Stress Tests And Beyond

By Peter Costa

The economy is increasingly growing worse and continual bailout situations keep coming to surface. One of the biggest strains on the US economy right now is the banks and how financially solid they actually are. In lieu of this situation stress tests were conducted recently on all the banks in the nation. Since the results have been revealed scores of banks have been declaring bankruptcy all across the nation.

There are currently 64 banks and counting who have filed for bankruptcy in the last few months which has cost FDIC over $39 billion. With this recent news FDIC insurance fund is becoming broke and is projected to be completely out of funds by the end of August, 2009. This is just the tip of the iceberg and we are about to see things become a lot worse.

Two of the nation’s largest banks Citigroup and Bank of America are in a lot of financial trouble. According to Citigroup they reported a second quarterly profit of $4.3 billion which seems to be a glimmer of hope for recovery. There couldn’t be anything further from the truth. Included in their quarterly report was the one time sale of Smith Barney for $6.7 billion. If you were to exclude this one time event Citigroup is really at a loss of $3.4 billion. In fact once the stress tests results came back Citigroup was in need of an immediate $3 billion to stay afloat. Thank goodness they were able to procure this loan but it came at a price of 13% annually! If that wasn’t bad enough they now need to come up with an additional $1 billion by August.15, 2009 or they will face possible bankruptcy. The situation is such a strain on FDIC that Goldman Sachs and JP Morgan have been appointed by the government to come up with a rescue package. Bank of America is in a similar situation showing a profit of $2.42 billion but included in the gain is the one time sale of China Construction shares for $5.3 billion. If this one time sale didn’t take place they would be in a similar situation as Citigroup.

Neil Barofsky, the inspector general for the Troubled Asset Relief Program, has said the bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as 23.7 trillion. This number is more then the cost of all the wars the US has ever fought combined and is the most that has ever been spent on a single effort in American history which amounts to $80,000 for every US citizen. If this catastrophe continues there is a growing risk of a bank holiday similar to what was imposed by FDR in 1933 where banks closed and account holders were not able to access their funds until the holiday concluded.

Only time will tell where this economy is heading next but for the savvy individual the time to protect your wealth is now. Precious metals have been a proven hedge against economic turmoil but more importantly inflation. If you do not own gold or silver you should start looking into it. For some of the most affordable prices on precious metals visit RegalAssets.com and start preserving your wealth.

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