SAN FRANCISCO, Oct. 5, 2008
Post-Bailout Prediction: More Failed Banks
Despite Historic $700 Billion Government Rescue Plan, Economists Predict More Banks Will Go Belly Up
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In this Jan. 22, 2008 file photo, a customer waits at the drive through at a Wachovia Bank in Matthews, N.C. On Oct. 3, 2008, a battle of banking giants erupted when Wachovia struck a new deal with Wells Fargo & Co. without government help, and Citigroup demanded that it be called off. (AP PHOTO)
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Play CBS Video Video FDIC Seizes WaMu The assets from the largest bank failure in U.S. history will be sold to JPMorgan Chase in an effort to prevent the depletion of funds from the FDIC, says Liz Claman, Fox Business News anchor.
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Late last month, WaMu became the largest bank failure in U.S. history, with $307 billion in assets, nearly five times more, on an inflation-adjusted basis, than the previous record collapse of Continental Illinois National Bank in 1984. The FDIC doesn't expect WaMu's demise to cost its fund anything because JP Morgan Chase & Co. agreed to buy the bank's deposits and most of the assets for $1.9 billion.
Regulators dodged another potential bullet by helping to negotiate the sale of Wachovia's banking operations to Citigroup Inc. in a complex deal that could still end up costing the FDIC, depending on the severity of future loan losses. On Friday, a battle of banking giants erupted when Wachovia struck a new deal with Wells Fargo & Co. without government help, and Citigroup demanded that it be called off.
The banking outlook looks even gloomier through the prism of
Based on its analysis of the June 30 numbers, Bauer Financial concluded that 426 federally insured institutions are grappling with major problems - about 5 percent of all banks and S&Ls.
About 15 percent of the banks on Bauer's cautionary list have more than $1 billion in assets. Not surprisingly, the troubles are concentrated among banks that were the most active in markets where free-flowing mortgages contributed to the rapid run-up in home prices that set the stage for the jarring comedown. By Bauer's reckoning, the largest numbers of troubled banks are in California, Florida, Georgia, Illinois and Minnesota.
"It's important for people to remember that not all these banks are going to fail, just because they are on this list," said Karen Dorway, Bauer Financial's president. "Many of them will recover."
James Barth, who was chief economist of the regulatory agency that oversaw the S&L industry in the 1980s, doubts things will get as bad as they did then.
"It's scary right now, but it's not as scary as a lot of people are making it out to be," said Barth, now a senior fellow at the Milken Institute, a think tank.
Mani Behimehr, a home designer living in Tustin, California, isn't feeling reassured after what happened to WaMu and Wachovia. After he heard the news that WaMu had been seized and sold to JP Morgan, he rushed out to withdraw about $150,000 in savings and opened a new account at Wachovia only to learn about its sale to Citigroup two days later.
"I thought this is the strongest economy in the world; nothing like that happens in this country," said Behimehr, 46, who is originally from Iran.
The tumult is creating expansion opportunities for healthy banks. Industry heavyweights like JP Morgan, Citigroup and Bank of America Corp. have already rolled the dice on major acquisitions of financially battered institutions in hopes of becoming more powerful than ever.
Smaller players like Clifton Savings Bank in New Jersey are bragging about their relatively clean balance sheets to lure depositors away from rivals that are wrestling with huge loan losses. The bank, with about $900 million in total assets, says just one of its 2,300 home loans is in foreclosure.
"There is going to be a flight to quality," predicted John Celentano Jr., Clifton Savings' chief executive. "People are going to start putting their money in places that were being run the way things are supposed to be run: the old-fashioned way."
© MMVIII The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.
Add a Comment See all 26 Comments
- 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. - Reply to this comment
- 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.
- Reply to this comment
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.- Reply to this comment
- 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. - Reply to this comment
- 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 - Reply to this comment
- 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. - Reply to this comment
- 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 - Reply to this comment
- 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. - Reply to this comment
- 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/
- Reply to this comment
- 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.
- Reply to this comment
- ---"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! :) - Reply to this comment
- 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. - Reply to this comment
- 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 ? - Reply to this comment
- ---"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 - Reply to this comment
- 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. - Reply to this comment
- Oh, I forgot, DJIA Futures at: 10,203.
I''''m looking for 6000 on the Dow by January....
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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. - Reply to this comment
- "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. - Reply to this comment
- 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"... - Reply to this comment
- "Also replace pirate with Obama or Democrat. My bad."
Posted by forthinvader
No, your bad was to ascribe Bush''s lies to Obama. - Reply to this comment
- 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. - Reply to this comment
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