Saturday, January 16, 2010

Bad 2010 start for banks in the US

The US Federal Deposit Insurance Company publishes the names of banks which are closing, because the FDIC insures the deposits in those banks.

Every Friday it updates a
list of closed banks, dating back to 2000. From June 2004 to Feb 2007 not one bank failed. Three failed in 2007, 26 failed in 2008, and 140 failed in 2009. Over 550 banks are now on the FDIC "problem list", meaning they are at risk.

It is a small sample size, just two weeks of information, but already this year four failed banks have made it onto the FDIC list. That is twice the rate of 2009. The US taxpayer is on the hook for FDIC's so-called insurance.

And because of a governance attitude that can best be described as "pretend and extend", troubled banks are in
far worse shape (more liabilities, fewer good loans) than they would be if swift action had been taken. In other words, more taxpayer money will be required to fill the crater left by the bank failure.

The US economy is not, repeat NOT, sprouting green shoots.

Update Jan 24: 5 more.


TonyGuitar said...

Good post!
My view; things are going to get vary bleak in the next year or two.

The stupidity level in US bank management is stewpendouse..

There are quiet ways to bestow huge bonuses, yet the idiots do it openly. Political suicide! 'How it looks' can be fatal.

Secondly, when China gets nervous with the US treasury paper it holds, beware the storm clouds.

China is too smart to flatten the N.A. market, [ it buys China products],but they are taking majority positions in
big firms. [shudder]

Better get some Dutch gilders or Norwegian currency under the mattress.

If you think safety deposit boxes behind bank doors are secure.. think again.

Halfwise said...

Tony G
Thanks for stopping by and leaving a comment.

In a confidence game, all the insiders have to keep up appearances until the mark has handed his money across. Then everyone is supposed to scatter. Think of the closing scenes of The Sting.

But in a double-cross confidence game, all the insiders stick around with the intention to get the money from the other insiders.

I think this is not a bad analogy for today.

China needs the US to keep buying Chinese stuff, but as soon as they get US dollars they find some place to trade them for something else the world might need, molybdenum mines or bitumen or stockpiles of copper or something. Meanwhile the US is busy trying to sell China on the idea that the US Dollar is still going to be worth something, while the government works like crazy behind the scenes trying to keep everyone at home from worrying that the whole house of cards is beginning to collapse.

In the end, we all need the essentials of food, water and energy, and we all want the niceties of consumer goods and lines of credit. The economic system today depends mostly on faith that whatever we pay with can still be used tomorrow by the person that we pay it to. God help us when this is no longer true, or when the place where we stashed the payment we received yesterday does not redeem it today.