On Friday, we had the latest edition of the FDIC “Friday Night Financial Follies” as regulators on Friday shut down Bank of Lincolnwood, a small bank in Illinois, marking the 37th failure this year of a federally insured bank. More are expected to succumb amid the pressures of the weak economy and mounting loan defaults.

          The Federal Deposit Insurance Corp. was appointed receiver of the failed bank, based in Lincolnwood, Ill., which had about $214 million in assets and $202 million in deposits as of May 26.

          All of Bank of Lincolnwood's deposits will be assumed by Republic Bank of Chicago, based in Oak Brook, Ill., which also agreed to buy about $162 million of the bank's assets; the FDIC will retain the rest for eventual sale. Bank of Lincolnwood's two offices will reopen on Saturday as branches of Republic Bank of Chicago.

          The FDIC estimates that the cost to the deposit insurance fund from the failure of Bank of Lincolnwood will be $83 million.

          In a step that would substantially increase the price tag for Bernard L. Madoff's long-running Ponzi scheme, lawyers for a group of his victims are asking a federal bankruptcy judge to reject the way their losses in the fraud are being calculated.

          The customers insist that, by law, they should be given credit for the full value of the securities shown on the last account statements they received before Madoff's arrest in mid-December, even though the statements were bogus and none of the trades were ever made. According to court filings, those account balances add up to more than $64 billion.

          After months of private negotiations and Internet arguments, lawyers for these customers formally put the issue before the federal bankruptcy court in New York in a lawsuit filed late Friday evening, less than a month before the deadline for filing claims for compensation.

          The approach they seek would produce a significantly higher tally of cash losses than the formula being used by the court-appointed trustee overseeing the claims process for the Securities Investor Protection Corp., a government-chartered agency financed by the brokerage industry.

          The trustee, Irving H. Picard, is calculating investor losses as the difference between the total amount a customer paid into the scheme and the total amount withdrawn before it collapsed.

          Customers who qualify are eligible for up to $500,000 in immediate compensation from SIPC. Those whose eligible losses exceed that amount would divide up the assets recovered by the trustee.

          Credit card holders who might have used tax refunds to pay down balances apparently spent the money elsewhere as the recession deepened in the first quarter.

          That's one conclusion that may be drawn from data showing the delinquency rate for bank-issued credit cards rose 11 percent in the first three months of the year, according to credit reporting agency TransUnion.

          The delinquency rate - card holders who are three months past due - jumped to 1.32 percent this year, from 1.19 percent in the first three months of 2008, TransUnion said.

          The average total debt on bank cards also rose, jumping to $5,776 from $5,548 last year.

          Balances typically rise in the first quarter, as holiday spending comes due, said TransUnion's Ezra Becker.

          The credit card delinquency rate remains well below the 5.22 percent for mortgages in the first quarter, meaning card holders are trying hard to keep their payments current.

          It's too early to tell how changes in credit card regulations will affect payment rates, Becker said.

          The biggest price swings in Treasury bonds this year are undermining Federal Reserve Chairman Ben S. Bernanke’s efforts to cap consumer borrowing rates and pull the economy out of the worst recession in five decades.

          The yield on the benchmark 10-year Treasury note rose to 3.90 percent last week as volatility in government bonds hit a six-month high, according to Merrill Lynch & Co.’s MOVE Index of options prices. Thirty-year fixed-rate mortgages jumped to 5.45 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida. Costs for homebuyers are now higher than in December.

          Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing, traders say. The daily range of the 10-year Treasury yield has averaged 12 basis points since March 18, when the plan was announced, up from 8.6 basis points since 2002, according to data compiled by Bloomberg.

The trend of employment in the U.S. strengthened in May for the first time in 16 months, a report said Monday.

The Conference Board said its May employment trends index rose 0.2% to 89.9 from April's revised level of 89.7 that was originally reported as 89.5. The May index was down 20% from a year ago.

          In May, the percentage of firms not able to fill positions right now, the percentage of consumers who think jobs are "hard to get", real business sales and job openings showed improvement.

The privately owned Federal Reserve has subjected us to a 22-month period of massive excess liquidity. The present increase in liquidity, formerly known as M3, which is no longer published because it’s not cost efficient, or there isn’t sufficient interest in the figures, says the Fed, is growing at about 18%. The major purpose for the US Treasury and the Fed to commit to an increase in spending of $14.8 trillion is to bail out banking, Wall Street and the insurance industry, all of which turned prudent investment into a casino.

The method chosen to deal with a financial crisis caused by unsustainable debt created by excess liquidity is to create more money and credit and channel it to the financial sector to reflate their balance sheets, which are debt infested with toxic CDO and ABS debt. The rich on Wall Street, banking and insurance are deleveraging with the taxpayer taking all the risk, as the public gets very little in return. We are surrounded by financial zombies, which we keep alive after they almost destroyed our financial system.

Major inflation is the result as wages barely rise and the loss of purchasing power is borne mostly by the poor and the lower middle class. Ever since free trade, globalization, offshoring and outsourcing began about 1980 wages have not kept up with inflation. Production gravitated to the low wage third world exacerbated by massive condoned illegal immigration. This was accompanied by cronic overcapacity that made conspicuous consumption relatively inexpensive. That was joined by much easier credit. Twenty-three months ago we saw an implosion as a result of these policies, which is still with us. Without this continuation of debt the system cannot continue to function and the downward spiral feeds on itself. Everyone is looking for a bottom soon. That isn’t going to happen, stimulus or no stimulus. Handing money to citizens isn’t the answer. In this case 90% has gone to reduce debt.

The first step to recovery is to drastically cut government spending and to lower corporate and individual taxes. Get rid of the Federal Reserve, which is directly responsible for this mess and erect tariffs on goods and services. If we can accomplish that the recovery will begin, but it won’t be easy. It will take years to accomplish.

As a result of flawed fiscal and economic policies nations are facing record deficits. Some like England have been put on negative credit watch, which could lead to a downward re-rating. The US, Japan and others are following close behind. In fact down grades could come before the end of the year. Interest rates are already moving higher and have been since the beginning of the year. Downgrades would bring even higher rates.

The Chairman of the Fed, Ben Bernanke, would have us believe along with other, so-called experts, that monetary easing will come in time to head off hyperinflation. Unfortunately that cannot happen. The minute money and credit is withdrawn from the system it will collapse. The underlying deflationary drag is too great and that drag will take years to diminish. How can our Fed Chairman and our Treasury Secretary think for a moment that they’ll just be able to turn the tap off when their current orgy of spending ends? Politicians unfortunately see this, as only they would, as an opportunity to purchase votes by making sure the spending continues. It will be interesting to watch over the next several years, as many nations scramble in the bond markets to raise money to keep their economies going. There is no telling at this point how high interest rates are going to go.

Our President tells us of trillion dollar plus deficits are far as the eye can see. Those deficits assume 3% growth rates in GDP, which is not going to happen and the end of the Bush tax cuts. Deficits will be much larger than the Congressional Budget Office estimates, if due to nothing more than exploding entitlement expenditures. This plan involves the perpetual rolling of $5 trillion in Treasury paper much of which is held by foreigners plus the new debt incurred, plus the interest on the existing debt. Do you really believe foreigners are going to fund such deficits indefinitely? We don’t think so with a falling dollar. The dollar is falling again and interest rates are rising and they both are going to continue to do so, as gold and silver go higher.  The minute the Fed began creating money out of thin air to fund Treasury sales, plus buy Treasuries out of the market, plus buy Agency securities and toxic junk to the tune of $2.2 trillion for openers, you had to know the game was over. It’s all-downhill from here. This week 30-year fixed rate mortgages could hit 5-3/4%.

...

               THE INTERNATIONAL FORECASTER

WEDNESDAY, JUNE 10, 2009

      061009(3)_IF

P. O. Box 510518, Punta Gorda, FL 33951-0518

An international financial, economic, political and social commentary.

Published and Edited by: Bob Chapman

NOTE: NEW E-MAIL ADDRESSES

For correspondence to Bob: bob@intforecaster.com

For subscription and renewal: info@intforecaster.com

CHECK OUT OUR WEBSITE

www.theinternationalforecaster.com

1-YEAR $159.95 U.S. Funds

US AND CANADIAN SUBSCRIBERS: Make check payable to Robert Chapman (NOT International Forecaster), and mail to P.O. Box 510518, Punta Gorda, FL 33951-0518. Please include name, address, telephone number and e-mail address.

Or:

We accept Visa and MasterCard charges.  Provide us with your card number and expiration date.  We will charge your card US$159.95 for a one-year subscription.

You can email us in two separate emails (1- the Credit Card Number with full name, address and your telephone number and (2- the Expiration date on the card.

NON US OR CANADIANS SUBSCRIBERS:

Due to the time that it takes for your mail to arrive to us from a foreign country, we would like for you to email us as above the CC information in two separate emails.

Note:  We publish twice a month by surface mail or twice a week by E-mail. bob@intforecaster.com

 or info@intforecaster.com

RADIO APPEARANCES:

To check out all of our radio appearances click on this link below:

http://www.theinternationalforecaster.com/radio

-- Posted Wednesday, 10 June 2009 | Digg This Article