What a ridiculous concept that the FDIC would depend on the $1.3 trillion in bank capital for support. Was the corporation not set up to 'insure' banks so that deposits would be covered in the event of a failure? This is like saying that if one has auto insurance with an insolvent firm, they need not worry because if they have cash in the bank they can lend the insurance company money to cover any liability. It is backasswards and typical government spin on a serious flaw.

We now face the real prospect that banks are not foreclosing on non-performing mortgages because they cannot afford to realize the losses of the transaction, and the impaired banks may themselves be stalled from being shutdown by regulators because the FDIC cannot afford to cover the losses for insured deposits. The entire system is horribly compromised, yet the bank stocks seem to trade higher no matter how terrible the news is.

I lost a ton of money shorting the banks this summer before I finally covered. I have no doubt that the cracks in the system will eventually lead to a serious meltdown, but small specs cannot sustain the money that is pumped in through various conduits to keep the sector from collapsing. The market can remain irrational for longer than I can stay solvent to short it, and its no use to fight the fed. At least by owning gold I get the same leverage and have no fear of margin calls.

cheers!

mike