First Major Bank Failed Today - Proof that Recession is Real?

I would believe the problem is more wide spread then one bank our country is
bleeding money via so called free trade agreements,oil,outsourcing, war
and importing of slave labor adding an additional burden on taxpayers for
more welfare, it is in my opinion a bad path while many at the top of the
pyramid make money those at the bottom are failing and it will get worse.:mad:
 
The government has NO business being in business. If a business (bank or any other) fails, it is because they did not use sound business practices are simply were not able to compete on the open market.

The fact that they know they can rely on the government to bail them out actually encourages shoddy and possibly criminal business practices because they know that the government will bail them out.

Not only that..but know we are entering a communist/socialist dream...government ownership/control of what was formerly private industry.
 
Well, some of the posts here raise an interesting point. Has our government been artificially inflating the economy in recent years, by facilitating these low cost and risky loans?

Has so much of the rest of our economy gone downhill that we cannot now afford for the housing market to self correct on its own?

.
 
Do some research on the FDIC and you will see it has been watered down so far in the last thirty years it can not handle more than one or two large banks failing. Almost all the reserve funds have been lent to government projects. The insurance is payable over 99 years anyways. FDIC is nothing more than a shell game.
Click to expand...

no, it is an insurance scheme.
All member banks pay a portion of reserves into the FDIC annually.
This gives then the $$ to then bail out the DEPOSITORS if a member bank goes broke.
FDIC does have access to the FED for additional funds, that will be paid back by the member banks through their annual payments.
The FED is acting similar to a 're-insurance' contract y making the funds available if they are needed.
The FDIC has not been 'watered down', it just has not kept pace with the size of banks.
 
Caveat: I don't know what the hell I am talking about on this subject and freely admit it; but every once in a while I like to play Internet expert too :)

It seems to me the problem is that the banks are engaging in two mutually exclusive practices:

1. Being over-leveraged (loaning out $30 or more for every $1 worth of assets).

2. Making loans to higher risk markets.

Think about it in simple terms. If I have $3.33 in assets, I can make 100 $1 loans to people with a 30-1 leverage. At that rate, I am good. However, if I get a default rate of 3%, my assets disappear completely. A default rate of 4% and I am borrowing money from someone else to cover my investors who gave me the money to loan - at 4%, even a mild "run" on my bank will wipe me out - especially if everyone else is in the same boat I am in.

Bear Stearns was leveraged 32-1 when they collapsed. There are a lot of major banks that are leveraged at least that bad or worse now. Even with 90% of the loans being good, that is still death for those banks without the Feds stepping in with emergency credit.
 
This is what happens when lenders forget simple secure practices and let greed get the best of them. When you loan 300k to a guy with a 625 score and 60k a year job at 80%LTV or higher you're a fool. When you lend to hundreds of thousands of these you are criminally negligent at best.

The above is what the banks and lenders did. They bet on a solid economy with no hiccups. They lost the bet. Now almost the only people losing their homes are those people who should never have had that McMansion in the first place, and the lenders in trouble are the ones who gave them that money despite every indicator to the contrary.

Speaking as one of those people who should have never been given the cash, and one of the few who played that game and won, paying things down and converting to a fixed rate from an ARM in time, I knew this mess was coming. Laughed about it when we refinanced. I hadn't actually worked in a year because I was BUILDING the house. Credit score was in the toilet. They still gave me all the money I wanted, including 60k cash out, and offered me more. I told the wife and friends that when the crows came home to roost the media would be making a stink about it like we wouldn't believe. Guess I called that one.

Otherwise, if we simply fixed gas prices(sure, yeah), our economy remains in pretty good shape. Overall inflation and unemployment show this...assuming you believe the government figures.
 
All member banks pay a portion of reserves into the FDIC annually.
This gives then the $$ to then bail out the DEPOSITORS if a member bank goes broke.
Click to expand...
The problem is money flow into the FDIC then they invest it in government bonds to prop up the deficit spending. Capitalization is at less than 1% currently.

no, it is an insurance scheme.
Click to expand...
This gives then the $$ to then bail out the DEPOSITORS if a member bank goes broke.
Click to expand...
I agree with you on both these points. It is an insurance scheme and if ONE bank goes under the others can cover it. Like most insurance programs the system is entirely inadequate for a large Categorical loss. If there is a hail storm over the entire Midwest tomorrow every company goes bankrupt and no one gets a new roof. If banks start dropping like some predict we will get the same result.

FDIC does have access to the FED for additional funds, that will be paid back by the member banks through their annual payments
Click to expand...
By the failed banks? Once 1% of banks fail and FDIC is out of liquid assets, people are going to get a little antsy and really start withdrawing.

The FED is acting similar to a 're-insurance' contract y making the funds available if they are needed.
Click to expand...
The Fed has no funds. Get ready to really watch the dollar sink, b/c all they can do is print.

The FDIC has not been 'watered down', it just has not kept pace with the size of banks.
Click to expand...
Originally FDIC had to hold a pretty strong reserve (I am thinking 30%). Member banks also had to hold 20%. Both of this restrictions have been loosened. Convenient if you are trying to borrow 5 trillion dollars. There was no buying T-bills with it in the beginning either.

The FDIC was never much more than a provider of false hope to those who did not want to read the small print, but at this point it can't do more than cover robberies and isolated failures, not even a small systemic hiccup. Think New Orleans levees.
 
With only $53 billion in the FDIC fund, and one bank soaking up $4 billion to $8 billion, it doesn't take a math genious to see that 6 more banks this size will wipe out the fund. Then the government will have to print more money to support the system. Hello inflation. This wasn't even a big bank. What if a big one goes?
 
He called on Congress to pass sweeping legislation to pour Billions of Federal dollars into both Fannie May and Freddie Mac, to prevent them from failing.
Click to expand...

Freddie & Fanny are getting splattered by the sub-prime issue.
Neither needs cash to remain solvent, just to make new loans.

They have a VERY small exposure through a limited number of bonds Clinton pushed on them to help 'undeserved markets.' The folks with lousy credit.

Rather than lower their lending standards they purchased some of the sub-prime bonds.

If they cannot sell bonds they will not be able to make additional loans.

This entire mess is becoming a self fulfilling prophecy.
Talk up the possibility of trouble, and the bonds will not be purchased, thus causing the crisis.
Wall Street has never particularly liked Freddie & Fannie since they cannot enter into the market very well competing against them.
They are stuck with the much smaller non-conforming high value, and the high risk loans to poor quality borrowers.
 
This wasn't even a big bank. What if a big one goes?
Click to expand...

There are 35 US bank holding companies with assets over $30 billion - their aggregate assets totaled slightly over $11 trillion at March 31. The three largest bank holding companies (Citigroup, Bank of America, and JPMorganChase) represent over half the total ($5.6 trillion)... and have over $455 billion in capital and reserves.
 
Recessions happen. No big deal. Just the business cycle.


But what we're seeing now seems to be a different phenomenon. More like an economic perfect storm.


Our government borrows huge amounts of money and spends it. Somebody has to lend it to us. These people buy Treasury bonds. Interest rates induce them to do so. The interest rates are really low right now plus our currency has tanked relative to some other currencies. Why would anybody buy our bonds?


Our whole economy depends on cheap and abundant energy. Over the past few decades, we've enacted regulations that make it effectively impossible to build refineries, to drill for oil, and to build nuclear and coal-fired power plants. Our only option is to import oil from countries that use the money to fight us here and abroad.


To keep the international trade situation stable, we have a gargantuan and fantastically expensive military deployed all over the world. We finance these ongoing efforts to keep world markets stable and we finance our enemies by buying their oil.


We're exporting our middle class to China and India by outsourcing the jobs that pay middle class wages. At the same time, we're importing low wage laborers from Latin America. College-educated people compete against lower wage people abroad and less educated people compete against rock-bottom-wage Mexicans.


We're thinking about electing a President who graduated from the Hugo Chavez school of economics. He and the Democratic Congress will raise taxes, create a cap-and-trade GW-inspired system, and further increase goverment spending.


It's unraveling pretty fast. Foreign economies are no better off. Is there a best place to be in all this? Actually, I suspect it's America, as bad as it's all going. I'm still betting on the US to do better than everybody else. Still, that's a country. Individuals will have problems. Those who do best over the next ten years will probably be those who do the best job of preserving their wealth and those who had nothing to lose anyway.
 
But what we're seeing now seems to be a different phenomenon. More like an economic perfect storm.
Click to expand...

I think you stated it well LightningJoe the only place I disagree with you is it is far more serious no country can continue on our current path simply there is a breaking point and I believe we are near that. Unless we stop bleeding money out of the country we will fail, greed and ignorance can kill America, yes, the land and name will be here but the quality of life/freedom will diminish.
 
Last edited by a moderator:
Recessions happen. No big deal. Just the business cycle.


But what we're seeing now seems to be a different phenomenon. More like an economic perfect storm.
Click to expand...

Recessions do happen, but not this year. We've not had negative growth in the first quarter and Q2 is looking to show growth of between 1 and 2 %. Inventories are down, and most other indicia are better than most analysts predicted they would be. Q3 is likely to be better still for seasonal reasons.

We do have a banking problem, but that isn't the same as a recession.
 
That is because the numbers are being manipulated.

Cost of living is 9% higher than a year ago, the largest increase in consumer prices since 1991. How do we manipulate that? I know, let's only quote "Core Inflation" which excludes energy and food.

At the same time as costs increase, wages decrease. Wages decreased .9% in June 2008, the largest monthly decrease in wages since 1984.

This has the effect of reducing disposable income.

Yesterday, the DJIA closed at it's lowest level in two years.

Freddie Mae and Fannie Mac, holding half of the country's $10 trillion mortgage debt, are being propped up by the Federal Government. This injection of cash into the economy will cause even more inflation.

Bear Stearns failed. IndyMac failed. 90 other banks are considered to be on the verge of failure. IndyMac wasn't even on that list before it failed.

The dollar is at an all time low against the Euro and the Canadian dollar.

All of this, despite a $168 billion injection of money into the economy during the last quarter.

Yeah, the economy is doin great.

ETA: How about this headline:

Consumer prices surge in June at fastest pace in 26 years, reflecting soaring energy costs
 
With only $53 billion in the FDIC fund, and one bank soaking up $4 billion to $8 billion, it doesn't take a math genious to see that 6 more banks this size will wipe out the fund. Then the government will have to print more money to support the system. Hello inflation. This wasn't even a big bank. What if a big one goes?
Click to expand...

Two banks that have been in the news this week are National City Corporation, with $ 155 Billion in Assets, and Washington Mutual, with $319 Billion in Assets. In comparison, IndyMac Bank had less than $32 Billion in Assets. So we are talking banks that are roughly 5 and 10 times bigger than IndyMac.

The trading of National City Corporation stock was actually suspended on Monday, after its stock lost 30% of its value in the morning. After the company was allowed to make a press release, trading was resumed, and the stock ended up only losing 14% for the entire day. Washington Mutual's stock, however, lost 34% of its value over the day's trading.

If either of these big banks fail, we are in for hard times, I think. And both of these banks are clearly in very bad shape, and bleeding money badly currently. If the mortgage crisis continues, or gets worse, I think both of them will probably fail by sometime in the second half of 2009. For they cannot afford to lose money like they currently are indefinitely.

Hopefully no one on this forum still has money in these two banks. If you do, you may want to consider moving your funds to another bank.

.
 
Yeah, the economy is doin great.
Click to expand...

Clearly it isn't, and that isn't the claim anyone made.

Citing the same indicia that go into economic measurement quarter after quarter is not indicative of manipulation. Selectively citing data that show problems (every condition is an economic problem for someone) falls more squarely within the concept of manipulation.

Banks problems? Yes.

Falling dollar? Yes.

Some prices up? Yes.

None of those are a recession.

Hopefully no one on this forum still has money in these two banks. If you do, you may want to consider moving your funds to another bank
Click to expand...

When I bought the stock, it looked like an historic bargain. My crystal ball must be overdue for service.
 
With only $53 billion in the FDIC fund, and one bank soaking up $4 billion to $8 billion, it doesn't take a math genious to see that 6 more banks this size will wipe out the fund. Then the government will have to print more money to support the system. Hello inflation. This wasn't even a big bank. What if a big one goes?
Click to expand...

The FDIC only has to make up the SHORTFALL from a failed bank for accounts up to the insurance limit.
The banks ASSETS become the property of the FDIC.
They will sell off the mess to another bank, a group that wants to start a bank, or piece it out.
The only shortfall will be non-performing loans.
The stock holders of Indymac are wiped out.
Their equity is erased.
All these bozos lined up outside Indymac have NO idea what is actually going on.
Unless they are over the insurance limits ALL the money is there.
 
Freddie Mae and Fannie Mac, holding half of the country's $10 trillion mortgage debt, are being propped up by the Federal Government. This injection of cash into the economy will cause even more inflation.
Click to expand...

Yes. It is also worth noting that Freddie and Fannie successfully lobbied Congress to let themselves be leveraged 30-1 on loans.

Bear Stearns failed.
Click to expand...

Bear Stearns failed when it was leveraged 32-1. We've already looked at the infintesimally low default rate needed to wipe out your assets if you are at 30-1. If Freddie and Fannie are leveraged at 30-1 and hold half the country's mortgage debt, then it looks to me like a high probability that their assets are disappearing rapidly or will soon.

Like I said, I don't know much about this stuff so if anyone wants to explain why my supposition is wrong I am interested in hearing it; but it seems like the Fed intervening to prop up Freddie and Fannie is a given at this point. The only question seems to be whether the Fed can do it successfully and how much the infusion of even more cash is going to feed inflation.
 
Umm, the 4 billion IS the shortfall, is it not? The result of fractional banking.
Click to expand...

Fractional banking does not in and of itself create a shortfall.
NO bank has 100% of the funds on deposit available.
They could never lend anything out.

If you liquidate all the assets and still cannot meet the deposits NOW you have a shortfall.
 
You must log in or register to reply here.
Back
Top