Warning: 5,291 banks and thrifts are weak! What to do …

There are still 2,707 banks and 2,584 credit unions in America vulnerable to future financial woes and even potential failure. That’s a total of 5,291 weak institutions!

In this article, I name the largest ones. Plus, I give you a free tool to find out whether your particular institution is safe, based on our Weiss Ratings.

But first, let me answer urgent questions that you must not ignore …

Question #1. Why are so many institutions still vulnerable?

One big reason is because they haven’t had the courage or the time to fix their finances. Too many seem to think Uncle Sam will always come to their rescue anyhow. “So why bother?”

To their credit, some bankers are trying to climb out of the graveyard ditch they dug for themselves during the real estate bubble, and many have actually made some headway. But the hole is so deep, thousands have yet to poke their heads above the surface.

The main reason: Despite the so-called recovery in the U.S. economy, real estate is still mired in a long-term depression. That’s where the bankers’ woes began — and that’s where many are still stuck today.

Question #2. If big banks go under again, why can’t the U.S. government just bail them all out like they did the last time?

Because now the big institution that needs the biggest bailout of all is none other than the U.S. government itself!

Here are the facts:

• In 2007, just prior to the worst year of the last debt crisis, the U.S. federal deficit was $342 billion. Now, in fiscal 2011, it’s $1.65 trillion, nearly FIVE times bigger!
• Just since the onset of the last debt crisis, the U.S. government’s debt load has grown by over $5 trillion. As a result, in just the last four years alone, Washington has piled on more new debt than in the first 223 years of our nation’s history.
• The Social Security Trust Fund is now running in the red; in 2007, it was in the black. Medicare and Medicaid costs have also exploded!
• America’s reliance on foreign creditors has grown by leaps and bounds, while their faith in the U.S. has plunged to new lows.

These are bad facts — so bad, in fact, that global institutions are now pushing to abandon the dollar as the world’s primary reserve currency.

Question #3. Why can’t Fed Chief Bernanke just continue printing paper money and give it to any bank in need?

He can. But that doesn’t solve the banks’ problems. If anything, it can make them a lot worse.

Reason: Fed money printing is driving up inflation and interest rates. And for banks, whose assets include trillions of dollars in FIXED-rate mortgages and loans, rampant inflation and rapidly rising interest rates are pure poison.

When inflation and interest rates shoot up, banks get stuck earning dirt-poor yields. Worse, to borrow new funds, they have to pay through the nose. The value of their assets is trashed; their earnings crumble.

Question #4. I believe you. But my family and friends don’t. How can I persuade them not to be so complacent?

Let them read this op-ed editorial, which recently appeared in Politico.

It was written by former chairmen of the White House Council of Economic Advisors (CEA). Here are their own words:

“The aging of the baby-boom generation and rapidly rising health care costs are likely to create a large and growing gap between spending and revenues. These deficits will take a toll on private investment and economic growth. At some point, bond markets are likely to turn on the United States — leading to a crisis that could dwarf 2008.” (Italics are mine.)

Question #5. Suppose the optimists in Washington are right and we get a continuing recovery in the economy.

Fat chance! Not with inflation and interest rates surging!

In any case, the former White House Council chairmen — the ones predicting a crisis worse than 2008 — are already assuming that the government is right: They’ve already factored in a recovering economy. And they still see Armageddon ahead, due to aging baby-boomers and surging liabilities for Social Security and Medicare.

Question #6. The White House is always biased. And all those experts worked for the White House. So how can we believe them?

Hah! A total of 10 former CEA chairs signed onto the “crisis that could dwarf 2008” conclusion. And if it’s political bias you’re worried about, consider the diverse list of presidents they worked for: Jimmy Carter, Ronald Reagan, George Bush (father), George Bush (son) and Barack Obama.

Sure, the 10 economists have their biases — but in several different directions. The key is that they all agree about the looming fiscal disaster!

So does Obama’s own bipartisan commission — The National Commission on Fiscal Responsibility and Reform — which delivered its own stinging warnings to the president last December.

The name of their report: “The Moment of Truth” — their words for day of reckoning.

If your friends and family are still skeptical, tell them to read this bombshell!

Question #7. What if Congress and Obama finally agree to fix the budget? Won’t that prevent a disaster?

For future generations, I sure hope so. For us today, no! Here’s the Catch-22:

• If they do enough to really make a dent in the deficit — whether with spending cuts or tax hikes — it will plunge the economy into a double-dip recession and take us right back to where we were in 2008. Bad news for banks! But …
• If they don’t do enough and the deficits continue to balloon, then the U.S. Treasury will have to borrow massive amounts to finance it. The Treasury will borrow from unwilling creditors overseas. Or it will have to grab the funds from the Fed’s money printing presses. And either way, interest rates will spike higher, which, as I explained earlier, is also bad news for banks!

No matter how you slice it, financial institutions will get hurt.

This is why the former CEA chairmen say there is no painless way out of this debt trap — only a very painful one! And this is why the president’s commission says the same thing.

Question #8. The experts all seem to be referring to “future years.” So why worry about this now?

There are three factors that can impact the timing:

The first is the speed at which the government’s mountain of debt is growing. That’s more or less predictable; and within a few years (some say sooner), it will be over 100 percent of GDP, considered a likely tipping point.

The second is the mounting cost of servicing the debt. The forecast is that, even if interest rates rise gradually, the cost is going to start compounding.

What if rates surge? Then kiss the forecasts goodbye! The debt will snowball as the government desperately borrows extra to pay the interest … and then pays higher interest because of the extra borrowing.

But it’s the third factor that’s totally unpredictable — the chain reaction that unfolds when America’s overseas creditors dump U.S. dollars and shun U.S. bonds. This is the PANIC factor.

When the panic strikes, forget about “future years.” The disaster will explode into our domestic market almost overnight, just as it did in Greece and Ireland last year; Portugal, this year.

Question #9. I know. I’ve heard a lot of talk about foreign investors dumping U.S. dollars and bonds. But can it really happen in the U.S.? If so, when?

It already is happening — in phases.

The real question you should be asking is: When will it reach the phase of critical mass? When will it paralyze the government’s borrowing ability (as it did over 30 years ago, in 1980)?

That’s the doomsday scenario that the 10 former CEA chairmen are most worried about. But they can’t pinpoint a future date, and neither can I.

Here’s what I do know with relative certainty:

On the day foreign investors engage in wholesale dumping of U.S. bonds, anyone still holding their money in a weak U.S. bank could get trapped with no easy exit.

That’s why you need to get your money away from danger and to safety ahead of time.

Question #10. Can you name the weakest institutions right now?

Yes. Here are the biggest banks on our weakest list with their latest Weiss Rating:

Weakest U.S. Banks & Thrifts (with a Weiss Rating of D+ or lower and assets of $25 billion or more; 12/31/10 data)
Institution	State	Assets ($bil)	Weiss Financial Strength Rating
JP Morgan Chase Bank NA	OH	1,632	D
Bank of America NA	NC	1,482	D
US Bank NA	OH	302	D+
Suntrust Bank	GA	162	D-
Regions Bank	AL	128	D-
Capital One NA	VA	127	D+
RBS Citizens NA	RI	108	D-
Sovereign Bank	MA	72	D+
Compass Bank	AL	63	D-
Huntington National Bank	OH	53	D
Weiss Ratings Scale: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak Plus sign = top third of grade range; minus sign = bottom third of grade range. For a free rating on your institution, go to www.weisswatchdog.com.

Many of these banks are so large, it’s almost impossible to do business in the United States without some of your money going through their hands.

Seek to keep those amounts to a minimum. And do your best to avoid locking up your money with CDs or other long-term commitments.

Yes, your money is insured by the FDIC up to $250,000. And yes, you’ll get your money back.

But in the midst of a Greece-like government debt crisis, how long will you have to wait for your money? How much will it be worth? And what other pain will they extract from the public?

Since no one knows the answers, it’s better to be safe than sorry.

Question #11. Are credit unions safer?

Some are; some aren’t. It depends on the institution. Here are the largest on Weiss Ratings’ list of weak institutions:

Weakest U.S. Credit Unions (with a Weiss Rating of D+ or lower and assets of $2 billion or more; 12/31/10 data)
Institution	State	Weiss Financial Strength Rating	Assets ($bil.)
Suncoast Schools FCU	FL	D-	5.0
America First FCU	UT	D	5.0
Kinecta FCU	CA	D+	3.5
Space Coast CU	FL	D	3.0
Desert Schools FCU	AZ	D-	2.8
Wescom Central CU	CA	E-	2.6
Affinity FCU	NJ	D-	2.0
Weiss Ratings Scale: A=Excellent, B=Good, C=Fair, D=Weak, E=Very Weak Plus sign = top third of grade range; minus sign = bottom third of grade range. For a free rating on your institution, go to www.weisswatchdog.com.

Question #12. Didn’t companies like Moody’s, S&P and Fitch get their hands slapped for bad ratings? Why are yours different?

They get paid by the companies they cover — large fees, year after year.

We don’t do business that way and never will. In the four decades since we began issuing research reports and ratings, we have never taken compensation — in any form — from the companies we cover.

When a company takes us to lunch, we pay our share. When they send us holiday fruit baskets, we send them back. We don’t accept a penny of their money.

That’s why Esquire wrote that ours is “the one company [that] provides financial grades free of any conflicts of interest” … why Worth wrote that “Weiss’s record … is so good compared with that of his competitors, nervous buyers need look no further” … and why Forbes called us “Mr. Independence.”

Question #13. How can I find out where my company stands?

Good luck and God bless!

Martin