The Economy Guy

Bonds gained value with interest rates falling – a decent sign that the bond market did not see the Fannie/Freddie rescue as bringing discredit to the bond market – it could have!!!!

The Dollar, oil and gasoline moved sideways today – not much to report.

Gold, on the other hand, continued its move up – ending at $974.  The inflationary impact of the Fannie/Freddie rescue is seen in gold.

IndyMac Bank was taken over by the FDIC on Friday after I wrote Friday’s EconomyGuy.  This is the 2nd largest bank failure in US history, and people were lined up outside of the bank today to get their money – a day late, and a dollar short.  More importantly, the financial squeeze that brought down IndyMac is playing out across the USA, and it is predicted that as many as 100 more banks will cease to exist by year end, and 300 banks within 3 years.  That is a major catastrophe for the banking industry.

Citigroup has $2.2Trillion of assets on its books.  “On its books” implies that as Citigroup wants to loan money, the FED has requirements that a certain amount of money is held “in reserve.”  This is the reserve requirement.

In addition, Citigroup has $1.1Trillion of assets “off” its books.  That means there are a bunch of “assets”, and these assets could be worthwhile, increasing in value, OR decreasing in value, and they don’t come into the equation of how much money must be held in reserve.  In other words, they are not part of the FED reserve requirement calculation.

But, these “off” balance sheet assets could be, and are, falling in value, and jeopardizing the viability of Citigroup.  These “off” balance sheet assets include risky items like mortgage backed securities, short term debt, and CDO’s.

Looking at the biggest 7 banks in the US, their “off” balance sheet assets are starting to come home to roost.  For these banks, $300B worth of assets are being moved INTO their balance sheets, and worsening the banks’ financial strength.

What does this mean to you???  Today, I would advise every reader to have CAUTION regarding its bank.  If you have more than $100,000 in an FDIC insured account, reduce the balance to below $100,000 – and DO IT NOW.  Check up on your bank, talk to its President, and insure you feel comfortable that it will be around next year, and not closed down by the FDIC.  How do you know your bank is not one of the 300 that will be closing over the next 3 years??