Post-Bailout Prediction: More Failed Banks

Despite Historic $700 Billion Government Rescue Plan, Economists Predict More Banks Will Go Belly Up

(AP)  Here's a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the U.S. government's $700 billion plan to restore order to the financial industry.

The biggest question is how many will perish and how they will be put out of their misery - in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure.

Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.

The government's commitment to spend up to $700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout.

"It will help, but it's not going to be the saving grace" because a lot of banks are holding construction loans and other types of deteriorating assets that the government won't take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.

The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account?

"It sounds like a joke," said business owner Mauricoa Quintero as he recently paused outside a Wachovia Bank branch in Miami. "But it sounds safer than the turmoil out there right now."

Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988.

But that doesn't necessarily mean the problems won't be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.

"I don't see why things will be that much different this time," said Joseph Mason, an economist who worked for the U.S. Treasury Department in the 1990s and is now a finance professor at Louisiana State University. "We just had a big party where people and businesses overborrowed. We had a bubble and now we want to get back to normal. Is it going to be painless? No."

With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp., the government agency that insures bank and S&L deposits. The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.

Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks that fail during the current crisis at $1.1 trillion. After calculating gains from selling deposits and some of the assets of the failed banks, Mason estimates the clean-up this time will cost the FDIC $140 billion to $200 billion.

The FDIC's fund currently has about $45 billion - a five-year low - but the agency can make up for any shortfalls by borrowing from the U.S. Treasury and eventually repaying the money by raising the premiums that it charges the remaining banks and S&Ls.

Through the first nine months of the year, 13 banks and S&Ls have been taken over by the FDIC - more than the previous five years combined.

The FDIC may be underestimating, or at least not publicly acknowledging, the trouble ahead. As of June 30, the FDIC had 117 insured banks and S&Ls on its problem list. That represented about 1 percent of the nearly 8,500 institutions insured as of June 30. Entering 1991, about 10 percent of the industry - 1,496 institutions - was on the FDIC's endangered list.

[sjc_1]

One finance commentator said that just passing the bill was half of it. It set the goals and rules down and everything else has to be done by the private sector.

Over the past year, banks and others have been doing what they can to reposition. They are down to the end game now. They borrowed from the discount window all they can and now this must be done. We can all go over a post crash analysis later, but lets get on with repairing this damage now.

[noloyalisti]

What was the corporate welfare for? Watch the white wing wackos start blaming Clinton and the Democrats for the Government of Pigs (GOP) failed economic policies of Ray Gun and Bushoccio.

[slim1h2o]

Here''''s another prediction.... how much you wanna bet come springtime they''''ll want ANOTHER 700 billion?


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Posted by Demongirl60 at 04:19 AM : Oct 06, 2008


It''ll happen before that. Possibly before the holidays.

When we will be wishing not for a white Christmas, but for a "Green" Christmas.

[u-r-right]

My wife received a credit card offer from Washington Mutual (WaMu) on Saturday!

What is going on? I thought they were gone?!?

More smoke and mirrors from the ultra bean counters.

[daddadah]

Goodmonring america how r ya ,
Go to ZAPATAO OIL READ ABOUT THAT COMPANY AND THE FOUNDERS OF THAT COMPANY OH BABY THAT WILL MAKE YOU VOTE THAT WILL MAKE YOU RELIZE THAT IF WE DONT TAKE OUR COUNTRY BACK AND GET IT AWAY FROM THESE GREEDY ONESISDED SELFISH OLD SON OF BEES WE ARE INTROUBLE .I DONT NO ABOUT YOU BUT I DONT LIKE BEING ANYONES PUPPET

[ramos937]

My two cents worth......First, there are well run banks that are not in trouble and will very likely not be. Mine is one of these.

The administration has to unilaterally administer, through the FDIC (or whatever) some tough love to the banks in trouble. It should immediately limit the gross compensation of all bank executives of problem banks to some realistic amount. No golden parachutes. This would force the executives to stay and work the problems out rather than to enter Chapter II or close. This gives them no choice - either work things out or become poor like the rest of us.

[t_barr]

Bloody Monday

Dial-up;
http://en.stockq.org

www.bloomberg.com/markets/stocks/wei.html

Broadband Video;
www.cnbc.com/id/24494689

www.bloomberg.com/avp/avp.htm?clipSRC=LiveBTV

[cattiej]

Like dada, I don''t trust the government anymore. They could say that I don''t have any money in the bank with a click of the button on their computers. Time to take our money and run....Taking out our old valuable to us jewelry thats been in the family for years. I no longer trust the banks. Two weeks ago I tried to talk to my teller about the 12 bank failures since Sept 6, include Andred McMcain''s Silver Bank in Henderson, Nevada on Friday Sept 5...This is John McCain''s son''s bank and Andrew was on the board of directors of the bank. Then McCain went out and said America was in sound finincial condition. Which America was he talking about? The Rich or the Poor?
As I said previously, these 70 year old folks are taking our money out tomorrow and putting in a very safe place and it won''t be a bank that may be here today and gone tomorrow.

[daddadah]

Goodmorning america how r ya,Weshould go to our banks today pull out our money and spend it on making us happy we should buy a gift for your nieghber or acase of beer bring it over and just say high.See you feel better already because you r free you r able to do that choose to have fun be positive we can always make mmoney.we forgot how to party we use to share with one another the days of peace and love were cool listen to the music remember all the colors and party .we worry about getting old my 402 my cd my portfolio what the f is a porfolio hell if you caant smoke it who needs it .What happenednto all the protest in D.C.forty years ago everybody would have marched on D.c. and shut shut the country down and demanded that our goverment forgot that we are the people and we want our country back and dont sell it or give away to anyone we r americans and we want our country back.We the people should protest the election because thier is not one candidate that has a plan yea they no how to destroy each other but not one nows how to look to tommorrow and say GOODMORNING AMERICA HOW R YA,LOVE PEACE AND FREEDOM. OUR CONSTITTION GIVES US THIS RIGHT AND THIS IS OUR COUNTRY AND WE WANT IT BACK.DONT VOTE UNTIL WE GET IT BACK NO WAY NOT ,TODAY/

[longtree-2009]

Bottom line is the average voter is getting screwed as usual without being kissed first also as usual. If you are financially sound and your lifestyle has improved or remained the same in the last 8 years, then by all means vote for Palin/McCain.

[samthetvcat]

---"We r a people of dreams ,we servive all negatives and dream positives . . . this is all material junk, it does not bleed"---
Posted by daddadah

Praise be to God . . . thanks for reminding me what really matters.

Have a great day/evening! :)

[cattiej]

Did I just see on this internet that J.P. Morgan bought Washington Mutual right after minnight?
Am I having a nightmare. Where did J.P. Morgan come up with the money?
I''m going to my bank today and take everything our of our deposit box and that out most of money in the Savings until some sort of stabilization returns to the finincial world. We are in our 70''s and we can''t afford to lose what we have worked for all our life.

[daddadah]

Goodmorning america how r ya,
We r a people of dreams ,we servive all negatives and dream positives .Did our for fathers dream of yesterday no they dream of today and the future ,what ever happens forget today and think positive for tommorow thier are a alot of evil negative stay in the past dwell on the coulda bins human beens.we must help those that need us,we must fight for good we must feed the hungry we must stomp out hatred and we must stop the he said she said baby *** .This is all about money this is all material junk, it does not bleed it does not care sewer dwellers beware the time has come for you to be eliminated .The time has come for the people of this land to stand up and be counted.We should in unity protest the election because thier is not one true american running?Not one candidate said dont worry about the past america here is the future no they spend thier time showing how negative they are one minus one is zero does not anyone get it ?

[samthetvcat]

---"We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets" Paulson said.---

This was Paulson talking about the bailout last week - but there were a ton of critics who were warning that banks would still fail and credit would still be frozen. It sucks that Congress only chose to listen to Paulson - and one of the biggest beneficiaries of his bailout is supposed to be his career employer, Goldman Sachs . . .

There was also an ABC article yesterday saying the credit freeze isn''t so much about illiquidity but rather the continued decline of housing prices . . .

Oh well, what are you going to do . . . don''t know what the challengers to the incumbents look like in everybody else''s neighborhoods, but mine''s Cindy Sheehan. Kind of a scary alternative to the incumbent :o

[brianbwb-2009]

Posted by shanev137

Don''t forget that that decade was rife with corruption, fraud, collusion, embezzlement, and cooked accounting, that kept it artificially at that level.

6,000 is a reasonable level, assuming that such a drastic drop won''t collapse the market altogether.

[shanev137]

Oh, I forgot, DJIA Futures at: 10,203.
I''''m looking for 6000 on the Dow by January....

------------


10,000 is the magic number for the DOW. There is a decades worth of support around that level. If it goes lower than about 8,000 we''re in no mans land on the downside since there''s not much support lower than that.

[brianbwb-2009]

"He''''ll probably turn loose every death row convict as a final touch." Posted by pirmin3

No chance, too many "Black" people. He will only pardon all of the economic criminals, and some of the big time drug dealers.

[brianbwb-2009]

Posted by forthinvader

Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988.

But that doesn''t necessarily mean the problems won''t be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.

I suppose you will say that Mr. Obama is responsible for this also?

There is line in a movie called "The Fifth Element", which is an apropos response to your post,

"You gotta learn how to lie better"...

[brianbwb-2009]

"Also replace pirate with Obama or Democrat. My bad."
Posted by forthinvader

No, your bad was to ascribe Bush''s lies to Obama.

[brianbwb-2009]

I seems that it is not worth the US media noting that documents have surfaced showing that the collapse of Lehman was caused by the JP Morgan bank, rather than excess "bad paper".

Once again Bush lies, the Democrats are suckered in, and thus aid Bush''s friends to steal another $810 billion.

This is becoming funny.