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by Al Martin

From US Bank Failures to Civil Unrest: How Soon? How Bad?

(10-26-09) According to Bloomberg, the FDIC said 416 banks with combined assets of $299.8 billion were on its list of “problem” lenders at mid year. Meanwhile 106 banks have been closed by regulators this year to date. This compares with 179 banks which were shut down during the Savings and Loan Fiasco of 1992. Last week FDIC Chairman Sheila Bair told a Senate subcommittee on financial institutions -- “The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in Commercial Real Estate lending.” What does it mean?

      The FDIC has a pretty good handle on the number of bank failures which they predicted would be about 130 in 2009, and it looks like they’re going to be right on target. Next year is the problem. The explosion of bank failures, as Sheila Baird points out, is yet to come.

      There’s a big debate going on now regarding bank failures in 2010. The FDIC is saying 300+, but the national bankers’ association is saying 500. These are different estimates, but what it comes down to is the timing of the dropping of the next shoe, so to speak, i.e. the timing of the pending commercial real estate debacle and how many banks are ultimately taken down because of it.

      The FDIC says that they are making the assumption that there will be a 26% price decline in commercial and industrial property. We already see the numbers every month now from commercial loan defaults and loan arrearages in commercial and industrial properties – and they continue to rise. Commercial loan defaults are at 5.6%

      Which are the highest since the 1930s. The FDIC just doesn’t know when it happens, even though they assume it happens in 2010.

      The FDIC scenario is that commercial loan defaults will hit 17% and that arrearages will reach 28% and that median prices of commercial and industrial properties will decline ultimately by 26%. They are saying this will begin in 2010 and will occur in the 2010-2011 time-frame. If their projections are right, then 1000 banks will fail. These will be mostly “too-small-not-to-fail” regional banks. The banks that are at most risk are small banks because they are the principal holders of commercial and industrial property mortgages.

      What’s uncertain is the timing, the extent, and the depth of the event and how much trickle-up effect there is. In other words, how much will large financial institutions be affected by a potential widespread failure of small financial institutions?

      Of course they have exotic financial models to predict this event, but it should be remembered that these are still only assumptions. They know that an event will happen but they don’t know the depth of that event, so they come up with different scenarios. For instance, they say here’s the number of banks that will fail if commercial default rates increase from 5.6% to 11.4%, and thus so many banks will fail. That’s how it’s pieced together.

      What isn’t known, however, and what Sheila Baird is pounding the drum about (and nobody is listening) is that the Obama Regime doesn’t want to address the problem – until it happens. They’re doing the same thing that the Bushonian Regime did – don’t address the problem until it happens because if you start addressing the problem now you’ll only focus peoples attention on it, which would potentially threaten confidence in the “synthetic economic recovery” the government is now creating through the printing of money.

      The Obama Regime wants to keep hidden the whole notion of this “synthetic recovery.” They don’t want to admit that it’s a synthetic recovery. What they’re hoping for (like every government) is that this synthetic recovery will lead to a real recovery because consumer confidence has reached the point and unemployment has diminished to the point that consumption returns to the point that it replaces government deficit-financed spending and allows government to begin to withdraw spending and shrink deficits. That is the fulcrum that the planet’s economy is balanced on – this notion that governments can engineer a viable synthetic recovery, hiding the fact from the people that it is synthetic (because The People don’t know the difference).

      So what happens? Global governments continue to promote synthetic recovery – but will the flim-flam work?

      The principal danger is that this synthetic recovery which has been created over the last 12 months creates a fire-storm of speculative bubbles by providing so much cheap and easy liquidity. Look at the luminaries who have spoken last week. ECB Chief Trichet, BoE Chief Mervyn King, BoJ Chief Hatayama and Fed Governor Daniel Turrillo have all stated publicly that global equity prices are dangerously overbought. They’re trying to call down the speculative bubbles that the synthetic recovery has created in equity and commodity prices. This is a warning for the Joe Six Packs of the world to not be seduced by the Bullish Shills in financial media.

      If Joe doesn’t listen, he will become a “bag holder” once again.

      Joe Six Pack has got to understand that a one-half of one percent yield in the US money market fund is better than the 8% fictitious yield he is earning in the S&P; fund for instance.

      If you do not know how to make your money make money, then you must look at the current situation on the planet and understand that it’s time to hunker down.

      Capital preservation must be the watchword of the day for Joe Six Pack and his erstwhile cousin Johnny Lunch Bucket.

      Unemployment is going to get worse before it gets better. Taxes imposed, particularly by local jurisdictions i.e. real estate taxes, personal property and excise taxes, tobacco and liquor taxes and fuel taxes, are rising sharply and will continue to rise for years to come at double digit rates. As the national association of county tax assessors (an arcane group but they put out good information) has warned, property taxes with ad valorum will double every 5 years – forever.

      However please do not confuse this with inflation. Economies globally continue to deflate. This is a symptom of loss of tax revenue that the previous collapse of speculative bubbles has created. The Obama Regime simply can not expand deficits at the federal level enough to increase what’s called co-tax distribution sharing with the state county and municipal governments to offset their deficits.

      The Fed can’t expand its balance sheet another Trillion dollars to bail out the state county and municipal governments. They are effectively on their own and they know it. Their revenue needs are now dire. Consequently expect to pay sharply higher taxes imposed by these taxing jurisdictions in the coming years.

      State, county and municipal governments unlike the Federal government do not have the same ability to finance deficits because they don’t have the ability to print currency. Thus they are left with 2 options – either reduce costs of government by reducing services or increase taxes.

      Don’t however expect a lot of police to go on unemployment

      The problem is that the state, county and municipal jurisdiction are ham-strung by what the Bushonian Regime did in terms of federal unfunded mandates. They mandate the states and counties that they must continuously increase the size of their police forces.

      Why? The Bushonian Regime understood that civil unrest is coming in this country and will become a problem certainly by 2011. Remember how Barry McCaffrey used to say that 2014 is the drop date and we’re going to need a million more police on the street to control the unrest that’s coming – when people get hungry and they don’t have any fuel to heat their homes.

      McCaffrey was talking about civil unrest at the most local level. He meant that police forces must be expanded and made more mobile and that new weapons and a new type of concentration camp (work camps) must be built because the economic displacement that is coming in this country over the next decade is going to create a need for it.

      Civil unrest has to be put in what can be called the “American context.” You’re not going to see people out bombing. Americans don’t do that traditionally. You’re not going to see widespread armed revolt or people throwing bombs because for one thing they don’t have the knowledge of how to do it like Europeans who are knowledgeable professional protesters.

      As McCaffrey used to say, this has to be done to keep public arteries clean of riffraff and to prevent any impediment to trade or commerce – that has always been the concept of controlling civil unrest in this country. To prevent widespread destruction of public and private property and to also provide (how the American model differs form everyone else) for the huge numbers of economically dispossessed in this country.

      That’s why work camps or CILFs (Civilian Inmate Labor Facilities) were expanded. Everybody in Washington realized, during the Bushonian Regime, that this country in this coming decade is going to have to have some sort of internal labor camps wherein the huge numbers of economically dispossessed can be housed but where they can make themselves economically productive. That’s why many of these camps were located on agriculturally productive lands or around industrial or mining sites.

      That’s why to go from bank failures to civil unrest – and that is the picture of this nation. The government is correct then to spend resources on, as General Primakov said, an American Gulag.

      You may heave heard that the State of Arizona is considering privatizing its prison system. Thus privatization will be used in spades particularly by the nation’s states, counties and municipal governments.

      The labor union for public employees expects that half of all publicly owned property will be sold by the end of this coming decade. We’re going to have to corporatize the nation because the only way that the United States can remain in business now is government no longer has the resources to do so over the long term. The assumption has been that the Bushonian and now the Obama Regime (and all succeeding regimes as well) and that is that Bushonomics ended with the Bush-Cheney Regime and that they were able to effectuate the great and final Speculative Bubble. This was the final transfer of wealth. Ultimately there isn’t that much more wealth that can be concentrated.

      Now the top 1% own 71% of all the assets. Thus we are above the 70% level, which a lot of historians say is a level that can not be sustained. People don’t understand that only in the United States could such a disparity of wealth be maintained.

      The artificial recovery now being created by government spending can only be diminished so much. Even Fed Chairman Bernanke said the Fed’s balance sheet would never shrink back to pre-Bushonian levels. In other words, government spending would have to become a larger percentage of GDP than it had been ever before because retail consumption is never coming back where it was pre-2005.

      Fortunately the Obama Regime, like it or not, is following the same course as the Bushonian Regime, which drove the final nail into the Old America and the old way of doing business. The Old America is now gone. This concept of lifetime security in employment has all been destroyed.

      In America, there are over 6 million people unemployed over the age of 65 looking for work – people who can’t afford “retirement.” Record unemployment is a growing phenomenon which will continue to grow. Wal-Mart can generate only so many “Greeter” jobs. This is a direct cause of the collapse of speculative bubbles, wherein so many traditional asset investment vehicles like tax-free bond funds and GSE bond funds held by old people collapsed. As a result of this, we are seeing a record number of people over the age of 65 are trying to reenter the work force because it was the older people that were the hardest hit by the collapses of GSE, municipal bond and mortgage pool funds. These were investments that older people would hold and were always popular.

      It reminds me of that old Jason Robards movie “Rollover” where he says -- it’s all gone now. We recommend that our readers watch that movie again to get a clear sense of what’s coming.

      In conclusion, the United States understands the wider problem and it will provide, to some extent, increased internal security to prevent civil unrest. A system of work camps is being constructed. This system of detention camps is already in place. They are preparing for the future. So if you don’t think this country is going to be an awfully dark place to live in ten years from now, you are mistaken…

    * AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," ( provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" ( will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.


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