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MV Weather Report: Banks to Shelter FDIC From Rain


Rain or shine, we reivew the day's biggest stock stories.


This time last year the government was busy bailing out the banks, but now it looks like the banks may be bailing out the government.

According to a story in today's New York Times, regulators are considering a plan where the healthiest banks would lend billions of dollars to the FDIC. The plan would give the FDIC breathing room as the fund is running out of money because of all the bank failures.

JPMorgan (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) rallied in reaction to this news.

Today on the Buzz and Banter, Mr. Practical weighed in with his thoughts on the matter.

"Let's think about this for a minute. Large banks are up today 1-3% because instead of having to paying higher fees to support the FDIC in insuring the banking system, which would be a drag on earnings, now the banks are going to lend the FDIC the money, which might be accretive to earnings.

"Does anyone maybe think that the banks are so weak that they cannot even afford to increase small fees to the FDIC?"

"We have now crossed over into the Twilight Zone.

"When a regulated insurer borrows money from the entities that it is supposed to insure because it is insolvent, we have invented a new level of ponzi. Since banks are borrowing all their capital from the Fed at this point, in substance this is the FDIC borrowing from the Fed. How ironic is it that this may actually help bank earnings. Only the government could turn a cost of banks into a profit.

"This is ludicrous and sad that we have reached this point and accept such shenanigans from government bureaucrats."

Mr. Practical is right, this is one strange story. These banks that needed to be bailed out last year now have to bail out the fund that insures them? Strange.

A look at the tape shows the S&P 500 finished the day higher by 0.65% to 1071. It seems as if the market participants have been in wait and see mode with respect to the Fed decision that comes out tomorrow at 2:00 est.

On today's Buzz and Banter Professor Lance Lewis gave his thoughts.

"Below is taken from Jim Grant's "Interest Rate Observer." I couldn't agree more.

'For as long as the MEASURED RATE (my emphasis) of inflation gives them cover, central bankers in general, and English-speaking ones in particular, seem determined to pin rates to the floor. Recall that in the piddling 2001 recession, which never threatened to bring down the world financial system, 10 straight quarters of positive GDP growth streamed by before the Fed lifted the funds rate. Money will be easy for a while.'"

I agree with Lance Lewis and Jim Grant, I don't see the Fed raising rates anytime soon. But I wouldn't mind seeing the details for an exit plan.

Have a great night!

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Position in BAC

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