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While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.

Bear Stearns got bailed out ‘cause they were highly visible (read: failure would have exposed aforementioned funny money to the average Joe), Freddie Mac and Fannie Mae are Government Sponsored Entities who now have their sickly balance sheets backstopped by the U.S. Treasury (read you & me), but all the commercial banks have is the Federal Deposit Insurance Corporation.

Great! All accounts are insured to $100,000! We’re saved!

Way wrong. The FDIC is an insurance operation. They make an educated guess as to how many banks will fail and what the total exposure is, then they collect insurance premiums from them. They’ve got $51 billion … and Indymac alone sucked up 10% of that. If a big one lets go, like Washington Mutual or Wachovia, then the FDIC will look just like FEMA did facing down hurricane Katrina. Don’t go and look at the scoreboard on the Bank Implode-O-Meter unless you’ve got a very strong stomach. Oh, and do note that a good bit of those write downs are investment banks – the FDIC does not cover their activities.

OK, very scared now, so what do I do?

Run, don’t walk, to your bank and get the funds you have clear of this mess before it gets any worse. The safe deposit box … isn’t. There were rules during the Great Depression such that a treasury agent got to paw through any that were opened before the owner got to touch their stuff; gold, silver, and cash could easily be confiscated in an emergency.

So, what to do? Cash at home in the First Bank of Serta? A fire proof safe? Maybe cashier’s checks in your name and leave the receipts in the safe deposit box, thusly meeting the portability requirement with safety? Nope on that last one, cashier’s checks drawn on a dead bank are dead. Treasury Bills? Wow, look at the Fannie Mae and Freddie Mac bailout … they’ll not go *poof* instantly, but they’re going down in value bigtime. Swiss bank account? Hey, look at that first salvo in making sure dollars in the U.S. stay in the U.S.

OK, terrified, what do I do?

The GSEs, Freddie Mac and Fannie Mae are indeed “too big to fail” – they’d whack the whole U.S. economy if they went down hard. Ditto for Bear Stearns – had they not moved to conceal the troubles there the failure would have sucked all of the monoline bond insurers under. Monoline bond insurers? If you don’t know I’ve laid enough pain down in this diary – we’ll cover that mess another day. 8,500 commercial banks, putatively protected by the FDIC? Only a few are large enough to receive the “too big to fail” label. The government doesn’t dare touch the FDIC (yet) for fear of clearly communicating they expect the worst. A lot of folks got trimmed in the Indymac crash, with $BIGBUCKS reset to the $100,000 maximum and no recourse. Once this truly gets rolling there will be a reduction in the amounts covered and probably withdrawal limits even with solvent banks.

This can not be stopped. The losses have already occurred. It isn’t an “if”, it’s a “when” and I was expecting it around 4/1/2008, but they held it off for another quarter. It looks for all the world like July is the lucky month with the Indymac stuff coming down right next to Fannie and Freddie’s corpses hitting the mighty U.S. Treasury Reanimator. Someone, somewhere is going to pull a joker out of this house of cards – some innocuous bond sale somewhere will fail, a monoline insurer will get pushed over the edge, and then the rout will begin.

The storage of 28kg (61lb) of Semtex at the site near Lyon was “not usual and certainly not authorised”, Xavier de Fuerst also told the AFP news agency.

A search by anti-terrorist officers is under way, and the manager of the site has been suspended pending an inquiry.

Semtex has been favoured by terrorists for being very difficult to detect.

The depot, in a disused 19th Century fort at Corbas, is used by a civil defence unit charged with the job of blowing up bombs and ammunition left over from the two world wars.

Mr de Fuerst said the site had been bought by the interior ministry in 2005, and that existing security measures had fallen into disrepair.

He said that the storage of the explosives had not been authorised until work to replace security cameras and reinforce the entrances – scheduled for 2009 – was complete.

He said that neither the police nor local authorities were aware that the Semtex was being stored there.

The mayor of Corbas, Thierry Butin, told local media: “I am extremely surprised and angry that from one day to the next you can store products as dangerous as this, without any protection.”

‘Security failings’

Police said detonators were also missing and that they were treating the theft “very seriously”.

Police said the discovery that the Semtex was missing was made on Friday but admitted the explosives could have been taken up to a week ago.

In a statement released late on Friday the interior ministry said “security failings” had made the theft possible.

Semtex, which was first made in the Czech Republic, is used in mining and demolition work.

China is hungry – for land, food and energy. While accounting for a fifth of the world’s population, its oil consumption has risen 35-fold in the past decade and Africa is now providing a third of it; imports of steel, copper and aluminium have also shot up, with Beijing devouring 80 per cent of world supplies.
Enlarge President Robert Mugabe leaving the eleventh ordinary session of the assembly of the African Union heads of State and government in Sharm el-Sheikh, Egypt

Fuelling its own boom at home, China is also desperate for new markets to sell goods. And Africa, with non-existent health and safety rules to protect against shoddy and dangerous goods, is the perfect destination.

The result of China’s demand for raw materials and its sales of products to Africa is that turnover in trade between Africa and China has risen from £5million annually a decade ago to £6billion today.

However, there is a lethal price to pay. There is a sinister aspect to this invasion. Chinese-made war planes roar through the African sky, bombing opponents. Chinese-made assault rifles and grenades are being used to fuel countless murderous civil wars, often over the materials the Chinese are desperate to buy.

Take, for example, Zimbabwe. Recently, a giant container ship from China was due to deliver its cargo of three million rounds of AK-47 ammunition, 3,000 rocket-propelled grenades and 1,500 mortars to President Robert Mugabe’s regime.

After an international outcry, the vessel, the An Yue Jiang, was forced to return to China, despite Beijing’s insistence that the arms consignment was a ‘normal commercial deal’.

Indeed, the 77-ton arms shipment would have been small beer – a fraction of China’s help to Mugabe. He already has high-tech, Chinese-built helicopter gunships and fighter jets to use against his people.

Ever since the U.S. and Britain imposed sanctions in 2003, Mugabe has courted the Chinese, offering mining concessions for arms and currency.

While flying regularly to Beijing as a high-ranking guest, the 84-year-old dictator rants at ‘small dots’ such as Britain and America.

He can afford to. Mugabe is orchestrating his campaign of terror from a 25-bedroom, pagoda-style mansion built by the Chinese. Much of his estimated £1billion fortune is believed to have been siphoned off from Chinese ‘loans’.

The imposing grey building of ZANU-PF, his ruling party, was paid for and built by the Chinese. Mugabe received £200 million last year alone from China, enabling him to buy loyalty from the army.

In another disturbing illustration of the warm relations between China and the ageing dictator, a platoon of the China People’s Liberation Army has been out on the streets of Mutare, a city near the border with Mozambique, which voted against the president in the recent, disputed election.

The documents show the activities occurred from at least March 2005 to May 2006 and that officers used false names, which the documents referred to as “covert identities” – to open e-mail accounts to receive messages from the groups.

Also included in the 46 pages of documents, obtained by the Maryland chapter of the American Civil Liberties Union through a Freedom of Information Act lawsuit, is an account of an activist’s name being entered into a federally funded database designed to share information among state, local and federal law-enforcement agencies on terrorist and drug trafficking suspects.

ACLU attorney David Rocah said state police violated federal laws prohibiting departments that receive federal funds from maintaining databases with information about political activities and affiliations.

The activist was identified as Max Obuszewski. His “primary crime” was entered into the database as “terrorism – anti govern(ment).” His “secondary crime” was listed as “terrorism – anti-war protestors.” The database is known as the Washington-Baltimore High Intensity Drug Trafficking Area, or HIDTA.

“This is not supposed to happen in America,” said Mr. Rocah. “In a free society, which relies on the engagement of citizens in debate and protest and political activity to maintain that freedom … you should be able to attend a meeting about an issue you care about without having to worry that government spies are entering your name into a database used to track alleged terrorists and drug traffickers.”

Mr. Rocah called the surveillance “Kafka-esque insanity.”

…

Documents released by the prosecution revealed that the protesters had been under surveillance by an entity called the Baltimore Intelligence Unit.

The Maryland ACLU sued last month, claiming the state police refused to release public documents about the surveillance of peace activists.

The documents, which include intelligence reports and printouts from the database, show that several undercover officers from the state police’s Homeland Security and Intelligence Division attended meetings of three groups: Mr. Obuszewski’s group; the Coalition to End the Death Penalty; and the Committee to Save Vernon Evans, a convicted murderer who was slated for execution.

The documents show at least 288 hours of surveillance over the 14-month period. The undercover officers attended at least 20 organizing meetings at community halls and churches and a dozen rallies against the death penalty, including several at the state’s SuperMax jail in Baltimore.

WSJ: Jitters Ease as Citi, Rivals Show Signs of Bottoming Out

NYT: Hope, and Hints, That Financial Stocks Have Finally Touched Bottom

Barron’s: Buy Banks -Selectively (cover story)

Can you recall the last time 3 major media players all picked the bottom in a market or sector on the exact same day — and were all proven correct?

…

A long time ago, Banks were 3-6-3 spread players. Pay your depositors 3%, make loans at 6%, be on the golf course at 3pm. But the end of Glass Steagell, and the mergers with investment banks, have put an end to that simple but profitible business. For the past 10 years or so, we seen a model that involved taking on a lot of risk, then leveraging it up 25X, 35X, even 65X (for Fannie).

Now that model has come unglued. Banks of all types are unwinding risk, de-leveraging (selling off assets held on borrowed money) and raising capital. This means that until a new model is developed, profits will be anemic and the shareholder capital structure is about to get wildly diluted.

Bad_but_better Freddie Mac (FRE), with its $6B cap, is seeking to raise $10B. That will be enormously dilutive to both future earnings, and shareholder equity. Remember that Lehman Brothers (LEH) capital raise? $6 Billion secondary priced at $28 with 8.75% coupon and an %18 conversion premium? The stock is now $19m, the cap is $13.3B. After the last debacle, good luck with future capital raises — they are likely to be treated much more skeptically.

Is “the” bottom in?

Well, it certainly looks like “a” bottom is in.

But longer term, this is a sector that is likely to have continued write downs, weak earnings prospects, and a whole lot more regulation and government supervision than it got away with in the past. P/E compression may also be in the cards — especially if we see some dividend cuts from some of the bigger houses.

However, that fund is “a myth,” according to longtime banking consultant Bert Ely, and consumers may end up paying the price of what is expected to be a growing wave of bank failures.

NYU Economics Professor Nouriel Roubini predicts that Congress will have to intervene in order to bail out the deposit fund.

“They’re going to run out of money, with certainty,” he predicted. “Congress is going to have to recapitalize the FDIC, those $50 billion plus is not going to be enough, by no means.”

Indeed, on Friday afternoon FDIC Chairman Sheila Bair said in an interview on C-SPAN television that banks holding brokered deposits may be charged higher premiums in order to bring back the reserve to an acceptable size.

“I think that is something we need to factor into our premiums and charge higher premiums to banks that fit that profile,” she said in the interview, noting that the IndyMac failure was a big factor in the need for additional funds in the deposit insurance fund.

This means higher premiums for FDIC insured banks, analyst Ely noted, further complicating an already tenuous situation for the U.S. banking system. Banks will most likely pass the increased costs onto their customers, he said.

“Banks are going to pass it through to their customers through higher interest rates on loans, lower interest on deposit,” Ely predicted.

The FDIC has around $53 billion set aside to back up bank deposits up to $100,000 per depositor, one of the ways the organization is designed to ensure confidence in the banking industry. However, according to Ely, that $53 billion is “not really available.”

“The deposit insurance fund is as real as the social security trust fund,” Ely said, noting that only a “small fraction” of the $53 billion is actually available and “any losses beyond that will be assessed on the banks.”

New attention is being focused on the bruised mortgage companies as the Bush administration presses its rescue plan to Congress. Some lawmakers have challenged the plan’s open-ended nature and expressed fears of a potential big taxpayer bailout in an election year.

Over the past decade, both Fannie and Freddie made the list of Washington’s top 20 lobbying spenders. They spent a combined $170 million to cultivate allies during that period, a bit less than the American Medical Association and a bit more than General Electric. At the same time, their executives have consistently led the mortgage-banking sector in campaign giving to members of Congress, contributing a combined $16.2 million since 1997.

People who have lobbied on their behalf have played or are playing roles in the presidential campaigns of both Republican John McCain and Democrat Barack Obama.