March 12,
1933 — newly
elected President, Franklin D. Roosevelt (with the
U. S. stuck in the depths of the Great
Depression), in effect immediately began restoring public confidence by proclaiming
a bank “holiday” and speaking openly
to the American public in what became a series of radio broadcasts or “fireside chats.” In
that first fireside chat, Roosevelt
spoke of the bank crisis of the past several years and explained his logic
behind the closing of all U S banks for holiday
and stated that “Your government does not intend that the
history of the past few years shall be repeated. We do not want and will not
have another epidemic of bank failures.”
Considering that he had taken
the oath of office only thirty-six hours before declaring the bank holiday, — for the most part, there was
surprisingly little panic. You see, at
1:00 a.m. on Monday, March the 6th Roosevelt issued a proclamation
ordering the suspension of all
banking transactions—so for a full week, Americans had no access to banks or
banking services. They couldn’t withdraw or transfer their money, or even make
deposits.
Technically, the crisis had begun to subside by
March 9th (3 days latter), when Congress passed the Emergency Banking Act. On March 13, only
four days after the emergency legislation went into effect, member banks in
Federal Reserve cities received the go-ahead to reopen. By the 15th,
banks controlling 90% of the nation’s banking establishments had re-opened and
deposits far exceeded withdrawals. The bad news — the coming economic recovery
was still years away. The good news — the worst of the banking crisis appeared
to be over.
The fact is, the United States has had to
deal with a number of banking disasters during its history as a nation; the major
ones include The Panic of 1819, 1837, 1873, The Panic of 1907; the Great
Depression; the Savings and Loan crisis of the 1980s & '90s; and the
financial crisis of 2007-2009; okay, the list goes on and on.
By far the worst Panic occurred during the
Great Depression. Within the first 10 months of 1930, 744 US banks closed
forever. In November and December of that same year, 600+ more banks failed. By
the time the banking crisis was over 4000 banks had failed and never re-opened—over
5,000 more failed but did manage to re-open.
As a result,
the FDIC
(Federal Deposit Insurance Corporation) was
created by the Glass-Steagall Act
of 1933. The basic idea behind forming the FDIC was to provide deposit insurance
which would guarantee the safety of deposits in member banks, up to a certain amount
which currently stands at $250,000 per depositor — per bank.
If you’re wondering if it works, be aware
that since the establishment of the FDIC
no depositor has ever lost a penny of insured deposits since its creation. Look for the FDIC official sign that’s proudly posted at every insured bank and
savings association across the country.
If you’re still having concerns it might help
to know that the FDIC’s deposit
insurance fund consists of premiums already paid by insured banks and interest
earnings on its investment portfolio of U.S. Treasury securities. So NO federal
or state tax revenues are involved.
Although banks are not required to be FDIC insured, a bank that is not FDIC insured cannot compete effectively
in an industry where consumers have come to expect their money to be protected.
Of recent date (March
2016) many segments of the News Media have showcased several
“economists” and “politicians” who are foretelling a repeat of early 20th
century America’s banking crisis and stock market crash by predicting a “Bubble Burst” that is more often than
not forecasted as being the worse ever.
A Bubble Burst, you see are
the 21st Century’s terms for “Market
Crash” and “Bank Failures”. Fact
is, a Bubble Burst will cover just
about any crisis in most any arena. There’s
the housing bubble, the dot-com bubble, the stock market bubble, the banking industry
bubble, bond market bubbles, U S municipality bubbles, the tech industry bubble,
et cetera, et cetera, et cetera.
When bubbles burst (and
they do more often than you might think), two key things separate
winners from losers: Timing and the debt level. Timing matters because the
losers, who are already strapped for cash, end up selling their assets such as their
home after values fall and before prices rebound. Winners on the other hand can
wait longer because they have a lower debt level and thus are able to keep
their assets (home, etc.) until values
recover and ultimately break-even or actually show a gain in capital.
In any event, exactly what is a bank failure?
In the simplest of terms it can be described as the closing of a bank by a
federal or state banking regulatory agency, usually when it is unable to meet
its obligations to depositors and others.
This is only true when the bank’s failure involves an institution that’s
insured by the FDIC; in that
circumstance the FDIC acts in two
capacities. First, as the insurer of the bank's deposits, the FDIC pays insurance to the depositors up
to the set insurance limit of $250,000.00. Second, the FDIC, as the “Receiver” of the
failed bank, assumes the task of selling/collecting the assets of the failed
bank and settling its debts, including claims for deposits exceeding the
insured limit.
Oh, and if you are concerned about that
priceless heirloom you have hidden away, you'll still have access to your safe
deposit box. In fact, the full contents of your box should be available to you the
first business day after the bank closes in most instances.
If you’re thinking bank failures are directly
related to political leaders or political parties you’re probably in the
minority—just look at these recent U S bank failure statistics:
George
W. Bush Years; Republican . . . 2007 – 3; 2006 – 0; 2005 – 0; 2004 – 4; 2003 – 3; 2002 – 11; 2001 – 4; 2000 - 7
Bill
Clinton Years; Democrat . . . 1999 – 8; 1998 – 3; 1997 – 1; 1997 – 1;
1996 – 6; 1995 – 8; 1994 – 15; 1993 - 50
George
H. W. Bush Years; Republican . . . 1992 – 181; 1991 – 271; 1990 – 382;
1989 - 534
Ronald
Reagan Years; Republican . . . 1988 – 470; 1987 – 262; 1986 – 204; 1985 – 180; 1984 – 106; 1983 – 99; 1982 – 119; 1981 - 40
As indicated above, the worst single year for
bank failures since the introduction of the FDIC
came in 1989 at the height of the
U S savings and loan crisis. And you’re probably be surprised to learn that
only during the years of 2005 and 2006,
there were zero (0) bank failures in the United States, yep, that was during the
George H.W. Bush years, not his son, George W. Nevertheless the highest number of bank
failures in a single year since 1900 were 4,000 which took place way back in
1933.
So should you be worried about Bank Failures and
Bubble Busts that are yet to occur? Not if you are comfortable with the home
you live in and have a fixed interest rate that’s long-term and agreeable . . .
in other words a stable monthly payment . . . Not if you have less than
$250,000.00 in any given FDIC insured
Bank or Savings & Loan Institution . . . Not unless you have significantly
invested in the stock market, municipal bonds, dot-coms, et cetera.
On the other hand if you insist upon being a “Chronic Worrywart” there is and will
always be a
“Gloom & Doom Report” in the
media (election year or not) that can
justify your concerns.
A good example is a report by William Edstrom who insists the USA is
currently in a slow motion economic collapse.
The lengthy report was published September 23, 2015 in CounterPunch (click
here for the entire article), a monthly magazine publication, and is
titled “Waiting for Collapse: USA Debt
Bombs Bursting”. The article
basically outlines how most everything in America is “going to hell in a hand
basket”; an expression often used by grandpa when describing most anything “in
a bad way” but before you accept everything printed in the article, you should first
consider the source.
William
Edstrom
graduated from Columbia University with a Master’s degree in 2003. He has
worked as a scientist for ten years, has co-authored publications in scientific
journals such as Nature and the Journal
of Biological Chemistry, and co-authored a Life Sciences textbook (Columbia University Press, 2005). He is also a
member of the Educational Writers Association. Mr. Edstrom is a previous (2014)
Green Party Candidate for U S Reprehensive
in Congressional District 15 of New York; according to his web-site he received
568 votes or 0.9% of the 61,268 votes cast in the 2014 General Election.
CounterPunch as you may
know is monthly magazine published in the United States that covers politics in
a way its 2 editors describe as “muckraking with a radical attitude”. It has been described as “left-wing” by both
supporters and critics.
In-any-event, the vast majority of Mr. Edstrom’s
publications in CounterPunch or
otherwise are “unsettling” at best; yet another example can be found in an OpEdNews publication in August of 2015
the article is titled “Debt
Collapse: The Decline and Fall of the United States of America” in which
he insists among other things that “when US government
people claim $18.5 trillion in government debt, they are neglecting to tell us
about their loans, their government credit card balances, the debts of the 50
states, the debts of 3,033 US county governments, thousands of towns and cities
plus thousands of government authorities like the Tennessee Valley Authority
and the New York City Metropolitan Transit Authority . . . The total of these
debts owed by government in the USA is $32.77 trillion, as of March 2015”.
Perhaps Mr. Edstrom would better serve his
readers by describing himself as a well informed “economist” in addition to his
numerous accomplishments. After
all, if he is right, maybe we all should worry, or better yet, join the Green Party!
Sources:
No comments:
Post a Comment