| More cold hard facts as to just how deep in debt | | | | and not taxpayers should foot this bill. As I said: It |
| we REALLY are. | | | | is refreshing to hear a Washington cog insist that |
| I promise to stop soon. I really do. | | | | the industry she watchdogs pay its own way. |
| It brings me very little pleasure to upset you this | | | | However, she may very well be destroying that |
| way on such a constant basis. In fact, I look | | | | industry as we know it. |
| forward to the day when this column is full of | | | | Another Massive Hole |
| nothing but hot stock tips. But I'd rather bring a | | | | Now let us turn our attention away from |
| steady diet of hard cold facts, than any sort of | | | | Washington and toward Chicago, where, I am |
| hollow sugary confection. In the end, it's healthier | | | | told, the local transit authority has a small problem |
| for all of us to face up to the problems at hand | | | | with its pension fund. Actually, it's a $1.5 billion |
| now, before they grow even larger. | | | | problem. That's how big their shortfall was... in |
| And so with that in mind, I have an update on the | | | | 2007, when the market was sailing. As things |
| bank situation and a heads up on another brewing | | | | stood, this 62% funding gap left the CTA unable |
| crisis along the same lines. On Monday, I showed | | | | to pay retirees as soon as 2013. |
| you the growing gap between the Federal Deposit | | | | Not to worry, CTA officials thought. We'll just do |
| Insurance Corporation's growing responsibilities and | | | | what everyone else is doing, and borrow to fill the |
| the funds it has set aside to cope with same. | | | | hole. This is an "awkward" solution in the best of |
| Washington Concedes the Growing Gap | | | | times. If nothing else, the recent crash has been |
| Well, I've got good news and bad news on this | | | | an object lesson as to where excess leverage |
| front. FDIC Chairman Sheila Bair has officially | | | | can leave a person, fund, state or even country. |
| conceded both the size of this gap and its truly | | | | Unfortunately, this harsh reality intruded most |
| awful potentialities. | | | | rudely into Chicagoland's little fantasy world. Since |
| In a letter to all insured banks, she warns that | | | | the beginning of 2008, the CTA has been paying |
| "rapidly deteriorating economic conditions" will | | | | out more to bondholders than they are earning on |
| cause the wave of bank failures to continue well | | | | the borrowed funds, further exacerbating the |
| into 2010. She also warns that the Deposit | | | | Authority's funding gap. In the end, the bill for this |
| Insurance Fund (DIY) - our only bulwark against | | | | debacle will most likely end up on the taxpayer's |
| the complete destruction of any personal banked | | | | tab as well. |
| funds - is at risk of insolvency before the end of | | | | Now normally I wouldn't bother you about such a |
| 2009. | | | | paltry local issue. After all, what's a billion or two |
| I suppose it is bracing to hear a Washington | | | | between friends? But this particular crisis is not |
| bureaucrat be so forthright as to the sword of | | | | merely local. Indeed, when I dug into things a bit, I |
| Damocles that hangs over her charges. | | | | discovered that numerous state pension funds |
| Unfortunately the cure she is recommending may | | | | around the country are coming up short in a |
| be worse than the disease. | | | | similar fashion. |
| The Fatal Cure | | | | You Expected to Make What? Are You Joking? |
| Bair proposes to hit every bank in her portfolio | | | | You're Not Joking? Oh MY God! |
| with a round of "substantial assessments." In point | | | | The idea is that bond funds are to be borrowed |
| of fact, this program has already begun under | | | | at, say 2%, and then invested so as to earn, say, |
| cover of darkness. Last week, the FDIC imposed | | | | 8% to 10%. The income produced is used to |
| a series of "program fees," including a "one-time | | | | both service the debt and fund operating costs, |
| emergency fee," in an effort to staunch the DIY's | | | | capital projects and pensions. |
| bleed-out. | | | | I'm serious here: The Teacher Retirement |
| The problem is, these increased assessments | | | | System of Texas - the seventh largest pension |
| may preserve the soundness of large banks, but | | | | fund in the country - expects to make 8% off its |
| they sound the death knell for otherwise solvent | | | | endowment. In reality, it has been making 2.6% |
| smaller banks who are hanging on by their | | | | for over a decade. The largest public pension fund |
| fingernails. These guys have done their best to | | | | in the country, the California Public Employees |
| play by the rules, but they just don't have the | | | | Retirement System, has built in 7.75%-8% into its |
| clout in Washington that the big houses can bring | | | | projections...and has not done better than 3.32% |
| to bear. | | | | in recent memory. Except for 2008, when it lost |
| Independent Community Bankers of America | | | | 27%. |
| President Camden Fine says that these fees could | | | | Brace yourself now: tot up the estimated |
| wipe out 50% to 100% of his clientele's 2009 | | | | shortfalls for funds across the country, and you |
| earnings. In an interview with Bloomberg's Alison | | | | have yet another trillion dollar hole that |
| Vekshin, he reported receiving thousands of | | | | Washington will be forced to fill. And by |
| e-mails and phone messages from angry bankers | | | | "Washington," I of course mean you, me, and |
| worried that Washington was sacrificing them on | | | | most all our anticipated descendants. |
| the altar of expediency. | | | | To paraphrase that cute little Chihuahua from the |
| Despite all this blowback, Chairman Bair refuses to | | | | old Taco Bell ad: "I think we are going to need a |
| tap the FDIC's $30 billion line of credit at the | | | | bigger shovel. |
| Treasury Department, insisting instead that banks | | | | |