Job Losses & Bank Losses

by Larry Levin

Friday's Jobs data came and went without a surprise - to me anyway. There were only a few possibilities for its outcome...

1. Better than expected? Higher
2. As expected? Higher
3. Worse than expected? Higher
4. Much worse than expected? Lower for 5-minutes, then higher.

The BLS reported 36,000 job losses with the unemployment rate holding at 9.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is how unemployment feels to the average Joe on the street, which is 16.8%.

With this "great" news, the markets rocketed higher.

On several over occasions in the past I have written about the (bankrupt) FDIC taking over insolvent banks on Friday afternoon's. This past Friday was no different. In addition to the so-called great job (loss) data, three more banks were taken over by the (bankrupt) FDIC. The reason why I bring this up is because, like before, these banks LIED to its regulators, depositors, and investors...with the approval of Congress. Remember, in order to kick the can down the road, Congress forced FASB to change accounting from real (mark-to-market) to make-it-up-as-you-go-along accounting.

As I have written before, these banks are marking UP their real estate portfolios to roughly no loss. In the make believe world of make-it-up-as-you-go-along accounting, banking execs are legally allowed to mark the portfolio to what they believe the homes will be worth in the future and if they don't go broke in the interim, then the swindle will have worked.

Karl Denninger goes over this, some of which is below. The whole piece is worth a read at

http://market-ticker.denninger.net/archives/2049-All-You-Need-To-Know-About-Bank-Balance-Sheet-Fraud.html

I am simply going to take last night's bank closures, which numbered four. One of them has no "deposit insurance fund" estimated loss available, because they didn't find someone to take the assets - they're just mailing checks. But the other three do.

* Waterford Bank, Germantown MD: $155.6 million in assets, $156.4 in insured deposits. They were "underwater" by $800,000, right? Wrong: Estimated loss, $51 million. That is, the assets of $155.6 million were overvalued by approximately 30% at the time of seizure.

* Bank of Illinois, Normal IL: $211.7 million in assets, $198.5 million in deposits. They were "underwater" by $13.2 million (which is why they were seized), right? Wrong: Estimated loss $53.7 million. That is, the the assets of $211.7 million were overvalued by more than 25% at the time of seizure.

* Sun American Bank, Boca Raton FL: $535.7 million in assets (so they claimed anyway), $443.5 million in total deposits. Heh, why did you seize them - they have more assets than liabilities? Oh wait: Estimated loss: $103.8 million, so the actual assets are worth $443.5 - $103.8, or $339.7 million. That is, the assets of $535.7 million were overvalued by a whopping 37% at the time of seizure.

This isn't new, by the way. In August of 2009 I went through Colonial Bank's failure based on BB&T's presentation to its shareholders on the "merger" - and gift it was given by the FDIC. It too showed that Colonial had been carrying assets on their books at a ridiculous 37% above where BB&T ultimately marked them as a whole.

Folks, your bank is being assessed deposit insurance premiums to pay for these losses. You are paying these losses through increased fees and interest expense on your credit cards and all other manner of borrowing.

You are paying for outrageous, pernicious and endemic balance sheet fraud.

There is no conspiracy. It is right under your nose. One of these three banks, based on their balance sheet, wasn't even underwater - it was "to the good" by nearly $100 million dollars.

The balance sheet was a flat, bald-faced lie.


Previous Day's Trading Room Results:

Trade Date: 3/5/10

E-Mini S&P Trades*
(before fees and commissions):


1) No "secrets" trades filled today.

2) Algorithm positions (9)

3) "Reading the Tape" positions (3) ...combined Secret's, Algo, & "Reading the Tape" total...+6.50



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!