To Add More Sobering News...

...to an already sober nation, the Wall Street Journal is reporting that the FDIC is bracing for bank failures.

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

(h/t to Bonddad and Calculated Risk)

Now, bank failures currently are at historically stable levels and the FDIC is currently able to handle the few (it's about 5 or so) failures a year.

However, it's very ominous when they're trying to hire back retired employees who specialize in banking failures, as well as new employees to take care of this.

Additionally, the article states that the FDIC has approximately $52 billion dollars set aside for bank failure coverage; that sounds like a lot, but if a big bank like Citi has to get a total bailout from the FDIC, that $52 billion would be gone, just like that (some scuttlebutt is that Citi is in trouble, and if things get worse, could need all that cash just for itself). And, if a big bank like Citi lets go, other large banking institutions might follow, only the FDIC wouldn't have any cash on hand to safeguard depositors funds at those institutions.

So, what to do?

First, don't panic. I'm sure that the banking institutions are doing enough of that themselves; your panic isn't going to help when it is added to theirs.

Second, check on the health of your bank. If it is FDIC insured, you can pull a CALL report on it, but be aware, you really need to be a finance type to make heads or tails of the verbiage.

Or, you can try bankrate.com, which gives a 1 - 5 rating system (5 is best, 1 is worst), which shows my bank, the lovely B of A, sitting right in the middle at 3. Bankrate.com also ranks Credit Unions too, as does ncua.gov (look in the Credit Union data area).

And, as many folks are finding out, mutual funds can be risky too. You can do some data analysis here: http://us1.institutionalriskanalytics.com/SEC/SEC_Survey.asp?x=NQ

Think seriously about your current and near-future spending (say, through 2008). Now might not be the time to plunk down a big chunk of cash on a non-necessity item, especially with inflation soaring. Instead, you might want to think about taking some of the cash out for liquidity's sake and either bury it in your backyard, stuff it under the mattress, or put it in a safe. If it makes you feel better, gold, silver, platinum and other precious metals usually hold value better than greenbacks do, and will probably continue to do so, especially if oil keeps rising (it will) and the dollar keeps sliding down in value (it will, even if we have a "strong dollar" policy). And, obviously, if you go this route, don't forget where you hid the stuff and make sure you can keep & defend it.

Remember, the article says that the FDIC expects "well over 100 bank failures in the next 12 to 24 months." Usually these are smaller, regional banks, but there is no reason it can't be one of the majors. Given the further collapse of the housing market (from today's news) and the fact that it will continue falling for the next 24 months or so, it's possible that one of the majors may take a hit, although Helicopter Ben will be doing his best to prevent that from happening to the big institutions.

And finally, think seriously about growing some of your own food. Not only is it an interesting and fun project, but you may appreciate it later in the year if prices go higher.