Banks to Bail Themselves Out???

The FDIC is out of money. According to the FT, the FDIC needs billions from banks to bail out banks. So, banks are supposed to bail out the FDIC which then bails out the deposit holders at failed banks. In other words, good banks are being taxed to cover losses at bad banks. This is very bad for an orderly lending and credit market in the U.S.

The FDIC supposedly has a $500 bln credit line at the US Treasury, but that may run up against the debt limit. So the FDIC is considering "asking banks to pay three years' worth of its fees in advance." My question is, How many banks will fail because they cannot afford the extra fees? Hint: the FDIC's list of problem institutions is over 400.

But the likely effect will be hidden by accounting gimmicks. "The banks would not have to recognise the charges on their balance sheets until the quarter when the fees were due."

So how much of the fees collected in advance will the FDIC lose back to bailouts? Probably a significant chunk. But in the meantime, the denial continues.

Another important story comes from Japan: "Japan core consumer price index falls by record 2.4 percent in August." "Deflation is strengthening its grip." There may be a debate about inflation or deflation in the U.S., but there's no question about Japan. This story begs the question, How long can Japan afford to let the Yen rise? When will Japan try to beggar its neighbors by devaluing the Yen? The old government didn't do it. Maybe, just maybe, the new government will. The question is how?