Thursday, July 17, 2008

Big Bank Balance? Better Worry!

Got a chunk of change in the bank? A healthy balance in your account? You may have a problem. It is time to start worrying about the integrity of the U.S. banking system. Read more about the crisis of confidence in a New York Times report, here. To review, the federal government guarantees bank deposits up to (and there's the rub) $100,000. If one's balance is bigger than that, losses will be sustained in a bank failure.

The Seattle Post Intelligencer (What, you thought Silicon Forest's daily paper would have a normal name?) ran a pretty good "What to Expect if your Bank Fails" piece with a handy calculator to assess your potential losses, here. If you have worries, do the calculation and see what you may lose.

So how real is the threat? Well, the Fed is hiring 150 more professionals for their "failed bank" team. By now, most have heard about the depression-era bank run that broke IndyMac in California. There is a "secret" list that the feds keep of banks on the brink. It is rumored to have over 70 more institutions under watch, with about 15 in dire straits. Washington Mutual and California's Downey Financial are frequently mentioned by financial pundits reporting on troubled institutions.

So what happened? In a phrase...Capitalism run amok. Greedy bankers getting into bubble building on the backs of working Americans. The Author has heard it described as "mission creep." Banks started out with a fairly simple and transparent mission and modus operandi: Provide communities with a safe repository for money, and use a portion of those deposits to make loans to deserving local citizens and businesses at a fair profit. Well as bankers got greedy and competition more intense, the mission changed to more of a "make money at any cost while taking no prisoners..." approach. Loans were "securitized" into mortgage-backed obligations and sold in bits-and-pieces to a host of upstream financial speculators. And thus, the traditional model was broken. Now banks are seriously under-capitalized, due to covering so many bad loans, and the economy is teetering on the brink of depression. If you are the worrying type, now would be the time to worry about your bank.

1 comment:

roberto said...

I had complained earlier in the week on this blog about how the MSM and the American public were very slow to start focusing on the economic state of affairs. But I think I perceive that coverage has been building up. Perhaps the story is just too big to ignore, no matter how hard we try.

Watch Bill Moyers this week. There is a shocking report on the devastating effects the mortgage crisis has wreaked in Cleveland. As one of the interviewees summed up, "New Orleans had Katrina. Cleveland had greedy mortgage lenders."

William Greider was the in-studio guest who said at the core of the banking and general economic crisis is the effective abandonment of usury laws in 1980 - laws that have been recognized since ancient times as essential for maintaining a functional society.