The data is now through 7/31/08. As everyone knows, rates tumbled starting in December 2007. With the continued weaknesses in banks and continuing mortgage problems, it is unlikely the Fed will be changing rates soon.

Naturally, since 2008 rates are lower, the average rates came down a bit as well, but not that much. Our rate information goes back to 1993.

One thing to note is our rate information is based on CDs that were actually invested into.

First, from CNN, an article about the dreaded Stagflation or maybe just stagnation. http://money.cnn.com/2008/08/19/markets/thebuzz/index.htm?postversion=2008081911

It appears that our economic gloom is finding its way around the world. Although, it will probably help keep inflation in check, it also means a global downturn.

Second, another blog gives some statistics as to how much further housing needs to fall. www.oftwominds.com/blogjuly08/70K-median7-08.html

Next, a fellow blogger is going out on his own. Give him some encouragement and bookmark him. He’ll soon be writing a whole lot more. Stop Worrying About Your Finances

Finally, I don’t know how many of you are Big Foot fans, but I enjoy the mystery and thought of undiscovered creatures such as him and Nessie. On Friday, there was a lot of hoopla about the discovery of a body. Sadly, it turned out to be a hoax, or did it. Maybe the reported den of them is much more intelligent than believed, and they took their buddy back. :O) www.foxnews.com/story/0,2933,406101,00.html

I hope you enjoy. We’re working a new blog design. Our newsletter subscribers will get the first preview.

Have a great day.
cd :O)

This follows another takeover a couple of weeks ago of First National Bank of Nevada and First Heritiage Bank. The insured deposits were transferred to Omaha National Bank.

This brings me to my latest article. I actually published it on Google’s new service, Knol. Here it is, Calculating FDIC and NCUA Insurance.

Let me?know what you think.

cd :O)

I was reading the newspaper Saturday Evening and was shocked to see IndyMac was taken over by the FDIC late Friday. Depending how you do the math, this was the 2nd or 3rd largest closure in history. IndyMac was over $32B in assets. IndyMac saw a $1.3Billion dollar run on the bank eleven days prior to Friday. The FDIC was concerned they wouldn’t be able to meet demands. Much of this run stemmed from Senator Charles Schumer. Him and the OTS have traded back and forth barbs.

Of course none of that helps the employees or the depositors of IndyMac. Anyone holding $100,000 or less will receive their deposits fairly quickly. On Monday you can call the FDIC Call center at 866-806-5919. There where also probably be more info posted at IndyMac’s website, but at the moment it just has general info.

Here is the link fo info from the FDIC. Call us on Monday if we can be of any service.

While the initial reaction to the Unemployment Report was one of relief, the fact remains that this was a very ugly report. There was nothing to feel good about. The survey that is used in calcutlating the Unemployment Rate was particularly gloomy. While the teen job sector did adjust from the last month’s faulty seasonal, all other elements deteriorated in the month of June. Here’s a spin one economists put on the number. He said (and I’ll leave him nameless) that at some point soon, many of those unemployed will simply give up looking for jobs. The BLS will then classify them as “discouraged workers”. This means they will no longer be considered unemployed, and that will soften the rise in the Unemployment Rate. In other words, you no longer exist in the eyes of the BLS. What a concept! Now if they can just eliminate the price of oil from memory banks, all will be well.

Does the book 1984 mean anything to you? The Gov’t is messing with inflation, messing with unemployment, etc. Why can’t they just be honest? And I’m not just pointing fingers and the current administration. It seems that politicians in general can’t seem to speak the truth. Just drives me crazy.

Also, I’m working on the newsletter. Trying to round up some positive news. Anybody have any? I hate being so negative. Keep Looking up…

Although they adjusted their stance slightly to indicate inflation was beginning to pose a higher risk, they really can’t do much since the economy is still limping along. It really seems like they are just paying lip service and hoping their words, alone, can make the markets move.

We don’t see the Fed Funds changing in the short-term. We have seen CD rates on the 2-year to 5-year terms come up quite a bit. We finally have a nice yield curve. The 1-year rates are about 1.70 to 2.00% above fed funds. Hang in there.

The biggest problem I think for the economy is oil. If only our politicians would stop paying us lip service and let us go drill for our own. If we did that, you know prices would fall. The mid-east would fear losing their monopoly. Let me know your thoughts.

cd :O)

Reuters published an article today on the “evils” of brokered deposits.  And now my gloves are off!

Let’s get something straight.  Deposits, brokered or otherwise are not the problem.  The banks making poor management decisions are the problem.  The problem is with the bank’s bad loans and poor investment decisions.   It is not the accepting of brokered deposits that causes banks to fail.

The perceived problem with brokered deposits is that they are more volatile than a bank’s “core” deposits.  This may have been true in the Stone Age when we didn’t have newspapers and the internet, but it simply IS NOT TRUE in 2008.  In a matter of hours, a bank through the internet can take in Millions of dollars.   Just look at the recent onslaught of funds that AARP helped Huntington National Bank raise or how about Countrywide Bank?  Those internet funds are as volatile (and “expensive” I might add) as any brokered deposit.

There is also another class of deposits that most people outside of the banking industry probably don’t even know about.  They arrive from a rate listing service.  Rate listing services actually have a specific exemption from being considered deposit brokers because they don’t “facilitate” the placement of the deposit.  They just provide rates and the investment manager makes the decision as to which institution to place the deposit.  (Don’t even get me started on this one).  Again, a bank can list CD rates on these services and within hours raise Millions of dollars.  Millions of dollars that are just as volatile as any brokered deposit.

The article written by John Poirier also uses scare tactics and a nice salting of misinformation to give the impression that brokered deposits are evil.  Almost every paragraph could be rebutted.  But then this post would be 10 pages long.

First, the article leads off with a statement about “cash hungry banks are in danger of failing” because of brokered deposits.  The fact is that the banks are cash hungry because they made risky loans that aren’t being paid back.  Secondly, they are cash hungry because they are losing “core” deposits to high yield savings accounts and checking accounts that are being offered on the internet.

Next the article states that brokered deposits have “fueled a spate of recent bank failures.”  First, there have only been four failures this year.  I wouldn’t classify that as a spate.  Second, of the four banks, only ANB had a large amount of brokered deposits.  Douglas NB had about 3.2% of their deposits listed as brokered and First Integrity had about 4%.  Banks that do take brokered deposits usually limit them to no more than 10%.

One of the funnier misstatements is the fact that the author writes, “Brokered deposits are short-term deposits that often attract banks in remote areas to increase lending activity.”  First, brokered deposits can be far from short-term.  They can be anywhere from 90-Days out to 20-years.  The term is really dependent on the market.  Secondly, the article implies that it was the lure of brokered deposits that caused them to increase risky lending activity.  However, usually the bank has already begun the lending activity and suddenly realizes they need more deposits to fund the loans.  The increased risk the bank was willing to take (at least during the Housing bubble) was fueled by greed and the low cost of funds, not brokered deposits.

One of the few partially true statements is “Brokered deposits also usually offer higher rates than other bank products such as certificates of deposits…”  The true part is often the rates are higher.  However, as I stated above, they may be no higher than many internet specials.  This author shows just how little time he took with his research.  99% of brokered deposits are certificates of deposits. 

Are brokered deposits really more expensive though?  If a bank that has $1 Billion deposits needs $5 Million dollars they can make a private offering to brokers without alerting their entire deposit base of these higher rates.  So would you rather pay a higher rate on $5MM or $1BB?  Moreover, brokered deposits tend to be in higher denominations which means much, much less paperwork and handling for the bank.  They also tend to be from other financial institutions.  This means the patriot act doesn’t apply and the bank doesn’t have to worry about OFAC violations.  In the long run, brokered deposits cost the bank less.  Finally, although a single deposit may be more volatile, the broker is usually able to replace any deposits that close and thus, brokered deposits become a stable funding source.  They are certainly  more stable than high-yielding savings accounts being offered across the internet that can be withdrawn at anytime.

The author goes on to infer that ANB was a small Arkansas bank.  He makes it seem like the evil brokers took advantage of a small little bank.  ANB Financial at the time of closing was over $2BB in assets.  Most banks do not have over a billion dollars in assets.  ANB was a large bank.   The management of this bank did not have the wool pooled over their eyes.  The brokers didn’t come to them  as wolves in sheep’s clothing. 

He states that the FDIC picked up the $214 million tab when ANB was taken over.  Pulaski took over a large part of the deposits.  As the closure process hasn’t been completed and ANB’s assets sold off, there is no way to know how much it will actually cost.  But if you want to talk about cost, how about the Bear Stearns bailout or the billions and billions of dollars the Fed has pumped into the system.  How much is that costing and how much of that are the banks using to continue their mismanagement practices.

Deposits from any source other than the local area should have more scrutiny, if any additional scrutiny is going to be placed.  If a bank’s insurance premiums are increased for accepting brokered-deposits, the practice of utilizing rate listing services and offering internet specials will increase, thus skirting the intent of the original regulations (which is to make banks keep a watchful eye on their non-core deposits).

If you’ve gotten through all of above, who is really going to pay for higher oversight and or the higher premiums that have been suggested?  You the saver.  You the saver are the one that will pay with lower rates.  You have already been hit hard with the Fed lowering rates over 3%.  The FDIC should scrutinize the entire banking operation, including all sources of deposits and lending practices.  The fact is in 2008, all deposits are volatile.

One funny side note.  I looked at the deposit breakdown on ANB.  And I discovered why they failed.  As of 3/31, the FDIC reported that they had about $1.8BB in deposits.  Of that, about $1.7BB was listed as core and about $1.5BB was listed as brokered.  A deposit can’t both be core and brokered.  I think ANB failed because they simply couldn’t add 1+1.  :O)

Last night I noticed an add for a site Seriouspaid dot com (I won’t give them a benefit of a link).  They were promising returns of around 4000% for 6-days.  My motto, if it is too good to be true, it probably is.  After some further research, I found some info on Yahoo answers, Yahoo Answers - Seriouspaid .  There was a second link I found last night, but I can’t find it now.  I couldn’t find anything postive about them.

As always, do your due diligence before doing any investments.  I hope this is helpful information.

cd :O)

Peer-to-Peer lending basically cuts out the bank and you lend directly to the borrower.  For obvious reasons, it is also known as Person-to-Person lending.  Prosper is one of the premier services in this area.  Your funds aren’t insured like an FDIC insured CD, and you can lose principal, but Prosper goes along way to make sure you know the background of the borrower. 

Check out the new section, let me know what you think.  Peer-to-Peer Lending.

cd :O)

I believe these rate drops are really prolonging the pain.  Mortgage rates have not dropped in kind with the Fed Rate.  And as the banks actually seem to be properly assessing risk, mortgage rates have not come down all that much.  So it doesn’t like the rate drops will slow the foreclosures.

The low rates are allowing the banks to fund at cheap levels, but that is a big part of what got us into this mess to begin with.  The bail-out message is also being given to the big players.  This could lead to another round of risky investments.  Quick profits and large bonuses were partially part of the problem.

The low rates may make the car makers happy.  They can offer 0% financing again and it won’t cost them much.  However, it will take more than car sales to turn this thing around.

Lower rates just aren’t going to do it.  We need to drive less, spend less, and save more.  If we quit buying things we don’t need, with money we don’t have prices will come down.  If we drive less, engery prices will come down.  If we save more, we will have funds to cover the expected, unexpecteds (like new tires, new wash machine, etc.) and we won’t have to put those on a credit card.

The power is in our hands, we just need to flex our muscle on a nationwide scale.  A nice rebate from the gov’t might give you a quick warm fuzzy, but the gov’ts bail-outs will make us all worse off in the long-run.

Will that is enough ranting from me.  cd :O)