We Needed Government Aid Sooner

We wasted $77.8 billion in the auto bailout.

If we offered consumers "Cash for Clunkers" a year ago, we just might have prevented the closure of all of those automobile dealers and avoided the GM and Chrysler bankruptcies.

We have wasted $44.9 billion on Fannie Mae (FNM) and $50.7 billion on Freddie Mac (FRE) and counting.

If we had $8,000 tax rebates for first time home buyers a year ago, how many foreclosures could have been avoided?

Billions given to bail out of Main Street a year ago would have saved the trillions wasted to bail out Wall Street. The economy may have stabilized in 2008 avoiding the severe Recession.

What were we concerned about? Moral Hazard! If we helped Main Street first we may have avoided The Great Credit Crunch. Instead many cities are trying to find suitable locations for tent cities, while Wall Street returns to record bonuses.

The FDIC Faces Fallout from Bank Failure Friday

Four more banks failed on Friday bringing the total for 2009 to 81, and to 106 since the end of 2007 when The Great Credit Crunch began.

So far this year there were 21 bank failures in the first quarter, as reported in the Q1 2009 Quarterly Banking Profile, the worst quarter since 1992.

We know that 24 banks failed in Q2 2009, which will be presented in the Q2 2009 Quarterly Banking Profile to be released on Thursday.

I just hope that the FDIC gives the public the fact that so far in Q3 2009 another 36 banks have failed with five more Bank Failure Fridays ahead through September.

All four bank failures on Friday were publicly traded community banks and all four were on the ValuEngine List of Problem Banks.

The FDIC Deposit Insurance Fund is running on Empty

At the end of Q2, the Deposit Insurance Fund should show a balance of about $10 billion. Since then there was a $5.6 billion in assessments in May.

Given the drain since the end of June the actual DIF is likely below $2 billion. It’s time for the FDIC to acknowledge the problem and tap its $500 billion temporary line of credit with the US Treasury, and not tax the stressed banking system with additional assessments.

Finding Suitable Bank Takeover Candidates

Recent larger bank takeovers have been from three types of investors – Private Equity took over Bank United in terms that were too generous for speculative capital.

Colonial Bank was taken over by BB&T (BBT), in what I call the “too big to fail” model. Guaranty Bank was taken over by a foreign bank from Spain.

Disclosure: No Positions in stocks that I cover.

Comments

[Tony Petroski:]

The author:

"If we offered consumers "Cash for Clunkers" a year ago, we just might have prevented the closure of all of those automobile dealers and avoided the GM and Chrysler bankruptcies."

Yes, but now that we have things going right, why stop now at 7:00 P.M., eastern time, Monday? Shouldn't we just keep on trucking until Chrysler, Ford, GM and ... (the foreigners) are all whole?

The author: "What were we concerned about? Moral Hazard!"

No. I was and still am concerned that an American government can point a gun at me, say "your taxes or your freedom" and then take my money and hand it to someone else.

Is that moral hazard? You bet. Is that morale hazard?

Yes, that too.

Aug 25 09:31 AM

[Alex_G:]

Richard,

I think you are forgetting what got us here in the first place. The largest housing bubble in our history, the use of inflated values to consume more than we make, and the extra debt taken on fuel the consumption.

Cash for Clunkers would not have saved the over-built auto industry.

$8,000 tax credit would not have made vastly overpriced houses affordable in the long run.

50% of economic growth from '02-'07 was fueled by the vapors of an asset bubble. It was time to pay the piper.

Aug 25 11:51 AM

[Jason Rines...:]

Indeed, the problem with building empires. Hide the money and produce less until the empire becomes sane, dissolves or at times is conquered. There is a possibility now that we will become the USSA, communist lite. In other words still have Hollywood but the state owns everything else.


On Aug 25 09:31 AM Tony Petroski wrote:

> The author:
>
> "If we offered consumers "Cash for Clunkers" a year ago, we just
> might have prevented the closure of all of those automobile dealers
> and avoided the GM and Chrysler bankruptcies."
>
> Yes, but now that we have things going right, why stop now at 7:00
> P.M., eastern time, Monday? Shouldn't we just keep on trucking until
> Chrysler, Ford, GM and ... (the foreigners) are all whole?
>
> The author: "What were we concerned about? Moral Hazard!"
>
> No. I was and still am concerned that an American government can
> point a gun at me, say "your taxes or your freedom" and then take
> my money and hand it to someone else.
>
> Is that moral hazard? You bet. Is that morale hazard?
>
> Yes, that too.

Aug 25 04:29 PM

[bearrally:]

Richard,

I am shock to see your headline? Since when is government helping? Shocking for a person your age to want to see communism to take over this country. I am sick to my stomach with all the scam jobs that this body of government had pull over America. One day, people like you will wonder why this country were destroyed by this gang of thugs. It is scary to see how we became a country with no honor, pride, and ethic.

raid America as much as you can seem to be a great theme for people like you. Who care about future generations, who give a rat about our kids.

Aug 25 11:22 PM