark.

We made an error in our letter yesterday in the coverage about canceled franchise agreements in the government sponsored bankruptcies of GM and Chrysler.  The link in our article did not work.  You can access our earlier article “Gangster Government.”  We apologize for this error.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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