The banking crisis

[bobblehead]

I know tex has told me the credit markets are fine cuz his daughter got a loan, but this particular article makes me sick. Projects around the country are being delayed and going bankrupt because they can't get financed and this sick fuck gets 38 Million and doesn't even lose his job....he should be jailed ala enron execs.

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/CrybabyCapitalistsWhineForMore.aspx

I really liked this part:

To wit: "Mr. Syron received a memo stating that the firm's underwriting standards were becoming shoddier and that the company was becoming exposed to losses. . . . David Andrukonis (Freddie's former risk officer) recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that 'would likely pose an enormous financial and reputational risk to the company and the country.' "
========================================

but really, who coulda seen this coming?? (other than the bankers who actually knew their job and stopped buying said securities.)

Worst part is that we actually need the bailout of the lenders or the economy suffers which means everyone suffers so I can deal with that...but the guys who caused this mess should never work again and actually should be investigated for fraud.

[texaspackerbacker]

There's NO BANKING CRISIS, just as there is NO RECESSION.

Extremely few banks have failed--far fewer than during the Carter years or the S & L crisis. And nobody is losing any deposited money whatsoever. Any Federal money pumped in to bail out the mortgage guarantors is well spent.

And yes, credit indeed, is very available, albeit tightened up just a little bit--as is probably appropriate after the almost too easy credit of the past few years. No big deal.

[HowardRoark]

cut und paste:

FDIC Fund Strained by Bank Failures May Lift Premiums (Update1)

By Alison Vekshin

Aug. 11 (Bloomberg) -- The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17 percent of a government insurance fund and raise premiums for all banks, from Franklin National of Minneapolis to Bank of America Corp.

The closing of IndyMac in July, the third-biggest U.S. bank failure, may cost the fund $4 billion to $8 billion, in addition to an estimated $1.16 billion for seven closures through Aug. 1. Premiums for deposit insurance will likely rise, FDIC Chairman Sheila Bair said in a July 30 interview. A decision on the increase is due by the fourth quarter.

``It's going to be a bloody, expensive mess for the banking industry,'' said Bert Ely, president of Ely & Co. Inc., a bank consulting firm based in Alexandria, Virginia. ``Healthy banks are paying for the mistakes made by failed banks.''

The pace of bank closings is accelerating as financial firms have reported almost $495 billion in writedowns and credit losses since 2007. The FDIC's ``problem'' bank list grew by 18 percent in the first quarter from the fourth, to 90 banks with combined assets of $26.3 billion. A revised list is due this month. The insurance fund had $52.8 billion as of March 31.

The FDIC estimated its shutdown of California-based mortgage lender IndyMac might drain as much as 15 percent from the fund. Seven other banks will take about $1.16 billion, or about 2 percent.

The potential $9.16 billion in withdrawals would be the highest since the insurance account was created in 1933, Diane Ellis, the FDIC's associate director of financial-risk management, said in a telephone interview. Bank failures pulled a record $6.9 billion from the fund in 1988 during the savings- and-loan collapse, Ellis said.

Replenishing

The FDIC is required to shore up the fund when the reserve ratio, or the balance divided by the insured deposits, slips below 1.15 percent or is forecast to fall below that level within six months. A 2006 law directs the agency to take steps to reach the 1.15 percent ratio within five years.

``Raising rates is our first and best option if we need to get more revenue to increase the fund and the reserve ratio,'' Ellis said.

The ratio fell to 1.19 percent in the first quarter from 1.22 percent the previous quarter, the agency reported in March. IndyMac's collapse may push it down at least 9 basis points, to below the 1.15 percent threshold, Ellis said. A basis point is 0.01 percentage point.

Premiums

Premiums charged banks in 2007, which averaged 5.4 cents per $100 of insured deposits, were based on risk levels and capital determined by the FDIC. Troubled banks pay higher rates, the agency said. A new rate hasn't been determined, Ellis said.

Bank of America is the biggest U.S. bank by deposits, with almost $800 billion as of March 31, followed by JPMorgan Chase & Co., Wachovia Corp., Wells Fargo & Co. and Citigroup Inc., the FDIC said. Franklin National had $100 million in deposits. The FDIC insured $4.43 trillion in deposits as of March 31.

The fund will collect about $5 billion this year as insured banks pay an estimated $2.5 billion and the fund balance generates about $2.5 billion in interest, said James Chessen, chief economist at the American Bankers Association, a Washington-based industry group.

``Certainly, the industry is ready to step up to the plate and make sure the FDIC is financially secure,'' Chessen said. ``That has to be balanced against the fact that money coming back to Washington is money that banks can't use'' to lend in local communities.

`Problem List'

The 90 banks the FDIC reported on its ``problem'' list as of March, up from 76 in the fourth quarter, had a combined $26.3 billion in assets, or about 0.2 percent of total assets in FDIC- insured banks.

``It's still very small historically and unlikely to cause significant problems to the FDIC fund,'' Chessen said.

Bank regulators, including Bair, said last month more banks will fail as the pace of shutdowns returns to normal levels. She said historically 13 percent of banks on the list fail.

Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said he expects 300 U.S. banks to fail in the next few years, mainly because of mounting losses from real estate-related loans.

Besides increasing premiums, the FDIC has options if failures escalate and further drain the fund. The agency can tap a $30 billion line of credit at the Treasury Department and borrow up to $40 billion from the Federal Financing Bank to cover assets at failed banks.

As a last resort, the U.S. Congress can step in to protect depositors with legislation and appropriations as it did during the savings-and-loan crisis by creating the Resolution Trust Corp. in 1989 to manage the closings of 747 failed thrifts.

`Armageddon Scenarios'

``So if Armageddon scenarios did play out, the people's deposits would be backed by the full faith and credit of the United States government,'' Bair, 54, said on July 30.

The banking industry would ultimately be responsible for any government spending, Bair added.

``Even if we did have to call upon our taxpayers' backstop, our statute requires us to pay back those funds over time through industry assessment,'' she said. ``So, ultimately, the taxpayer would not pay.''

The FDIC insures deposits of up to $100,000 per depositor per bank and up to $250,000 for some retirement accounts at 8,494 lenders with $13.4 trillion in assets.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: August 11, 2008 12:39 EDT

[bobblehead]

There's NO BANKING CRISIS, just as there is NO RECESSION.

Extremely few banks have failed--far fewer than during the Carter years or the S & L crisis. And nobody is losing any deposited money whatsoever. Any Federal money pumped in to bail out the mortgage guarantors is well spent.

And yes, credit indeed, is very available, albeit tightened up just a little bit--as is probably appropriate after the almost too easy credit of the past few years. No big deal.

MGM grand announced they had been approved for a loan for a project. The stock jumped 9%. 3 other projects in vegas have been delayed due to trouble getting financed...one went bankrupt...nah, no credit industry problems at all I tell you. You are living in a fantasy world my friend.

[Tyrone Bigguns]

There's NO BANKING CRISIS, just as there is NO RECESSION.

Extremely few banks have failed--far fewer than during the Carter years or the S & L crisis. And nobody is losing any deposited money whatsoever. Any Federal money pumped in to bail out the mortgage guarantors is well spent.

And yes, credit indeed, is very available, albeit tightened up just a little bit--as is probably appropriate after the almost too easy credit of the past few years. No big deal.

Oh, it is the # now..not the size? LOL

It's the biggest failure in 24 years. It has been 15 years since any bank larger than $10 billion in assets collapsed.

Thanx for bringing up the S&L crisis...something that happened under a repub admin...and only tars one of the candidates. Say hello to mr. keating John.

[texaspackerbacker]

There's NO BANKING CRISIS, just as there is NO RECESSION.

Extremely few banks have failed--far fewer than during the Carter years or the S & L crisis. And nobody is losing any deposited money whatsoever. Any Federal money pumped in to bail out the mortgage guarantors is well spent.

And yes, credit indeed, is very available, albeit tightened up just a little bit--as is probably appropriate after the almost too easy credit of the past few years. No big deal.

MGM grand announced they had been approved for a loan for a project. The stock jumped 9%. 3 other projects in vegas have been delayed due to trouble getting financed...one went bankrupt...nah, no credit industry problems at all I tell you. You are living in a fantasy world my friend.

That constitutes a CRISIS? Come on!

Regarding the FDIC "fund", that "fund" is as elastic as the ability to print money. The full faith and credit of the U.S. Government guarantees that deposits will not be lost--to the limit of the program. That conceivably could become inflationary ....... but only in the fantasy world of those deluded into seeing crises where none exist.

What's the difference between Bobblehead and Tyrone on this issue? BHead is all panicky worrying about harm the the American economy, while Tyrone is salivating, HOPING for harm to the American economy.

[Scott Campbell]

There has been a significant degradation of access to capital in the financial markets right now, as the banking community is spooked. I expect things will ease up, but the current credit tightening hurts, and will continue to hurt this economy for a while.

[bobblehead]

There's NO BANKING CRISIS, just as there is NO RECESSION.

Extremely few banks have failed--far fewer than during the Carter years or the S & L crisis. And nobody is losing any deposited money whatsoever. Any Federal money pumped in to bail out the mortgage guarantors is well spent.

And yes, credit indeed, is very available, albeit tightened up just a little bit--as is probably appropriate after the almost too easy credit of the past few years. No big deal.

MGM grand announced they had been approved for a loan for a project. The stock jumped 9%. 3 other projects in vegas have been delayed due to trouble getting financed...one went bankrupt...nah, no credit industry problems at all I tell you. You are living in a fantasy world my friend.

That constitutes a CRISIS? Come on!

Regarding the FDIC "fund", that "fund" is as elastic as the ability to print money. The full faith and credit of the U.S. Government guarantees that deposits will not be lost--to the limit of the program. That conceivably could become inflationary ....... but only in the fantasy world of those deluded into seeing crises where none exist.

What's the difference between Bobblehead and Tyrone on this issue? BHead is all panicky worrying about harm the the American economy, while Tyrone is salivating, HOPING for harm to the American economy.

I'm not saying there is a "crisis" ala great depression, but this is really hampering the economy. Inflation and unemployment are up, and the main point (though I took a shot at you in making it) wasn't the existence of the problem, what pisses me off is that fucktards like Syron aren't going to pay the piper for being worse at their jobs than the moron at 7-11 who can't make change for a $20. This guy should be done working in the finance industry. Any JackOff could see this coming, he was even warned, yet he ignored it and gets 38 million and continued employment for his ineptitude.

[MJZiggy]

I could be inept for $38 million...they could even fire me after they give me the check...

[Joemailman]

I could be inept for $38 million...

Reminds me of Alex Smith of the 49ers.

[Kiwon]

I could be inept for $38 million...

Reminds me of Alex Smith of the 49ers.

:D :D :D

[Cheesehead Craig]

TXPB,
Technically, it isn't as much of a banking crisis as it is a lending crisis. Stupid lenders gave out too much $ in the rich sub-prime market without thought to the possible consequences. This is similar to Ford and their going overboard on the SUV production. They took short term profits over long term financial solvency. Then the over-inflated housing market bubble popped and so did those profits.

Problem is that many regional banks jumped on this lending gravy train too (as much of their way of staying afloat is in the real estate market) and they don't nearly have the backing that the big lenders (Wells Fargo, Citi, etc) do. Hell, WaMU pulled out of big sections of the lending industry and Countrywide isn't far behind. A prolonged poor housing situation is extremely bad for those smaller banks.

Saying that the banking industry isn't in trouble though is not accurate. It's akin to saying that when Enron went down there wasn't much of an effect in energy companies given they were only 1 company in the many, many out there. You have to look at the size of the failures. IndyMac alone is 3.5x the bailout cost of the combined losses of the other 31 failed banks since 2000. There may not be as many failures as during the S&L crisis, but IndyMac's failure is 20% of the S&L losses all by itself. That's significant.

[Scott Campbell]

Banks/Finance stocks are on sale right now. I don't know if they've bottomed out yet, but I do know that banks aren't going the way of the Dinosaur in my lifetime. Anyone have any opinions on the best value plays in the sector?


I'm told that Wells is the best of the breed, but their shares haven't really been battered. I'm thinking about Fifth Third as a regional play, and Goldman.

[Tyrone Bigguns]

If Obama wins...you just watch how quickly Tex changes his tune.

[HowardRoark]

Banks/Finance stocks are on sale right now. I don't know if they've bottomed out yet, but I do know that banks aren't going the way of the Dinosaur in my lifetime. Anyone have any opinions on the best value plays in the sector?


I'm told that Wells is the best of the breed, but their shares haven't really been battered. I'm thinking about Fifth Third as a regional play, and Goldman.

Wells has a shit load of HELOCs, especially in California. That money ain't coming back,

[texaspackerbacker]

TXPB,
Technically, it isn't as much of a banking crisis as it is a lending crisis. Stupid lenders gave out too much $ in the rich sub-prime market without thought to the possible consequences. This is similar to Ford and their going overboard on the SUV production. They took short term profits over long term financial solvency. Then the over-inflated housing market bubble popped and so did those profits.

Problem is that many regional banks jumped on this lending gravy train too (as much of their way of staying afloat is in the real estate market) and they don't nearly have the backing that the big lenders (Wells Fargo, Citi, etc) do. Hell, WaMU pulled out of big sections of the lending industry and Countrywide isn't far behind. A prolonged poor housing situation is extremely bad for those smaller banks.

Saying that the banking industry isn't in trouble though is not accurate. It's akin to saying that when Enron went down there wasn't much of an effect in energy companies given they were only 1 company in the many, many out there. You have to look at the size of the failures. IndyMac alone is 3.5x the bailout cost of the combined losses of the other 31 failed banks since 2000. There may not be as many failures as during the S&L crisis, but IndyMac's failure is 20% of the S&L losses all by itself. That's significant.


Tyrone, exactly what are you expecting me to "change my tune" about--in the extremely unlikely event that Obama wins?

Craig, you are wrong in several ways. There is no "lending crisis" either--just a moderate correction from lenders getting a little too carried away with the easy money of the last few years. You know, they don't just conjure up that money that they lend. The money is a product of a lot of investors wanting to lend, and consequently, accepting low rates of interest/return on their money. To a great extent, that situation continues, and THAT does not constitute a crisis. It is, rather, a good thing.

Seeing "trouble" in the banking industry is not accurate either. A very tiny minority of banks have failed, and the FDIC has done its job and made sure depositors didn't take a beating even in the miniscule number of failures. True, the one comparatively large failure is RELATIVELY significant, but as part of the macro-economic picture, it is nothing. Several times in recent decades, there have been a lot more failures and a lot more poured into bailouts than this.

[HowardRoark]

A little dated, but well worth reading:

http://bigpicture.typepad.com/comments/files/interview_with_sy_jacobs.pdf

[Scott Campbell]

Extremely interesting read. He was short on Wells at the time of the article, and the price has moved up 20% since then. I wonder if he's still shorting it.

[Scott Campbell]

The article listed 5 stocks. 3 were shorted, 2 were long positions. Since the article was published the 2 longs have gone down, and 2 of the 3 shorts have gone up.

I didn't check to see how his fund was doing, but this article would seem to imply that they've had a pretty tough year.

[HowardRoark]

Extremely interesting read. He was short on Wells at the time of the article, and the price has moved up 20% since then. I wonder if he's still shorting it.

Like I say, a little dated, but good information. Here is a WFC chart, so if he covered he did OK.

http://finance.yahoo.com/echarts?s=WFC#chart2:symbol=wfc;range=3m;indicator =volume;charttype=line;crosshair=on;ohlcvalues=0;l ogscale=on

BBT

http://finance.yahoo.com/echarts?s=BBT#chart1:symbol=bbt;range=3m;indicator =volume;charttype=line;crosshair=on;ohlcvalues=0;l ogscale=on;source=undefined

The whole "naked short" restriction that went on the past few weeks I think has had an impact. It expired yesterday.

[Scott Campbell]

Like I say, a little dated, but good information. Here is a WFC chart, so if he covered he did OK.



I don't profess to be a pro at this stuff, but I don't think there's enough information to know whether or not they did ok. If and when they covered, and at what price did they go short at.

All we know for sure is that at the time the article was published they were short at ~25, and it trades today at ~30.

Or am I missing something?

[HowardRoark]

Like I say, a little dated, but good information. Here is a WFC chart, so if he covered he did OK.



I don't profess to be a pro at this stuff, but I don't think there's enough information to know whether or not they did ok. If and when they covered, and at what price did they go short at.

All we know for sure is that at the time the article was published they were short at ~25, and it trades today at ~30.

Or am I missing something?

I guess I would say that I think the article gives a very in depth look at what is and has gone on. I read it and acted on some of the ideas at that time.

People I know who manage hedge funds and have done extremely well over the past year on the short side did cover quite a bit in mid July. The risk/reward was no longer there.

There has been some re-loading lately.

Bottom line.....I agree with your original thought on the value in some of these stocks. In the long term in particular. But don't be surprised if they re-test some lows.

Also, where will revenues come from? No lending.

[HowardRoark]

Meredith last week:

http://www.youtube.com/watch?v=42mVTnFkuus

[Scott Campbell]

Like I say, a little dated, but good information. Here is a WFC chart, so if he covered he did OK.



I don't profess to be a pro at this stuff, but I don't think there's enough information to know whether or not they did ok. If and when they covered, and at what price did they go short at.

All we know for sure is that at the time the article was published they were short at ~25, and it trades today at ~30.

Or am I missing something?

I guess I would say that I think the article gives a very in depth look at what is and has gone one. I read it and acted on some of the ideas at that time.

People I know who manage hedge funds and have done extremely well over the past year on the short side did cover quite a bit in mid July. The risk/reward was no longer there.

There has been some re-loading lately.

Bottom line.....I agree with your original thought on the value in some of these stocks. In the long term in particular. But don't be surprised if they re-test some lows.

Also, where will revenues come from? No lending.


I'm fine with long term as I've never been a short term investor. I'm also not interested in trying to call the exact bottom. I'm willing to bet that while there is no lending at the moment, eventually these morons will realize they've over reacted to the housing bubble mess and start lending again. That's their business.

And I'm also thinking that a company like Goldman makes much of their revenue from fees, and not dependent on lending.

I've also been thinking about doing a little hedging by trying to find and short a lousy hotel stock. I think hotels are likely to suffer collateral damage from the airlines because of a downturn in business travel due to higher fuel costs and corporate layoffs.

I only want to be in 3 positions max. Long on 2 bank/finance stocks, and short on 1 hotel stock. I know its risky to have all your eggs in so few baskets, but I just can't follow much more than that.

[Cheesehead Craig]

TXPB,
Technically, it isn't as much of a banking crisis as it is a lending crisis. Stupid lenders gave out too much $ in the rich sub-prime market without thought to the possible consequences. This is similar to Ford and their going overboard on the SUV production. They took short term profits over long term financial solvency. Then the over-inflated housing market bubble popped and so did those profits.

Problem is that many regional banks jumped on this lending gravy train too (as much of their way of staying afloat is in the real estate market) and they don't nearly have the backing that the big lenders (Wells Fargo, Citi, etc) do. Hell, WaMU pulled out of big sections of the lending industry and Countrywide isn't far behind. A prolonged poor housing situation is extremely bad for those smaller banks.

Saying that the banking industry isn't in trouble though is not accurate. It's akin to saying that when Enron went down there wasn't much of an effect in energy companies given they were only 1 company in the many, many out there. You have to look at the size of the failures. IndyMac alone is 3.5x the bailout cost of the combined losses of the other 31 failed banks since 2000. There may not be as many failures as during the S&L crisis, but IndyMac's failure is 20% of the S&L losses all by itself. That's significant.


Tyrone, exactly what are you expecting me to "change my tune" about--in the extremely unlikely event that Obama wins?

Craig, you are wrong in several ways. There is no "lending crisis" either--just a moderate correction from lenders getting a little too carried away with the easy money of the last few years. You know, they don't just conjure up that money that they lend. The money is a product of a lot of investors wanting to lend, and consequently, accepting low rates of interest/return on their money. To a great extent, that situation continues, and THAT does not constitute a crisis. It is, rather, a good thing.

Seeing "trouble" in the banking industry is not accurate either. A very tiny minority of banks have failed, and the FDIC has done its job and made sure depositors didn't take a beating even in the miniscule number of failures. True, the one comparatively large failure is RELATIVELY significant, but as part of the macro-economic picture, it is nothing. Several times in recent decades, there have been a lot more failures and a lot more poured into bailouts than this.

Appreciate your point of view Tex. However, this is far more than a moderate correction. The Fed doing a temporary non-conforming loan limit from 417k to 729,500 so that people can borrow more and give them a break of over 1% on their rate has not been done before. That's a huge bailout for lenders to get more people in the door to get a loan.

Large banks writing off $8B in mortgage loans in a quarter is not some lender getting a little carried away. It's happening to a good number of companies. As I said before, some major lenders have all but pulled out of the home loan origination. If that's not a sign there's a crisis, I don't know what is.

The regional banks going under will continue as more ARM mortgages come due and go into forclosure thus causing big writeoffs for these banks that cannot absorb them. Yes, the numbers now are small, but we are just at the beginning of this. We can see what's going to happen and ignoring it won't change what's happening.

[MJZiggy]

I'm not completely awake yet, I thought the thread title was baking crisis. Thought we ran out of flour or something...

And now I shall go to work..

[HowardRoark]

Large banks writing off $8B in mortgage loans in a quarter is not some lender getting a little carried away. It's happening to a good number of companies. As I said before, some major lenders have all but pulled out of the home loan origination. If that's not a sign there's a crisis, I don't know what is.

The regional banks going under will continue as more ARM mortgages come due and go into forclosure thus causing big writeoffs for these banks that cannot absorb them. Yes, the numbers now are small, but we are just at the beginning of this. We can see what's going to happen and ignoring it won't change what's happening.

This year will be bad for ARMs adjusting, you are right.

Splitting hairs, but it is a very big differrence.....the loans are written down, not off.

It is still bad, but these balance sheets can improve if this debt ever gets a bid.

[bobblehead]

The article listed 5 stocks. 3 were shorted, 2 were long positions. Since the article was published the 2 longs have gone down, and 2 of the 3 shorts have gone up.

I didn't check to see how his fund was doing, but this article would seem to imply that they've had a pretty tough year.

He got screwed by the market realizing there would be a gov't prop up delaying the inevitable. Our markets overreact to any news nowdays.

[bobblehead]

Banks/Finance stocks are on sale right now. I don't know if they've bottomed out yet, but I do know that banks aren't going the way of the Dinosaur in my lifetime. Anyone have any opinions on the best value plays in the sector?


I'm told that Wells is the best of the breed, but their shares haven't really been battered. I'm thinking about Fifth Third as a regional play, and Goldman.

If you want my free advice, don't buy in weak sectors. If you are looking for stock get into something healthcare oriented right now.

[bobblehead]

Large banks writing off $8B in mortgage loans in a quarter is not some lender getting a little carried away. It's happening to a good number of companies. As I said before, some major lenders have all but pulled out of the home loan origination. If that's not a sign there's a crisis, I don't know what is.

The regional banks going under will continue as more ARM mortgages come due and go into forclosure thus causing big writeoffs for these banks that cannot absorb them. Yes, the numbers now are small, but we are just at the beginning of this. We can see what's going to happen and ignoring it won't change what's happening.

This year will be bad for ARMs adjusting, you are right.

Splitting hairs, but it is a very big differrence.....the loans are written down, not off.

It is still bad, but these balance sheets can improve if this debt ever gets a bid.

Not positive on accounting but I think the banks can value the asset reposessed at the prior loan value until they sell it. If so, they won't be written down until the bank sells the house.