I have a confession to make. I’ve been pretty open about my economic pessimism, saying that things are going to get worse before they get better.
However, I’ve actually been holding back about how pessimistic I am regarding the banking industry. I think they’re in worse shape than most people have admitted and that many if not most are insolvent. See last night’s item or this morning’s news story: “Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking. A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.”
The FDIC usually closes troubled banks on Friday, gets them in order as best they can, and re-opens them on Monday under new ownership. Monday is President’s Day, which is a Federal and bank holiday, so this will be a three day weekend. That would give FDIC officials an extra day to do their work, so it wouldn’t surprise me to see an unusual number of banks shut down by the FDIC this weekend. Calculated Risk has been covering Friday bank closures. Check back with them tonight.
UPDATE: The FDIC closed four banks.
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It seems like the banks are doing the equivalent of jingle mail. If they refuse to make loans – they are basically “walking away”. Right? I know they don’t want to make “risky” loans. But, making almost no loans – puts them out of business. Not rocket science.
I can usually tell when they are lending by the amount of credit card applications I get. Then I run to the paper and see how many houses sold in my area. And I can tell you – not many banks have loaning much of anything. More apps, more houses sell. I took a house off the market in July – So I watch religiously.
So if they can’t handle it. Rip off the bandaid.
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You are so right – the worst is yet to come. FDIC was lucky WaMu failed early enough to find JPMChase to take their assets. Who buys Citi? Wells? BofA? I’m not saying those banks are going to fail, but if they are as shaky as I think they are, we’re in for a long ride. Bailing out delinquent homeowners isn’t helping matters either – some of those who got loan mods last year are defaulting this year, because they find themselves upside down again. Freezing foreclosures is just delaying the inevitable.
If we just let the market work, the “creative destruction” of the failing banks going under would soon reward the better-managed and more sensible banks, and the frugal and informed borrower. Same thing applies to all industries. Let GM bankrupt, and if they can’t return to profitability, they sell off the assets and someone else gets a shot.
But it ain’t gonna happen. Newsweak says we’re all socialists now, so I guess I’ll just get in line and wait for my check…
What part of “government holiday” did you not understand? I would expect fewer, not more, closures on a long holiday weekend. Maybe that is the cynic in me, though.
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I’ve got a great idea. Why don’t we offer $500 to first time homeowners to go and pile on $100k-$150k worth of brand new debt right now?
And another – when the automakers are beaching themselves on the rocky shore of our economy, let’s make fuel efficiency mandates more aggressive. As I learned today, we have entered Obama’s New Age of Reason(tm).
Science has never failed to meet a deadline. Just ask my flying car.
It’s bulletproof!
/sarcasm off
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Mikee;
“Government holiday” means paid overtime for government workers required to work. So it being a holiday (and very minor one at that) isn’t much of an incentive not to use the weekend for something important.
You’re pessimistic? How could you not be? The other shoe is preparing to drop….along with employment. The effects of all the announced layoffs, downsizings and bankruptcies have yet to be felt.
With steeply rising unemployment, currently performing loans will become essentially “subprime” because no one will have income to make payments. And it won’t be just a few.
Why aren’t the banks lending? That should be obvious. They’ve been through this before. They know how it ends. Expecting any better the second time around is either folly or insane…take your pick.
I have news for you, the FDIC closed no banks. Those four banks were closed by state regulators in Nebraska, Florida, Illinois and Oregon. The state regulators tendered the failed institutions to the FDIC as receiver, and the FDIC accepted the appointment.
Patrick: fair enough, though it seems to be a distinction without a difference.
I suppose that in the long run it doesn’t make much of a difference who closes the banks (unless you happen to work for the FDIC or a state bank regulator, as I do)but the devil is in the details. If you get the small stuff wrong, it suggests that you either don’t know or don’t care enough to report the information accurately, which reflects badly on you as a blogger. If I want badly reported stories, I’ll pick up a newspaper!
Okay, Patrick. The FDIC didn’t close the banks. The state agencies did and handed the accounts over to the FDIC.
Happy?