With Friday's latest salvage operation – this one involving six zombie-banks – this brought the number of U.S. banks buried by the FDIC so far in 2009 to 140. With roughly ten days remaining in the year, the final tally of U.S. bank-failures is on pace to reach 144 for 2009, or a “gross”. This is a fitting number of failures for a sector which is still overflowing with the unburied dead.
As we hover on the brink of a New Year, one fact is painfully obvious: 2010 will be a much worse year for U.S. banks than 2009. The reasons for the continued decay of this sector are numerous, so I hope readers will forgive me if I inadvertently omit a few of those factors.
The over-arching basis for the continued disintegration of the U.S. financial sector is the relentless downward spiral of the U.S. economy. Yes, I know: the U.S. economy is supposedly “growing”. However, once the rhetoric and fraudulent statistics are subtracted from this picture the truth is painfully clear.
The U.S. is a consumer-economy, where the consumers aren't consuming. The U.S. is a credit-based economy – dependent on its economic growth for the last 30 years on ever-expanding credit – which is currently seeing available credit shrink every month. U.S. employers aren't hiring, after the largest/fastest disgorgement of workers in the United States in more than 70 years. With its consumer-economy populated by consumers with no jobs, no savings, and no credit, it is obvious that the U.S. economy can't grow. Statements (or “statistics”) to the contrary are merely the relentless brainwashing of the U.S. propaganda-machine.
In a consumer economy based upon credit, the health of the financial sector should be the least of the U.S.'s worries. Financing the world's most reckless consumers has always been an extremely lucrative proposition for American banks. Therefore, with this economy supposedly returning to “growth”, the health of U.S. banks should be automatic – especially given the new, fraudulent accounting rules in the U.S., which allow banks to bury losses in their books essentially forever.
However, even being able to hide all their losses, and being able to “borrow” infinite amounts of money at 0%, the collapse of this sector is steadily accelerating. By mid-year, U.S. bank failures had accelerated to 10 per month. By the three-quarter mark, that number had risen to an average of 11 per month, and by the time the year ends, that average will have moved up to 12 per month.
The 'gross' number of failures does not begin to describe the sickly state of U.S. banks. Jim Sinclair had some very interesting observations on his own site about this trend of ever-increasing decay. It was pointed out there that when U.S. banks began failing in this current cycle that the FDIC was eating losses which averaged about 5% of the bank's deposit base, while recent failures have been causing losses for the FDIC of closer to 25% - a quintupling of losses on each and every failed institution.
In other words, not only is the rate of U.S. bank-failures steadily accelerating, but the banks being put out of their misery by the FDIC are roughly five times less-healthy than when this financial catastrophe commenced. Clearly, the fraudulent accounting rules approved by the Financial Accounting Standards Board were not enacted solely to allow Wall Street oligarchs to pretend to be “profitable”, but also to allow the thousands of U.S. zombie-banks the ability to retain a veneer of “solvency” - allowing the FDIC to stretch-out these rescue operations over many years, rather than being forced to wind down 500 or 1,000 banks this year alone.
The FDIC salvage operations also provide additional evidence that U.S. bank-failures are just getting started, as opposed to reaching any sort of peak. To begin with, despite assuming ever-larger losses on these banks (and a “growing” economy), the FDIC is having more difficulty finding buyers for these corpses – not less. Two more failed institutions failed to find any buyers, this week alone.
However, perhaps the most blatant indicator that the U.S. banking sector will continue to deteriorate next year (and for many years to come) was the nature of the banking business for one of those two “orphans”. The FDIC failed to find a buyer for Independent Bankers' Bank. IBB was not a standard bank, but was rather a “bank for other banks” - which handled banking services on behalf of other institutions such as cheque-clearing and credit card operations.
In other words, IBB was actually a clerk for other banks – assuming the function of performing much of the “paper work” of the daily operations for other U.S. banks. The fact that this institution could not attract a buyer, despite the ever more-lucrative deals which the FDIC is offering to those who cannibalize these corpses says a great deal about the health of the U.S. financial sector.
When there simply aren't enough banking transactions taking place for a subsidized buyer to be willing to take on the operations of IBB, we know what 2010 is going to look like: much like 2009 – but worse. While the quantity of business being handled by U.S. banks continues to erode at a sickening rate, the quality of their “assets” is still more disturbing.
Delinquency and default rates continue to remain at or near all-time, record-highs for every category of personal debt: mortgages, credit-card balances, auto loans, etc. Meanwhile, in 2009, the commercial banking sector began to rapidly catch-up to the collapse in the various categories of personal debt.
The combination of a 40% collapse in property values and many years of “extend and pretend” debt roll-overs means that the devastation in this branch of the banking business will almost certainly be more severe (in percentage terms) than the catastrophic losses which U.S. banks have only begun to account for in their personal banking business.
There is absolutely nothing in place in the U.S. economy to stop this collapse from worsening (let alone actually reverse it). U.S. corporations will not be hiring in 2010. U.S. banks will certainly not be expanding their lending – given that they are bracing for the next down-leg in the U.S. housing market, which will commence no later than the spring of next year. This is when the next spike in mortgage resets takes place in the U.S. housing market.
This spike in resets will not only last for at least two years, but the largest component of those resetting mortgages are the infamous “option-ARM” mortgages – where most of those borrowers have been making only minimum payments (which don't/didn't even cover the accruing interest). With countless millions of U.S. homes in the “foreclosure pipeline” (and more than 20 million homes already sitting empty), the next down-leg promises to be at least as nasty as the first collapse – and very possibly worse.
In short, just as there are absolutely no fundamentals or dynamics to halt the collapse of the broader, U.S. economy, there are similarly no factors in existence which would/could halt the continued collapse of the U.S. financial sector. There can be no “rabbits pulled out of a hat” next year. U.S banks have already been given every possible means to hide their insolvency – so there will be no “miracle” as occurred this April, when the insolvent U.S. banking oligarchies suddenly became “profitable” again over-night (thanks to new accounting rules).
Instead, when April 2010 rolls around, we should expect this to be the likely date when U.S. banker-oligarchs begin their campaign for a new round of bail-outs/hand-outs. Given that the Obama regime continues to do its best to not only ignore, but to hide the suffering of the American people (with phony statistics), it is little wonder that the number of Wall Street oligarchs carrying weapons for their own protection has soared in recent months.