Some highlights from Bill Sardi's revealing article....................

Days Away From Economic Chaos?

America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks...........................

The FDIC is required by law to maintain a reserve ratio, or balance divided by insured deposits, of 1.15 percent. It was at 0.27 percent as of March 31. It could be near zero at the current moment. (See 1st Quarter FDIC reserve ratio chart below).............

Hiding losses

Banks have been slow to foreclose, allowing mortgage holders a few months before their home is deemed in default and giving another 2 years before the property is foreclosed on its accounting books. This practice has been able to temporarily hide most of the banking collapse..........................

Zombie banks

The FDIC, which claimed only about 300 problem banks in the 1st Quarter of 2009, but hid the fact there were about 2000 total lame banks among its 8400 members,..................

Examination of the following FDIC chart shows geographically that most banks are not making a profit.................

FDIC's $13 billion against $220 billion liabilities

So just how much liability does the FDIC bear aggregately for its "problem banks?"

At the end of the 1st Quarter in 2009 the FDIC said that figure was $220 billion. Remember now, the FDIC had only about $13 billion to over these institutions at the time. (See chart below) This figure will likely grow beyond imagination with the issuance of the FDIC 2ndQ report..............

(ESL comment: The FDIC cannot afford to cover $220 Billion in liabilities for 300 "problem banks" without dipping into Credit Lines at the Treasury. But even that LOC may not be adequate if banks fail to resolve their balance sheet issues, sink too deeply into the red and fold. True liabilities at SIGNIFCANT risk are several $Trillion if 2000 lame banks are included as they should be. To make matters worse the number of problem and lame banks is expected to be much higher in the Aug 25th Q@ FDIC report. Get the picture?)

Banks valued by goodwill and bailout funds

So there, you can see that in addition to goodwill, the bank's capital was largely increased by bailout funds. So a dose of reality therapy will lead one to conclude that nearly all American banks are essentially insolvent.

If this leaves you feeling a bit queasy, well, you may need to reach for Dramamine when you realize the FDIC is not only broke, but it will probably announce it is tapping into its line of credit at the US Treasury Department, which is also insolvent (America is spending $1.58 trillion more than it collects in taxes this year).

Here is how Bloomberg’s Vekshin says it:

If the fund is drained, the FDIC also has the option of tapping a line of credit .................. with temporary borrowing authority of $500 billion through 2010.

The mother of all bank runs?

Now if just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted............................