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Today, we visit the FDIC to look at the latest charts and graphs they publish. And we visit the Nikkei news in Japan to get more graphs. This is all about understanding why the biggest, most international banking/investment systems went under so suddenly and so totally. Throwing good money after bad is stupid. Rubin and Greenspan don’t have a clue…their own words….as to what is going on. So maybe we can clue them in!

FDIC Graphs Show the Extent of the Financial Crisis - Seeking Alpha

This graph illustrates the suddenness as well as the amazing level of losses in the last year. This isn’t a mere handful of banks going under. It is a huge number of huge banks going under rapidly. This is due partially to the Derivatives Beast eating up all the reserves of all the banks, one after another. If the US government and Federal Reserve didn’t capitalize these banks to the tune of trillions of dollars, the entire banking system would have gone bankrupt.

In this regard, this graph is false. It shows only $348 billion in losses. If nature were to follow her natural course, it would really be well over $2.5 trillion and climbing rapidly. The Reagan/Bush Sr. collapse is still over $700 billion in today’s dollars. But again, this was when the US government didn’t have to bail out the entire banking business like they are doing today.

This graph is meaningless unless we figure out why there was almost no bank collapses between 1994 and 2008 with a tiny smidgen late in 2007. What happened during that time, anyway?

This curious question must be asked! For from 1998-2001, we had first, the Asian Currency Crisis then the Dot Com collapse! This caused a global recession. But no banks went under in 1998. $2 billion in losses in 1999. And zero losses again, in 2000. Even when Greenspan and Bush Jr claimed we had a financial crisis and Greenspan dropped interest rates to 1% while Bush cut taxes heavily, there were zero bank closings from the middle of 2003-2007.

My own theory here is obvious to regular readers: the Japanese carry trade began in 1994. It abruptly ended with a bang in mid-July, 2007. This is the only obvious cause that comes to mind. The day and night difference between the carry trade easy-lending era and its sudden end is obvious! For example, the first crashes in the West were exactly one month after the carry trade ended. Since many loans were 30 days short term loans so hedge funds and investment banks would work up ‘deals’, the sudden ending of this easy money caused all these deals to crash into the flight decks of all the biggest banks.

Thanks to the Seeking Alpha story, I was reminded it was time to revisit the official FDIC: Quarterly Banking Profile to see more charts and graphs besides the ones in the Seeking Alpha story.

This chart clearly shows that from 1999-end of 2003, there were the usual ‘problem institutions’. But they didn’t go bankrupt. And the valley was at the peak of the housing bubble: 2005-2006 saw the fewest banks in trouble. then, the trouble began to rapidly climb to higher levels than in 2002. But the startling thing is to compare this with the graph showing the actual losses.

The losses are epic today. Somehow, the infusion of funny money from 1994-2007 created a sudden, totally catastrophic crash in 2008. The number of institutions is not that big. It is the size of each that is startling.

Unlike previous crashes when small banks went under first, the first to go in this whacky cycle are the biggest, not the smallest. Many of the very smallest, the credit unions, barely have noticed this banking meltdown. The reason is obvious: THEY HAD NOTHING TO DO WITH THE JAPANESE CARRY TRADE. Thus, small, regional, local systems were immune to this crash.

Another set of banks have gone under: the big housing/business real estate bankers are going under very fast. Anyone who participated in the sub-prime markets is being cleaned out. But the capitalization for these loans, I would suggest, came out of the Japanese carry trade via the Caribbean Islands, for example.

Not ONE US region has banking capitalization at 10%. Most are well under that. While China, in 2007, raised the reserve ratios all the way up to over 16%, the US allowed our own reserves to drop. While China and Japan ran up huge FOREX reserves, the US didn’t buy yuan or yen and thus, capitalize our own FOREX reserves. I am very beastly about all this: the key to banking lies in savings. The US doesn’t save nearly enough compared to our lending.

Savings, in general, have collapsed in the US. We don’t buy our own government bonds, for example. Foreigners buy these. We know that over 80% of our national debt is now bought by either international corporations or foreign governments. In stark contrast, let’s look at Japan: Market Anxious Govt Spending May Lead To Higher Interest Rates

Here is the Nikkei news pie chart showing how many aliens own Fortress Japan:

It is the reverse of America’s debts. Barely 7% of Japan’s debts are owned by foreigners. The US, it is now over 50% is sold overseas or to internationalist organizations. Japan’s banks own most of it. And the Bank of Japan owns nearly 10%. If we consider all the LDP-controlled entities to be one and the same creature [which they all are] then the percentage of government debt owned by LDP-controllers which includes the Bank of Japan, the Public Pension Funds, the Japan Post Insurance and Banking system from pre-WWII Japan, this is nearly three quarters of Japan’s debts.

Japan has a lot more debt versus GDP than the US. It is now at 160% of the GDP. The Japanese expect 93% of this new debt the government plans to issue the next several years to be internally purchased, not sent overseas. I wonder if this will simply make the ‘depression’ in Japan much worse. The US has been able to hide the depressed economy for 20 years via outsourcing and the Japanese carry trade in tandem with shipping all our excess spending overseas to be held in foreign capitals like Tokyo and Beijing or offshoring it to the many pirate island faux banks.

Back to the FDIC data:

This liabilities pie chart isn’t a good turkey dinner eating experience. Only one third of US savings is insured by the FDIC. So far, we have no domestic losses in this area, the FDIC has kept up with the losses. The emergency bail out bills are for the three quarters of this pie that is being eaten by the Derivatives Beast. Mmmmmm….good. Munch, munch. And look at that 20% red slice of pie! ‘Other BORROWED funds’. How much of this is loans from Japan? The pie chart doesn’t break this sector down. It included Federal funds of various TARPian sorts, I guess. I don’t know. We need more information, don’t we?

One thing is certain here: savings are considered LIABILITIES because the bankers have to pay to hold this money. This is why they press the Federal Reserve very hard to drop interest rates. Then, they don’t have to pay savers. Savers, in turn, are exiting the banking system which is why savings have collapsed in the last decade to below zero growth rates.

Commercial lenders is nearly half of this pie chart. I do believe, they are mostly the guys who created those multi-multi billion dollar buy out and buy up deals. This sector has just begun to fall apart! The housing bubble ended a whole year before this sector began to collapse. The biggest deals on earth occurred in 2007 until the whole system began to fall apart after August, 2007. This sector is, in particular, in very dire condition today. All past deals did was pile debt on existing organizations.

This was utterly unlike the previous bubbles which saw investment in start-ups, for example. This business was all about simply finding existing companies and dumping on top of them, a mountain of funny money debts.

This graph shows how all systems are converging. Always, when systems change gears and things that are below yesterday are on top, tomorrow, this is usually a sign of fundamental changes in the ecosystem. When 30 year debt returns equal today’s, this is another bad sign.

This graph shows that consumer lending collapsed during most of 2006. Note the Xmas spike. By 2007, lending to consumers collapsed to negative numbers during the normal Xmas spike. Except for the Xmas spike in 2005, commercial lending has been always greater than consumer spending. During 2007, note how these deals shot through the roof! Consumer lending went very deeply into negative numbers after the Xmas spike which really was not much of a spike but rather, a flat system.

The government was already opening all its private lending windows during this entire year, yet at the end of it all, in last March, consumer lending collapsed into negative numbers. -34% during the start of the Xmas lending spike period! Commercial lending still exists but is dropping very rapidly and is lower than any time in the last 4 years.

Net operating income fell off the cliff right after the Japanese carry trade began to unwind in late 2007.

We see yet again, the hump of troubles in the 2000-2003 period when the Dot Com bubble burst and the 9/11 attacks caused economic problems. But few banks went under. For the Japanese carry trade bailed us out during that recession!

But look at how the graph does the dread ‘hockey stick’ climb! Noncurrent loans means someone isn’t paying their debts. This is growing rapidly. It is not ‘humping’.

2004-2007, construction loans climbed as more and more banks lent to builders. All have been caught in the gears now. The number of banks doing this is dropping. But I think this graph will, next year, show a very steep drop in early 2009 onwards.

Like this graph! Real estate loans have nosedived after the top of the housing bubble. which was in 2005. Below is the graph from SPIEGEL ONLINE - Nachrichten from Germany. It shows the collapse in auto sales both in Germany and the US.

Porsche sales, in particular, went bad in the US. Many investment geniuses bought Porsches to race at private race tracks. Now, that fad is over. Maybe they will be reduced to bike racing? Or marathon running from the law?

All the sales of big, fat, gas guzzlers are below 3o%. Only small cars are seeing any growth. Just like the small banks are doing OK. A lesson is here, somewhere.

FEEL FREE TO EMAIL ME AT emeinel@fairpoint.net