Tag Archives: bank failure

The Financial Crisis Revisited: The Bad Economic Slide is About to Begin Again

 

 

 

Are you ready for another perilous slide into banking and real estate hell?  Well there’s an ever growing concern about America’s banking industry again and once again the real estate sector both commercial and residential is about to voyage to the bottom of the toilet.  We’ve had a brief but welcomed respite from failing banks and sharply devaluing real estate but the road ahead is not looking good.  We’ve had a terror-free summer in terms of our banks failing but more and more Americans are wake up to the possibility that we have a committed Marxist in the White House in President Barak Husain Obama. 

As conditions deteriorate in the financial world again, perhaps spurred on by insane government spending, the transition to a socialist or communist economy, and the realization that our government has become our enemy: our political crisis means that there will be nobody home to deal with the next economic crisis.  Clearly the Obama administration is thrilled each and every time something fails because the ensuing crisis becomes an excuse to clamp down on the reins of power even harder.  It would seem that Obama doesn’t care about a finical crisis rearing its ugly head again because the worse such a crisis becomes…. the more dependant we become on the government.  If more banks fail and real estate tanks again Obama will blame it on Bush and create more massive and costly government intervention that won’t solve our problems but will make his hold on power unbreakable.

It’s much harder now to infer the state of the economy from the performance of the stock market because the crazy government intervention in the free market has distorted market reality beyond reason.  This much government interference in the economy means that the stock market is about as predictive of economic conditions as a weather forecaster trying to tell you what it’ll be like outside three months from today.  Nevertheless, I find it fascinating that the finance and mortgage giants like Fannie Mae are leading the current negative trend in today’s stock market news.

I guess the more things change the more they stay the same.

Consider this story from Bloomberg (and look for the economic crisis part II that most analysts say will be coming our way in the fall!)

 

Banks Lead Decline in U.S. Stocks on Concern Over More Losses

 

By Lynn Thomasson

the Standard & Poor’s 500 Index since June, as concern banks will post more losses overshadowed manufacturing and housing data that topped estimates.

Wells Fargo & Co., the San Francisco-based bank that received $25 billion in government bailout funds, slid the most in two weeks. Bank of America Corp., American Express Co. and Citigroup Inc. declined more than 3 percent to lead the Dow Jones Industrial Average lower. American International Group Inc. tumbled 16 percent and MetLife Inc. plummeted 5.5 percent after analysts said the insurers’ shares have risen too far, too fast. Europe’s benchmark index retreated 1.8 percent.

The S&P 500 lost 1.8 percent to 1,002.32 at 2:07 p.m. in New York, its steepest intraday decline since Aug. 17. The Dow industrials fell 157.12 points, or 1.7 percent, to 9,339.16.

“The future for the banks is not as muddy as it was two quarters ago, but it’s still not clear,” said Don Wordell, the Orlando, Florida-based manager of the RidgeWorth Mid-Cap Value Equity Fund that has outperformed 94 percent of rivals in the past five years. “The market can’t sustain these huge moves.”

Financial companies have led the S&P 500’s 48 percent rally since March 9, gaining 126 percent. September is historically the worst month for U.S. stocks, with the benchmark index losing 1.3 percent on average since 1928, according to data compiled by Bloomberg.

Economy

U.S. stocks fell even after the Institute for Supply Management said manufacturing expanded in August for the first time in 19 months and the National Association of Realtors said contracts to buy pending homes increased more than forecast in July. The gauge of factories climbed to 52.9 in August, the ISM said today, topping the average economist estimate of 50.5.

Valuations for U.S. stocks look “marginally stretched” compared with other developed markets, Credit Suisse Group AG said in a research report. Strategist Andrew Garthwaite cut his recommended allocation of American equities and predicted they will underperform when the Institute for Supply Management’s manufacturing index is above 50 and rising.

The surge in the S&P 500 made the index valued at about 19 times the profits of its companies as of the end of last week, the most expensive level since June 2004.

The benchmark index for U.S. stock options headed for its highest close since July 10. The VIX, as the Chicago Board Options Exchange Volatility Index is known, increased 9.7 percent to 28.54. The gauge, which measures the cost of using options as insurance against declines in the S&P 500, reached a record of 80.86 in November. The index is sill above the average over its 19-year history of 20.

Wells Fargo Slides

Wells Fargo dropped 3.2 percent to $26.65. Trading in the options market showed speculators were betting Wells Fargo shares will extend their decline. Trading of bearish Wells Fargo put options, which give the right to sell the stock, climbed to 162,000 contracts, triple the four-week average. More than four puts traded for each call option, which give the right to buy.

The most-active contracts were October $24 puts, which rose 67 percent to $1.25 and accounted for a quarter of today’s put trading. The shares haven’t closed below $24, or 13 percent less than yesterday’s closing price, since July 24.

AIG fell the most in the S&P 500, sliding 16 percent to $38.23. The insurer bailed out by the U.S. government was cut to “underperform” from “market perform” at Sanford C. Bernstein & Co., which said the government may reduce its support for the firm once AIG is no longer deemed a risk to the financial system. AIG surged 245 percent last month.

‘Dose of Reality’

Fannie Mae and Freddie Mac, the mortgage-finance companies under federal control, both tumbled more than 13 percent.

“Given the run that we’ve seen, where people could clearly care less about the fundamentals of the companies that were bid up, any dose of reality has to have a very chilling effect,” said Brad Golding, the New York-based managing director at Christofferson Robb & Co., which oversees $1.5 billion. “The financials have run so far, so much that they’ve gotten to levels that cannot be sustained in a choppy economy.”

MetLife dropped 5.5 percent to $35.68. The biggest U.S. life insurer was downgraded at Raymond James Financial Inc., after the company tripled in six months of New York trading.

Bank of America lost 4.5 percent to $16.80. American Express declined 3.8 percent to $32.54. Citigroup slumped 6.2 percent to $4.69.

Paul Tudor Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are among funds betting that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery. The firms oversee a combined $15 billion in so-called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.

 

Foreclosure Rate is Up: Another Residential Real Estate Crisis is Entirely Possible

 

 

 

They say that the next big real estate crisis is the collapse of the “commercial real estate market” but that’s too optimistic by half: we’re likely to see another sharp downturn in residential real estate as ever more mortgages go under water.  A German analyst recently conclude that shortly half of American mortgages will be underwater, that is, worth less than the mortgage balance, and when the bank sells the properties at a steep discount it drives the market prices down. It’s fashionable to speculate that real-estate has hit bottom and found a floor just like its fashionable to speculate that the recession and our economic woes are over. 

The stock market has enjoyed a reprieve and some of the big banks give the illusion of being on the mend.  The fact that the government has stepped in to manipulate the market so as to avoid an unavoidable crisis will work for a time, just as it will with the banks, but as foreclosures mount the pressure continues to build.  The reprieve we’ve seen in recent days in real estate and banking are largely an illusion brought about by foolish and ham handed attempts by government to stave off the inevitable consequences demanded by our behavior.

Commercial Real Estate is going to crash as the economy derails again within the next six months.

Residential Real Estate is going to crash again as foreclosures continue and as unemployment and inflation skyrocket.

Banks will continue to be stressed, even destroyed, as the real estate assets in all classes’ lose value from the foreclosure cycle.

Out of Control Government Debt and our Broken Political System will continue to drive down the value of the dollar, perhaps to catastrophic levels and more and more nations lose faith in us.  Government intervention is destroying the economy, the currency, and perhaps the social cohesion of this nation. 

We’re in a reprieve right now but don’t kid yourself: it’s going to get hairy again soon!  It’s just a question of when the next shoe drops and if the economic and political structures can survive and events unfold.

Consider the following from the Associated Press:

Foreclosures rise 7 percent in July from June

By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, Ap Real Estate Writer – 1 hr 57 mins ago

WASHINGTON – The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage.

Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee’s sale. That’s the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier.

Nevada had the nation’s highest foreclosure rate for the 31st-straight month, followed by California, Arizona, Florida and Utah. Rounding out the top 10 were Idaho, Georgia, Illinois, Colorado and Oregon. Among cities, Las Vegas had the highest rate, followed by the California cities of Stockton and Modesto.

While there have been numerous recent signs that the ailing U.S. housing market is finally stabilizing after three years of plunging prices, foreclosures remain a big concern. Foreclosures are typically sold at a deep discount, hurting neighbors’ home values.

The mortgage industry has been slow to adapt to the surge in foreclosures. Many lenders have needed government prodding to get up to speed with the Obama administration’s plan to stem foreclosures.

The Treasury Department said last week that banks have extended only 400,000 offers to 2.7 million eligible borrowers who are more than two months behind on their payments. More than 235,000, or 9 percent, those borrowers have enrolled in three-month trials in which their monthly payments are reduced.

“The volume of loans that are in distress simply overwhelms” those efforts, said Rick Sharga, RealtyTrac’s senior vice president for marketing.

 

A Day without Economic Red Flags: That’s Not Today as Libor Rises

One of the darkest indicators of our frozen financial markets in the recent past was the “Libor Rate” or the rate banks must pay to borrow from each other on a short term basis.  As the banks began to horde cash and the credit markets froze tighter than Barney Franks food stained shirt the Libor Rate rose and stayed high.  The financial shows would obsess over the rate and when the Libor finally began to come down everyone breathed a sigh of relief and credit to some extent began to flow once again. 

In the intervening time we’ve elected a new President who seems to be determined to use the fear generated by the economic crisis to push through socialized Medicine, a massive pro union anti business agenda, social spending that’s unprecedented in the history of planet earth to say nothing of flooding the world with newly printed dollars, and now a funny thing’s happening to the Libor Rate.  It’s going up again.  The further up it goes the more the credit slows and the possibility that it may freeze solid once again is definitely a possibility as the markets lose faith in Obama’s ability and or willingness to solve the banking crisis

“Maybe there’s no solution or maybe the solution is politically impossible”, that’s the word from some of the folks Bloomberg quotes in the outstanding article that I’ve excerpted below. Be sure to read the whole article at Bloomberg.com.  Here’s the URL for the story:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a0JxdKUPIyk4&refer=home

 

March 11 (Bloomberg) — The cost of borrowing in dollars is rising as the global recession deepens and central bank efforts to prop up the financial system fail to prevent a growing number of banks from requiring government bailouts.

The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans stayed at 1.33 percent today, near the highest level in since Jan. 8 and up from this year’s low of 1.08 percent on Jan. 14, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, widened to the most since Jan. 9.

Short-term borrowing costs are increasing as banks hoard cash and governments struggle to thaw credit markets after finance companies reported almost $1.2 trillion of writedowns and losses since the start of 2007. Banco Popolare SC yesterday became Italy’s first lender to seek state aid. Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, ceded control to the government March 7. U.S. regulators seized 17 failing banks so far this year.

“The market is beginning to think that the solution is either not politically possible, or we can’t afford it, or maybe there isn’t a solution,” said Bob Baur, chief global economist at Des Moines, Iowa-based Principal Global Investors, which manages $198 billion of assets. Libor’s rise “is just another indication of that concern,” he said.

Rising Libor shows banks remain skittish 19 months later because they still don’t know if they can trust each other, said Soren Elbech, treasurer of the Inter-American Development Bank, a Washington-based lender to Latin American and Caribbean countries. Libor is used to calculate rates on $360 trillion of financial products worldwide, according to the Bank for International Settlements in Basel, Switzerland.

While the gap is forecast to shrink, Alan Greenspan, chairman of the Federal Reserve from August 1987 to January 2006, said in June he won’t consider markets back to “normal” until Libor-OIS falls to 25 basis points.

Dollar Libor for three months rose for 11 days through yesterday as banks sought cash to cover commitments through the end of the first quarter.

“The liquidity will be horrible in the next couple of weeks,” Vincent Chaigneau, head of international rates strategy at Societe Generale SA in London, said yesterday.

Wider borrowing spreads show growing concern about corporate defaults as the recession worsens. The global economy will contract this year in what can be called the “great recession,” Dominique Strauss-Kahn, managing director of the International Monetary Fund, said in a speech to African central bank governors and finance ministers in Dar es Salaam, Tanzania, yesterday.

“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss- Kahn said. “Continuing deleveraging by world financial institutions, combined with the collapse in consumer and business confidence, is depressing domestic demand across the world.”

FDIC Demands for Yet another Replenishment Outrages Many Bankers: The Banking Mess Continues

The only organization that seems to hemorrhage money more than the Auto Industry, or AIG, or City Group, would have to be the FDIC as its been steadily drained by some 25 recent bank failures.  Now in an effort to raise money the FDIC is doing a onetime emergency fee on all banks that amounts to somewhere between 50% –100% of a small banks profit.  Needless to say the small banks are raising Cain over the emergency fee!  Then, of course, is the logic of solvent banks being charged for the failure of insolvent banks having the net effect of further weakening all banks.  This line of thinking is largely rejected by the elite policy masters of the Obama Administration whose zeal for socialist solutions knows no bounds.

As the Financial Crisis continues it’s becoming increasingly clear that the Government may not have enough fingers for all the holes in the dike.  The danger is in transferring the private sectors woes into a massive overreach by the United States government that both bankrupts and destroys the currency or that destroys the free market engine of growth.  Socialist economies are stagnant, they don’t grow and they include high taxes and high unemployment. The Obama Plan calls for robust economic growth that his growth killing socialist policy initiatives will surely kill. His recent tax war on wealth has badly needed money sitting on the sidelines looking for tax shelters instead of in the economy, invested, and being put to work.  In the middle of it all are the banks who still have no incentive to led to anyone when every indicator of the economy continues to indicate continued contraction in economic activity.

The Head of the FDIC had the option to use Treasury Funds but opted to penalize the banks who did it right rather than risk having all banks tainted with the “bailout brush”.  I don’t begin to understand what she meant by that especially since the treasury is printing money like its going out of style.  This administrative emergency fee is just a continuation of the soak the rich, redistributionist philosophy of the decidedly socialist Obama Administration.  Here is a clip from Bloomberg.  Don’t forget to read the whole article at this url: 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alsJZqIFuN3k

 

 

March 4 (Bloomberg) — Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.

“A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”

The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said. The fund was drained by 25 bank failures last year.