The Sovereign Society Offshore A-Letter Tuesday, August 18, 2009 As of Friday, August 14, 2009, the FDIC is now Bankrupt Read that headline again. Commit it to memory. Unlike the JFK assassination and the 9/11 attacks, most Americans wonât remember where they were when they first heard the news. Most Americans wonât even hear the newsâ¦ Even though it could have a much greater impact on their lives and livelihood than either of the other two catastrophesâ¦ âThe DIF is Toastâ But itâs the truthâ¦as Mike Shedlock points out, âIf indeed US$641 million was all that remained of the DIF [Deposit Insurance Fund] the FDIC is now bankrupt. Of the US$641 million left, Community bank used up 781.5 million and Colonial Bank US$2.8 Billion.â And we checked his math. From a starting point of US$53 Billion in 2008 â through the 77 bank failures this year alone â the DIF has dwindled to zero. Just in case youâre having trouble, your first reaction should be a mixture of shock and disgust. How â after being paid decades of insurance premiums from all of Americaâs deposit-taking institutions â could the FDIC go bankrupt after the first wave of bank failures? How is that even possible? Well, firstâ¦they havenât exactly been âcollecting premiumsâ per se. Thatâs right, in good times the FDIC has one job. To bother banks for comparatively tiny insurance payments. But for most of the time between 1995 and 2006, they collected nothing. Zero. Apparently they had no authority to force banks to pay their premiums, so they simply disregarded the job. Then, as soon as the crisis broke in American banks, the FDIC more than doubled its liabilitiesâ¦taking their maximum coverage from US$100,000 per account to US$250,000. Was there a corresponding crackdown on premiums? Did they start charging banks twice as much for the insurance, or at least collect the missing premiums from the past decade? Of course not. Instead, they were comfortable with what dwindled to a .014% coverage on their assets. That is to say that for every dollar the FDIC covered, they had 1.4 cents in reserve to insure that dollar. Now the 1.4 cents is gone. As an Asideâ¦ At the risk of taking us off track for a moment, I can say that the âWar on Offshore Bankingâ makes even more sense now. Itâs a great way to distract individuals, keeping them from realizing the reality of the situationâ¦ After all, on the one hand you have a network of highly regulated, fiercely competitive financial centers. Most of these offshore guys have clean balance sheets and coherent government managementâ¦plus a track record that makes American banks look like payday lendersâ¦ For example, during the last rash of bank failures in Switzerland â thatâs right, banks even fail in Switzerland â some 200 small, regional banks ended up shutting their doors. At the same time, the FDIC was liquidating nearly a thousand of thrifts and S&Lâs in the U.S. How many banks did the Swiss ultimately liquidate? One. They liquidated one bank. Now flash back to the U.Sâ¦ On our side of the pond, youâve got a relatively crooked financial system thatâs practically insolvent, kept alive only on emergency government life support, with its traditional safety net â the FDIC â already shredded in the first year of crisis. Itâs quite clear that if the U.S. government wasnât waging a smear campaign against competing financial centers, theyâd probably have much bigger problems on their hands than FDIC insolvency. The FDICâs True Purpose At the end of the day, most politicians will probably argue that the FDICâs bankruptcy doesnât matter so much. After all, as weâve said in past A-Letters, the true purpose of the FDIC isnât bailing out banks. Its true purpose is making depositors feel safe. Changing their incentives and keeping them from having a run on fragile, poorly run banks. And itâs been successful in that regardâ¦ Just look at the âRoaring '20âs,â if you need any proof. Look back before the introduction of the FDIC. Some 500 banks failed every year in the 1920âs, with most succumbing to panicked runs by depositors. Politicians and pundits will probably try to defuse concern over the FDICâs sudden bankruptcy. Theyâll cite the fact that the FDIC has US$100 Billion in back-up funding already approved by Congress. That they can tap into those funds, so thereâs no need for mainstream Americans to worry about their bankâs solvency. And maybe theyâre right Hell, we put a man on the moon. Our guys invented the Internet and the personal computer. And a recent study by Joseph Lazzaro concluded that the United Statesâ total wealth was somewhere between fifty and sixty trillion dollars. Lazzaro goes on to claim that, âno nation has ever created and amassed more wealth in absolute terms than the United States.â So perhaps itâs possibleâ¦ Perhaps we can spend away our mistakes and live to see another day. Maybe we pay the piper in inflationâ¦maybe our stock portfolio takes a hitâ¦but the endless wealth machine hammers on, and your money in the bank is as safe asâ¦wellâ¦money in the bank. But remember the FDICâs purposeâ¦that itâs a psychological âsecurity blanketâ for the rank and file. Remember the simple fact that you canât go on forever spending money that you donât have. Remember karmaâs favorite lesson; that all debts are paid by someone, by hook or by crook. And remember what Iâm about to tell youâ¦ If the FDIC loses its status as a âsecurity blanketâ for the average Americanâ¦well, by then itâll already be too late to prepare for the fallout. Yours in Personal Sovereignty, Matthew Collins, A-Letter Editor P.S. The FDIC is unfolding exactly as John Pugsley predicted in his special Liars report released late last year. Click here to read it now, and prepare yourself for all three of the lies that pose a clear and present threat to your savings.