Lincoln * Institute

Col. Frank Ryan<br />USMC (Ret.)

Col. Frank Ryan
USMC (Ret.)

President
F.X. Ryan & Associates

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Rebuilding America

Reform Government as Well as Banking

by Frank Ryan
 

Reform government as well as banking!

President Obama on January 21 chastised the banking industry for taking such tremendous risks with taxpayer funds!

How the President's advisors can in good conscience continuously mislead President Obama and the American people is beyond me.

First, taxpayers do not fund the FDIC insurance, the banking industry does. In fact, the industry was required in December 2009 to deposit three years worth of prepayments of insurance premiums in the amount of $45 Billion to the FDIC to cover losses.

The FDIC website states: "The FDIC receives no Congressional appropriations — it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities."

Second, Federal legislation limited the amount of funds that the FDIC could accumulate during good economic times such that when the contraction hit the fund was not able to withstand the onslaught of claims through the Reform Act.

The Reform Act "establishes a range of 1.15 percent to 1.50 percent within which the FDIC Board of Directors may set the Designated Reserve Ratio (DRR). If the reserve ratio exceeds 1.5 percent, the FDIC must generally dividend to DIF members all amounts above the amount necessary to maintain the DIF at 1.5 percent."

Deceiving the American people will not solve problems but will undermines the credibility of our elected leaders.

Third, the FDIC directed a special assessment in 2009 against all banks to further shore up the deposits. This reduced banks' earnings further during tough economic times and reduced significantly the value of any TARP funds provided. One hand provides, the other takes away.

Fourth, the President lauded Chairman Frank yet failed to consider the government's own duplicity in creating the economic mess to begin with.

Fannie Mae and Freddie Mac are government sponsored entities. The era of "no doc" loans created an atmosphere in which all Americans were afforded the "right" of home ownership yet those same agencies failed to discuss the "responsibility" of home ownership. Blaming banks for failed government policies serve no one.

When everyone in the industry called "no doc" loans, liar loans perhaps someone should have listened to how that sounded to most Americans. To call a loan a liar loan and then act surprised when the loan defaults is absolutely disingenuous.

Finally, to keep the "crisis" under control with below normal interest rates, the Federal Reserve is merely setting the stage for the next crisis.

What the President did during the press conference on banking reform today, is merely a blame game which will mask more serious issues in the months and years ahead. These issues will hit our nation with a vengeance in the next 18 to 24 months with potentially catastrophic results.

A perfect storm is brewing. Washington is deceiving itself and thereby setting the stage for more profound problems.

The prepayment of the FDIC insurance premiums of $45 Billion in reality contracts banks lending ability by $450 Billion since most banks are leveraged approximately ten to one. Contracting lending ability in a recession is not a good idea.

The states are increasing taxes on property throughout the nation to balance budgets. This annual assessment to allow someone the privilege of keeping their property merely makes property ownership in a recession that much more difficult. Mortgage foreclosures will increase.

Artificially low interest rates merely sets the stage for unrealistic increases in demand for homes which sets the stage for a decline in home prices once rates go back up. While the Federal Reserve could dictate interest rates in the past, our huge funding needs of over $12 Trillion may limit that ability going forward due to increasing world pressure to restore fiscal discipline to our nation.

The extension of the home buyer's credit merely shores up an already fragile economy at great expense to taxpayers.

If the President is sincere about reforming our economy, perhaps he should start by reforming our government. Limit government spending and stop government intrusion in our lives.

This current crisis though is really about our government's leadership. Economic growth is fueled by a government providing the framework for business in the Uniform Commercial Code and not by interfering with business and consumers. Rules and regulations do not create jobs.

Col. Frank Ryan, USMCR (ret) CPA specializes in corporate restructuring and lectures nationally on ethics. He is on numerous boards of publicly traded and non-profit organizations. He can be reached at FRYAN1951@aol.com