Musings on Money and Banking More on Smokin' Them Thar Camels
by Ole Man Ozark with Gale Bullock, Realty Reality - Global Real Estate Markets Forum. October 16, 2004
Whitaker Point - overlooking the upper Buffalo River Valley
at Whitaker Creek Hollow, Arkansas. The formation is more commonly
known in Arkansas as "Hawk's Bill Crag."
Fly Fishing, That Woman and the Big Great White [Lie?]!
It is hard to believe that the older I get, the more I realize how much out of touch with the mainstream I have become. In the early '90s I would have bet my small net worth that Slick Willie would have never gotten the nomination, much less become a two-term Prez. But, he was around the Ozarks so much that we all got to know him way too much. Guess that's indicative of what I know 'bout fly fishin' while having thoughts of "that woman" on the Great White River, huh? Shucks, nothin's biting, anyway. Hmm… might as well wade over to the bank and have lunch, a beer, and write a few musings with my financial calculator. What a great day on the White! The trout still in the water, and no flies in the trees!
Nevertheless, I find myself out of the mainstream in my own banking profession of more than three decades. Used to be, the banking regulators would be knocking on your back door if your loan-to-deposit ratio got to be more than 80%. Hell, they worried that you wouldn't have the liquidity to meet possible demand for deposits [they call it a bank run back in the 1930s and in Weimar Germany, I reckon]. In fact the regulators ranked liquidity as an important part of the CAMEL rating given after each examination. 
All Loaned Up for the Delta Dawn Cotillion Ball, the Date's Late? Steel Magnolias to the Rescue?
It is simply amazing to me that the entire collection of 9,079 FDIC insured institutions have loaned out all of their deposits plus 5.99%. Yeah, Bubba, that is a 105.99% loan-to-deposit ratio! That's for everybody, Folks! Take a look for yourself: Nope, you don't need bifocals, Y'all! This is called the Loan to Deposit Ratio, which the FDIC politely does not calculate for folks, since they depend on the BLS to provide the vital signs to Jane and Joe Six-Pack and the rest of the banking industry.
New Math 101 Meets Jack Daniels with a Budweiser Chaser & a HP12c
Divide Total Loans $ of 5,783 [Trillion] by [Total] Domestic Deposits $ at $5,456 [Trillion] = 1.0599! Absolutely incredible! Rechecking the math with a slug of Jack Daniel's. I get the same answer on my HP12c Financial Calculator even in Reverse Polish! Absolutely incredible with the ice; the big ice in the financial markets! Thank you Hewlett Packard for teaching me Polish in Reverse! Gee, I wish the fish would start bitin'!
How in the hell can the regulators let this happen? How can Congress let this happen? Or, do they want this to happen? Talk 'bout being asleep at the switch! I can't be asleep, I'm trout fishing on the Great White, having lunch, a beer, and playing with my HP12c!
Liquidity is as Liquidity does
The answer, it seems, is quite simple. All the financial institutions have to do is file a liquidity plan!! An Examiner with the Office of the Comptroller [of the Currency] told me that the essential elements of banks' liquidity plans were the Federal Home Loan Bank Certificates and Brokered Deposits! Now let's do a little simple math! There are $5.7 trillion in loans and $5.4 trillion in deposits and the FHLB is ALREADY providing over $500 BILLION in liquidity gettin' "purty" [ehhh, pretty in Ozark Suthern Drawl] close to 10%, ain't it? And the liquidity plan? -- is to get the FHLB to sell securities in the event of a liquidity crisis? Who the hell are they goin' to sell 'em to in a Liquidity Crisis? JPChase up to their assets in Fannie Mae and Gold Derivatives? Bank of America? Countrywide? Washington Mutual? The Chinese? The Japanese? Hell, in a Liquidity Crisis, Asian money is going to phone home, Folks! When the Europeans get a busy signal, they'll start swimmin' naked in the Atlantic! Just disconnect the phone lines, please!
Let's see here now - Stream of Streams or Stream of Consciousness?
If we have a national emergency or panic - yeah, that would make me feel a lot better to buy me a gaggle of FHLB obligations! - but not on my General Beauregard, Nathan Bedford Forrest, or General Lee! Now you try to get the so-called regulators to talk about the liquidity crisis immediately after "9/11". There was NO press about it whatsoever. It "sort of " got the FHLB to "reel in" some of their participants with 212% loan-to-deposit ratios - like they were playing for the big ones in the Great White River of Arkansas. Humm, next thing we will all know is that these high fallutin' regulators will be makin' the Mississippi River flow upstream - the only thing is last time that happened there was a massive earthquake in the New Madrid Fault in the early 1800s. Who are they kiddin'? Mebbe regulators are buying up Arkansas and Mississippi Delta swampland [aka sloughs] for a new crop of Tulips they plan on exporting to The Netherlands? - and, neglected to tell me 'bout it! Interestin'!
I write the rules!
It is interesting that the Federal Reserve Bank, principle regulator of bank holding companies came out with a new rating in 1992 that is used in place of the CAMEL rating. This is the BOPEC rating. After all, banks are getting into other affiliate businesses, so it is interesting to see the elements of the old traditional rating that is currently missing and below the waterline with all the rest of the icebergs floating around. Throwing the baby out with the bathwater, all must be well on the Great White Way and inside the Beltway! We don't need no stinkin' liquidity! Huh?
Well, three decades ago here were over 20,000 banks and savings institutions. Today there are 9,079.  But we still have the same number or even more regulators: the FDIC, OCC, State Bank Departments in all 50 states, FFIEC, and Federal Reserve System just to mention a few. The fact is, our regulators have become our buddies and essentially cheerleaders, because they are dependent upon the remaining 9,079 institutions for their very existence. Who wants to bite the hand of ["piss off" down here in the Ozarks] their Boss or a Potential Employer as a pup or guru mortgage banker over some esoteric, silly liquidity issue? Hell, all they have to do is file a liquidity plan! Let's just hope they all work like all those Fannie Mae and other assorted GSE derivatives! That Messieurs Munger and Buffett up there in Omaha, Nebraska don't know much about sewage, the American accounting of derivatives, and insults! 
CAMEL Rating System An internationally recognized framework for assessing the Capital adequacy, Asset quality, Management, Earnings and Liquidity of banks. The primary purpose of CAMEL is to help identify institutions whose weaknesses require special supervisory attention. The overall rating is expressed on a scale of one to five in ascending order of supervisory concern: "1" indicates the highest rating and least degree of concern; "5" represents the lowest rating and highest degree of concern. No, there ain't no "6" because it's a CAMEL - only five letters in CAMEL, Bubba! If you are 6 on a CAMEL rating well, lets just say Joe smoked your Chitterling [aka chitlin'], Chillun'!
 BOPEC Rating for Bank Holding Companies: Bank affiliates, Other affiliates, Parent Company, Earnings, Capital Adequacy. This is a result of the de-regulation of interstate and intrastate banking.
 This is Larry Becraft, Jr.'s observation in his position paper, Memorandum of Law: The Money Issue found under Part IV, Fiat Law Equals Fiat Currency, 1968 to Present, cited below. Mr. Becraft calls this a "war of the "Fed" against its own kind, private commercial banks:"
The Viet Nam war, or, properly, U.N. peacekeeping action, was financed with Federal Reserve credit; that war began for our society the "endless war for endless peace" proposition of Orwell's 1984. Since then, endless new wars labeled social programs have increased in the federal government's unveiled attempt to reduce the entire U.S. economy to its control. Such a blatant grab for power by the federal government could not have occurred with a constitutional monetary system.
The silver dollar, the "dollar of our daddies," was killed prior to this period. It was replaced by "bastard" sons and daughters such as the Eisenhower dollar and "Susan B. Agony," which were utterly repugnant to the coins intended by the framers of our Constitution.
President Nixon closed the "gold window" in 1971 to prevent foreign redemption of our paper currency with gold. But this did not result in damage to those international holders of currency because the federal government provided compensation via a vast foreign aid program.
Since 1968, federal budget deficits have vastly increased; the difference between federal revenues and federal expenditures has been provided, in the majority, by new credit created by the "Fed." This apparently alarming development has spawned state efforts to amend the Constitution to provide for a balanced budget. The proponents of a balanced budget apparently lack understanding of the precise social role played by budget deficits; if these advocates are successful in their endeavor, the end of life as we know it here in the United States will surely come to an end.
The scientific art of creating booms or depressions for our economy has been fully developed by the "Fed." This organization can now totally control the U.S. economy, and this ability allows it to totally control any particular industry. The past few years have clearly shown the ability of the "Fed" to attack any industry, be it the automotive, oil, or transportation, and bring that industry into its control. The current industry under concerted attack by the creditor creators is agriculture.
Of particular significance presently is the war of the "Fed" against its own kind, private commercial banks. The Fed desires to bring all banks directly under its control and to create out of some 14,000 independent banks a few large industry giants. The fewer the number of banks, the greater the control by the "Fed." A deposit made into a bank in heartland America can quickly result in credit extended to Red China.
There are many other detrimental effects to be noted as a result of the banishment of specie as the only component of our monetary system and its replacement by fiat currency, but such would serve no purpose here. It only needs to be noted that specie coin is "free man's" money; it is unpolitical and a circulating currency of specie coin cannot result in any governmentally imposed favoritism or benefit to debtors at the expense of creditors. Fiat currency, however, is political money and can be used to favor one group against another or to destroy any group, including an independent sovereign state.
 Gale Bullock, MAI, SRPA, SRA calls this "secret war" against its own kind by the Federal Reserve, the prime directive or the prime directive of the Federal Reserve toward total banking consolidation in the United States of America. Mr. Becraft is fully aware of Mr. Bullock's additional terminology and definition of this "secret war" within his position paper, and has allowed Mr. Bullock the continued use of the term in conjunction with his position paper. Mr. Bullock has written extensively on the subject of the prime directive by the Federal Reserve System for a controlled consolidation of the banking and mortgage loan industry to Wall Street. One of the most obvious mechanisms to accomplish this is through a controlled micro and macro market burn of real estate markets, producing insolvent lenders which can be "bailed out" by larger Wall Street Monied Interests.
 Three decades is not a long time, yet the banking industry has consolidated to Wall Street by approximately 55% from the over 20,000 to the 9,079 currently existing. What will happen in the next 5, 10, 20 or 30 years? Another 45% contraction giving us only 4,993?
 Charlie Munger, Berkshire's 78-year-old vice chairman, added: "To say derivative accounting in America is in the sewer is an insult to sewage."
Ole Man Ozark | Author, Realty Reality | Arkansas
Ole Bear AKA Gale Bullock | Editor, Realty Reality