Bank Failrues

[RedOctober]

Merrill Lynch & Lehman Brothers tanked today.

http://news.yahoo.com/s/ap/20080915/ap_o...et_workers

Last week it was Fannie Mae and Freddie Mac.

Add to that, there are murmurings that WaMu (Washington Mutual) may also go under and some are speculating weather or not Bank of America can actually absorb Merrill Lynch (particularly since its still digesting Countrywide).

Another question...how man foreign banks are connected to this directly and indirectly and how hard will they be affected?

Thus far, mainly investment banks (note, WaMu is not an investment bank) have taken the hit and your deposits in your regular banks are not in jeopardy.....yet. The question is...how much of your money did the bank invest into mortgages? And how many banks put too much into one basket? Make sure your bank is insured by the Federal Government...and lets hope that the deposit bank losses don't overwhelm the federal insurance.

You might be asking, how this big mess got started....I can tell you and you might be surprised....

Well something happened in 1999....the Financial Services Modernization Act of 1999. Clinton and the Republican controlled congress passed this through...why a Democrat President agree to this? Who knows, perhaps he didn't want to be known as a lame duck president (in addition to being an impeached one) or moved toward the right more (as public opinion was definitely swaying that way) in order to ensure the Democratic Party would still "fit in". This act undid a lot of depression era legislation, the Glass-Steagal Act, etc. that heavily regulated the financial markets and as a result....banks could do a lot more without the government stopping them. Somewhere somoene was doing some crazy drugs that got them to thinking that the "free market" was absolutely perfect and absolute doctrine because Adam Smith said so (although, he never stated as such and actually advocated regulation under certain circumstances)

Guess what....this is only part of the formula that created this mess.....ahhh...the joy of economics... one thing I learned from the discipline, its never one single event that causes a problem....its often intertwined with something else or many other things.

Remember when they reformed the Bankruptcy laws that heavily favored the banks? As the adage goes....be careful what you wish for, you just might get it. And thats exactly what happened to the banks in this case. By making the bankruptcy laws so stringent, it actually excaberated the mortgage meltdown.

Imagine Joe Shcmoe who can't afford to pay his mortgage...his options, Bankruptcy or walk away leaving the house to the bank:

1. If he buys another house before his credit tanks, he can get a house thats more affordable....and then leave his old one and deal with the negative rating for the time being.....but, he will have a home.

2. If his credit is already in jeapordy...why go through a costly bankruptcy procceding that would probably not discharge many of the costly debts? And still have to pay for a house that will still be upside down and guess what...still have a negative credit rating.

3. Oh by the way, before Joe can declare bankruptcy...he has to go to a "credit counseling serivce" which tanks his credit as well. Suddenly option 1 looks a lot better and makes option 2 look no different.

Under the old bankruptcy laws, Joe may have had more of his debts discharged (and easier to accomplish) and may have been more inclined to keep his house despite being upside down in it.

Want to know something disturbing? Remember they were talking about allowing people invest thier Social Security into these investment banks? Aren't you glad that plan didn't go through....but of course, the problem remains...the Social Security system will still go bankrupt eventually.

What does this mean to you....well, the economy dodged a whole lot of reccession bullets (recession defined as in Economics...not your gut feeling)...somehow, I'm thinking its going to bite the bullet this time. I think everyone knows how that might affect you.

Oh and don't tell me "ITS A DEPRESSION".....you have no clue. When a quarter of your community lives in shanty towns (those plywood towns you see south of the border in Mexico), your food source is government handouts that strech for several blocks and your willing to take a job that may cost you your life in order to provide....OR.....your if your one of the lucky ones....you get into a government work camp, that provides you a job and remedial housing. That is a depression, pray to God you never see such a thing.

[Pavel]

How long until we see runs on the bank?

[IV]

When we start to see people flying to Brazil and New Zealand proclaiming the end is near....like the last time.

*sarcasm* *peace*

[RedOctober]

Pavel Wrote:How long until we see runs on the bank?

If that could be predicted...then there wouldn't be any runs on a bank.

One would think with an insured bank that there would be no worries...yet there was a run on indymac bank. Completely impossible to predict. A bank where there should be a legitimate run could have no run...and a bank that's financially sound could have a run....therefore making it unsound. This is where the science ends and the hysteria of people begin.

Indecently, with all the money the government is pumping into the financial system....I think we can expect to see some inflation on the horizon. And who would have known that a sitting Republican President would be pro-socialization of institutions...

[RedOctober]

Ready for a bail out? Wouldn't it be great that those idiots who heavily invested into essentially an unregulated market with no oversight were the only ones to suffer? Yeah, it would be great...but...unfortunately they don't exist in a vaccum.

Problem, these are the same guys that loan money for say, your car, your house, your credit cards, to business (small and large) and of course all these things do something. Both directly and indirectly...provide jobs. Particularly business loans, a company doesn't always have the cash on hand to expand into a new territory, area, line of products, etc. so they borrow the funds and of course this creates jobs...and of course they are not a one stop shop and have to hire outside vendors, services, etc. and voila, people go to work. And of course they get income and spend it on goods and services and the cycle continues.

No bail out...and all that stops. Sucks doesn't it?

[veda]

Ok how about last thursday for the timing of people pulling out their money WAMU had 16.7 billion dollars pulled out in 10 days....

[Pontoon]

Ha Ha, the stock market was up till the feds took 700 billion of our money to bail out the banks and then the market drops!

[RedOctober]

Pontoon Wrote:Ha Ha, the stock market was up till the feds took 700 billion of our money to bail out the banks and then the market drops!

I wouldn't use the stock market as a reliable indicator. Its subject to hysteria, mis-information and panics. But speaking of the market....this is probably the most "pure" form of capitalism there is. I often use it as an example to pure capitalist advocates who claim to know economics despite being fully educated on the discipline by the TV and/or "news" articles they read in a paper or magazine (I still shake my head today when I read an article in Forbes that confused the Law of Diminishing Marginal Returns and the concept of returns to scale while trying to defend Microsoft was not a monopoly). Imagine your local grocery store like the stock market, you go to buy a head of lettuce. Yesterday it was a buck, right now it 50 cents...when you get to the register it jumps up to two dollars, after you purchase it, it drops to a dollar fifty. Oh and by the way, you have to pay a toll on the road you drive and at several intervals (because several different people own different portions of the road and government ownership is not a pure capitalist concept)...and of course that price fluctuates as well.

Back to the bail out....it was needed, but poorly put together.