Coming Soon: Banking Crisis of Historic Proportions

With everyone (well, almost everyone - I am one of the lonely skeptics) convinced that we have stepped back from the "edge of the abyss", the title of this article may be viewed as laughable. When you connect the dots, as I will in this article, you will at least stop laughing, and, maybe, realize that we still have a big problem.

We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We'll hit these factors one at a time.

First Factor: Banks Are Not Doing Enough Business

Commercial bank credit growth has dropped to 2%, according to Jesse's Cafe Americain (here). The recent history of credit growth is shown in the following graph.

Now, it is a good thing that banks are conserving capital, since they need to increase capital to offset bad loans.

But, if asset valuations deteriorate (and that is quite possible), the banks need to increase earnings to "earn their way" out of their problem. Interest paid by the Fed for reserves on deposit there (by the commercial banks) are not producing nearly the same level of income as new credit issued commercially under our fractional reserve banking system with much higher interest .

If credit issuance does not increase year over year, banks can not improve their financial condition unless the quality of their existing loan portfolio improves.

As discussed in the third factor, below, just the opposite is anticipated for loan portfolios.

So the first factor in this perfect storm is that the banks are not doing enough business.

Second Factor: Banks Are Failing at a Rate Not Anticipated Two Months Ago

In his article, Jesse mentions reports by Bloomberg that 150 banks are in trouble. Some of these will be larger than many of the 77 (mostly community) banks that have gone under FDIC receivership so far in 2009.

Banks mentioned as being in trouble by Bloomberg (here) include Wisconsin’s Marshall & Ilsley Corp. (MI), Georgia’s Synovus Financial Corp. (SNV), Michigan’s Flagstar Bancorp (FBC), Chicago-based Corus Bankshares Inc. (CORS), Austin-based Guaranty Financial Group Inc (GFG), and Colonial BancGroup Inc. (CNB) in Montgomery, Alabama.

These six banks became five at the close of business Friday, Aug. 14, as Colonial BancGroup was taken over by the State of Alabama and the FDIC. This was the largest bank failure since IndyMac Bank went under in the summer of 2008.

The following table shows some data regarding the six banks singled out by name in the Bloomberg article.

On July 5, Bill Cassill wrote (here) that he projected 125 bank failures for 2009 and 230 in 2010.

However, as of that date, Bill projected 82 closings by 9/30 and we have already reached 77 on 8/14. We still have half the quarter to go. With the 150 additional banks estimated by the Bloomberg article, and the 77 already closed thus far this year, we could be closer to 230 closings in 2009 than the 125 estimated just six weeks ago. Bill is not alone. I recall hearing other estimates of bank failures for 2009 of the order of 100 for the entire year.

The following graph (and the prediction below it) was provided on July 12 (here) by Colin Peterson.

How is Colin's prediction doing? The following graph shows how bank failure rates have been trending.

Give Colin the handicapper award here. Not only have bank failure rates spiked, the current annualized rate would be in a virtual three-way tie for second highest in history if maintained for another nine months.

And a lot of the banks going under are a lot larger than the average savings and loan in the previous crisis.

According to About.com (here): Between 1986-1995, over 1,000 banks with total assets of over $500 billion failed. Even if the current crisis falls far short of the 1,000 bank total, the total assets involved will still be vastly larger. Just in the failures of Wachovia Bank and Washington Mutual, the total assets were $619 billion. Add to that the IndyMac failure and the six banks in the troubled list above and there is another $164 billion.

And I am not even mentioning the shadow banks (Merrill, Bear Stearns, Lehman and AIG are examples), which add hundreds of billions more.

There should be no false comfort taken in the prospect that we may have far fewer bank failures this time compared to the S&L crisis. The dollar amounts are likely to be many times larger.

Third Factor: Defaults Are Going to Increase for Several More Quarters

With home mortgage foreclosure rates remaining very high (and possibly increasing) and with the bulk of the commercial real estate defaults yet to come, the failure rate of banks is likely to increase further in the next nine to twelve months, not decline. The situation will be compounded if commercial and industrial (C&I) loans also default at higher rates because of a weak or non-existent recovery.

Reading some of the latest quarterly reports for a number of banks, C&I loan portfolios have generally been performing better than many other categories, but will that continue?

A reference for this subject is a Jeffrey Bernstein article published in late May entitled "C&I Loans Are Starting to Unravel" (here), which discussed the status of a wide variety of loan portfolio categories. C&I defaults may, at this time, be like an iceberg, with 90%+ still not visible above water.

Default rates in all credit areas have started to rise, although some have yet to reach levels of other recent recessions (see Bernstein article here). Residential mortgage defaults have been the elephant in the room. We have to continue to worry that problem may increase further, but we better also worry about all the baby elephants.

We may have "saved the financial system", but it seems likely that we will lose banks at levels far exceeding anything seen in our history. Even if we fall short in number of the approximately 1,000 S&Ls, the assets involved will be much larger.

We need one hell of a recovery here to prevent disaster. Muddle through will not do it. A return to 3% GDP growth may not do it. We need a couple of years at 4% (or higher) GDP growth to have any chance that some of these banks can earn their way out of the quagmire.

I don't think that type of economic growth can be realized. It certainly is not going to happen if commercial bank credit growth doesn't expand drastically and quickly.

Fourth Factor: The FDIC Is in Trouble

Rolfe Winkler (here) points out that the accelerating rate of bank failures may exhaust the Deposit Insurance Fund (DIF) at the FDIC, requiring that agency to draw on its credit line with the Fed. Rolfe calculates that the FDIC is currently on the hook for $8.3 trillion in insured deposits, had only $41.5 billion in reserves as of March 31 and has drawn that lower since.

Since only a small portion of deposits actually are paid out of DIF (failed banks have assets that cover most deposits), FDIC needs only a small fraction of covered deposits in reserve.

However, less than 0.05% is most likely several fold too small in a distressed banking system. The section title says the FDIC is in trouble. That is a polite way of saying they are bankrupt.

Fifth Factor: We May Be Going to Historic Lows in Bank Credit

Because we are approaching the one year anniversary of a growth spike in bank credit in September, 2008 (see the first graph in this article), there is likely to be continued pressure on the year-over-year growth rate. The year over year growth of credit may be driven much lower than the current 2% within the next couple months due to the negative effect on comparison due to the spike a year earlier.

As shown below, this would be an historic low.

There is one possible piece of good news here. Looking at a longer history from the Fed FRED data base (here), the current situation is similar to those seen after the end of the recessions of 1973-75, 1990-91, and 2001. A similar minimum was also reached in 1997.

It should be noted that several minima in commercial bank credit have occurred that were not associated with the end of a recession. This indicates there are non-recessionary factors related to dips in commercial credit.

All recessions have dips in commercial bank credit, but all dips in commerical bank credit are not associated with recessions.

This time, the minimum may not have been reached yet because of the spike in credit volume in September, 2008 (mentioned above). If September 2009 does see a minimum in commercial bank credit, this would be another sign that the recession probably ended earlier in the year.

However, the banks need far more than an end to the recession; they need a recovery of unlikely proportions.

One cautionary note: Although the minimum was much higher in the 1981-82 recession, the lowest point occurred about a year before the recession actually ended. That could always happen again.

Is There Any Hope?

Well, since so many people are predicting a weak recovery, that has a good chance of not happening, based on the observation that, in economic matters, agreement by a majority is often wrong. So, if the majority is wrong, which way do you think things will go? Back into recession? The robust recovery predicted by only a few?

I'll leave a definitive answer to the reader - after all I can't do all the work. I'll just share my bias, based on all the factors I can collect: An advance in real GDP of 4-5% in 2010 and 2011 (2-2.5% per year) seems to me to be the very best that might be obtained, but less is more likely.

Without a strong recovery, there is little hope of a good outcome for the non-oligarchy banks. With a return to recession, in 2010 (and possibly 2011 and 2012) there could be carnage in regional and local banks not seen since the early 1900s, and maybe even worse than what occurred then.

I hope we don't have to compare what happens in 2010 to 1873.

The banking crisis of 1873 started what has been called "The Long Depression". This consisted of a period of rolling recessions that continued for almost 40 years and included additional banking crises in 1893 and 1907. This long period of economic and financial turmoil was a major motivator in the formation of the Federal Reserve Bank. The Fed was the first true central national bank for the U.S. since the dissolution of the Second Bank of the United States in 1837 by Andrew Jackson.

Hat tip to Phil's Stock World.

Disclosure: No positions in any stocks mentioned.

Comments

[Steven Hansen:]

this is the ticking time bomb beginning in 4Q 2009. for sure it will increase public debt (FDIC funding shortfalls). how much private wealth will it wipe off of the table? the bigger this crisis becomes, the more recessionary its effects.

Aug 16 05:17 AM

[markfl:]

You're not the only one who feels there's more trouble to come. We may be in the eye of the storm. Fractional reserve banking is very important to economic growth, because it affects the positive acceleration of money. Not judiciously making loans to credit-worthy customers is the equivalent of stashing money under the mattress. The money does no good for the economy there.

"I hope we don't have to compare what happens in 2010 to 1873." The situation in 1873 started with a financial panic in 1869. I happen to think the risk of a lost decade is uncomfortably high. We've been lucky that recessions have occurred roughly every 10 years since 1982. I think that trend is about to end. Recovery? How about 4-6 quarters of weak recovery followed by another recession? Happened before (if you go back far enough).

Aug 16 05:22 AM

[Dave Wrixon:]

Good Article, but aren't you really telling us what a lot already knew that the US is insolvent at all levels. The banks have bad loans because the consumer is tapped out and the US Government is cannot really do much more because it cannot tax the consumer more because that would just sink the whole ship. The whole edifice is at breaking point, and the only thing supporting it is a web of lies.

Aug 16 05:25 AM

[Steven Hansen:]

You don't think the change in accounting standards will exasperate this crisis? Maybe if we change the accounting standards again, the crisis will go away. Or maybe the banks can make extra money by selling smoke and mirrors in their lobby.

Aug 16 05:44 AM

[Roger Knights:]

The ECRI optimists are treating this as an ordinary business recession--a mere hiccup--and ignoring the anchor of debt-coming-due and banking leverage = falling dominoes that will upset their applecart.

Aug 16 06:09 AM

[Roger Knights:]

PS: If the recession is over, the depression is just getting started.

Aug 16 06:20 AM

[perceptions...:]

"Is There Any Hope?
Back into recession?"

John,
I gave the longer version of this answer in a post at -
seekingalpha.com/artic...

But the short version is -
In the face of no significant INNOVATIONS, I am calling it now, that the "exponential Econonmic Growth Fairy" is no more, it died of "shortages of natural commodities (oil), in 2005.

Aug 16 06:33 AM

[Moon Kil Woong:]

If you hadn't noticed big banks, especially the ones to big to fail are feasting off the carnage of littler banks and off of their customers both depositors (who get almost no interest) and borrowers who they keep raising rates on. I know, some may argue that banks are loaning at historically low rates to new homeowners, but look at the reason why. The government is using Fannie Mae and Freddie Mac to buy up all the unprofitably and economically unsound loans which they either get the Fed to buy or write them off and charge it to the taxpayer every quarter.

So in essence, what do we have? An arbitrary, favoritist, banking sector brough on by direct government intervention. All I can say is, "What do you expect when you let government interfere to this extent in the market?" If you think you are going to do well get in the giant line of people willing to bow down and kiss politicians and bureaucrats feet.

Aug 16 07:33 AM

[jay brebner:]

looks like the banks need inflation to kick in very soon.

Aug 16 07:53 AM

[castle:]

Most of us here are not fortune tellers but traders. Traders trade what they see. The financials have been in a rally for while now. Most are trading above there moving averages. I see no reason to exit my positions until they cross to the downside. This is basic trading fundamentals. Lets hope your analysis is in error, it would not be good for any of us.

Aug 16 07:58 AM

[hooligan:]

From a trading perspective I can see that it is appropriate to get in ahead of a Government that is subsidising bad performance and punishing good performance. The failure of the democratic process to allow the will of the majority to hold sway over the vested interests who continue to "game" the system is disappointing to say the least. There is a "truth" that is avoided by all the intervention that the Fed, the politicians and the gamesters (who are transferring tax payers dollars directly to their own pockets) because it is either too easy to avoid the truth, or because they dont understand what the truth is. The truth is that if intervention created jobs and unemplyment we would have been doing it for decades. It doesn't work and never has. Intervention is a communist ideal. The subsidy of a favoured cabal that has not only transferred wealth from the economy to the cabal by charging exhorbitant fees and transaction costs, but can't even preserve the very wealth it transferred. The banking model has not failed, what has failed is the willingness to prosecute because of fear and lack of ability to see crime. Intervention by subidising bad banking practise and exploitation will lead to failure, as it always has and always will. Intervention to prosecute those who have profited from malpracise in the past and a culture of of fair play is the way forward. Anyone who thinks that win/lose for a zero sum game is the way forward does not believe in the evolution of our civilisation and democratic process. Win/win for an overall increase in economic rent is also the way forward.

Aug 16 08:36 AM

[Lucy:]

OK So where do we go from here? Take our money out of the bank??

Aug 16 08:53 AM

[Swashbuckler:]

Problems facing the banking industry are laid out well in this and other articles on SA. Potentially many triggers for a crisis. If a panic occurs, it could get ugly fast, you can't unring a bell. IMO, defense should be the priority of the average investor. In other words, a primary focus on protecting what you have, as opposed to large increases.

Aug 16 08:56 AM

[Maxe Paul:]

Yes, that's why people are in gold, commodities, Aussie dollar etc and basically anything other than having money sit in a US bank at 0% percent interest and going backwards in value.

BTW, have you been living in a cave or something?




On Aug 16 08:53 AM Lucy wrote:

> OK So where do we go from here? Take our money out of the bank??

Aug 16 09:08 AM

[sligoo:]

I believe the safest way to be involved in banks is through owning the "basket" of top players held in KBE. Banks will always be with us. Don't be without some exposure to them.

Aug 16 09:11 AM

[Niicole:]

If the International banks wanted to put army bases on Native American soil to protect their investments in the United States
the United Nations would have to allow it I'm" saying close the mints & open white flag factories

I believe that when ( not if but WHEN ) the dollar collapses & is replaced as the standard of buying & selling in the world, there will be blood shed on the streets of America. Americans against Americans, Crypts against Bloods Blacks against Whites & An Army that’s unarmed & out of country, A National guard that will turn tail & run, An unprepared unarmed people except for the outlaws.
IF YOU HAVE DUAL RESIDENCY ANMYWHERE IN THE WORLD GET OUT OF THE UNITED STATES & STAY AS FAR FROM IT AS POSSIBLE ATLEAST UNTILL AFTER THE IMPLOSION & AFTERMATH


On Sept 2008 i went to wash DC & tried to resign my rights as a citizen they wouldn't allow it. I went to the dept of state & told them the things i'm telling you here. They told me to go back home & tell the people where i live what I was telling them so here i am. I can't migrate to Australia because their law says if your over 45 you can't move there to live & work.
i wont cross their borders illegally if i can find a way to obtain a sponsor for my trade in Australia i'd pack my bags now & be gone tomorrow Id get there broke if necissary & re-build from there

Aug 16 09:13 AM

[chap08:]

While I dont disagree with the facts in this article, it really says nothing new and it ignores some key facts:

1. Systemic failure is now far less likely than it was last year.
2. The Fed has avoided hard defaltion and will continue to move towards inflation. This will help the banks.
3. A steep yield curve will also be held in place by the Fed - ideal for the banks to make money.
4. The Fed will take further action as it needs to - it has a lot more fire power if it needs it.
5. Banks that can be allowed to fail will be allowed to fail. There is a severe risk to individual bank shares but you over estimate the risk to the wider economy. The remaining banks will have more pricing power and be stronger. The costs will be picked up by future consumers and tax payers.

Aug 16 09:15 AM

[hooligan:]

Money in the bank or not, good question. Cash (bank notes) to be a stroe of wealth. Cash is more secure than bank notes, but pictures of the wheelbarrows in Zimbabwe are a bit of a nightmare!. How to preserve value? Well make an assumption about the poltical will and ability to either punish wrongdoers or continue to make 95% of the economy poorer by subsidising the 5% who rip the 95% off. There is slack, but if you see another 3-5 years of 10-15% Government deficits without reform, then the 5% will I suspect have brought down the entire productive sector. I think the zombie banks in Japan have now infected the economy and created zombie corporations. Japan can't grow and leads our demographic. The knee jerk reaction would be to look for an escape route in another country. For me, the solution lies in the focus on subsituting assets for the cash I have, in assets that will replace cash outgoings later. I will be looking at using the share market as proxy for utility bills, food, water, personal security, holidays and healthcare. I am pretty sure my pension plan won't provide this bias, but if I can redeploy cash assets directly (small farm with secure water access, methane bio fuel, guns, time shares and a doctor who will work for produce) I will. The preservation of value can not be clearly identified with the "bastardisation" of the economy by macro policies that favour an elite. Have to look to things like this.

Aug 16 09:18 AM

[john s. gordon:]

to what degree was the financial hardship of 1873-1907 caused/exacerbated by adherence to the gold standard? opinions please.
> jack

Aug 16 09:29 AM

[Popham:]

Suggested reading:
August 15th article by Paul B Farrell posted on Market Watch,
entitled "The Next Meltdown Will Come In 2012"
There is far too much accuracy in the predictions made many
responsible economic analysts for any of us to discount their
opinions.
The Commercial & Industrial loan bubble has yet to burst.
Additionally, unemployment stats are grossly underestimated,
consumer spending is way down, local, state and federal tax
revenues are inadequate due to the perilous economy, and last
but not least, IF the H1N1 flu epidemic reaches 'unpleasant'
proportions, the ripple effect will be felt financially and societally.
But I am an optimist....as Americans we shall overcome.
Yes, may God bless America.....we're going to need Him.

Aug 16 09:42 AM

[Charles Amico:]

Very good article and I featured it on my Blog today. Excellent!

Aug 16 09:42 AM

[smc1873:]

You make note of the failure to think ahead re: finance & banks.
What about bio-diversity collapse on land and in the oceans? Or peak oil, which is a separate issue? Or the economic implications of a temperature rise caused by co2 being 390, instead of 350 as it was in 1988 (or 318 when they started measuring in 1958)?

Aug 16 09:47 AM

[John Lounsbury:]

Castle - - -

I also trade (though not in banks at the moment) and I agree with your process for trading. You'll note that I did not try to give any investment advice here. I will give an opinion on trading when I see some technical analysis factors indicating the recent momentum (up) is turning. John Paulson has just revealed large positions in banks (especially BAC). I don't know if he thinks he is investing or trading. The thought has occurred to me that this could be a case of pump and dump. I'll ask this question again in a few months when his actions will reveal his strategy.

I also hope I am wrong. I don't want to see my worse case scenarios. I am afraid that my most likely good scenario (2 -2.5% GDP annually over the next few years) will not avoid significant banking pain. The ERCI leading indicators are pounding the table for a blowout recovery. I am afraid that the ECRI methodology may be failing to properly discount the drag of the deflating credit bubble. Government and Fed policies are keeping some of the air in the bubble that, if it were to escape more quickly, would give a short term shock, but longer term would be much more accommodative to healthy economic growth.

On Aug 16 07:58 AM castle wrote:

> Most of us here are not fortune tellers but traders. Traders trade
> what they see. The financials have been in a rally for while now.
> Most are trading above there moving averages. I see no reason to
> exit my positions until they cross to the downside. This is basic
> trading fundamentals. Lets hope your analysis is in error, it would
> not be good for any of us.

Aug 16 09:49 AM

[WD:]

I'm amazed at how many people commenting understand the dire straits America is in. This is the first step towards changing it, but how far are we going to let the politicans push us before we begin tossing them out and returning to the form of government that the founding fathers created?

Since when did the founding fathers preach to bail out failure and tax success? As long as government has that philosophy America will continue on its downward spiral.

Aug 16 09:55 AM

[BRUCE E. W.:]

Why is the reference growing daily to the Great Depression? This is 2009 not 1920. The banks are going down because the monetary policies that created helium baloons in a false economy continue to throw more fuel onto a raging fire. This is a result of strategies that started in 1970 with computational debt instruments that bundled junk into massive profiteering schemes which proliferated into a spoke wheel of market baloons and bubble inflated rafts for a Titanic driven economy. iT STARTED Stop looking to 1920 and start looking over your shoulder to the more recent histories of corporate raiding and hostile sequences of acquisitions by default. The incindiary prctices at the oligarchic level of finance are serving a direct interest. Your entire banking system has now , along with your economic foundation, been TURNED INTO A DERIVATIVE. Once you see that model you realize it is a massive hostile takeover strategy and private equity is into the Trenches while Big Entrenched money is simply stalking new prey. Good luck with your neoclassic analysis. You've all been duped by the people who believe their the smartest people on the planet and are looking to rule the world. For them, the end justifies the means and they will certainly weather out the ongoing and upcoming storm in luxury and vain contempt for the rest of us. Because "Something is Happening Here, but you don't know what it is...DO YOU...MR. JONES?"

Aug 16 09:57 AM

[don2m:]

"On Sept 2008 i went to wash DC & tried to resign my rights as a citizen they wouldn't allow it."

Again showing the ineptness of a government employee. He should have immediately granted your request, confiscated your passport, and given you a ticket to N. Korea where you would be welcome and been able to criticize the United States even more loudly and frequently.
You think Australia is a utopia, think again, and while you are at it consider any other place on the face of the earth that would give you the same opportunity as you have here in America. There aren't any, my friend...........none. We have problems and potentially very serious problems but you can almost make book on the fact that we will solve them. Whatever assets you have were made possible by a system that in it's truest sense exists only here in America. Read into that as you will !

I realize this is off topic from Mr. Lounsbury's excellent article but I suggest you keep trying to give up your citizenship. Who needs you?

Aug 16 10:13 AM

[John Lounsbury:]

chap08 - - -

Good points. We have a legitimate debate on a couple of points and not so much on others.

1. You are correct, but is that necessarily a good thing? Might it not have been cheaper (for the taxpayer) and much quicker to resolve if the "system" (the too big to fail oligarchy) had been put in receivership by the government and reorganized into solvent and insolvent parts, with the solvent parts already coming back into private ownership? Certainly a more quickly reorganized AIG and C would have been helpful. After that, we could debate who else might have gone under. Maybe no one else, maybe BAC.

I have an alegory for what has happened involving forestry. The course of action taken to save the forest has been to spend all of the effort to try to save a few diseased old growth trees while ignoring the rest of the vegetation. The result is that (1) younger growth that might have been nurtured to more strength has been allowed to whither in neglect; (2) the disease has spread to more trees; and (3) the original diseased trees are still afflicted.

My question is: Have we "saved the system" only to perpetuate its weaknesses?

2. I agree, but for the same (or less) government $ deflation could have been contained at least as well as it has been to date and we could have already have addressed structural defects that are still present. Another metaphor: I fear we have just put new siding on a house still infested with termites.

3. Again I agree. But the steep yield curve will not help much if banks are not increasing credit, a problem we (temporarily, I hope) have now.

4. The only fire power the Fed has is printing money. There is high risk of casualties from friendly fire in that action.

5. The failure rate for banks which I am fearing would only be a small part of the problems in the economy if it occurs. In fact, I would characterize it as a symptom of economic problems, not a cause. I am not suggesting that bank failures are a major risk to the economy; I feel that the economy may produce a major risk of bank failures. This viewpoint was not well developed in my article.

Thanks for bringing up these discussion points. It has helped my understand weaknesses in my presentation.



On Aug 16 09:15 AM chap08 wrote:

> While I dont disagree with the facts in this article, it really says
> nothing new and it ignores some key facts:
>
> 1. Systemic failure is now far less likely than it was last year.
>
> 2. The Fed has avoided hard defaltion and will continue to move towards
> inflation. This will help the banks.
> 3. A steep yield curve will also be held in place by the Fed - ideal
> for the banks to make money.
> 4. The Fed will take further action as it needs to - it has a lot
> more fire power if it needs it.
> 5. Banks that can be allowed to fail will be allowed to fail. There
> is a severe risk to individual bank shares but you over estimate
> the risk to the wider economy. The remaining banks will have more
> pricing power and be stronger. The costs will be picked up by future
> consumers and tax payers.

Aug 16 10:19 AM

[Mayascribe:]

More depressing than anything you wrote in this article, John, is that as of today the estimated US currency and derivatives debt is currently $644.52 trillion, and climing more than $100.000/second.

Aug 16 10:22 AM

[nomoron:]

The word you're looking for is "exacerbate". Exasperated is how I feel too often when I read stuff on the internet. (Look it up)


On Aug 16 05:44 AM Steven Hansen wrote:

> You don't think the change in accounting standards will exasperate
> this crisis? Maybe if we change the accounting standards again, the
> crisis will go away. Or maybe the banks can make extra money by selling
> smoke and mirrors in their lobby.

Aug 16 10:22 AM

[John Lounsbury:]

John S. Gordon - - -

Great question. I am not prepared to discuss this, my studies of that time period are quite superficial. I know I'll get there, bur it will be too late for this discussion, by far. Maybe someone else is better able to respond.


On Aug 16 09:29 AM john s. gordon wrote:

> to what degree was the financial hardship of 1873-1907 caused/exacerbated
> by adherence to the gold standard? opinions please.

Aug 16 10:23 AM

[Ransome:]

I was pondering the collapse of the housing bubble. Poor quality lending created securities that were not money good. But the lax lenders were not the only to suffer, homeowners, even those that sat on the sidelines castigating their imprudent credit leveraged neighbors, all suffered tremendous wealth destruction. Far more than the bubble wealth.

The chaos theory seemed to explain this phenomenon. A butterfly beat it's wings and decided that no doc loans and other types were profitable and the entire lending and borrowing enterprise adapted, throwing us over the edge into a death spiral that continues to uncontrollably expand as the chaos theory predicts. The Fed's attempt to correct the death spiral was too late, too focused and too weak, much like fighting a forest fire that has spread into discrete child fires. As chaos continues to spread, we will experience the uncertainty and the fallout until the children fires are contained. Predictions will simply be guesses.

Some are looking at regulation to prevent a repeat. Some endorse self-regulation. Some endorse watching the fires burn. Certainly if enough participants raised the alarm, it might have allowed the retreat from the cusp of chaos. If a majority of the transactions were win-win and market discipline maintained, lending would have been self-limiting when the supply of truly qualified borrowers was depleted.

Rescuing the too-big-to fail affects chaos direction but does not contain it nor is the selective approach necessarily positive. It may in fact create new chaos. A comprehensive approach is necessary if intervention is to be successful, and the government is the only entity large enough to intervene. Without discipline, we may be in a permanent state of chaos. It is apparent that the consumer is already attempting to restore discipline.

Aug 16 10:28 AM

[capital pains:]

A great big: "So what" ? Although the article is theoretically correct, in reality market manipulators, especially Goldman and their cohorts at the Fed and Treasury will continue to foster the "house of cards" our entire economy exists upon.
Ridiculous to imagine a world without JPM, BAC and even the pathetic C. As long as the taxpayer remains the ultimate backstop for the banks, we can expect a continuation of the "throw money at it" policies of our central government and the manipulators who are making obscene fortunes.
When BAC was trading at less than $2, and doomsayers were predicting breadlines, in retrospect BAC, JPM, and god-awful C, were the trades of a lifetime. The commercial real estate market which continues to collapse has meant nothing but losses for the inverse ETF, SRS. Counterintuitive for sure, but again, reality bites.
Readers of SA are traders. As long as the "trend is your friend" and you keep tight stops in, all the written analyses in the world won't make you a dime. That's how we keep score.

Aug 16 10:32 AM

[DaveW:]

John,
Thank you for a well written warning. 99.9% of the world's retail players are not traders, but fearful investors. The bulk of the noise they are exposed is the cnbc spin trying to play on their fear of missing this new 'bull market'. If the general public is caught trusting this spin a second time, it will be many, many years before retail steps foot in again.

Aug 16 10:34 AM

[6343escortsr:]

THANK YOU MR. BUSH AND #$%^& REPUBS.


On Aug 16 07:33 AM Moon Kil Woong wrote:

> If you hadn't noticed big banks, especially the ones to big to fail
> are feasting off the carnage of littler banks and off of their customers
> both depositors (who get almost no interest) and borrowers who they
> keep raising rates on. I know, some may argue that banks are loaning
> at historically low rates to new homeowners, but look at the reason
> why. The government is using Fannie Mae and Freddie Mac to buy up
> all the unprofitably and economically unsound loans which they either
> get the Fed to buy or write them off and charge it to the taxpayer
> every quarter.
>
> So in essence, what do we have? An arbitrary, favoritist, banking
> sector brough on by direct government intervention. All I can say
> is, "What do you expect when you let government interfere to this
> extent in the market?" If you think you are going to do well get
> in the giant line of people willing to bow down and kiss politicians
> and bureaucrats feet.

Aug 16 10:34 AM

[penniless_t...:]

Add me as a member of the Lonely Skeptics Club. 99% of economists have declared the recession over, and want to stick a cigar in Bernanke's mouth and buy him a drink. I don't buy it, for the reasons you list and more. Consider the shadow inventory of homes being held by the banks. Because the government allowed a change in mark-to-market accounting rules, the banks are holding onto the homes in the desperate hope that prices will go back up. But there is another tsunami of foreclosures anticipated from the Alt-A class of ARM loans, so that won't happen. The Gaussian distribution for the resetting of Alt-A loans begins this summer and won't end until 2012. I fear this means a tsunami of bank failures.

Aug 16 10:49 AM

[secmaven:]

Another tsunami of foreclosures does not bode well for the consumerism required to grow our economy. The banks will not be saved by growth in the GDP.

Aug 16 11:07 AM

[Tom E.:]

If the bankers have to shrink their balance sheets down to 12-1 leverage from 30-1, and build a cushion for loan losses, you are right, credit will contract.

However, a rising stock market will mean that companies can raise cash by issuing stock. There seems to be a government and business interest in a rising stock market, something not to be ignored.

Aug 16 11:19 AM

[MikieV:]

Amazing to see how different your thoughts are, compared to the comments Tim made in Sept 2008:

seekingalpha.com/artic...

Tim didn't expect to see many more bank failures, and you are worried we may see them in historic numbers.

What a difference a year makes. :)

Aug 16 11:27 AM

[Chris Cook:]

Maybe, in this age of the internet, the need for banks as credit intermediaries may have to be re-thought in the same way that the music industry is coming to terms with Napster and it's offspring?

Why should not a network of local Treasuries (analogous to local Feds, but maybe even more local) create the credit necessary for the circulation of goods and services and the creation of productive assets?

In such a direct model, service-providers-form... banks would not put their capital at risk (other than nominal working capital) but would manage Treasury creation of credit as required between sellers and buyers, who would pay a service charge and also a provision intoa default pool held by a DTCC style "custodian".

ie interest-free, but certainly not cost-free credit creation, where the interests of all parties are aligned.

In relation to long-term finance of completed (as opposed to under development) productive assets like homes, writers like Nicholas Taleb and Willem Buiter are IMHO on the right track when they say that if a debt solution is unsustainable - and it clearly is - then maybe we should revisit equity?

In this context, I advocate a new type of REIT

seekingalpha.com/artic...

which has the simple but radical attribute that it is redeemable in the right to occupy property.

It's not Rocket Science - it's just not Equity as we know it, Jim....

Aug 16 11:54 AM

[E Nuff Sed:]

Regarding comment on 1873 to 1907 period - that period was quite different from the present. Growth was quite robust in "real terms" and the stock market did quite well perhaps due to technological innovation and the opening up of the American west.
After that the WWI intervened and economy and stock markets were treading water till the roaring 20's.
www.scribd.com/doc/183...
The economy was immature at that time. FDIC did not exist and the Fed was immature. The gold standard ruled and there were no monetary levers like quantitative easing.

Aug 16 12:02 PM

[chap08:]

John, thanks for responding to me above. I agree with you on many points and would like to debate others. However, I will restrict myself to one which is fundamental. You say that:

"4. The only fire power the Fed has is printing money. There is high risk of casualties from friendly fire in that action."

This is wrong. The Fed can do so much more e.g. it can reduce real interest rates, which will encourage credit growth at juicy margins for banks. But most importantly, it can (and does) buy things with the money it prints. It buys things which banks own and so makes bank assets more valuable. If it needed to, it would step up the ladder of policy options and increase the range of assets that it purchases. But it has been so successful (in its own terms) that it does not need to. In fact it is pulling back. Even Greenspan thinks that it has done enough!

You are right that there will be friendly fire, but the Fed will make sure it sprays enough bullets to hit the target.

Aug 16 12:03 PM

[alajac:]

The "majority" didn't want to have private currency outlawed by a constitution that was written by a bunch of bankers and their buddies (See "Creating the U.S. Dollar Currency Union, 1748-1811: A Quest for Monetary Stability or a Usurpation of State Sovereignty for Personal Gain?" - start on page 15 with "RHETORIC VERSUS REALITY AT THE CONSTITUTIONAL CONVENTION" - at
eh.net/XIIICongress/cd...), but they got it anyway.

The Constitution has no authority and never did (see "The Constitution of No Authority" by Lysander Spooner at www.fourmilab.ch/etext...); what DOES have authority is "government guns" and a government's willingness to use those guns.

What's happening to day has happened over and over in U.S. and world history: the bankers let out credit until the system breaks, and then they roll in the collateral for the start of the next cycle.

It doesn't have to be like this, but there are certain lies (equivalent to the one about Santa) that underpin the system and keep putting the fruits of everyone's else's labor into the pockets of the bankers; the biggest one is that there is ever an ACTUAL owner of property other than the government, thus there is never any need for a government to borrow money (except to buy things owned by another government).

Government: A "government" is one or more persons who claim natural resources, are willing and able to defend their claim on those resources, and make and enforce decisions regarding the allocation of those resources; in other words, he, she, or they "govern" THEIR OWN property. Once claimed, natural resources are thereafter recognized as "property"; therefore all property comes into existence solely and only after being claimed by a government.

Governments are the DE FACTO (actual) owners of ALL the property within their dominion (i.e., the extent of the claims on natural resources/property that they are able and willing to defend); they set up "DE JURE" (legal) ownership however they like in an attempt to ensure and enhance their own survival and maximize profits for whoever controls the government (in our case, that is obviously a group that we can unpejoratively call "bankers", as it has been since the American counter-revolution of 1789).

The most notable thing that governments do is to "privatize" property, impairing everyone's right to free access to all land, a right required in order to give reality to any "right to life" there can ever be (see Tom Paine's "Agraian Justice" plan at www.thomaspaine.org/Ar...)

We just need to:
1. take control of the U.S. Federal government from the Republican and Democrat banking parties,

2. replace Fed debt-dollars with U.S. dollars backed by the $340 trillion of U.S. wealth (rather than debt)

3. Compensate everyone on a monthly basis for the government's impairment of their right to free access to all land, and

4. Get government the hell out of every form of wealth redistribution.

A more complete outline of the plan can be found on the classmates.com profile page of "Alan Jacquemotte".





On Aug 16 08:36 AM hooligan wrote:

> From a trading perspective I can see that it is appropriate to get
> in ahead of a Government that is subsidising bad performance and
> punishing good performance. The failure of the democratic process
> to allow the will of the majority to hold sway over the vested interests
> who continue to "game" the system is disappointing to say the least.
> There is a "truth" that is avoided by all the intervention that the
> Fed, the politicians and the gamesters (who are transferring tax
> payers dollars directly to their own pockets) because it is either
> too easy to avoid the truth, or because they dont understand what
> the truth is. The truth is that if intervention created jobs and
> unemplyment we would have been doing it for decades. It doesn't work
> and never has. Intervention is a communist ideal. The subsidy of
> a favoured cabal that has not only transferred wealth from the economy
> to the cabal by charging exhorbitant fees and transaction costs,
> but can't even preserve the very wealth it transferred. The banking
> model has not failed, what has failed is the willingness to prosecute
> because of fear and lack of ability to see crime. Intervention by
> subidising bad banking practise and exploitation will lead to failure,
> as it always has and always will. Intervention to prosecute those
> who have profited from malpracise in the past and a culture of of
> fair play is the way forward. Anyone who thinks that win/lose for
> a zero sum game is the way forward does not believe in the evolution
> of our civilisation and democratic process. Win/win for an overall
> increase in economic rent is also the way forward.

Aug 16 12:21 PM

[Global Inve...:]

As a shareholder in BB&T which picked up the pieces in Colonial Bank last Friday with the FDIC; but the State of Alabama was nowhere in the deal, despit what the writer wrote, I think we are in quandary between laudable goals: saving depositors' their deposits which is a national obligation; and saving banks which is not. BBT bought the Colonial accounts in a sharing deal with the FDIC which makes BBT too big to fail. We are creating more and more oligarchic banks which are too big to fail in order to save depositors. which will win? as a BBT shareholder natch I am glad it is now too big to fail. but as a taxpayer I am not so sure

Aug 16 12:33 PM

[cino:]

i have a alil different take...

funny how MANY banks make a ton of $$... they just don't manage it well. the starting point is what they pay top management. how many millions does one need AND at the detriment of the company, it's employees, etc.?

talk to a small business person who OWNS the company. they do not operate like that & are prob. the BEST people at managing their business $$.

small businesses do NOT pay themselves HUGE amounts of $$ – they get paid what's 'LEFTOVER' from incoming funds. it's actually quite simple.

the big banks executives do NOT own the company & are out 1st for themselves NOT the business. greed is a terrible thing & got us where we are today.

Aug 16 12:46 PM

[Crude Oil T...:]

I am not laughing, you are right on. While the banks will benefit from growing deposits, it won't be enough. They will start closing branches at an amazing rate, and giving us yet another, while small in the scope of things, sector losing jobs.

Aug 16 12:51 PM

[GeneDexter:]

As the FDIC is a clearing house/entity for the U.S. and not a bank, I'm sure increased taxes are around the corner to cover some of this messy affair.

Aug 16 01:00 PM

[Donald Ingram:]

The number of bank failures this year reported by the FDIC is misleading.
Case in point is Colonial counted as ONE bank failure, yet Colonial operated over 350 branches in a number of south east states.
Would be interested in the number of failed bank units - not just the number of failed parent banks.
Another way the FDIC sugar coats numbers for the sheeple.

Aug 16 01:09 PM

[John Lounsbury:]

mikiev - - -

Tim fell victim to false premises. Quoting from his article: " I do not see failures accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom." That was written almost 12 months ago.

We all fall into false premise traps. One year from now, you can return to this article and create a new list of false premises. Do you have any wonder why economists are characterized as the people who say: "On one hand......, but then on the other......"?



On Aug 16 11:27 AM MikieV wrote:

> Amazing to see how different your thoughts are, compared to the comments
> Tim made in Sept 2008:
>
> seekingalpha.com/artic...
>
>
> Tim didn't expect to see many more bank failures, and you are worried
> we may see them in historic numbers.
>
> What a difference a year makes. :)

Aug 16 01:19 PM

[John Lounsbury:]

Vivian - - -

Thanks for your thoughtful comment. I have one nit picking reply to your statement: "the State of Alabama was nowhere in the deal, despit what the writer wrote".

Colonial bank was operating under a license from the State of Alabama, so the state was very much involved. The following is a quote from the Colonial Bank website (colonialbank.com/):

"On Friday, August 14, 2009, Colonial Bank, Montgomery, AL was closed by the Alabama State Banking Department. Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver."

I try to research my articles thoroughly. When errors sneak through, I always try to thank the commenters who point them out. In this case, I can only thank you for the rest of your comment, which was well stated.





On Aug 16 12:33 PM Global Investing Editor wrote:

> As a shareholder in BB&T which picked up the pieces in Colonial
> Bank last Friday with the FDIC; but the State of Alabama was nowhere
> in the deal, despit what the writer wrote, I think we are in quandary
> between laudable goals: saving depositors' their deposits which is
> a national obligation; and saving banks which is not. BBT bought
> the Colonial accounts in a sharing deal with the FDIC which makes
> BBT too big to fail. We are creating more and more oligarchic banks
> which are too big to fail in order to save depositors. which will
> win? as a BBT shareholder natch I am glad it is now too big to fail.
> but as a taxpayer I am not so sure

Aug 16 01:40 PM

[AllStreets:]

Great article, John. You and others have convinced me that there will be massive bank failures due to additional consumer and business bankruptcies and residential foreclosures unless something effective is done to quickly relieve the underlying problems, the excess consumer debt burden and defaulting loans. The ongoing recession is causing irreversible damage to consumers and letting that play out with massive bankruptcies and foreclosures and bank failures will both postpone and limit any general economic recovery. The prime focus of government efforts to date, and the entire focus of Fed action, has been saving a few privileged lenders, investment banks and corporations. But, as you pointed out in your comments above, bank failures, as well as damage to corporations and investors, are the symptoms, not the causes of credit system problems, and saving lenders directly or having the FDIC sell them does nothing to fix the underlying problems. If the consumers can be rescued, then the banks and Wall Street will automatically be rescued too.

The problem is so large and urgent now that only the federal government as the lender of last resort has the means to detoxify the private loans at risk. Just letting everybody go broke while hoping for a quick enough recovery is a highly uncertain and severely risky approach for both creditors and debtors in the intermediate and long terms. But it matters a lot who gets the loans. The right solutions aren't having taxpayers buy toxic debt securities while letting debtors fail, or federal lending to a select few banks as with TARP, which is a grossly unfair approach, or special Fed lending facilities, since none of those programs do anything to cure the underlying bad debts. I am really exhausted and frustrated by witnessing the widespread monomaniacal focus on saving corporations, investors and lenders with taxpayer funds while there is no discussion of doing annoying for the consumer taxpayers who ultimately pay the bill for all the business rescues.

One very effective approach would be direct government lending to consumers to transform a portion of excess mortgage debt into long term low interest loans not secured by the properties, and to transform other consumer debt, especially credit card debt, into debt more easily serviced. A properly designed program of long-term, low-interest federal loans fairly available to all adult citizens without qualifications will simultaneously save consumers and their lenders without discrimination. It will also restore much value to existing debt securities.

I've designed a comprehensive plan to do that in a manner fair to all adult American citizens that won't increase the federal debt at all, The AllStreets Bailout Plan detailed at themortgagenews.info. The program uses about $5 trillion in loans to transform $1.9 trillion (about 15% of the total $12.8 trillion) of all residential mortgage debt into 3% 30-year federal loans not secured by the properties. Those loans are fairly allocated to all residential property owners, and the loan associated with each property is equally shared by the borrower and her lender. Payments on remaining balances are recast. The loan pay down is immediate liquidity to the lender at 3% for 30-years, and the mortgage is then less, or not at all, upside down. The borrower has significantly less total debt, and reduced interest cost and payments. The balance of the $5 trillion is available in a fairly allocated manner to all adult American citizens who don't own residential properties to use to pay down credit card debt, purchase a property, invest in a business or as a personal loan. Funds from all of the loans will immediately flow to lenders, but only through their debtors, which is the only way to solve the systemic problems. The loans will either displace, or make unnecessary most, if not all, of the $11 trillion in TARP and other loans and guarantees.

The program greatly alleviates the single most threatening problem for lenders, the upside down mortgages. It greatly reduces the odds of borrowers walking away from mortgages, and frees up many borrowers to refinance or sell without a loss. It relieves the consumer debt burdens by reducing debt service payments. The key to fairness in the program is the use of the drop in value of each residence, and the use of area median home values for those who don't own a property.

No doubt the "free marketers" would be apoplectic over such a "socialist" program. But we now have the federal government , which has been socialist in many respect for decades anyway, owning via debt or risk insurance all or a big piece of the auto makers, AIG, money center banks, Fannie Mae, Freddie Mac, insurance on VA and FHA loans, FDIC deposits, pensions, and on and on. All of those programs are actual or prospective damage control, but don't alleviate the main underlying problem. It's high time that federal loan programs were used to actually solve the economic problem, not just to save wounded elite, and that's with loans to taxpayers who ultimately bear the risk or pay for any and all of the federal programs.

Aug 16 01:41 PM

[wg:]

Everybody talks about this "tsunami" of foreclosures that is upcoming, but nobody can say how much it will cost and to who, and who won't be able to afford it, etc.

The real problem is that there are too damn many banks. Its not just a bank on every streetcorner anymore--its three or four banks on every streetcorner! We are up to our asses in banks, and without enough people who know how to run them! No wonder it went haywire.

Aug 16 01:45 PM

[diogeron:]

There was no national banking system when the "founding fathers" were alive. It was the Sec. of the Treasury, Salmon P. Chase, in 1861 who pushed for a system of federally chartered national banks which, in turn, led to the establishment of the OCC, a former client of mine.

On Aug 16 09:55 AM WD wrote:

> I'm amazed at how many people commenting understand the dire straits
> America is in. This is the first step towards changing it, but how
> far are we going to let the politicans push us before we begin tossing
> them out and returning to the form of government that the founding
> fathers created?
>
> Since when did the founding fathers preach to bail out failure and
> tax success? As long as government has that philosophy America will
> continue on its downward spiral.

Aug 16 01:46 PM

[John Lounsbury:]

All Streets - - -

Very interesting discussion. I have one big reservation: I believe too many prople would look at your government loans as "free money" and treat it frivilously. We have a big problem with financial illiteracy in this country. Giving money to a financial illiterate is like giving a book to a conventional illiterate. The book is either used as a physical object or fireplace fuel. It won't get used in a way that values it properly.

Liked your website.

Aug 16 01:51 PM

[OneRichOne:]

OK, lets put the blame where it really belongs. That is with all these free trade agreements. These caused massive loss of good jobs in the U.S. all in the name of cheaper goods made in Chinese sweat shops. People who were making good money wanted new homes, cars, boats and so on borrowed money to buy them. When their jobs were shipped to China and they were laid off, they couldn't pay off these loans. Many were forced into bankruptcy. Now the banks had to foreclose on overvalued homes, repossess cars, boats and so on. What will a bank do with all these overvalued homes and so on? Sell them if they can to at least recoup a portion of that money, but alas, the bank loses. Now the fed steps in and prints more paper to bail out some of the "to big to fail" banks. Borrows money from China to cover this new paper they print. Eventually, China will own the United States and never need to fire a single shot.
What can we do? Don't buy anything made in China. Whoops, that won't work because almost everything is made in china except agricultural products. We MUST bring the Jobs back to the United States if we ever hope to see the end to this mess. I do not blame the Unions for overpricing labor, and can't blame the companies that took advantage of this cheap labor via free trade agreements. If you don't believe that almost everything is made in China, just go to the store and look at any product. Guaranteed, nine out of ten things you look at will have a label "MADE IN CHINA".
A few lucky people found new jobs in the healthcare industry... at half the money their old jobs paid. These lucky people still couldn't pay the loans they took to buy the new houses, cars and so on because they were making half the money they made before their jobs were shipped overseas. The government of coarse lied to the people about unemployment because the people found jobs in healthcare or other service type jobs. I have no answers to this since many companies actually sent equipment to China to make their products.
Even service jobs went overseas to India. Just call the 800 number if you have a problem with your computer and you will get someone that can't even speak english well enough to communicate effectively.

Yes, it will get much worse before it gets any better.

Aug 16 01:52 PM

[Mayascribe:]

John: I'm not one who cares about thumbs up or down, or promoting myself here on SA. However, I think you should read my latest instapost, where I sum up how rapidly the US national debt is increasing. The post will also direct you to the source of how I got all of those disturbing figures.

Aug 16 01:54 PM

[Buckoux:]

Yes, but were those "branches" really nothing more then extensions of the real bank from a distant corporate headquarters? Are some of these bank closings nothing more than shutting down the brick and mortar supports for ATM'S? Many of the loan officers at these branches were nothing more than derivative brokers working for Wall St. through their bank corporate headquarters. If a couple on Maple St. wanted a home loan for a value priced house, or the Main St. hardware store owner wanted a business loan to expand into hardware that HomeDepot does not carry, would the generic loan officers at these bank "terminals" have made such locally utilitarian loans. I think not. Global economy or no, we all still live at home. As far as I'm concerned these ATM's for Goldman Sachs derivatives department did nothing but ruin America.

Or, if most of these bank branches were, instead, medical clinics offering "Obamacare", would you have taken your kid there? We have had a front row seat at socialized banking. The nomenclatura all have their "share-of-the-wealth" in offshore accounts and we are left with the result.


On Aug 16 01:09 PM Donald Ingram wrote:.

> "....Colonial counted as ONE bank failure, yet Colonial
> operated over 350 branches in a number of south east states."

Aug 16 02:02 PM

[Donald Ingram:]

John -
Correct me if I'm wrong, but is it not so that during the Great Depression the banks were not allowed to operate branch banks?
I know that roughly 50% of the banks - numbering in the thousands, failed during the Great Depression.
With the FDIC's current method of counting failed banks - they count the parent bank as ONE failure, even tho that parent operates hundreds of bank branches that are not counted as bank failures.
Is this not misleading the public, by way of exclusion, the true number of failed banks? Rather than just reporting the parent company of these branches as ONE bank failure?
Your thoughts please?
Also would be interested in the comparison of the true total number of failed bank units during this current depression - to the failed number of banks at this same juncture in time during the Great Depression.
I think the results would be surprising. Thank you.

Aug 16 02:04 PM

[Econ 101:]

6343escortsr: Dont just blam W and the GOP. The Jacka** Democrats were in charge since 2006 and they contributed to the bubble and mis regulation of banking. What partd do you think Bartney Frank is from??? The history of America being sold out by politicians goes back as far as Andrew Jackson. he tried to clean out the money interests, but only sicceeded until the Federal Reserve was inacted.

How about this for a solution. The government takes in all the home mortgages via Fannie and Freddy, then simply forgives them and the home owners own the home free and clear. Sure the government takes a hit, but the banks could then lend 80% of the value of the house and our consumer economy would then take off. Witrh the tax revenues generated I am sure we could pay off the debt in 6 or 7 generations, when we are all dead.

Support HR 1207, an audit of the Federal Reserve!

Aug 16 02:26 PM

[Econ 101:]

The crisis of 1873, et al, marked the passing of the torch from Great Britan to the United States in terms of world leadership. In 100 years historians will look back at the crisis of 2008 and say it marked the passing from the US to someone else. I expect China, but maybe Brazil will be the next leader. In any case the American dream is being choked by giveaways and socialism for the rich and surfdom for everyone else. The programs enacted in the past 12 months gurantee the rich political contributors to the Democrats and Republicans will continue to thrive while the rest of us fight for scraps.

Look to the Hamptons for where your money went when your kid is hungrey this winter.

Aug 16 02:34 PM

[John Lounsbury:]

Donald - - -

To address your question properly would require an analysis that would include input as follows:

1. Assets per branch per bank failure today.

2. Assets per bank failure in the 1930s.

3. Normalization of the results on a per capita basis and to reflect the purchasing power degradation of the dollar 1930s to 2000s.

I don't have the data at my finger tips. But you have asked a great question and I am putting it in my notebook of worthy investigations in case I see some of the data in the future. (Warning, that notebook has a lot more entries than I'll ever get to, so this is not a promise to complete the project.)


On Aug 16 02:04 PM Donald Ingram wrote:

> John -
> Correct me if I'm wrong, but is it not so that during the Great Depression
> the banks were not allowed to operate branch banks?
> I know that roughly 50% of the banks - numbering in the thousands,
> failed during the Great Depression.
> With the FDIC's current method of counting failed banks - they count
> the parent bank as ONE failure, even tho that parent operates hundreds
> of bank branches that are not counted as bank failures.
> Is this not misleading the public, by way of exclusion, the true
> number of failed banks? Rather than just reporting the parent company
> of these branches as ONE bank failure?
> Your thoughts please?
> Also would be interested in the comparison of the true total number
> of failed bank units during this current depression - to the failed
> number of banks at this same juncture in time during the Great Depression.
>
> I think the results would be surprising. Thank you.

Aug 16 02:46 PM

[swaps:]

The banking system is teetering as this article documents.
Yet the Administration and Congress are focused on forced vaccinations of the population to combat a flu outbreak that has allegedly caused only 300 deaths world wide populaton of 7 billion.. But every weekend auto wrecks kill 300 people in just the U. S.
And a major overhaul of the health care system is on the front burner. But health care has been tied to people with jobs - and jobs are disappearing and the income to pay for health care..
The Republicrats are turning to secondary issues right now because they have been told the recession is almost over and Benranke (sic) should be reappointed.
If any Republcirats wake up and say the financial system is flawed they risk at worse death or at the least character assassination..
The current banking system falls apart every 80 years and causes major disruptions and dislocations and pain every 10 or so years in between massive failures. It has to be replaced with something else.
It may mean a return to the Renaissance days when usury was forbidden and people simply bought and sold on contracts without interest. If a buyer defaulted the percentage of the contract that had been paid off became his or her ownership percentage in the item then resold to someone else. No more total wipe outs.
This would be a horrible system though. Crafty, amoral people would not be able to game this kind of system with funny money created out of thin air. They would have to work for their living. Or become outright obvious bandits.
Kings would be wise to leanr from the past and not to borrow their kingships into insolvency by asking the banksters to finance wars in foreign lands for egocentric needs.

Aug 16 02:49 PM

[Robert0713:]

It's been pointed out (elsewhere) that the Big Banks profits have been from trading, not banking. More than a few of the comments say, essentially, "I don't care what's good for the economy/society as a whole, just whether I can get rich trading". The commenters seem not to see the irony/hypocrisy.

We have a problem just because income inequality has reached the point where the system no longer can sustain itself. The few has taken so much of income, that there is nothing left of a middle class to drive consumption. Without consumption, capital has no value. The few can't consume enough to keep the system running.

This meltdown started with Reagan, convincing stupid poor people that they could get rich if they voted for the right wing, which set out (successfully) to re-write the rules to make stupid poor people yet poorer (for which those stupid poor people rested assured that abortion and unions were dead). At that time the top 1% took 8% of national income. By 2007 that 1% took 22%. That year, 40% of corporate profit came from financial services; which is to say, unproductive activity.

What we have now is a death spiral, with the few gorging on the many. Eventually, there will be nothing left, and the few will have to recalculate who should belong to the "few", such that they can gorge for a bit longer. It won't be very long.

The recovery in Europe (and China) makes clear that allowing the few to exploit the many needs to be controlled. For the long term benefit of the few, as well.

Aug 16 03:02 PM

[Donald Ingram:]

John -
Thank you for the come back.
I would hazard a guess that the current bank failures (counting each unit as one) are on par, or very close to the number of failures that occurred during the Great Depression, taking into account that there are 185 million more Americans now than during the 1930's.
Also would be very interesting to see the results in a graph form.
Thank you for the article. Great food for thought.

Aug 16 03:05 PM

[ebworthen:]

LOL

Positive thinking can be delusional thinking.

If the 200 million + citizens don't have money or enough to pay mortgage, insurance, and other bills it won't matter how much the FED backstops the banks.

The only thing too big to fail is the middle class and we have been thrown under the bus for illegal immigrants, the slotlful underclasses, and the upper class.

Aug 16 09:15 AM chap08 wrote:

> While I dont disagree with the facts in this article, it really says
> nothing new and it ignores some key facts:
>
> 1. Systemic failure is now far less likely than it was last year.
>
> 2. The Fed has avoided hard defaltion and will continue to move towards
> inflation. This will help the banks.
> 3. A steep yield curve will also be held in place by the Fed - ideal
> for the banks to make money.
> 4. The Fed will take further action as it needs to - it has a lot
> more fire power if it needs it.
> 5. Banks that can be allowed to fail will be allowed to fail. There
> is a severe risk to individual bank shares but you over estimate
> the risk to the wider economy. The remaining banks will have more
> pricing power and be stronger. The costs will be picked up by future
> consumers and tax payers.

Aug 16 03:11 PM

[User 458878:]

Actually, the Democrats took control of congress in 2007 (elections Nov, 2006). Otherwise, good comment.


On Aug 16 02:26 PM Econ 101 wrote:

> 6343escortsr: Dont just blam W and the GOP. The Jacka** Democrats
> were in charge since 2006 and they contributed to the bubble and
> mis regulation of banking. What partd do you think Bartney Frank
> is from??? The history of America being sold out by politicians goes
> back as far as Andrew Jackson. he tried to clean out the money interests,
> but only sicceeded until the Federal Reserve was inacted.
>
> How about this for a solution. The government takes in all the home
> mortgages via Fannie and Freddy, then simply forgives them and the
> home owners own the home free and clear. Sure the government takes
> a hit, but the banks could then lend 80% of the value of the house
> and our consumer economy would then take off. Witrh the tax revenues
> generated I am sure we could pay off the debt in 6 or 7 generations,
> when we are all dead.
>
> Support HR 1207, an audit of the Federal Reserve!

Aug 16 03:12 PM

[ebworthen:]

So let me get this straight:

Another debt bubble to solve the current debt bubble?

Uncollateralized loans to people who cannot demonstrate and ability to pay to solve a debt crisis caused by the same?

This would work as well as federal housing projects in inner cities.

Your plan would be like watching a rerun on T.V. with commercials of a bad sequel with no popcorn.


On Aug 16 01:41 PM AllStreets wrote:

> Great article, John. You and others have convinced me that there
> will be massive bank failures due to additional consumer and business
> bankruptcies and residential foreclosures unless something effective
> is done to quickly relieve the underlying problems, the excess consumer
> debt burden and defaulting loans. The ongoing recession is causing
> irreversible damage to consumers and letting that play out with massive
> bankruptcies and foreclosures and bank failures will both postpone
> and limit any general economic recovery. The prime focus of government
> efforts to date, and the entire focus of Fed action, has been saving
> a few privileged lenders, investment banks and corporations. But,
> as you pointed out in your comments above, bank failures, as well
> as damage to corporations and investors, are the symptoms, not the
> causes of credit system problems, and saving lenders directly or
> having the FDIC sell them does nothing to fix the underlying problems.
> If the consumers can be rescued, then the banks and Wall Street will
> automatically be rescued too.
>
> The problem is so large and urgent now that only the federal government
> as the lender of last resort has the means to detoxify the private
> loans at risk. Just letting everybody go broke while hoping for a
> quick enough recovery is a highly uncertain and severely risky approach
> for both creditors and debtors in the intermediate and long terms.
> But it matters a lot who gets the loans. The right solutions aren't
> having taxpayers buy toxic debt securities while letting debtors
> fail, or federal lending to a select few banks as with TARP, which
> is a grossly unfair approach, or special Fed lending facilities,
> since none of those programs do anything to cure the underlying bad
> debts. I am really exhausted and frustrated by witnessing the widespread
> monomaniacal focus on saving corporations, investors and lenders
> with taxpayer funds while there is no discussion of doing annoying
> for the consumer taxpayers who ultimately pay the bill for all the
> business rescues.
>
> One very effective approach would be direct government lending to
> consumers to transform a portion of excess mortgage debt into long
> term low interest loans not secured by the properties, and to transform
> other consumer debt, especially credit card debt, into debt more
> easily serviced. A properly designed program of long-term, low-interest
> federal loans fairly available to all adult citizens without qualifications
> will simultaneously save consumers and their lenders without discrimination.
> It will also restore much value to existing debt securities.
>
> I've designed a comprehensive plan to do that in a manner fair to
> all adult American citizens that won't increase the federal debt
> at all, The AllStreets Bailout Plan detailed at themortgagenews.info/.
> The program uses about $5 trillion in loans to transform $1.9 trillion
> (about 15% of the total $12.8 trillion) of all residential mortgage
> debt into 3% 30-year federal loans not secured by the properties.
> Those loans are fairly allocated to all residential property owners,
> and the loan associated with each property is equally shared by the
> borrower and her lender. Payments on remaining balances are recast.
> The loan pay down is immediate liquidity to the lender at 3% for
> 30-years, and the mortgage is then less, or not at all, upside down.
> The borrower has significantly less total debt, and reduced interest
> cost and payments. The balance of the $5 trillion is available in
> a fairly allocated manner to all adult American citizens who don't
> own residential properties to use to pay down credit card debt, purchase
> a property, invest in a business or as a personal loan. Funds from
> all of the loans will immediately flow to lenders, but only through
> their debtors, which is the only way to solve the systemic problems.
> The loans will either displace, or make unnecessary most, if not
> all, of the $11 trillion in TARP and other loans and guarantees.
>
>
> The program greatly alleviates the single most threatening problem
> for lenders, the upside down mortgages. It greatly reduces the odds
> of borrowers walking away from mortgages, and frees up many borrowers
> to refinance or sell without a loss. It relieves the consumer debt
> burdens by reducing debt service payments. The key to fairness in
> the program is the use of the drop in value of each residence, and
> the use of area median home values for those who don't own a property.
>
>
> No doubt the "free marketers" would be apoplectic over such a "socialist"
> program. But we now have the federal government , which has been
> socialist in many respect for decades anyway, owning via debt or
> risk insurance all or a big piece of the auto makers, AIG, money
> center banks, Fannie Mae, Freddie Mac, insurance on VA and FHA loans,
> FDIC deposits, pensions, and on and on. All of those programs are
> actual or prospective damage control, but don't alleviate the main
> underlying problem. It's high time that federal loan programs were
> used to actually solve the economic problem, not just to save wounded
> elite, and that's with loans to taxpayers who ultimately bear the
> risk or pay for any and all of the federal programs.

Aug 16 03:16 PM

[ebworthen:]

The Republican/Democrat debate is old hat.

Government is in collusion with big banks and corporations to rape the middle class.

It's about money, politics is the distraction.




On Aug 16 03:02 PM Robert0713 wrote:

> It's been pointed out (elsewhere) that the Big Banks profits have
> been from trading, not banking. More than a few of the comments say,
> essentially, "I don't care what's good for the economy/society as
> a whole, just whether I can get rich trading". The commenters seem
> not to see the irony/hypocrisy.
>
> We have a problem just because income inequality has reached the
> point where the system no longer can sustain itself. The few has
> taken so much of income, that there is nothing left of a middle class
> to drive consumption. Without consumption, capital has no value.
> The few can't consume enough to keep the system running.
>
> This meltdown started with Reagan, convincing stupid poor people
> that they could get rich if they voted for the right wing, which
> set out (successfully) to re-write the rules to make stupid poor
> people yet poorer (for which those stupid poor people rested assured
> that abortion and unions were dead). At that time the top 1% took
> 8% of national income. By 2007 that 1% took 22%. That year, 40% of
> corporate profit came from financial services; which is to say, unproductive
> activity.
>
> What we have now is a death spiral, with the few gorging on the many.
> Eventually, there will be nothing left, and the few will have to
> recalculate who should belong to the "few", such that they can gorge
> for a bit longer. It won't be very long.
>
> The recovery in Europe (and China) makes clear that allowing the
> few to exploit the many needs to be controlled. For the long term
> benefit of the few, as well.

Aug 16 03:18 PM

[ebworthen:]

Dude.

The politics angle is old hat.

Politics is the distraction.

Obama will not save you any more than Ben Bernanke, Stalin, or the Tooth Fairy.


On Aug 16 10:34 AM 6343escortsr wrote:

> THANK YOU MR. BUSH AND #$%^& REPUBS.

Aug 16 03:22 PM

[Mubtuc:]

Great Comments except for one of yours, "But it has been so successful (in its own terms) that it does not need to. In fact it is pulling back. Even Greenspan thinks that it has done enough!"
Greenspan is a moron, knighted by the Queen of England for selling us out. Get rid of Bernanke that would be a sign to the American People and the World that we are serious about cleaning this mess up. Send them both along with Paulson and all the Goldman Sachs boys over to England and lock them up in the AIG pit.
I've been reading economic articles for years and nobody timed the September 2008 crash except maybe for Jim Willie and a couple others. All the article writers are go-go boys for Wall Street. Even the gold-bug writers are just doing a job. A few of the University Professors were starting to speak up in the last year; where were they since 2000? Bubble after bubble, obvious to my ninety year old mother, "Google is worth more than GE? Who's making the washing machines?"
Look back, an obvious setup now, do you think the future will be any different? "Welcome to the jungle".

Aug 16 03:37 PM

[Swashbuckler:]

Regarding a Banking Crisis of Historic Proportions---The Treasury and The Federal Reserve can screw around with money supply and interest rates and collude with Goldman all they want, but if a couple of the big banks bite the dust and the bank runs start, then it's uncharted territory. Financial chaos. A reset in hell, with all the sh#t purged. A new start with lessons learned may not be all bad.

Aug 16 03:47 PM

[chap08:]

ebworthen

Sounds like you could do with some help turning your life around. Well, stop ranting about my comments and listen up, you might learn something useful.

Why do you think that the Fed can only backstop the banks? If you've got a job, then Bernanke has talked about backstoping YOU. Have you read up about his policy options? I'm guessing not. I suggest you do. Think about what would happen before we got to "200 million + citizens" who can't pay the bills. If you havn't got a job or security then, genuinely, good luck to you.


On Aug 16 03:11 PM ebworthen wrote:

> LOL
>
> Positive thinking can be delusional thinking.
>
> If the 200 million + citizens don't have money or enough to pay mortgage,
> insurance, and other bills it won't matter how much the FED backstops
> the banks.
>
> The only thing too big to fail is the middle class and we have been
> thrown under the bus for illegal immigrants, the slotlful underclasses,
> and the upper class.
>
> Aug 16 09:15 AM chap08 wrote:

Aug 16 04:43 PM

[The Silver ...:]

You need to inflation adjust those S&L numbers of $500 billion. They are closer to $1 trillion in today's money. The S&L crisis coincided with the last real estate slump but that one was not so leveraged...

I wrote this last year on the credit crunch and gold:

seekingalpha.com/artic...

Aug 16 05:27 PM

[capt Brian:]

I wonder if anyone will go back and read some of my posts weeks and months ago. Have to sift thru almost 200 of them, but I have been saying all along this was coming. In fact, I am suprised it is taking so long to blow a hole in the bottom of our ship of state. It took the captain quite a while to admit the Titanic was going to meet Davey Jones. I have seen this coming for over 40 year, at least since I was in a foxhole in Nam. Our fiscal policies just cannot and will not work. I don't care if you are a mom and pop store on the corner, or the richest country in the world, you just cannot keep taking money out of the piggy bank at a rate higher than you replace it. You MUST eventually go broke, even with the ability to make you own money.

There is a way out of this mess because people do not want bad times, they do not want to 'hunker down', and protect their homes, lives, and food in the house. We don't want to have to fight for anything anymore, we have already fought and died for life liberty and the pursuit of happiness, and it is being ripped from our grasp. We are grabbing defeat from the jaws of victory, and we are allowing it to happen. Go ahead, ask me, is there a quick way out of this mess? YES YES YES, THERE IS!!! But seems no one in charge cares about anything but their own situation. Obamma rented a multi-million dollar estate for a vacation, while millions are living out of their homes. What is wrong with this picture. Socialism and facism for all but our leaders. They jam things down our throats and take other medicine for themselves in the form of raises and medical plans that we cannot have.

Go ahead voters, you have one chance left to save this country on the edge of the abyss, and that is the election coming up, unless you can find some legal way to change the people in Wash. D.C. quicker.

Woe is us, we have met the enemy and he is us.

Capt. Brian.
The Lost Navigator
happy grins.

SOMEONE HAS TO TAKE RESPONSIBILITY
ps I am a former marine, and feel very sad for my comrades in arms who may have died for nothing.

Aug 16 05:50 PM

[PainfullyAware:]

The Worst Is Yet To Come.

Aug 16 05:55 PM

[I am not a ...:]

And once they cross to the down side and you begin to offload,you are far too late,it's not trading at that point but "bailing out".


On Aug 16 07:58 AM castle wrote:

> Most of us here are not fortune tellers but traders. Traders trade
> what they see. The financials have been in a rally for while now.
> Most are trading above there moving averages. I see no reason to
> exit my positions until they cross to the downside. This is basic
> trading fundamentals. Lets hope your analysis is in error, it would
> not be good for any of us.

Aug 16 06:12 PM

[chap08:]

Money Talk, same arguement same rebuttal. You are wrong to say that "There is nothing FED can do about it (deflation)". There is everything that they can (and would if necessary) do. The Fed have only engaged with the most limited of options that Bernanke has outlined and yet, the most severe deflationary circumstances we have ever seen have only delivered very mild deflation.

The Fed have pulled back for now, they think that the job is largely done, but if it came to it there is a long list of options that they could progressively step through to tackle deflation. This could include such items as a money financed tax cut i.e. print money and hand it out to workers. If you do enough of that you pretty soon create demand. Look back at Bernanke's publications to see where he has discussed doing exactly that.

And if your argument is that this would destroy the dollar, then just understand that you can't agrue that: a) the Fed can't tackle defaltion, AND b) the Fed would destroy the dollar. That would be logically inconsistent.


On Aug 16 04:06 PM Money Talk wrote:

>
> Deflation is here!
>
> www.tradingstocks.net/...
>
> There is nothing FED can do about it. etc.

Aug 16 06:30 PM

[dcb:]

economy does not equal banks. all things being done by fed to help banks is bad for consumer. thats the real problem!!


On Aug 16 09:15 AM chap08 wrote:

> While I dont disagree with the facts in this article, it really says
> nothing new and it ignores some key facts:
>
> 1. Systemic failure is now far less likely than it was last year.
>
> 2. The Fed has avoided hard defaltion and will continue to move towards
> inflation. This will help the banks.
> 3. A steep yield curve will also be held in place by the Fed - ideal
> for the banks to make money.
> 4. The Fed will take further action as it needs to - it has a lot
> more fire power if it needs it.
> 5. Banks that can be allowed to fail will be allowed to fail. There
> is a severe risk to individual bank shares but you over estimate
> the risk to the wider economy. The remaining banks will have more
> pricing power and be stronger. The costs will be picked up by future
> consumers and tax payers.

Aug 16 06:35 PM

[Jimbo:]

6343escort: It would be all too easy to place the blame on One ,or both, Bush's or the Republicans. Just look at the way "Government" Sachs has played the game. Wall Street has owned what ever party was nominally in power in Washington. I think the time has come for a Third Party to sweep the corrupt people away. The great danger is that we may get a "man on horseback" such as Hugo Chavez.

Aug 16 07:21 PM

[MHGSanDiego:]

This is consistent with my observation that is the government does not like the statistics, change the way they count. For example, the substitution concept in computing CPI. They replace steak with chicken and luxury cars with compacts. Well, what to do when chicken is replaced with beans and cars are scooters?


On Aug 16 05:44 AM Steven Hansen wrote:

> You don't think the change in accounting standards will exasperate
> this crisis? Maybe if we change the accounting standards again,
> the crisis will go away. Or maybe the banks can make extra money
> by selling smoke and mirrors in their lobby.

Aug 16 07:31 PM

[TinyTim:]

"Without a strong recovery, there is little hope of a good outcome for the non-oligarchy banks. "

The regional and local banks that had responsible lending practices have only the TBTF oligarchy banks to fear.

If the big banks start behaving in a predatory fashion, this will be all the more reason to bring antitrust action and break them up. Only the captive administration is in the way.

Aug 16 07:39 PM

[FB5000:]

OMG!!!!!!!!!!!!!!!!!!!...
Lending is down
More failures to come
Default rates will increase

Why didn't anyone tell me?

Everything you state is well known already in the market. Only news drives the market. None of this is news.

Below is monthly S&P during 1998 to 1992. It coincides with your chart of failures. Do you notice anything?

290188 257.10
290288 267.80
310388 258.90
290488 261.30
310588 262.10
300688 273.50
290788 272.00
310888 261.50
300988 271.90
311088 279.00
301188 273.70
301288 277.70
310189 297.50
280289 288.90
310389 294.90
280489 309.60
310589 320.50
300689 318.00
310789 346.10
310889 351.50
290989 349.10
311089 340.40
301189 346.00
291289 353.40
310190 329.10
280290 331.90
300390 339.90
300490 330.80
310590 361.20
290690 358.00
310790 356.10
310890 322.60
280990 306.00
311090 304.00
301190 322.20
311290 330.20
310191 343.90
280291 367.10
280391 375.20
300491 375.30
310591 389.80
280691 371.20
310791 387.80
300891 395.40
300991 387.90
311091 392.50
291191 375.20
311291 417.10

Aug 16 07:47 PM

[Tack:]

It's precisely these kinds of histrionic, doomsaying articles (and comments) that give me greater confidence to maintain, and selectively increase, investment positions in banks and other financials. The same people who likely lost lots of money on the downside will watch, mystified, as they observe from the sidelines the recovery phase.

And, the more the markets run away from them, the angrier they'll get, at everybody but themselves, of course.

Aug 16 07:53 PM

[rhizome:]

What about the recent actions of the Fed? Specifically, the Fed is going to purchase more treasuries in an effort to keep the long end of the yield curve down according to their recent statement. As Bernanke continues that action he is increasing the risk for foreign central banks who normally operate in that market. What happens when the foreign central banks take a look at the Fed's growing balance sheet and decide not to buy our debt? Rates will go to the moon and Benanke will end up holding the bag.

Aug 16 08:19 PM

[whidbey:]

An advance in real GDP of 4-5% in 2010 and 2011 (2-2.5% per year) seems to me to be the very best that might be obtained, but less is more likely. Indeed!

A great deal less if your operational assumptions hold. More to the point, These banks are likely to be sucked into the ring of fire by Congressional action. This will collapse the dollar and the economy will become comatose.

If you believe in your opening assumptions, then you know that there is no major recovery possible, not mention a lasting recovery.

Aug 16 08:29 PM

[Jim Dwyer:]

If we all close our eyes and pretend REAL HARD, all the houses will be worth way more than anyone can reasonably pay for them, just like before!

Aug 16 08:38 PM

[petra:]

I always try to be optimistic and don't want to look back, because histroy repeats itself sometimes and sometimes it doesn't. Will we get another Hitler or Stalin ? Probably, if the author is right about the crisis and the worst is yet to come. We could face WW3, because the last two major crisis were solved by the WW1 and WW2.
I don't think this is going to happen, we are smarter now.
Let's throw in some facts. In Germany and France the recession has already ended in the second quarter and the rest of the EU is close.
The US will do the same, the only reason we are behind the Germans and French is because they got their stimulus going right away , while the Obama-Administration was still trying to give every supporter a job and still doing.
Only thing what concerns me is this president is most of his time talking and entertaining, so when is he doing his job ?
Unfortunately they don't even get universal healthcare going, something that would help the american people big time, well but wall street will destroy it anyway.

Aug 16 08:59 PM

[petra:]

I always try to be optimistic and don't want to look back, because histroy repeats itself sometimes and sometimes it doesn't. Will we get another Hitler or Stalin ? Probably, if the author is right about the crisis and the worst is yet to come. We could face WW3, because the last two major crisis were solved by the WW1 and WW2.
I don't think this is going to happen, we are smarter now.
Let's throw in some facts. In Germany and France the recession has already ended in the second quarter and the rest of the EU is close.
The US will do the same, the only reason we are behind the Germans and French is because they got their stimulus going right away , while the Obama-Administration was still trying to give every supporter a job and still doing.
Only thing what concerns me is this president is most of his time talking and entertaining, so when is he doing his job ?
Unfortunately they don't even get universal healthcare going, something that would help the american people big time, well but wall street will destroy it anyway.

Aug 16 08:59 PM

[James Quinn:]

Excellent article John. I think you are absolutely right. There is another $1 trillion of writeoffs to go. The US banking system is insolvent. Those in charge are practicing a desperate confidence game, that will fail in the next 2 years.

Aug 16 09:52 PM

[Kimball Corson:]

Of course the little banks, by the hand of government, are being fed to the big money center banks. They have no political clout either in Washington or on Wall Street. The future competition for big banks is being wipe out as much as possible making great room for growth of the big money centered banks in the future. Conclusion: buy stock in big money centered banks. The market is not about justice, fairness or anything of the sort. It is about making money. And to think you could have bought BAC a while back at $4 a share or the others now, still on the cheap. As citizens, of course, we should be well outraged, but practically speaking, what are you going to do that stands a chance? The fix is already in.

Aug 16 10:42 PM

[sagebrushwy:]

you want my simplisic analysis of all this mess?..to many years with huge trade imbalances. you want to trade with the world with this type of disadvantage (huge trade imbalances) and you will end up living as the world lives, at a lower standard of living than what we are used to...and so the pain will continue until all the subtle economic laws have been satisfied.

Aug 16 10:49 PM

[BPYHO:]

Really dude? I'm 30 and my parents have been saying similiar type crap for 25 of them! Needless to say I tend to have a good chuckle now. I bet you were one of the people flipping out about Y2K as well right?

Anyways, good article and I agree with many of the points but I have lost my @$$ shorting banks so I definitely am just going to stay away from the sector as a whole rather than betting on or against them. It's hard to completely fail when they are getting so much free money...


On Aug 16 09:13 AM Niicole wrote:

> If the International banks wanted to put army bases on Native American
> soil to protect their investments in the United States
> the United Nations would have to allow it I'm" saying close the mints
> & open white flag factories
>
> I believe that when ( not if but WHEN ) the dollar collapses &
> is replaced as the standard of buying & selling in the world,
> there will be blood shed on the streets of America. Americans against
> Americans, Crypts against Bloods Blacks against Whites & An Army
> that’s unarmed & out of country, A National guard that will turn
> tail & run, An unprepared unarmed people except for the outlaws.
>
> IF YOU HAVE DUAL RESIDENCY ANMYWHERE IN THE WORLD GET OUT OF THE
> UNITED STATES & STAY AS FAR FROM IT AS POSSIBLE ATLEAST UNTILL
> AFTER THE IMPLOSION & AFTERMATH
> i wont cross their borders illegally if i can find a way to obtain
> a sponsor for my trade in Australia i'd pack my bags now & be
> gone tomorrow Id get there broke if necissary & re-build from
> there

Aug 16 11:40 PM

[KGY:]

I have not read everything on this thread but IMHO
1. FDIC might get part of the unused or repaid TARP
2. Just because a lot of banks worth a lot of money will collapse does not mean ALL banks will collapse or that ALL credit will dry up. Its unclear to me what difference having 1 million banks or only 2 banks makes as long as savings are intact and credit can flow where it legitimately need to.
3. Less than 10% of Bailout money spend so far so I guess there is an impeding deluge of cash.
4. The real question is removing the artificial unemployment situation. Millions of people obviously want to work to repay loans / consume more and but are finding barriers to employment.
5. Inflation impact.. dollar collapse, Helicopter Ben etc.

Aug 17 12:15 AM

[QuasiYoda:]

So if the market moves down instead of up what will you be doing?


On Aug 16 07:53 PM Tack wrote:

> It's precisely these kinds of histrionic, doomsaying articles (and
> comments) that give me greater confidence to maintain, and selectively
> increase, investment positions in banks and other financials. The
> same people who likely lost lots of money on the downside will watch,
> mystified, as they observe from the sidelines the recovery phase.
>
>
> And, the more the markets run away from them, the angrier they'll
> get, at everybody but themselves, of course.

Aug 17 01:04 AM

[iamme:]

just read this page and you will see the truth about our money system.

www.treas.gov/educatio...


On Aug 16 05:17 AM Steven Hansen wrote:

> this is the ticking time bomb beginning in 4Q 2009. for sure it will
> increase public debt (FDIC funding shortfalls). how much private
> wealth will it wipe off of the table? the bigger this crisis becomes,
> the more recessionary its effects.

Aug 17 01:34 AM

[iamme:]

that is just what the government and the Fed Reserve want you to do. They want to use the money to control you. I know people are gonna think me a conspiracy theorist but the truth is it is a true conspiracy


On Aug 16 10:42 PM Kimball Corson wrote:

> Of course the little banks, by the hand of government, are being
> fed to the big money center banks. They have no political clout either
> in Washington or on Wall Street. The future competition for big banks
> is being wipe out as much as possible making great room for growth
> of the big money centered banks in the future. Conclusion: buy stock
> in big money centered banks. The market is not about justice, fairness
> or anything of the sort. It is about making money. And to think you
> could have bought BAC a while back at $4 a share or the others now,
> still on the cheap. As citizens, of course, we should be well outraged,
> but practically speaking, what are you going to do that stands a
> chance? The fix is already in.

Aug 17 01:42 AM

[iamme:]

just in time for 2012. the myan end of the world


On Aug 16 09:52 PM James Quinn wrote:

> Excellent article John. I think you are absolutely right. There is
> another $1 trillion of writeoffs to go. The US banking system is
> insolvent. Those in charge are practicing a desperate confidence
> game, that will fail in the next 2 years.

Aug 17 01:43 AM

[untrusting ...:]

WD, true but very difficult to fight the tiny 1% elite and oligarchs that control the vast majority of the wealth in the US. The politicans and lobbyists understand that money controls and gets them re-elected. Just cannot see how the masses have any hope of defeating the big money oligarchs and their entrenched political croonies, unless their literally is a mass revolt something like the French Revolution. Someday it may get to that, but we are not at that level of desperation yet. The oligarchs and politicans are masters of payoffs, PR, manipulation, and media disinformation and have unlimited resources to spin the game so it is an overwhelming uphill battle.


On Aug 16 09:55 AM WD wrote:

> I'm amazed at how many people commenting understand the dire straits
> America is in. This is the first step towards changing it, but how
> far are we going to let the politicans push us before we begin tossing
> them out and returning to the form of government that the founding
> fathers created?
>
> Since when did the founding fathers preach to bail out failure and
> tax success? As long as government has that philosophy America will
> continue on its downward spiral.

Aug 17 01:55 AM

[iamme:]

Amen brother Amen!!!


On Aug 16 03:25 PM thomdd1959 wrote:

> The only real financial crisis of the U.S.A. is hiding in the audit
> of “The Fed Scam”!
>
> Audit “The Fed Scam” bills HR 1207 must pass in The House and S 604
> must pass in The Senate immediately! Any Representative or Senator
> that does not vote in favor of and support these bills or tries to
> “water-down” or stall these bills is clearly a Traitor and “Sold
> Out” the United States of America!
>
> “Few men have virtue to withstand the highest bidder.” --George Washington
>
>
> Does our government think that we are now here to serve them? Are
> they out of their minds?
>
> Some of our leaders today have acquired a very “twisted” view of
> their roles. Do we now have those who can no longer handle the power
> we entrusted them? Why have they abused and taken advantage of us?
> Do they no longer think they are accountable to us and believe they
> can do whatever they please? Our “public servants” have developed
> a “spirit of insubordination” and have gotten way out of control!
> This has to stop right now! This is ridiculous! If they do not want
> to listen to and serve us wholeheartedly, we no longer need them!
> “We need to do a major house cleaning immediately! Enough is Enough!
>
>
> It’s time for “We the People” of the U. S. A. to get VERY ANGRY!
>
>
> We need to keep a real close eye on all our government “public servant”
> employees. Our government was set up to serve U.S. and we no longer
> want any secrets about our money. We no longer want any misguided
> governmental arrogance directed at us!
>
> This Is A Very Public Matter!
>
> We demand real transparency, with open books and plenty of civilian
> watchdog czars. Government czars are an insult to the intelligence
> of the American people! Many of are entrusted government employees
> are a total disgrace to U.S. They only care about their own best
> interests!
>
> “Congress can revoke central bank’s charter ‘at any time’” --Ron
> Paul
>
> www.tomdavidd.com/blog/
>
> Anybody who supports “The Fed Scam” is clearly a Traitor to “We the
> People” of the United States of America!
>
> “We can all commiserate forever about how bad things have been, are,
> and will continue to be. But I don’t think that we can afford to
> wait for elections in order to have our say about putting a stop
> to this madness. Enough, already! Let’s start talking treason, prison,
> and death penalties for all malefactors in government who subvert,
> ignore, skirt and otherwise trash the Constitution of these United
> States of America. Those who have sworn to uphold the Constitution
> and have then ignored their oaths of office are guilty of perjury
> and malfeasance in office.” –Stephen A. Langford (personal communication
> to this author)

Aug 17 02:01 AM

[untrusting ...:]

Ok, you have a point... but who is anyone going to vote for. They are all the same .. Republicans, Democrats ... no difference they are all beholden to the controlling oligarchs and both have a hug vested interest in maintaining the status quo. If you can go back and get your military buddies to orchestrate a military coup, then you might have a viable option. Ross Perot tried and failed and he had the wealth to at least make a reasonable stab at it. Who else do you see that would even be willing to give it a shot. There are Americans that are smart enough, ethical enough, and wealthy enough to do it ... but they are part of the status quo as well ... so they are not willing to do it. We don't have any more George Washington's, or Abe Lincoln's, or Dwight Eisenhower's anymore these days. What we do have is crass self-serving lawyers and career politicans that only care about getting re-elected and maintaining the status quo that enables them to stay in power and continue the massive wealth transfer game.


On Aug 16 05:50 PM capt Brian wrote:

> I wonder if anyone will go back and read some of my posts weeks and
> months ago. Have to sift thru almost 200 of them, but I have been
> saying all along this was coming. In fact, I am suprised it is taking
> so long to blow a hole in the bottom of our ship of state. It took
> the captain quite a while to admit the Titanic was going to meet
> Davey Jones. I have seen this coming for over 40 year, at least since
> I was in a foxhole in Nam. Our fiscal policies just cannot and will
> not work. I don't care if you are a mom and pop store on the corner,
> or the richest country in the world, you just cannot keep taking
> money out of the piggy bank at a rate higher than you replace it.
> You MUST eventually go broke, even with the ability to make you own
> money.
>
> There is a way out of this mess because people do not want bad times,
> they do not want to 'hunker down', and protect their homes, lives,
> and food in the house. We don't want to have to fight for anything
> anymore, we have already fought and died for life liberty and the
> pursuit of happiness, and it is being ripped from our grasp. We are
> grabbing defeat from the jaws of victory, and we are allowing it
> to happen. Go ahead, ask me, is there a quick way out of this mess?
> YES YES YES, THERE IS!!! But seems no one in charge cares about anything
> but their own situation. Obamma rented a multi-million dollar estate
> for a vacation, while millions are living out of their homes. What
> is wrong with this picture. Socialism and facism for all but our
> leaders. They jam things down our throats and take other medicine
> for themselves in the form of raises and medical plans that we cannot
> have.
>
> Go ahead voters, you have one chance left to save this country on
> the edge of the abyss, and that is the election coming up, unless
> you can find some legal way to change the people in Wash. D.C. quicker.
>
>
> Woe is us, we have met the enemy and he is us.
>
> Capt. Brian.
> The Lost Navigator
> happy grins.
>
> SOMEONE HAS TO TAKE RESPONSIBILITY
> ps I am a former marine, and feel very sad for my comrades in arms
> who may have died for nothing.

Aug 17 02:31 AM

[Jabalong:]

Why does America have so many banks in the first place? Canada, whose banking system was lauded repeatedly during the past year's crisis as being an example of good governance and stability, only has about half a dozen banks for the most part, with a few smaller players and a bunch of credit unions. Now Canada only has 10% of America's population, but even if you multiplied it out then that would work out to about 60 banks, yet America seems to have hundreds upon hundreds of banks, maybe even thousands. Are there too many banks? Surely having fewer, larger, more stable banks would make for a more solid system.

Aug 17 05:15 AM

[Hmm?!:]

We could start wiht everyone's voting record in congress. Why Do I have to keep reminding Americans abourt school house rock. A bill has to get through congress before the President can sign it into law! The president really only has veto power.


On Aug 17 02:31 AM untrusting investor wrote:

> Ok, you have a point... but who is anyone going to vote for. They
> are all the same .. Republicans, Democrats ... no difference they
> are all beholden to the controlling oligarchs and both have a hug
> vested interest in maintaining the status quo. If you can go back
> and get your military buddies to orchestrate a military coup, then
> you might have a viable option. Ross Perot tried and failed and he
> had the wealth to at least make a reasonable stab at it. Who else
> do you see that would even be willing to give it a shot. There are
> Americans that are smart enough, ethical enough, and wealthy enough
> to do it ... but they are part of the status quo as well ... so they
> are not willing to do it. We don't have any more George Washington's,
> or Abe Lincoln's, or Dwight Eisenhower's anymore these days. What
> we do have is crass self-serving lawyers and career politicans that
> only care about getting re-elected and maintaining the status quo
> that enables them to stay in power and continue the massive wealth
> transfer game.

Aug 17 05:24 AM

[Tumbleweed:]

WD is absolutely correct...when government rewards failure and penalizes success, success will disappear. No true American wants to work to support deadbeats who refuse to work. Socialism hasn't worked in ANY country thus far, and won't work in America either.

Aug 17 06:01 AM

[DocRich:]

How far down the road can the government kick the can? Either they stop playing favorites and infusing money America doesn't have and we have the implosion, or they continue by whatever means they can manipulate, and the inevitable will occur much later and be all that more devastating. Obviously the market thinks the latter will be the case, and for today we continue the bullishness.

Aug 17 06:40 AM

[enigmaman:]

Put very simply we are bleeding out,

Aug 17 08:19 AM

[publicfleecing:]

inflation will work short term but will cause rolling defaults on a grand scale because of our oil dependent consumer based economy...theres no way out..system needs cleansed


On Aug 16 07:53 AM jay brebner wrote:

> looks like the banks need inflation to kick in very soon.

Aug 17 08:33 AM

[Ray Lopez:]

You might want to read the book by B. Eichengreen "Gold Fetters".


On Aug 16 09:29 AM john s. gordon wrote:

> to what degree was the financial hardship of 1873-1907 caused/exacerbated
> by adherence to the gold standard? opinions please.

Aug 17 08:56 AM

[Ray Lopez:]

raylopez99.blogspot.com/

Go here to see why the Fed/Treasury popped the housing bubble last fall. We would not have had such a sudden decline but for theses guys.

Citing John Taylor of Stanford, not just my opinion. And who got rich? Hank Paulson's old buddies at Goldman Sachs.

Aug 17 08:57 AM

[Old Rick:]

The words of Buffalo Springfield seem to be prophetic here.

Aug 17 09:15 AM

[john s. gordon:]

ray L -
thank you for the suggestion.
> jack

Aug 17 09:37 AM

[Emerald:]

I want to thank you for a very concise and accurate comment on the markets. Many investors fail to understand the "drag of the deflating credit bubble" that will take 4-5 years to unwind. It will be a slow recovery with a few up and down jolts as traders and hedgies manipulate the market through flash trading. It still amazes me that everyone jumped into B of A when Paulson's purchases were revealed. This news is a least three months old and possibly close to six months ago. He could have made a lot of money and sold into the rally. I believe Bill Gross is more accurate in saying stick with corporate bonds of modest duration and conservative (low debt) stocks that pay dividends. In the meantime, beware a possible fall crash.


On Aug 16 09:49 AM John Lounsbury wrote:

> Castle - - -
>
> I also trade (though not in banks at the moment) and I agree with
> your process for trading. You'll note that I did not try to give
> any investment advice here. I will give an opinion on trading when
> I see some technical analysis factors indicating the recent momentum
> (up) is turning. John Paulson has just revealed large positions in
> banks (especially BAC). I don't know if he thinks he is investing
> or trading. The thought has occurred to me that this could be a case
> of pump and dump. I'll ask this question again in a few months when
> his actions will reveal his strategy.
>
> I also hope I am wrong. I don't want to see my worse case scenarios.
> I am afraid that my most likely good scenario (2 -2.5% GDP annually
> over the next few years) will not avoid significant banking pain.
> The ERCI leading indicators are pounding the table for a blowout
> recovery. I am afraid that the ECRI methodology may be failing to
> properly discount the drag of the deflating credit bubble. Government
> and Fed policies are keeping some of the air in the bubble that,
> if it were to escape more quickly, would give a short term shock,
> but longer term would be much more accommodative to healthy economic
> growth.
>
> On Aug 16 07:58 AM castle wrote:

Aug 17 11:03 AM

[Stone Fox C...:]

Good response. Just this weekend BBT became a much stronger bank and banks like RF face less future competition with CNB gone.


On Aug 16 09:15 AM chap08 wrote:

> While I dont disagree with the facts in this article, it really says
> nothing new and it ignores some key facts:
>
> 1. Systemic failure is now far less likely than it was last year.
>
> 2. The Fed has avoided hard defaltion and will continue to move towards
> inflation. This will help the banks.
> 3. A steep yield curve will also be held in place by the Fed - ideal
> for the banks to make money.
> 4. The Fed will take further action as it needs to - it has a lot
> more fire power if it needs it.
> 5. Banks that can be allowed to fail will be allowed to fail. There
> is a severe risk to individual bank shares but you over estimate
> the risk to the wider economy. The remaining banks will have more
> pricing power and be stronger. The costs will be picked up by future
> consumers and tax payers.

Aug 17 11:20 AM

[ETFdesk.com:]

I am playing this headline with (XLF KBE SKF). Let's see if John's prediction materializes...

tinyurl.com/pqwmce

Aug 17 11:36 AM

[LT Trader:]

Solid article. My belief is that the lack of CAPX spending (or conservative amount that CEO's and board of directors) are allowing to be spent on top on reduction in home/commercial building are some of the key drivers.

People are more concerned about debt reduction and the like. Even for the banks, the earnings recently are not the key. The balance sheet is the key for the banks.

Aug 17 12:04 PM

[stocknerd:]

More posters eager and willing and waiting for the end of the world. Yawn. These posters are lemmings, and shouldn't be allowed to invest. Maybe they should all go into T bills, no wait, that is going into the black hole too. Gold? Hey if the world comes to and end gold is worthless too. I'm going to save all these doom and gloom posts and publish them to show what irrational fear and lothing looks like for future gnerations.

Aug 17 12:19 PM

[BRUCE E. W.:]

FINALLY SOME INSIDE WORKING GROUND PEOPLE FROM THE MIDDLE CLASS RANK AND FILE! WE NEED A LOT MORE OF THIS AND WE NEED TO MAKE PEOPLE LIKE ALLSTREETS FEEL COMFORTABLE SPEAKING OUT WITH SOME CONSTRUCTIVE PEOPLE POWER. CHECK OUT THIS THREADED STREAM FOR MORE GROUNDSWELL ORGANIZTION: baselinescenario.com/2...

This is a good discussion from BaselineScenario.com

baselinescenario.com/2...

We don't know who might be right on the cure; but we sure know who has been wrong. We need to rebuild the foundation of America not the Penthouses for this "LANDLORD" ECONOMY. "WHAT WE HAVE HERE...IS A FAILURE...TO COMMUNICATE" (Cool Hand Luke).

On Aug 16 01:41 PM AllStreets wrote:

> Great article, John. You and others have convinced me that there
> will be massive bank failures due to additional consumer and business
> bankruptcies and residential foreclosures unless something effective
> is done to quickly relieve the underlying problems, the excess consumer
> debt burden and defaulting loans. The ongoing recession is causing
> irreversible damage to consumers and letting that play out with massive
> bankruptcies and foreclosures and bank failures will both postpone
> and limit any general economic recovery. The prime focus of government
> efforts to date, and the entire focus of Fed action, has been saving
> a few privileged lenders, investment banks and corporations. But,
> as you pointed out in your comments above, bank failures, as well
> as damage to corporations and investors, are the symptoms, not the
> causes of credit system problems, and saving lenders directly or
> having the FDIC sell them does nothing to fix the underlying problems.
> If the consumers can be rescued, then the banks and Wall Street will
> automatically be rescued too.
>
> The problem is so large and urgent now that only the federal government
> as the lender of last resort has the means to detoxify the private
> loans at risk. Just letting everybody go broke while hoping for a
> quick enough recovery is a highly uncertain and severely risky approach
> for both creditors and debtors in the intermediate and long terms.
> But it matters a lot who gets the loans. The right solutions aren't
> having taxpayers buy toxic debt securities while letting debtors
> fail, or federal lending to a select few banks as with TARP, which
> is a grossly unfair approach, or special Fed lending facilities,
> since none of those programs do anything to cure the underlying bad
> debts. I am really exhausted and frustrated by witnessing the widespread
> monomaniacal focus on saving corporations, investors and lenders
> with taxpayer funds while there is no discussion of doing annoying
> for the consumer taxpayers who ultimately pay the bill for all the
> business rescues.
>
> One very effective approach would be direct government lending to
> consumers to transform a portion of excess mortgage debt into long
> term low interest loans not secured by the properties, and to transform
> other consumer debt, especially credit card debt, into debt more
> easily serviced. A properly designed program of long-term, low-interest
> federal loans fairly available to all adult citizens without qualifications
> will simultaneously save consumers and their lenders without discrimination.
> It will also restore much value to existing debt securities.
>
> I've designed a comprehensive plan to do that in a manner fair to
> all adult American citizens that won't increase the federal debt
> at all, The AllStreets Bailout Plan detailed at themortgagenews.info.
> The program uses about $5 trillion in loans to transform $1.9 trillion
> (about 15% of the total $12.8 trillion) of all residential mortgage
> debt into 3% 30-year federal loans not secured by the properties.
> Those loans are fairly allocated to all residential property owners,
> and the loan associated with each property is equally shared by the
> borrower and her lender. Payments on remaining balances are recast.
> The loan pay down is immediate liquidity to the lender at 3% for
> 30-years, and the mortgage is then less, or not at all, upside down.
> The borrower has significantly less total debt, and reduced interest
> cost and payments. The balance of the $5 trillion is available in
> a fairly allocated manner to all adult American citizens who don't
> own residential properties to use to pay down credit card debt, purchase
> a property, invest in a business or as a personal loan. Funds from
> all of the loans will immediately flow to lenders, but only through
> their debtors, which is the only way to solve the systemic problems.
> The loans will either displace, or make unnecessary most, if not
> all, of the $11 trillion in TARP and other loans and guarantees.
>
>
> The program greatly alleviates the single most threatening problem
> for lenders, the upside down mortgages. It greatly reduces the odds
> of borrowers walking away from mortgages, and frees up many borrowers
> to refinance or sell without a loss. It relieves the consumer debt
> burdens by reducing debt service payments. The key to fairness in
> the program is the use of the drop in value of each residence, and
> the use of area median home values for those who don't own a property.
>
>
> No doubt the "free marketers" would be apoplectic over such a "socialist"
> program. But we now have the federal government , which has been
> socialist in many respect for decades anyway, owning via debt or
> risk insurance all or a big piece of the auto makers, AIG, money
> center banks, Fannie Mae, Freddie Mac, insurance on VA and FHA loans,
> FDIC deposits, pensions, and on and on. All of those programs are
> actual or prospective damage control, but don't alleviate the main
> underlying problem. It's high time that federal loan programs were
> used to actually solve the economic problem, not just to save wounded
> elite, and that's with loans to taxpayers who ultimately bear the
> risk or pay for any and all of the federal programs.

Aug 17 12:31 PM

[twotraps:]

Last years stock meltdown may have been driven by the need for big players to raise cash, the next leg down might be Main Street not wanting to get burned again. At that point, does anyone think that Gold might finally take off like it was expected to last year. I know Gold is an emotional, finicky market but what are the alternatives here? Many of us have been saying the same thing in may different ways over the past year....but little has truly been resolved or corrrected!!!!! Bailouts, govt. intervention and higher taxes is not a long term stategy. How can so much of the system be insolvent?

Aug 17 12:58 PM

[John Lounsbury:]

I bought SKF this morning and will probably short KRE this afternoon. I think KRE will be weaker than KBE. Hedgers could go equal dollars long KBE and short KRE.

Aug 17 01:18 PM

[John Lounsbury:]

The above reply is to the comment by ETFDesk.com

Aug 17 01:21 PM

[Tack:]

Well, I'll probably sell some of the SDS I'm holding as a hedge to my portfolio, depending on the magnitide of any pullback. And, as I am about 20% in cash, I'll add to some positions and lower my basis, if the gap warrants. Lastly, I'll sell some out-of-the-money puts on shares I like, provided the premiums get magnified.

The last strategy has been one of my favorties, in fact, as I either just pocket a nice premium, or if shares get put to me at the low OTM strike price, I am happy to own them at those prices, and I pocket the premium, too.

As I am a depressed-value high-yield player, I am happy to wait market upturns, while being paid to wait.




On Aug 17 01:04 AM QuasiYoda wrote:

> So if the market moves down instead of up what will you be doing?
>

Aug 17 01:51 PM

[Zmartmoney:]

Your "bash the republicans" diatribe wears thin quickly. Rich, conniving bankers don't have favorites in politics...whoever comes when they whistle if fine with them - note that in your memoirs. Quick...find someone to blame if they are of the political party you voted against. So, a whole legion of people voted against the Republicans, and guess what we got? Socialism for you and me and a raise for the "too-big-to-fail" boys in the banking and investment bidness. Some change. Are you happy now? Grow up and realize this isn't about politics - this is about economics. As other writers have suggested - politics is the distraction from the man behind the curtain.


On Aug 16 07:21 PM Jimbo wrote:

> 6343escort: It would be all too easy to place the blame on One ,or
> both, Bush's or the Republicans. Just look at the way "Government"
> Sachs has played the game. Wall Street has owned what ever party
> was nominally in power in Washington. I think the time has come for
> a Third Party to sweep the corrupt people away. The great danger
> is that we may get a "man on horseback" such as Hugo Chavez.

Aug 17 02:12 PM

[Zmartmoney:]

Pardon my post, but the reply was actually to 6343escort (service?), not to Jimbo. Jimbo was on the money. Cheers!

Aug 17 02:15 PM

[Whippet:]

The irony is that the financial "hardship" of that period was nowhere near as bad as advertised. The arguments of the time were between the bimetallic standard, the "hard" gold standard, and the "soft" gold standard (i.e. banknotes representing shadow gold). These folks went to the mat over what would now be considered minor differences in monetary policy. But NONE of them wanted a fiat currency- even William Jennings Bryan, in the famous cross of gold speech. Real monetary, and thereby price, deflation was the norm over that period- it kept growth slow, compared to now, but the growth was REAL instead of NOMINAL. This infuriates banksters, of course, as evidenced in the Banker's Manifesto, and Jekyll Island eventually "corrected" the problem.
Just look at real household debt rates, GDP growth rates, and the like from THAT terrible era. I'd get in a time machine...

Long OTM SKF LEAPS.


On Aug 16 09:29 AM john s. gordon wrote:

> to what degree was the financial hardship of 1873-1907 caused/exacerbated
> by adherence to the gold standard? opinions please.

Aug 17 02:20 PM

[Old Rick:]

Great article and great comment thread!

Now to get back to my summer reading: Crash Proof by Peter Schiff. I suspect many here have already partaken of it. I peeked at the conclusions first and am reading the rest now. Schiff sez:

1. Foreign dividend paying stocks
2. Some metal and some mining stocks
(80-90% #1, 10-20% #2)
3. Stay liquid.

Aug 17 02:20 PM

[nevket240:]

John>
the Black Swan we are all waiting for is presently shaking Japan and Taiwan. Too many of these medium sized tremors have occured lately. Methinks a real big one is on the way. Goodbye Tokyo.

regards

Aug 17 03:28 PM

[Kint:]

This article is wrong.. where was this biting analysis *before* it happened? Your error is that you're plotting the future based on past trajectory, which is what people did before the subprime meltdown (home prices will never go down!).. you're making the error on the other side now.

Aug 17 03:53 PM

[Seanlbrennan:]

William Black is very concerned about this current crisis and has said that nothing has been solved yet. He has pointed out that one singe bank (Indie Mac) was a larger failure than the entire savings and loans crisis. He has also mentioned that the government is mandated by law to collapse most of the major banks but have ignored this.
As he was the bank regulator responsible at the time of the S&L response, I'm inclined to believe him.
Watch his presentation if you have time (sorry it is long).
tiny.cc/61lBj

Aug 17 04:26 PM

[Bad Dog:]

On the positive side, pretty well built web!


On Aug 16 05:25 AM Dave Wrixon wrote:

> Good Article, but aren't you really telling us what a lot already
> knew that the US is insolvent at all levels. The banks have bad loans
> because the consumer is tapped out and the US Government is cannot
> really do much more because it cannot tax the consumer more because
> that would just sink the whole ship. The whole edifice is at breaking
> point, and the only thing supporting it is a web of lies.

Aug 17 05:10 PM

[Tall:]

Capt. Brian:

Sadly, I have to agree with your post. I, too, saw this coming.
Do we have to reach financial armageddon before U.S. citizens and our elected officials come to their respective senses? This mess can be turned around. It will take time - 7 years perhaps - and discipline. Is the political will there? At this point, no. The actions of Obama, Pelosi, etc, say no.



On Aug 16 05:50 PM capt Brian wrote:

> I wonder if anyone will go back and read some of my posts weeks and
> months ago. Have to sift thru almost 200 of them, but I have been
> saying all along this was coming. In fact, I am suprised it is taking
> so long to blow a hole in the bottom of our ship of state. It took
> the captain quite a while to admit the Titanic was going to meet
> Davey Jones. I have seen this coming for over 40 year, at least since
> I was in a foxhole in Nam. Our fiscal policies just cannot and will
> not work. I don't care if you are a mom and pop store on the corner,
> or the richest country in the world, you just cannot keep taking
> money out of the piggy bank at a rate higher than you replace it.
> You MUST eventually go broke, even with the ability to make you own
> money.
>
> There is a way out of this mess because people do not want bad times,
> they do not want to 'hunker down', and protect their homes, lives,
> and food in the house. We don't want to have to fight for anything
> anymore, we have already fought and died for life liberty and the
> pursuit of happiness, and it is being ripped from our grasp. We are
> grabbing defeat from the jaws of victory, and we are allowing it
> to happen. Go ahead, ask me, is there a quick way out of this mess?
> YES YES YES, THERE IS!!! But seems no one in charge cares about anything
> but their own situation. Obamma rented a multi-million dollar estate
> for a vacation, while millions are living out of their homes. What
> is wrong with this picture. Socialism and facism for all but our
> leaders. They jam things down our throats and take other medicine
> for themselves in the form of raises and medical plans that we cannot
> have.
>
> Go ahead voters, you have one chance left to save this country on
> the edge of the abyss, and that is the election coming up, unless
> you can find some legal way to change the people in Wash. D.C. quicker.
>
>
> Woe is us, we have met the enemy and he is us.
>
> Capt. Brian.
> The Lost Navigator
> happy grins.
>
> SOMEONE HAS TO TAKE RESPONSIBILITY
> ps I am a former marine, and feel very sad for my comrades in arms
> who may have died for nothing.

Aug 17 05:55 PM

[Fighting Yoda:]

The credit crisis of course is not over - Fed has back stopped the system with guarantees and has averted the collapse for now. Banks still have a lot of toxic stuff on their balance sheets - with MTM changes - banks can pretend and hope, and with Fed's 0% APR banks can earn money meanwhile - but none of that will be enough.

- Foreclosures are forecasted to rise. There would be higher foreclosures in 2010 than '08 or '09. Lot of ROEs have been held back but only for so long – selling pressure will increase and prices likely will further collapse.
- July retail sales were down despite cash-for-clunkers - consumer is withdrawing from the market.
- And of course all the stimulus debt has to be repaid with interest, and BHO is increasing entitlements.
- Chinese are running out of stimulus hype - Shanghai is down 17% from its recent peaks
- No drivers for economic or job growth- none - all the green shoot hype is propaganda on part of shameless crooks on Wall Street.

Reality will hit once again, it can be quick run for the exits so be wary of both equities and even more of commodities. China has stopped buying commodities- that is the end of that run.

Aug 17 07:17 PM

[AllStreets:]

Thanks for the review. Sorry I haven't had time to update my website more often. You are probably right that many people would view it as "free money," but it isn't money, it's debt, and it isn't free, it carries interest. The idea is just to reduce the amount of toxic debt, especially uspide down mortgage debt, and transform it into a less burdensome form...longer term, lower interest rate, lower payments, not secured by properties. That would allow the debt bubble to deflate at a slower rate, and help restore bettter liquidity to the housing market. Think of it as a helpful balance transfer offer that the banks won't offer to consumers any more. I fear that nobody in power is working on additional financial engineering to prevent the situation from deteriorating further as millions more slide into bankruptcy and foreclosure. All the "free money" is going from the bankrupted taxpayers to the money center banks, and many have objected to that.


On Aug 16 01:51 PM John Lounsbury wrote:

> All Streets - - -
>
> Very interesting discussion. I have one big reservation: I believe
> too many prople would look at your government loans as "free money"
> and treat it frivilously. We have a big problem with financial illiteracy
> in this country. Giving money to a financial illiterate is like giving
> a book to a conventional illiterate. The book is either used as a
> physical object or fireplace fuel. It won't get used in a way that
> values it properly.
>
> Liked your website.

Aug 17 09:04 PM

[AllStreets:]

Not a debt bubble at all. Just transform some of the really toxic debt into a more benign form of debt. No new debt at all. Think of it as debt restructuring designed to avert a national (interantional) crisis. The loans are collateralized in a fashion by the income tax system. The lenders will repay their loans or lose their charters.

The true prospective new debt bubble being created is what the Fed and Treasury are doing with all the special lending facilities and TARP. Speaking of ability to repay, I wonder if Citi, Chase, Wells, BofA and all the other TARP recipients could have proven they could repay TARP loans except for collecting the spread between Treasury securities proably bought with huge leverage using the TARP funds and other various borrowings from the Fed...free money for sure. If the nation continues to rely on these trickle down economic programs, there won't be anybody left to pay the taxes or to repay anything.

My plan is simply an idea to save Joe sixpack and his creditors from the onrushing orgy of bankruptcies, foreclosures and lender failures. I'm open to better ideas, but I haven't seen any others around that aren't just more complex taxpayer giveaways to the lenders.


On Aug 16 03:16 PM ebworthen wrote:

> So let me get this straight:
>
> Another debt bubble to solve the current debt bubble?
>
> Uncollateralized loans to people who cannot demonstrate and ability
> to pay to solve a debt crisis caused by the same?
>
> This would work as well as federal housing projects in inner cities.
>
>
> Your plan would be like watching a rerun on T.V. with commercials
> of a bad sequel with no popcorn.

Aug 17 09:27 PM

[BadBear89:]

This is yet another negative article with no takeaway - so let me spell it out for everyone - get into the best banks while they're cheap (i.e. most capital, least debt) - once they lay waste to their competition you'll be left with a company that has more market share and value than it did originally

Aug 18 01:14 AM

[Student of ...:]

Not much we really can do (besides emigrate to another country) since the gov. has all of the tanks, missles, attack helicopters, aircraft carriers, nuclear weapons, etc...


On Aug 16 09:55 AM WD wrote:

> I'm amazed at how many people commenting understand the dire straits
> America is in. This is the first step towards changing it, but how
> far are we going to let the politicans push us before we begin tossing
> them out and returning to the form of government that the founding
> fathers created?
>
> Since when did the founding fathers preach to bail out failure and
> tax success? As long as government has that philosophy America will
> continue on its downward spiral.

Aug 18 01:40 AM

[Suncatcher:]

Whew, what a ride! There is too much to address here. The biggest thing to remember is this is all governed by human nature. That is why the past matters so much. By looking back and observing how humans respond to similar things we can get a pretty good idea what the future holds. When we lose faith in something (or someone) we behave differently than when we had faith. Our reactions as individuals mirror the group as a whole. That is why , when you have something as shaky as the present financial situation, it is important that the majority doesn't lose faith in the process. If the majority all runs for the exit at the same time many will get trampled. Some will get out safely (early), others will see and seize an opportunity ( short sellers). And yet others may have a hand in starting the stampede ( some intentional, others through incompetence). All will be affected. So there is much riding on the capabilities of those pulling the levers of power to maintain the FAITH of the majority. Can they do it?

Aug 18 02:25 AM

[Plan B Econ...:]

Let the banks fail at a record rate. Many of these banks shouldn't have existed in the first place.

There are only 3 choices when it comes to debt: pay, inflate or default. The first choice isn't happening in many cases, so we're left with inflate (Federal Reserve is working on that) and default.

Default is the tricky one because many are psychologically unprepared to take a loss on an investment. But it needs to happen if we want to avoid Japan's 'lost decade' (more like 2 decades).

Aug 18 07:46 AM

[Know Nothin...:]

I advise the average citizen to hold 1/10th of his wealth in real gold. Paper money and common shares are just paper printed with words on it.

Aug 18 08:52 AM

[Mike from NYC:]

Good article and it agrees with many of the issues I have read elsewhere over the course of several years. I don't have any answers to how to fix our nation's problems, especially the banking sector, without recommending some drastic policy and regulatory shifts that I don't feel our country can handle - it appears, more now than ever, that Jack Nicholson was right - WE CAN'T HANDLE THE TRUTH! Our economy since the early 1980s has been made of a deck of cards when the USA became a Debtor Nation rather than the Creditor Nation we became after WWII. The only way for the USA to get out of our current situation is to once again become an 'exporter' nation and not an 'importer' nation. With the rise of the GDP also comes greater trade deficits as most consumer items are made elsewhere - and the consumer drives 70% of the GDP. Not discussed in the article is another giant hammer which will cause our economy untold harm - the obligations of state and local governments to pay for 'retirement' benefits promised to civil servants. The retirement funds are so under-financed that there will be no way to raise taxes high enough to make them whole and which will result in wholesale bankruptcies by many state and local governments because of their inability to pay for the benefits. I have become a pessimist and see no real hope that our economy will ever truly recover from our current situation if the USA continues on the path it is currently on. I think this great recession is the beginning of the end of the USA as we knew it in the Post WWII era.

Aug 18 09:21 AM

[Ray Lopez:]

tinyurl.com/pdljc9

raylopez99.blogspot.com/

Click on the first link for a graphic that shows discussion over TARP was the cause-in-fact of the equities crash of October 2008. This link is from the second link above.

A picture is worth a thousand words.

RL

Aug 18 10:01 AM

[greedcanbgood:]

1. We can't lend ourselves out of the crisis. There will always be a need for credit - it just might be scaled back.

2. Weaker banks will fail, stronger banks will acquire them The consolidation might be stunning but look for a lull and then an explosion in de novo banks.

3. You really can't make an predictions on bank failures by annualizing trends.

Aug 18 10:34 AM

[Old Rick:]

kint sez: " This article is wrong.. where was this biting analysis *before* it happened? Your error is that you're plotting the future based on past trajectory, which is what people did before the subprime meltdown (home prices will never go down!).. you're making the error on the other side now."
----------------------...
The biting analysis before it happened was there. See anything that Peter Schiff said 2 years ago and was laughed off CNBC by the P&D crowd.

Also note that this morning (8/18) Fitch said the commercial real estate market was "deteriorating at unprecedented rates". IOW, here we (may) go again!

Aug 18 11:45 AM

[ebworthen:]

Autumn 1930 is all you need to know.

Autumn 1930.

Compare the charts, scenario, socio-economic conditions. Stock market crash from over-leveraging, unmeployment, ineffective stimulus, election of a left leaning heavy handed President, taxes, control of banks and industry, confiscation of gold (hasn't happened yet - but most people's retirement funds are held hostage), etc. etc.

We will be going below the March lows sooner or later.

This is not your Father's recession, or his Buick (now owned by you and I and the UAW).

The pop in the market has been more extreme than Spring/Summer of 1930 because of the knee-jerk flooding of the banks with taxpayer cash and the hasty RIF's and reduction in hours of employees, thus propping up the market. The social safety net is larger now, but will only make the pops and crashes more extreme.

Run for cover.

Aug 18 01:23 PM

[TeresaE:]

They will only continue to foster it as long as our foreign investors (captors) allow it too.

What happens if (when) that stops?

What happens when all the food, medicine and band-aids come in from China COD in yuan only please?

Survivors and winners, plan for the worst, hope for the best.

Seems like traders plan for the best and ignore the worst.

Hope it works out well for you.


On Aug 16 10:32 AM capital pains wrote:

> A great big: "So what" ? Although the article is theoretically correct,
> in reality market manipulators, especially Goldman and their cohorts
> at the Fed and Treasury will continue to foster the "house of cards"
> our entire economy exists upon.
> Ridiculous to imagine a world without JPM, BAC and even the pathetic
> C. As long as the taxpayer remains the ultimate backstop for the
> banks, we can expect a continuation of the "throw money at it" policies
> of our central government and the manipulators who are making obscene
> fortunes.
> When BAC was trading at less than $2, and doomsayers were predicting
> breadlines, in retrospect BAC, JPM, and god-awful C, were the trades
> of a lifetime. The commercial real estate market which continues
> to collapse has meant nothing but losses for the inverse ETF, SRS.
> Counterintuitive for sure, but again, reality bites.
> Readers of SA are traders. As long as the "trend is your friend"
> and you keep tight stops in, all the written analyses in the world
> won't make you a dime. That's how we keep score.

Aug 18 01:29 PM

[TeresaE:]

Well since most citizens "net worth" is negative ten times their income, then using your formula the wedding rings left on fingers means most Americans already have made this drastic change.

Until they get real desperate and sell them to the local pawn broker.


On Aug 18 08:52 AM Know Nothing and Do Nothing wrote:

> I advise the average citizen to hold 1/10th of his wealth in real
> gold. Paper money and common shares are just paper printed with words
> on it.

Aug 18 01:33 PM

[TeresaE:]

Posters eager to believe a house of cards can be sustained in a strong wind and associated thunderstorms are lemmings.

MOST Americans are lemmings.

Yawn.

Why do you think we are in the mess we are in?

Because the lemmings allowed the elite to steal from them and smiled and said, "thank you sir, may I have another" every time REALITY smacked them in the head.

I am going to compile a book of posts of those that continue to drink the kool-aid as their ship sinks.


On Aug 17 12:19 PM stocknerd wrote:

> More posters eager and willing and waiting for the end of the world.
> Yawn. These posters are lemmings, and shouldn't be allowed to invest.
> Maybe they should all go into T bills, no wait, that is going into
> the black hole too. Gold? Hey if the world comes to and end gold
> is worthless too. I'm going to save all these doom and gloom posts
> and publish them to show what irrational fear and lothing looks like
> for future gnerations.

Aug 18 01:45 PM

[carey_jim:]

I'm glad to hear echoes of financial history in your post. Knowing our financial history wont give us a perfectly clear picture into the future but without it, we will be like Columbus WITHOUT the defective compass he took with him. It didn't work very well, and maybe was only a tiny bit more useful than a rabbit's foot, but it got him here.

I think the crisis that started in 1873 had a lot to do with the economic turmoil produced by the Civil War and Reconstruction. It was one of the most corrupt and venal periods of American history and, essentially saw the old Gentile Class, who were the class of the Founding Fathers and whose wealth was mostly in the form of land, replaced by a new rich class who have been in power ever since. They are the business class which we now are starting to recognize as an oligarchy.

Ironically, it was the same period that saw America draw neck and neck with Britain and then surpass it, in 1900, as the world's largest economy.

My guess is that we are in a new period where a new class, produced by universities, which includes, economists, engineers and other people who work with their brains, are in a struggle with the business class for control. Since the time of Reagan, the business class has denigrated this new class of bureaucrats and intellectuals, with a wink and smile from rank and file Americans, but the system that has "evolved" is unstable and showing signs of disintegration which you are monitoring very closely. (Read: "Lack of effective regulations.") Remember that before World War I, almost all Americans did their graduate work in Europe. Since the end of World War II, as many Europeans now come to the United States for graduate training.

You will notice that the only people who seem to be able to stop the disintegration are the intellectuals who are only arguing among themselves about the methods but nobody, even the big business leaders, seem to think that there is anything wrong with the very fact that intellectuals and bureaucrats are taking control.

Ordinary Americans have wrongly identified control by intellectuals as "socialism" but in this case, it is closer to that other ugly word, "fascism" because corporations are still owned by stock holders and, more or less, controlled by CEO's. You should now start to read the fascinating history of American economic thought in the 1930's which was divided between liberalism, conservatism, socialism and fascism. A surprising percentage of Americans admired Hitler, Mussolini and Franco during that period.

The trend, however, is for power and control to shift from inherited business wealth to bureaucrats trained in elite universities.

History always seems to progress from one crisis to another and financial history is no different. We don't go from one class in power to another in power without wars, revolutions and social chaos. British history has been the least bloody. Hopefully we will follow their example and not European history.

Aug 18 02:46 PM

[Bruce Pile:]

The article's assertion that we must have 4% or better GDP growth to grow our way out of all this debt induced problem reminds me of what I and others have written about over at theoildrum.com for years - peak oil and peak debt occurring at the same time. Our government has come to rely on money printing and growth to fix anything. But you can't have real GDP growth without cheap energy supply growth to fuel it. We've come to a point where that ain't gonna happen anymore.

Aug 18 03:20 PM

[Crocodilian:]

author writes
"We need one hell of a recovery here to prevent disaster. Muddle through will not do it. A return to 3% GDP growth may not do it. We need a couple of years at 4% (or higher) GDP growth to have any chance that some of these banks can earn their way out of the quagmire."
----------------------...

Some banks _won't_ "earn their way out of the quagmire", but that does not mean that "disaster" necessarily will ensue. The FDIC has been dealing with this long enough that we know the routine: the FDIC has a blank check from the Federals, so we're practicing a "heads you win, tails I lose" public policy.

Failing banks are, today, either taken over by the Federals directly, or sold with a nice check from them to a healthy bank. This will continue.

The net effect?

Dead banks' bad debts become national debt, healthy banks acquire healthy assets on the cheap, even as competition is driven out of the system, and sky high savings rates ensure very cheap capital.

It adds up to unfairness for the taxpayer, and a gift to bank shareholders, but not a crisis.

Aug 18 04:23 PM

[John Lounsbury:]

There are a number of very good comments in this thread. I don't want to imply lack of appreciation for them by saying that I am very appreciative of the most recent. In particular, carey_jim, you have a very interesting historical discussion. Anyone who skimmed over it, but is reading this, should go back and read it more carefully. Also, Bruce, I agree that we need to find sustainability in a form other than that of a rapidly growing economy, a model with which our demographics are in conflict.

Thanks to all the commenters who have taken time to read this article and add to the discussion and thanks to all readers who have stayed with it all the way down to this point.

Aug 18 04:26 PM

[Rolfe Winkler:]

Interesting piece John. You quote me saying FDIC's total insured deposits are $8.3 trillion. That is incorrect. The figure is $6.3 trillion.

See here:

blogs.reuters.com/rolf.../

Keep up the good work.

Aug 18 04:36 PM

[JoeSixPack:]

"The situation in 1873 started with a financial panic in 1869"

And the demonetization of silver.


On Aug 16 05:22 AM markfl wrote:

> You're not the only one who feels there's more trouble to come. We
> may be in the eye of the storm. Fractional reserve banking is very
> important to economic growth, because it affects the positive acceleration
> of money. Not judiciously making loans to credit-worthy customers
> is the equivalent of stashing money under the mattress. The money
> does no good for the economy there.
>
> "I hope we don't have to compare what happens in 2010 to 1873." The
> situation in 1873 started with a financial panic in 1869. I happen
> to think the risk of a lost decade is uncomfortably high. We've been
> lucky that recessions have occurred roughly every 10 years since
> 1982. I think that trend is about to end. Recovery? How about 4-6
> quarters of weak recovery followed by another recession? Happened
> before (if you go back far enough).

Aug 18 05:14 PM

[JoeSixPack:]

Also, silver was demonetized in 1873, and we were froced onto a gold standard.


On Aug 18 02:46 PM carey_jim wrote:

> I'm glad to hear echoes of financial history in your post. Knowing
> our financial history wont give us a perfectly clear picture into
> the future but without it, we will be like Columbus WITHOUT the defective
> compass he took with him. It didn't work very well, and maybe was
> only a tiny bit more useful than a rabbit's foot, but it got him
> here.
>
> I think the crisis that started in 1873 had a lot to do with the
> economic turmoil produced by the Civil War and Reconstruction. It
> was one of the most corrupt and venal periods of American history
> and, essentially saw the old Gentile Class, who were the class of
> the Founding Fathers and whose wealth was mostly in the form of land,
> replaced by a new rich class who have been in power ever since. They
> are the business class which we now are starting to recognize as
> an oligarchy.
>
> Ironically, it was the same period that saw America draw neck and
> neck with Britain and then surpass it, in 1900, as the world's largest
> economy.
>
> My guess is that we are in a new period where a new class, produced
> by universities, which includes, economists, engineers and other
> people who work with their brains, are in a struggle with the business
> class for control. Since the time of Reagan, the business class has
> denigrated this new class of bureaucrats and intellectuals, with
> a wink and smile from rank and file Americans, but the system that
> has "evolved" is unstable and showing signs of disintegration which
> you are monitoring very closely. (Read: "Lack of effective regulations.")
> Remember that before World War I, almost all Americans did their
> graduate work in Europe. Since the end of World War II, as many Europeans
> now come to the United States for graduate training.
>
> You will notice that the only people who seem to be able to stop
> the disintegration are the intellectuals who are only arguing among
> themselves about the methods but nobody, even the big business leaders,
> seem to think that there is anything wrong with the very fact that
> intellectuals and bureaucrats are taking control.
>
> Ordinary Americans have wrongly identified control by intellectuals
> as "socialism" but in this case, it is closer to that other ugly
> word, "fascism" because corporations are still owned by stock holders
> and, more or less, controlled by CEO's. You should now start to read
> the fascinating history of American economic thought in the 1930's
> which was divided between liberalism, conservatism, socialism and
> fascism. A surprising percentage of Americans admired Hitler, Mussolini
> and Franco during that period.
>
> The trend, however, is for power and control to shift from inherited
> business wealth to bureaucrats trained in elite universities.
>
> History always seems to progress from one crisis to another and financial
> history is no different. We don't go from one class in power to another
> in power without wars, revolutions and social chaos. British history
> has been the least bloody. Hopefully we will follow their example
> and not European history.

Aug 18 05:18 PM

[JoeSixPack:]

Proclamation on the Federal Reserve System of the United States of America
RevokeTheFed.com
March 2008

WHEREAS, Article I, Section 8 of the Constitution of the United States of America authorizes Congress "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures";

WHEREAS, on December 13th, 1913 the US Congress enacted the Federal Reserve System;

WHEREAS, the Federal Reserve System is considered an independent agency within the federal government, with oversight of Congress and containing appointed public officials on its board of directors;

WHEREAS, the Federal Reserve System Controls the Federal Reserve Note, the official currency of the great nation of the United States of America;

WHEREAS, there may be controversies regarding the legality and constitutionality of the Federal Reserve System, it is recognized that the said system has operated continuously as the central banking system of the United States since the inception of the Federal Reserve Act of 1913;

WHEREAS, the Constitution of the United States of America granted Congress the authority to create the current Federal Reserve System, it also does grant Congress the authority to modify or revoke the Federal Reserve System;

WHEREAS, the actions of the Fedreral Reserve System represent the credit and currency of the United Stated of America to the citizens of this great nation and to the world;

WHEREAS, the Federal Reserve System, acting independently within the federal government allowed, supported, and even promoted parasitical and non-productive uses of the money and credit of the United States of America;

WHEREAS, the United States and likely the entire world's financial system is undergoing massive de-leveraging of the said parasitical and non-productive uses of the credit and money of the United States of America (as well as other nations' currencies);

WHEREAS, the US dollar, the "Federal Reserve Note" is declining in value due to these parasitical activites, as well as potentially other causes;

WHEREAS, it is recognized that the citizens of the United States and other nations did willingly participate at some level in the creation and propogation of said parasitical activities;

WHEREAS, it is also recognized that the United States of America, a sovereign nation, has the legal, moral, and God given authority to take actions to benefit its citizens and to protect its good name, credit and money in times of difficulty;

WHEREAS, it is recognized that the current time is such a time of great difficulty;

WHEREAS, it is recognized the parasitical financial institutions and their activities are at odds with citizens of the United States of America and the good credit and money thereof;

WHEREAS, the current indications are that the Federal Reserve System is acting to preserve the financial system currently flooded with the parasitical activities;

WHEREAS, the current indications are that the neither the Federal Reserve System, nor the Congress of the United States, nor the people of the United States have access to the books of the institutions being preserved by the Federal Reserve, and therefor the degree of inter-connectivity and risk associated with the institutions and other entities cannot be determined;

WHEREAS, the Federal Reserve System is accepting non-performing assets as collateral for credit with ultimate taxpayer responibility to entities not under its legislative mandate;

IT MUST BE CONCLUDED, that the Federal Reserve System is not acting to the benefit of the people of the United States of America, its credit, money, and good name;

WHEREAS, it is recognized that the political will and capability of the government of the United States of America may not be up to the task of prosecuting this proclamation ; It is also recognized that this may be the only hope for the continued survival of the United States of America as the great nation as it has historically existed.

NOW THEREFORE, it is PROCLAIMED by those supporting this Proclamation that the Congress of the United States of America FULLY NATIONALIZE the Federal Reserve System, and take full control of the credit and money of our great nation; The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the effect of the parasitical financial activities which led to the current crisis; The Congress of the United States of America must reorganize, replace, or terminate the Federal Reserve System as appropriate; or otherwise devise a system for creation of the national currency.

IT IS FURTHER PROCLAIMED, that the Congress of the United States of America in cooperation with the Executive of the United States of America contact allied nations and any other nation willing to participate in the overhaul of the failing and parastical financial sytem currently in operation and create new treaties and alliances as necessary to create a sane and productive system of finance with the express goal of supporting a productive national, and by extension and through voluntary cooperation, world economy;

FURTHERMORE, it is PROCLAIMED that it should be the goal of such an international effort to maintain fair international trading practices allowing for protection in national interest of labor, resources, and productive capabilities;

WHEREAS, it is recognized that such a move on the part of the United States of America may result in the necessity of an isolationist policy IF the other developed nations do not follow our lead; If such occurs, so be it.

SO HELP US GOD!

Aug 18 05:19 PM

[KDI:]

>The Fed was the first true central national bank for the U.S. since the dissolution of the Second Bank of the United States in 1837 by Andrew Jackson

Odd that a bank owned by a sindicate of international bankers with absolutly no allegiance to the United States of America can be referred to as 'the first true central national bank for the U.S.'

Andrew Jackson was completely correct in 'routing out those den of theives', and anyone involved in facilitating their return is either an agent of those den of theives or guilty of being monumentally stupid enough to let the bankers practice such usery so as Thomas Jefferson put it 'our children will wake up one day and be cast out into the street penniless'.

When you wake up one day and find yourself thrown out of your house penniless, I hope you will think twice about stroking on the FED so hard.

Aug 18 05:31 PM

[carey_jim:]

Thanks, John. We only see history in a distant mirror, as Barbara Tuchman said, but without history we are, more or less blind.
By the way, I carelessly spelled Genteel Class incorrectly as Gentile Class if you are interested in looking at the changing of the guard from that class to the business class.
Your research efforts are clearly paying off! Congratulations.


On Aug 18 04:26 PM John Lounsbury wrote:

> There are a number of very good comments in this thread. I don't
> want to imply lack of appreciation for them by saying that I am very
> appreciative of the most recent. In particular, carey_jim, you have
> a very interesting historical discussion. Anyone who skimmed over
> it, but is reading this, should go back and read it more carefully.
> Also, Bruce, I agree that we need to find sustainability in a form
> other than that of a rapidly growing economy, a model with which
> our demographics are in conflict.
>
> Thanks to all the commenters who have taken time to read this article
> and add to the discussion and thanks to all readers who have stayed
> with it all the way down to this point.

Aug 18 06:53 PM

[jstratt:]

I believe banking issues generally come in waves as governments acknowledge a crisis and deal with it. Then they create a period of healing before taking further action such as mass closings of banks again. If that isnt done the risk of continuous bad news in banking creates runs on banks. So I believe we have additional banking issues to deal with and they always look bad when they are happening.

On the other hand I wasnt overly impressed by your arguments. The remaining banks in trouble are minor little pieces of the financial system compared to the major banks. The FDIC may need a loan but so what? They can join the already long list of others.

The TALF program appears to be part of a strategy to deflect Commercial RE loans. Further the REITs have been recapitalized to be able to do some lifting of Comm RE. That said Comm RE is one severe area yet to come.

In short we seem to have made a lot of progress in this financial crisis in the past 2 years. We may have trouble remembering that when we face issues in year 3. By year 4 we may be seeing more positives but also focusing on how the long term changes impact our future from there.

Aug 18 08:42 PM

[Student of ...:]

The "die had been cast" way before Bush was elected... However, he did his part to further exacerbate things as best he could. The mess we're in right now was over 40 years in the making. It was only a mater of time until things caught up with us...


On Aug 16 10:34 AM 6343escortsr wrote:

> THANK YOU MR. BUSH AND #$%^& REPUBS.

Aug 18 09:55 PM

[Diogenes of...:]

Before the 1930s if a bank failed your money was vaporized. Right? With federally insured deposits up to 250 K per individual per bank, no worries there. Will the FDIC run out of money? Probably. Solution, Federal Reserve creates more money and gives it to the FDIC. Bad loans on the book of banks? The Treasury buys them with money from the Federal Reserve.

So as I see it the problems do not include a failure of banks and vaporization of capital. The problem is good money being printed to cover bad loans, depreciating our currency. Factor in what will no doubt be long term high rates of unemployment, an aging population, and out of control Federal budget deficits, and you end up with a rapidly declining standard of living.

Aug 18 11:18 PM

[Joe Shareho...:]

Inflation won't save banks. Inflation will not solve the deflationary pressures on durables and housing. Inflation will only jack commodities which will only increase your grocery bill and fuel prices. There is no guarantee that wages will rise with inflation.


On Aug 16 07:53 AM jay brebner wrote:

> looks like the banks need inflation to kick in very soon.

Aug 18 11:25 PM

[Ray Winter:]

Clearly, all the Banks know they are living on borrowed time which is the reason they are currently paying themselves as much money as they can justify to the population and government officials.

All Banks should be immediately stopped from paying themselves Bonus's until such times as they are in a position to safely lend once again and they should be restricted to using multiples of less than 7, not 33, as most have operated in recent years.

The Banking Industry has been exceptionally greedy over the past decade as can be proven by the fact they limited the yields their construction industry customers could earn from their buildings to around 6.5%, when the Banks were lending at 33 times the value of deposits for their own account. In actual fact, the Banks were ripping-off their customers by using their money to pay themselves billions in bonus's and leaving their investors paltry annual returns of a few single digit percentage points, just as they are currently doing.

All Bank investors/customers need to get wise and ensure their Banks share all their profits with all them.

Aug 19 09:04 AM

[User 473594:]

For the last 40 years I could not figure out how the government was going to keep roughly one third of the nation,over 76 million baby boomers working.

Now I know !

Aug 19 09:12 AM

[racingman28:]

One Cure is to have the banks offload their distressed or toxic assets quickly and efficiently. There are groups out there back filling demand for these assets but the banks need to be willing to look at ways to get these off of the book without exposing themselves.

There is many websites set up for this, one of the best I have seen is riisnet.com which matches off market supply with demand like a dating website. It is done all in real time and all supply and demand is anonymous until a deal is agreed upon. This allows the banks less exposure while still offloading many of the toxic assets they have through private entities verses the TARP or TALF or FDIC having to pick up the bill which ultimately reverts to us that tax payer.

If you are in Commercial Real Estate or reading this as a bank please look at the option I listed as a resource. I do not own or operate this site but I work in the commercial real estate world and the sooner we get this back on its feet the sooner we can get back to business. Here is an ad for it.

ADAPT, through the patented innovations of RIISnet, enables distressed asset fiduciaries, within minutes and with total anonymity and password protected entry, to:

• Triage toxic assets,
• Prepare them for sale,
• Determine highest and best use,
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Aug 19 11:34 AM

[rge270:]

"So in essence, what do we have? An arbitrary, favoritist, banking sector brought on by direct government intervention. All I can say is, "What do you expect when you let government interfere to this extent in the market?" If you think you are going to do well get in the giant line of people willing to bow down and kiss politicians and bureaucrats feet."

so close, yet so far
public reaction [i.e. gov interference] is always necessary, but it's degree of intelligence does matter

it's like saying that family deliberations should never interfere in individual options

Aug 19 04:01 PM

[rge270:]

"So in essence, what do we have? An arbitrary, favoritist, banking sector brought on by direct government intervention. All I can say is, "What do you expect when you let government interfere to this extent in the market?" If you think you are going to do well get in the giant line of people willing to bow down and kiss politicians and bureaucrats feet."

so close, yet so far
public reaction [i.e. gov interference] is always necessary, but it's degree of intelligence does matter

it's like saying that family deliberations should never interfere in individual options

Aug 19 04:05 PM

[rge270:]

"So in essence, what do we have? An arbitrary, favoritist, banking sector brought on by direct government intervention. All I can say is, "What do you expect when you let government interfere to this extent in the market?" If you think you are going to do well get in the giant line of people willing to bow down and kiss politicians and bureaucrats feet."

so close, yet so far
public reaction [i.e. gov interference] is always necessary, but it's degree of intelligence does matter

it's like saying that family deliberations should never interfere in individual options

Aug 19 04:05 PM

[rge270:]

"So in essence, what do we have? An arbitrary, favoritist, banking sector brought on by direct government intervention. All I can say is, "What do you expect when you let government interfere to this extent in the market?" If you think you are going to do well get in the giant line of people willing to bow down and kiss politicians and bureaucrats feet."

so close, yet so far
public reaction [i.e. gov interference] is always necessary, but it's degree of intelligence does matter

it's like saying that family deliberations should never interfere in individual options

Aug 19 04:06 PM

[rge270:]

so close, yet so far
public reaction [i.e. gov interference] is always necessary, but it's degree of intelligence does matter

that's like saying that family deliberations should never interfere in individual options


On Aug 19 12:36 PM dividendmachine1 wrote:

> as a person who has made his living allocating capital and writing
> an investment newsletter
>
> I dont want understate the banking problems but the crisis was far
> worse in 1989
>
> the late Bill seideman said that if we had mark to market accouting
> in 1988 EVERY US bank would have folded.
>
> Having said that the big banks will not fail and although they may
> not grow I respect the author greatly but disagree with him.peace

Aug 19 04:06 PM

[WheelsComin...:]

<sigh> Don't be a sheep. Use your brain. For the love of all that's sacred...


On Aug 16 10:34 AM 6343escortsr wrote:

> THANK YOU MR. BUSH AND #$%^&amp; REPUBS.

Aug 19 05:34 PM

[bigdogla7:]

There are a lot of people, like me, that are really upset with these " too big to fail banks". They took a lot of risk to get a large reward. When the risk worked they rewarded themselves with bonuses and paraded around like genius peacocks. When the risk didn't work out, they took the American peoples tax dollars to pay for their irresponsible activities. They then raised the interest rates and cut the credit lines and raised fees on the credit cards of the same people who bailed them out. I understand risk/reward when I trade and I'm not looking for, nor expecting, someone to bail me out when my trades don't work out.
I have had enough with the American banking system. I am paying off all my debt and just simply not going to business with them anymore. Start factoring that in. How many hard working, tax paying, family raising Americans are tired of these banks stealing our money and then charging us 17+% on our credit cards. I'm finished with them.

Aug 20 01:02 AM

[Rant and Rave:]

sure ... that is going to happen!


On Aug 16 12:21 PM alajac wrote:

> The "majority" didn't want to have private currency outlawed by a
> constitution that was written by a bunch of bankers and their buddies
> (See "Creating the U.S. Dollar Currency Union, 1748-1811: A Quest
> for Monetary Stability or a Usurpation of State Sovereignty for Personal
> Gain?" - start on page 15 with "RHETORIC VERSUS REALITY AT THE CONSTITUTIONAL
> CONVENTION" - at
> eh.net/XIIICongress/cd...), but they got
> it anyway.
>
> The Constitution has no authority and never did (see "The Constitution
> of No Authority" by Lysander Spooner at www.fourmilab.ch/etext...);
> what DOES have authority is "government guns" and a government's
> willingness to use those guns.
>
> What's happening to day has happened over and over in U.S. and world
> history: the bankers let out credit until the system breaks, and
> then they roll in the collateral for the start of the next cycle.
>
>
> It doesn't have to be like this, but there are certain lies (equivalent
> to the one about Santa) that underpin the system and keep putting
> the fruits of everyone's else's labor into the pockets of the bankers;
> the biggest one is that there is ever an ACTUAL owner of property
> other than the government, thus there is never any need for a government
> to borrow money (except to buy things owned by another government).
>
>
> Government: A "government" is one or more persons who claim natural
> resources, are willing and able to defend their claim on those resources,
> and make and enforce decisions regarding the allocation of those
> resources; in other words, he, she, or they "govern" THEIR OWN property.
> Once claimed, natural resources are thereafter recognized as "property";
> therefore all property comes into existence solely and only after
> being claimed by a government.
>
> Governments are the DE FACTO (actual) owners of ALL the property
> within their dominion (i.e., the extent of the claims on natural
> resources/property that they are able and willing to defend); they
> set up "DE JURE" (legal) ownership however they like in an attempt
> to ensure and enhance their own survival and maximize profits for
> whoever controls the government (in our case, that is obviously a
> group that we can unpejoratively call "bankers", as it has been since
> the American counter-revolution of 1789).
>
> The most notable thing that governments do is to "privatize" property,
> impairing everyone's right to free access to all land, a right required
> in order to give reality to any "right to life" there can ever be
> (see Tom Paine's "Agraian Justice" plan at www.thomaspaine.org/Ar...)
>
>
> We just need to:
> 1. take control of the U.S. Federal government from the Republican
> and Democrat banking parties,
>
> 2. replace Fed debt-dollars with U.S. dollars backed by the $340
> trillion of U.S. wealth (rather than debt)
>
> 3. Compensate everyone on a monthly basis for the government's impairment
> of their right to free access to all land, and
>
> 4. Get government the hell out of every form of wealth redistribution.
>
>
> A more complete outline of the plan can be found on the classmates.com
> profile page of "Alan Jacquemotte".
>
>
>

Aug 20 11:26 AM

[Stockpickin...:]

great read! Thanks!

Aug 20 11:47 AM

[Buckoux:]

Comments by "hooligan":

" Intervention is a communist ideal."

Yes. Central planning and direction of the economy is the communist and the progressives version of winning the lottery. And that is not likely.

"...what has failed is the willingness to prosecute because of fear and lack of ability to see crime."

"hooligan" sees through the socio-political BS! The real issue here is not financial, but criminal. Both financial institutions and government have been complicit in contemporary financial crimes. As always, it is crime that is the real cause of poverty, and government is always involved in these crimes, active or passive, one way or another. The shirt you lose can ultimately be found in the Capital basement.

Aug 20 12:03 PM

[Northstar10000:]

For those idiots who think only 20 percent of the bailout money has been spent are so stupid it makes me what to >>>>>
The money isn't spent because it isn't there yet dumb bells. they have to borrow it, print it or tax it into existence. You think the government has some kind of hidden passbook savings account they can simply draw on. What idiots. Completely brain washed by the government. Doomsville.

Aug 20 06:49 PM

[bricki:]

Reasonable analysis, however no mention was made of bailout support for banks and the very profitable operating conditions of an extremely steep yield curve currently in place.

Ultimately I think the government will play games with accounting, discount windows and TARP like mechanisms to prevent mass bank failures.

The FDIC will not fail; it has a blank check at the Fed. Yes it may have to raise rates on deposit insurance to recoup losses, but it has done that before.

Will their be pain? Of course. Will there be inflation? Almost certainly. Is it the end of the Republic? The idea is laughable - the real wealth of America is in its people and means of production which are still in place and are getting pissed off. It is a sleeping giant and you stick a pin in it at your great risk.

Yes the Fed is printing money very fast, but on the other side of the equation the massive deleveraging that is happening is equivalent to decreasing the US money supply by a factor of 3.

Ultimately this will result in a much smaller financial industry in the US, which is probably a good thing. While everyone blames government for loose interest policies the far bigger problem was excess leverage. If you think low interest rates increase the money supply too much, think again - excess leverage does a FAR more damage by decreasing the fraction in the fractional reserve equation.

Aug 21 10:41 AM

[mgcolin:]

Yes right now it is frustrating for those of us who know the banks should have failed and the pain should have been much worse. But that was round one, and I relish round 2. I cannot WAIT until this Q3-Q4 when the GDP shrinks again and all these insane bulls are caught off-guard. The S&P should be trading at 400, the smart money knows it and people buying at these levels are insane. It won't be fun, but with this debt load the lost decade is coming.


On Aug 16 07:53 PM Tack wrote:

> It's precisely these kinds of histrionic, doomsaying articles (and
> comments) that give me greater confidence to maintain, and selectively
> increase, investment positions in banks and other financials. The
> same people who likely lost lots of money on the downside will watch,
> mystified, as they observe from the sidelines the recovery phase.
>
>
> And, the more the markets run away from them, the angrier they'll
> get, at everybody but themselves, of course.

Aug 22 12:33 PM

[sophiademas:]

This article speaks the truth.

We are living in a castle built on sand and the monsoon is about to hit. People who believe in "recovery" despite the blatant looting by the inbred banking oligarchy only see the castle. To prove my point: First off, Goldman Sachs god, Hank Paulson leaves his tower to work for the government. Amazing. He puts puts a gun to Congress' head and says gimme $700 bil. or we all die in a financially fiery hell. Should we have been surprised that it was uncovered that instead of going to the banks to invigorate commerce it went to CEO bonus checks? Enter Timothy Geithner, a Pauson mollifier who "saves" AIG with billions. And surprise! Gold Sachs got 12 bil out of that one! Does anyone remember the concept of "conflict of interest"?

Aug 22 01:06 PM

[sophiademas:]

I'm not done yet.

So what are we to expct then if presidents insist on primarily surrounding themselves with bankers as advisors -- are they going to advise let's-give money to education or public transportation?

We're not going to be waiting around to long for doom folks. Our Philadelphia Mayor Nutter just informed us that unless taxes increase, he's closing the criminal justice center. How much fun is that? murderers and rapists will not even be brought to trial. What's next, no police or fire department?

A poster early on prayed to God to save America. Seems like that is the best idea so far. When it really happens, prayer will be the only thing we will have in our control...

Aug 22 01:17 PM

[sophiademas:]

It's more abstract than that. The Fed doesn't have time to print money. It just emails it to AIG's computer. click.


On Aug 16 12:03 PM chap08 wrote:

> John, thanks for responding to me above. I agree with you on many
> points and would like to debate others. However, I will restrict
> myself to one which is fundamental. You say that:
>
> "4. The only fire power the Fed has is printing money. There is high
> risk of casualties from friendly fire in that action."
>
> This is wrong. The Fed can do so much more e.g. it can reduce real
> interest rates, which will encourage credit growth at juicy margins
> for banks. But most importantly, it can (and does) buy things with
> the money it prints. It buys things which banks own and so makes
> bank assets more valuable. If it needed to, it would step up the
> ladder of policy options and increase the range of assets that it
> purchases. But it has been so successful (in its own terms) that
> it does not need to. In fact it is pulling back. Even Greenspan thinks
> that it has done enough!
>
> You are right that there will be friendly fire, but the Fed will
> make sure it sprays enough bullets to hit the target.

Aug 22 01:37 PM

[CrossProfit_:]

I don't know what everyone is complaining about. Just take a look around and the obvious must be true. The Government must have a hidden surplus that they are not telling us about.

Proof is the 'cash for clunkers' program. As we all know, the United States of America is subsidizing new car sales in the United States, whether bought by a U.S. citizen or not. In addition, 60% of the cars sold under the program were manufactured by non U.S. manufacturers.

So here you have the proof. What Government in its right mind would try to subsidize the entire world unless it had a surplus. The presumed banking crisis must be a hoax or an attempt to get foreigners and the weak minded to sell their stakes.

If the above is incorrect, please explain to me how your interpretation correlates with the Governments actions.

Thank you
[sarc]

Aug 22 05:35 PM

[Joe H.:]

I am in complete agreement with thomdd1959. It is time for all good men and women to come to the aid (rescue) of our constitution! Mountup,lock&load!

Aug 24 01:35 PM

[MarkitWacha:]

Not yet.

Keep your money in a nationalized bank, for now.

Look for opportunities to be prepared. Ask around, look around. Be ready to head for a family farm or something if there is social unrest. The govt. is really walking a tightrope. Take a look at the housing prices in Detroit and think about whether they can continue to provide city services, like police and clean water. The way forward for the govt. is to allow just enough inflation to provide relief, but not too much.

The way forward for the common person is to profit off the govt. till this is calm and to continue in your job if you have one.

Long: put options on TLT (or TBT)


On Aug 16 08:53 AM Lucy wrote:

> OK So where do we go from here? Take our money out of the bank??

Aug 25 09:35 AM

[Global Inve...:]

given where I am coming from, as editor of global-investing.comI am astonished at comments about how the failure of U.S. banks is the fault of free trade. US banks got into trouble by making bad loans either directly to the eventual borrower, or more likely, by purchase of cruddy blocks of loans created by Wall St.

The import of foreign goods had nothing to do with this except indirectly by leading to there being too much money available to the banking sector until 2007. Bernanke's excess savings from China is what I mean. Also excess savings in other export areas like the Middle EAst.

The bailouts are federal not state, and the fact that Colonial was in so many places is one reason why. Alabama was not enough. The other is that the FDIC was created in the 1930s by the New Deal to prevent US retail depositors from being wiped out by the failure of the banks which held their money. I cannot imagine anyone so fiercely capitalistic as to want to punish depositors for the stupid loans banks made. Or who wants there to be no safety net for depositors, no FDIC, no Fed, no natioanl currency, no regulators, no government. But these websites seem to attract some weird folks.

What I was trying to say, and I admit it was on the fly, was that because failed banks are usually sold to other banks, the result is to create ever more banks too big to fail. Consolidation with Colonial and other failures has made BB&T a regional superbank. It has to be protected like Citigroup. As a shareholder of BBT I am glad it is protected; as a taxpayer I worry about the impact of further bank disasters.

Who pays for these bank collapses? ultimately everyone with a bank account, because the FDIC has to tax all savings accounts to build up its kitty. That is not a tax as such but indirectly it is one.

Aug 26 04:23 PM

[Mistrofan:]

Bravo - marevelous answer.


On Aug 26 04:23 PM Global Investing Editor wrote:

> given where I am coming from, as editor of global-investing.comI
> am astonished at comments about how the failure of U.S. banks is
> the fault of free trade. US banks got into trouble by making bad
> loans either directly to the eventual borrower, or more likely, by
> purchase of cruddy blocks of loans created by Wall St.
>
> The import of foreign goods had nothing to do with this except indirectly
> by leading to there being too much money available to the banking
> sector until 2007. Bernanke's excess savings from China is what I
> mean. Also excess savings in other export areas like the Middle EAst.
>
>
> The bailouts are federal not state, and the fact that Colonial was
> in so many places is one reason why. Alabama was not enough. The
> other is that the FDIC was created in the 1930s by the New Deal to
> prevent US retail depositors from being wiped out by the failure
> of the banks which held their money. I cannot imagine anyone so fiercely
> capitalistic as to want to punish depositors for the stupid loans
> banks made. Or who wants there to be no safety net for depositors,
> no FDIC, no Fed, no natioanl currency, no regulators, no government.
> But these websites seem to attract some weird folks.
>
> What I was trying to say, and I admit it was on the fly, was that
> because failed banks are usually sold to other banks, the result
> is to create ever more banks too big to fail. Consolidation with
> Colonial and other failures has made BB&amp;T a regional superbank.
> It has to be protected like Citigroup. As a shareholder of BBT I
> am glad it is protected; as a taxpayer I worry about the impact of
> further bank disasters.
>
> Who pays for these bank collapses? ultimately everyone with a bank
> account, because the FDIC has to tax all savings accounts to build
> up its kitty. That is not a tax as such but indirectly it is one.
>
>

Aug 26 08:20 PM

[double beta:]

Continued by not started by? Watch the wizard of oz. A great allegory about trying to convert to a silver standard. The Alaskan gold rush brough in enough gold to boost inventory and bring economy up with it.


On Aug 16 09:29 AM john s. gordon wrote:

> to what degree was the financial hardship of 1873-1907 caused/exacerbated
> by adherence to the gold standard? opinions please.

Aug 28 06:20 PM