The Banking Crisis Is Spreading

from the Working Life blog:



The Banking Crisis Is Spreading
by Jonathan Tasini

Friday 28 of August, 2009


I get that people want to be optimistic. I am the eternal optimist--I still believe we can change the world to be a better place. But, I am repeatedly astounded at the willingness of people to magnify and overstate the "green shoots" people want to find in the economy. We've got a 16-17 percent effective unemployment rate in the country and people just have no money to spend. We shouldn't be thrilled by the notion that 70 percent of the economy is powered by consumer spending but it is what it is and you can't change that ratio around overnight.

And then there are the banks, from The Wall Street Journal this morning:



I added the bold. Can someone please explain how you revive business and consumer lending when the banking system is in such a mess?


http://www.workinglife.org/blogs/view_post.php?content_id=14469

Can't pay by principal, can't pay by credit. And bills are due.

Default or borrow or print money in the middle of the night for hyperinflation.

It was the Wall Street people's last big attempt to seize any wealth remaining.

They are hoping they can hold off total collapse until they have every last cent any pension fund or rich person might need to invest.

But it might not be possible to control it.

Geithner wanting the debt limit raised (About two weeks ago, he made that request) is not a good sign.

745 banks failed.

So the roughly $300 billion of the 416 problem banks represent only 2.3% of the total assets.

Even when a bank fails, the FDIC doesn't loose the whole amount. It might have to cover about 15% of the failed banks losses.

There are over 8000 banks in the US, and thousands of the small ones can fail without causing a major problem.

let me remind you! They will be replaced by Wal-Mart and shitty credit loan companies! This is what big corporations want, easy money with no answering to a bank owner. Of course greed did this to both groups of assholes IMO.

And the working class will pay for it all in the end. Sigh.

that our fearless leaders are all valiantly trying to unwind what might be the biggest bubble in human history, without causing the entire enchilada to just collapse utterly into a naked economic singularity.

I'm very skeptical that they deserve a charitable interpretation, considering that many of our fearless leaders were part of the A-team that caused the bubble in the first place.

Another interpretation might be that "They" are trying to keep this machine going as long as possible, because every day it continues allows them to harvest another pile of money into a numbered foreign bank account. Probably kept in denominations of precious metals.

they did`t give out really bad loans,they don`t sell mortgages,and they repossess instead foreclosing. they make sure their loans are solid by actually helping the people who fall behind on payments. unfortunately for them our ARM went from 5.5% to 3% next year...the house,tax,and insurance is 550 a month.

There is bubble thinking on Wall Street. A type of race is going on. Many investment banks bought out commercial banks up that high in the system. The commercial banks generally originated many of the mortgage loans. The investment banks took the loans, sliced them up into tranches, repacked several tranches together into a single security, and they sold that security. The profits were generated from the sales.

Prior to the repeal of the FDR-era Glass-Steagall Act in 2000, investment banks and commercial banks were not allowed to consolidate together. It was a reform borne out of the collapse of the Great Depression. Apparently, the lesson was forgotten.

The conflict of interest came when the investment bank demanded the commercial bank it controlled pump out more loans so that they can also be sliced and sold off. This meant ever greater profits. You literally had loan officers who were being compensated based on the number of loans they could push out the door.

Lending standards were dropped to criminally low levels, and people who had no business qualifying for such loans were given them and suckered with the "American Dream."

When the system failed, the damage was already done. The profit was already sliced from the top, and the rest of the system was ditched, but that's not too bad a loss for them. For that loss, the federal government bailed them out with low interest loans.

The federal government should've loan sharked them to give them a dose of their own medicine.

Worse yet, many of these securities were given AAA ratings when they contained sub-prime mortgages, many of which defaulted in the end. Many third parties bought into these mortgage-backed securities thinking they were making a safe investment.

WRONG. The poison spread throughout the system.