Thursday, February 26, 2009


This is not good. In 2008 we saw ...

* The earnings of the commercial banks and savings institutions insured by the FDIC decline 83.9%.

* 25 FDIC insured institutions fail.

* The number of banks on FDIC's watch list -- the ones regulators are most concerned about failing -- jump from 65 in 2007, to 171 in 2008, and to 252 today.
So, get ready for it: More bank failures are around the corner, no matter what we do.

Again, we are faced with the following dilemma: Do we let the banks go under and have Uncle Sam pick up the pieces, and get nothing in return? Or do we nationalize, secure assets, gain some control, and make some money when we sell the banks back to the market? Those of you who read this blog regularly know my opinion on this ... we need to nationalize the failing institutions.

There is, however, one piece of good news coming out of the FDIC: Total deposits rose 3.5 percent to $307.9 billion -- the largest percentage increase in 10 years. The reasons for this are many, but are primarily tied to people drawing money out of the stock market, only to put it in banks. As FDIC Chair Sheila Bair put it: "Clearly, people see an FDIC-insured account as a safe haven for their money in difficult times."

Or we can put it another way, "Clearly, when the going gets tough people don't trust the private sector with their money."

- Mark

UPDATE: I just ran across this from Naked Capitalism, which they got from the Financial Times. Of the $450 billion in "securities" (CDOs) written from 2005 through 2007 - which banks bought as investments - around 70% of these securities are formally in default (which means no one is paying). Because banks once thought these securities were worth $450 billion - because "really smart people" with computer models told them they were - banks are now facing big losses, which helps explain why they're in trouble. They are essentially holding ghost assets. These ghost assets, my friends, are why the American homeowner, and taxpayers, will get screwed. Mark-to-market provisions in TARP will make sure of this. It's late, and the details aren't fun, so I'll call it a night, for now. But stay tuned.

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