Now here's where it gets real scary: From the AP:
The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.... Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.
"We've got a ... retail bank run forming in this country," said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.
Treasury Secretary Henry Paulson said Monday that the country's commercial banking system "is safe and sound" and that "the American people can be very, very confident about their accounts in our banking system." FDIC officials also have said 98 percent of U.S. banks still meet regulators' standards for adequate capital.
But fear is growing on Main Street as well as Wall Street about the likelihood of multiple bank failures and the strain that would put on the FDIC.
FDIC's insurance fund: $45 billion. The assets of Washington Mutual, which is teetering on the brink of insolvency: $309 billion. A WaMu collapse would make it 10 times the size of the greatest bank failure in US history. The FDIC may have to borrow money from the Treasury to cover insured losses (remember that deposits are only insured up to $100,000, which limits taxpayer risk). Somebody correct me if I'm wrong, but just how long can the government borrow from itself to cover losses in private banking? How long can we keep digging the indebtedness hole before the whole thing falls in?
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Some good comments.
The answer, 'as long as the printing presses can run," is the right one. The big risk is the bailout plus the deficits and the paper that has to be printed to pay them leads to a collapse in confidence in the currency. Then it's Weimar or Zimbabwe time. Good for the debtors, perhaps, but not for the lenders. Of course, the economy has been run for the bondholders for some time now.
The GOP has implemented more socialism than any "leftist" government, with less discussion. We taxpayers now own the world's largest insurance company, among other things.
One has to hope the people will keep believing that the gummint will cover their accounts. As long as they do, there won't be major bank runs on individual deposits. Holders of large amounts of money are probably pretty nervous by now. If I had more than $100K in cash, I'd divide it up between as many banks as I could.
Remember, we're still the locomotive. If we sneeze, China catches the flu and Thailand and Malaysia come down with TB.
This could be very bad juju, indeed, and the candidates seem to be totally incompetent to deal with any of it. Meanwhile, the foxes have they keys to the henhouse.
Lord, have mercy (Repeat 100 times).
At this point, it appears the entire financial industry and our country is under attack financially. Someone said, follow the money trail. I think they are on to something. Is it possible that we are being attacked financially? Follow the money trail!
I hear no one including the media mentioning priority number one. We can't wait for the "next" figure head to take office. We must act now!
Step ONE - All of us need to be calling our senators and demanding we bring all troops home. The war is costing this country 80 million per day! That we obviously don't have..
Step TWO - follow the money trail and end the bleeding now! Stop all trading if necessay.
Step THREE- Gather all of the brilliant minds I know we have in this country and decide what STEP FOUR should be.
Now is the time for our leaders to step up and lead! Bailouts are not the answer. We need to determine the real cause of this financial disaster. Follow the money trail and I bet we find answers.
If I am not mistaken, there have been fewer than twenty bank failures in the last year. There are some 7000-odd commercial and savings banks in this country. There were over 1,000 bank failures in 1988-99.
But, Art, I don't believe those were $300b behemoths all falling like dino's after the meteor hit...
EricW
Next time you see that ad, you might notice he fails to mention that part of the Fannie and Freddie problem.
As has been repeatedly pointed out, there is no 'Fannie and Freddie problem'. They were not mismanaged, they were not involved in fraudulent activity, they did not make poor decisions.
Their job was to buy good mortgages to take them off the hands of banks. Not subprime, not Alt-A, but good mortgages. Which they did. They were established to do that, and they did.
The problem is that, suddenly, everyone became aware that all mortgages, thanks to housing prices collapsing, were worth a good deal less than previously appraised by the entire industry. This resulted in Freddie and Fannie not actually having enough assets to cover their debts, instantly bankrupting the companies. All the stockholders were wiped out, and the companies 'died'.
However, the US mortgage industry requires someone to buy loans, that is simply the way it's set up now, and without those companies no one would get any loan at all and no one would be able to buy a house, which would screw up the real estate market even more. Likewise, without Freddie and Fannie paying back the banks they owe, the financial market would be completely screwed up. In addition, someone has to execute the mortgages they hold and actually collect the money.
So the Feds essentially took Fannie and Freddie and continued to operate it. You can disagree with that, you can disagree with the position it was created to hold in the banking industry, but what you can't do is pretend it was somehow 'screwed up' by the Democrats running it. It did exactly what it was intended to do, in fact, it kept doing this blatantly dangerous behavior well past the point that a sane company without restrictions in its creation would have branched out to avoid having all its eggs in one basket.
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