Under Further Review
By Larry Doyle on February 27, 2009 at 2:30 PM in Banking Institutions, Economy, FDIC
The FDIC just released its 4th quarter 2008 report. Read it and weep . . .
1. FDIC had a $26bln loss in the 4th quarter and now has only $18bln in reserves. (Little doubt that FDIC premiums — insurance premiums that banks must pay — will be increasing to rebuild reserves. All costs ultimately flow through to customers). In fact in today’s WSJ, FDIC Poised to Double Fees Charged to Lenders
2. banking industry had first loss in 4th quarter 2008 since 1990
3. troubled institutions rose to 252 from 171 in 3rd quarter
4. banks have taken a total of $750 billion in writedowns on problem assets!!
5. banks have increased loan loss reserves to $69 billion from $32 billion
These numbers in conjunction with the Bank Stress Test lead me to make the relatively easy projections that:
— Government will have significant stakes in certain major institutions while continuing to take over and shut down many smaller institutions.
— Banks will continue to look to build reserves against future losses. This development along with a limited if not nearly non-existent “shadow banking system” (securitized consumer loan market) will mean that credit will be tight.
— As banks need to preserve capital, their ability to recruit and pay people will be severely restricted. I know employees are looking to leave these organizations to work at smaller shops without these problems.
— Although bank stocks are currently getting a bounce given government indications of support, these are not companies that have attractive growth prospects under these conditions.
LD
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LD I am officially immune to your economic bad news!
Sorry, had to say it, but thanks for keeping us informed with these condensed reports. I feel a bit like the captain of the Titanic – “Sir, theres another iceberg off the port bow”.
I just had to reduce my housekeeper to very part time. Sounds like a “rich person whine” I know. To me its an inconvenience but to her its a huge loss of income. I really don’t feel happy about any of this and I have no confidence that the porkulus will do anything but make it worse.
On the plus side HC, I’ve always held that, no matter the income or social status, doing your own dirty laundry and cleaning your own house keeps you a bit more in touch with your own humanity. I’ve tried to pass this on to my children and grandchildren. Certainly it’s this sort of experience that is lost on those (not accusing anyone) people who build the ode to ego McMansions, etc. Keeps you really Real.
I’m not practicing for the coming socialism…just a little humility (chop wood, carry water).
My point was this adjustment not a big deal to me aside from the heartache of knowing it will make a real life difference to my hardworking employee. My housekeeper relies on her income from me to feed her kids. Maybe if we can make the economy bad enough she will be forced onto public assistance? Will the progressives count this as a victory I wonder? Serves me right! I should clean my own house! Evil rich person!
I know how to clean and have no problem with it. I dont think its morally good or morally bad to clean your own house. In good economic times I prefer to keep working more on other things – allocating my time to uses which are more productive to me or make me happier. This allows me to subcontract other things at which I am less productive.
Who is really getting hurt is my housekeeper.
Prosperity is good for everyone at all income levels.
The point isn’t that you are evil rich or that cleaning house is punishment. To each their own.
My POV is that I will never be too busy or have too many important things to do that I won’t take care of personal tasks. Not about moral superiority or inferiority but keeping your feet on the ground. Merely a suggestion that we could choose to find a silver lining in the face of hard times.
But it’s still a free country (for today anyway).
Agreed.
Wish I had a housekeeper.
If I had money I’d sure as heck hire someone to come in a few days a week.
Same way I hire people to mow the lawn or snow removal.
No need to justify. (IMHO)
If Obama took ALL the taxable income of the so-called rich, we’d still not be able to pay for this white elephant of a budget.
http://www.youtube.com/watch?v=7upG01-XWbY
Oh the times are a changing.
I’m weeping.
If people who can choose to save more rather than spend more (granted, less stimulus this way), will it help the banking industry’s short-term problems? Would increased deposits facilitate lending?
True, now if I only had a magic wand.
Yikes! Nah! We’ll patiently wait for the big guys to make everything right again, no?
The Pushback is beginning.
In Beirut after Hariri was killed there were huge, peaceful demonstrations of actual not-paid-to-protest people angry that Syrian thugs (yes I said it out loud) could simply kill their legal head of state. Hariri was pro western, pro democracy, popular, basically a huge problem for the local thugs. The crowds cut across most of society, except of course Hezbollah.
Hezbollah would then send in its paid demonstrators in counter-protest. The pro-Hezbollah crowds were also huge, bussed in, with an organized agenda, I guess sort of like a democrat party caucus.
I was happy that the unpaid demonstrators wouldnt stop. I have never seen so many people day after day. Unfortunately, Hezbollah still won in the end, and they now run the country (via the Doha backdoor deal).
Its very hard to organize and win against people who are in the business of rabble rousing and “community organizing”. Lets hope America can succeed where others have failed. We’ve done it before.
I don’t wish to sound like a (traditional) Republican here, but to what end are we rescuing the banks?
Bank falls down, goes, “Boom!”
Available capital finds new front men, secures charter and locations, makes strategic operational compacts with printers, clearinghouse, insurance, etc, and opens for business.
The Old Banks are dead. Viva the New Banks.
What did I miss?
I wouldn’t mind that if they could do it without chaos. I also wouldn’t mind if they could allocate the good assets away from the bad banks to the good banks. Instead of creating “bad banks”. We don’t need to create them, we already have them.
With al the banks in jeopardy and BO being such a fine manager of our economy is the FDIC program secure? I don’t think that it has been tested in a time of economic chaos such as we seem to be facing. Thanks for the enlightening analysis LD.
Thanks LD, going to pay off my house (my last debt), stock up on food and supplies and wait this out.