Regulators are telling Suburban Federal Savings Bank to find a buyer or face a takeover.
If it is seized, it would be the first bank failure since 1992 in Maryland.
The star marks the bank.
Category: Finance
Nationalize the Banks, Because Crony Capitalism Ain’t Working
The Romans as Inspiration in the Banking Crisis
Should Barnabas Francus hold the next hearing of his House banking committee atop this cliff?
It appears that regulations limiting the amount of interest charged caused a collapse of lending, and from there it became a collapse of property values.
Finally, Emperor Tiberius disperses something over 100 million sesterces to the banks with explicit instructions to lend to anyone who can provide collateral that is double the amount borrowed.
It is a little different, it’s not an insolvency problem, it’s an illiquidity problem, and as I have noted before, the prescription is rather different.
That being said, one of the things that Tiberius did does look rather appealing:
Tiberius also raised funds by accusing Sextus Marius, the richest man in Spain, of incest — almost certainly a trumped-up charge — and then having him thrown headlong from the Tarpeian Rock (see below), a cliff at the edge of Rome’s Capitoline Hill. “Tiberius kept his gold mines for himself,” Tacitus notes.
I want a bigger cliff though.
Senators Levin and Grassley Move to Regulate Hedge Funds
The Hedge Fund Transparency Act would force hedge funds to register with regulators, file annual disclosures, and cooperate with SEC investigators.
It’s a start.
The most worrisome thing, Madoff not withstanding, is not how hedge funds can break the law, but how much of what they do is legal, since a lot of it appears to be market manipulation and insider trading to my untrained eye.
Headline of the Day
LBO Firms Face Lending Drought as ‘Adult Supervision’ Returns
So you mean that the leveraged buyouts weren’t an artifact of “adults” soberly evaluating the business case?
I’m stunned.
Economics Update
Well, the jobless numbers are out, and they are not pretty with initial claims running at 588,000,continuing claims rising 159,000 to 4.776 million, which is the highest number recorded since the 1967, when they started collecting the data, and the 4 week moving average rose by 24,250 to 542,500.
Additionally durable goods orders fell by 3.7% in 2008.
And if you are wondering if there is a segment of the banking industry that won’t need a bailout, stop wondering.
There isn’t a segment of the banking industry that is not in trouble, as regulators are not moving to inject capital into credit unions, which are traditionally the most conservative, and the safest of the bank like institutions.
The fact that new home sales have fallen to the lowest level ever recorded (recording started in 1963) probably has a lot to do with this.
Also, freight truck tonnage is cliff diving. (H/T Calculated Risk)
Meanwhile, the most healthy of the Big 3 (Big 2½) auto makers, Ford, just reported a larger-than-expected $5.9 billion loss in the last quarter.
In international finance New Zealand is aggressively dropping its benchmark interest rates too, with their central bank 150 basis points (1½%) to the record low of 3.5%.
About the only good news is that it appears that deflationary expectations are easing, as the spread between 10 year Treasury Inflation Protected Securities (TIPS)and 10 year nominal securities has risen about 1% for the first time since November 10.
Meanwhile, the dollar was mixed today, and oil fell on the housing news.
A Good Way Of Making Statistics Accessible
Itulip.com has this 4 minute video:
Economics Update
Well, the FOMC meeting ended, and they relased statement saying that they will stay at zero interest rates for some time.
Additionally, they are looking at, “Unconventional Measures,” which appear to include buying longer term Treasuries.
It appears that one of those steps is that they will write down a significant of the mortgage backed securities that they picked up in the Bear and AIG bailouts, a sort of voluntary “cram down”.
Europe seems to have stabilized, at least for now, with consumer sentiment steadying.
Meanwhile, mortgage applications fell sharply, as interest rates have risen, from 4.88% at the beginning of the year to 5.22% now, in anticipation of ballooning deficits.
Of course, if reports that Moody’s is considering cutting GE’s triple-A credit rating, are true, we’re in for another big shock.
U.S. House Panel Approves Wimpolicious Cramdown Provision
Most notably, the bill , which puts us in a rinse, lather, repeat situation.
As the late Tanta (I miss her) said, “Just Say Yes To Cram Downs“:
In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I’m here to tell you that you will certainly not “forget” to model negative HPA in your ratings models, and will probably pay more than a few seconds’ attention to your appraisals. You might even decide that, if a loan does get into trouble, you’re better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you’ll accept. That would be a major bummer, right?
Without the cramdown provision going forward, you have created moral hazard, and the lenders will do the same stupid things, over, and over, and over again.
George Soros Slams Bad Bank Concept
George Soros has come out against the “Bad Bank” rescue scheme. He thinks that it will not save banks, but instead create “Zombie Banks”, the walking dead which will not be able to offer meaningful credit, so he proposes a “Nationalization Lite”.
I prefer the real nationalization, but I agree that the “Bad Bank” concept won’t fix anything.
By way of background, the current version of this is that the FDIC will buy toxic assets, at maturity value from banks, as opposed to current market value.
So, at its core it means overpaying the banks for their assets, so that $750K mortgage on a Miami condo currently worth $150K is purchased as if the underlying assets are still valued at $750K.
You can’t buy at market value, because the banks would then be insolvent, which is why more and more people are suggesting that the banks be taken over, and then the government would handle disposal of those assets.
It’s what the FDIC has done for years, and the RTC did with the S&L crisis, and what the Swedes did in the 1990s, and the government turned a profit in about 4 years.
It’s welfare for the rich.
Stating the Blatantly Obvious
It appears that Mssrs. Geithner and Summers are concerned about the increasing calls for bank nationalization:
Explicit nationalization of financial companies has little support among key Obama officials, sources said. Treasury Secretary Timothy F. Geithner and top White House economic adviser Lawrence Summers think governments make poor bank managers and cannot efficiently manage a vast number of institutions, according to some of their associates.
Because, as Atrios notes, “Has it occurred to no one that bank managers also make poor bank managers?“
Another danger is that by taking over a substantial portion of a bank’s stock and wiping out the investment of the firm’s other shareholders, the government could also precipitate a sell-off across the banking system as investors flee, fearing they could be next.
No, investors will flee because they believe the banks to be insolvent, because the US government won’t seize solvent banks. Even the Swedes didn’t do that during their banking meltdown in the 1990s.
The real problem is that the regulators, Geithner, Rubin, and their mentor Robert “Soon to be Indicted” Rubin, have gone native.
Back to 1980*
The FDIC Proposes is suggesting interest rate caps on banks that are not “Well Capitalized” under accounting rules:
The FDIC recommended banks be limited in tapping higher- cost sources of funds, such as brokered deposits, and be barred from paying rates that exceed a national average plus 75 basis points. The agency also said premiums paid to insure deposits should be based on risks faced by the banks that fail to meet regulatory requirements.
The bank industry lobbyists are screaming, “Nationalization,” of course, but that’s what they do whenever there is an attempt to regulate.
It really is amazing just how much every rollback of New Deal regulations has resulted in disaster.
*That’s when statutory limits on interest rates for deposit accounts were repealed.†
†That was when Jimmy Carter was President. The regulatory origins of this crisis, as well as the Savings and Loan debacle, start with him‡
‡Yet another reason I hate “Saint Jimmy.”
Economics Update
The lede on most business sections was good news, that home sales rose in December, as you can see on the top chart, but as the bottom chart clearly shows, home prices continue to fall.
Prices are down 15.3% year over year, and sales in 2008 are down 13% from 2007 sales.
The real question is how much of this is foreclosures and other REOs creating a market for bottom feeders, because the percentage of foreclosures relative to sales is way up.
Of course, interest rates have gone up a bit for mortgages, as they have in Treasuries, and this might further reduce home sales.
We also have the Conference Board’s index of leading economic indicators rising for the first time in 6 months, but it appears that this is entirely because of increasing money supply, as the Fed cranks up the presses.
The National Association of Business Economics’ (NABE) quarterly industry poll shows a far more pessimistic view of the path forward, with the worst numbers since they started the survey in 1982.
Israel’s central bank cut its benchmark rate by 75 basis points to 1%, on indications of a recession there.
In currency, the dollar fell, largely on good news on UK bank bailouts, and in energy oil was down about 6 bits, on reports of high inventories.
Not Enough Bullets: Dick Fuld Edition
After driving Lehman Brothers into the ground, he just sold his Florida mansion to his wife for $10.
He’s burying assets with his wife so that he will be “poor” when people and regulators go after him.
I think that this would be a good time for the US Attorney to start investigating whether this is a criminal conspiracy to defraud potential litigants.
Because They Have No Other Place to Go
The New York Times looks at increasing calls for nationalizing the banks, and wonders how you could find qualified people to run the banks, since pay would obviously be less:
Some of Mr. Obama’s advisers have asked who the government would get to run the banks. Many of the most experienced executives are tainted by the decisions they made during the age of excess. And how would the government attract the best talent if it demanded that they take minimal pay — a political reality in the current environment?
There are two answers to to this:
- Unless they want to go to Dubai, no one is hiring.
- The people with a track record on this have all failed miserably. The last thing that you want is Wall Street experience.
Seriously, I’ve yet to see a good argument against replacing senior management at the banks with first year liberal arts majors.
Economics Update
Consumer confidence just fell again, and hit an all time low, 37.7, the lowest number since the Conference Board started keeping records in 1967.
What with the Case-Shiller index showing a November home price drop of 18.2% year over year, and California home prices falling a staggering 42% year over year along with word of that there have been 519,895 job cuts announced since election day.
It’s all a major bummer.
We do have a report that Obama will direct his TARP funds toward consumers, as opposed to the corruption orgy under Bush and His Evil Minions™, which is good news, but it looks like Fannie Mae will need another $16 billion of that.
Meanwhile, Sweden, which handled its early 1990s banking crisis about as well as anyone, it was able to wrap up its intervention years ahead of schedule and with a profit, is looking at injecting cash into its banking system again.
Russia is looking at doing the same for its banks.
In any case, the lousy consumer confidence numbers have had the effect of driving oil down, and scaring people into fleeing to the safety of the dollar, which drove the buck up.
Buh Bye Kenny Boy
Kenny in this case is Bank of America’s CEO Kenneth Lewis, whose tenure is increasingly precarious following negative impacts of his ill conceived purchases of Countrywide and Merrill Lynch.
I know that we are interesting times when some of my predictions start coming true.
Another One Bites the Dust
Another Friday, another failed, and seized, bank: 1st Centennial Bank of Redlands, CA
More Calls for Swedish Style Nationalization
And the press is beginning to cover just how well it worked, and it worked very well….A lot better than what the current free market mousketeers are trying here.
George Soros is pushing for something that it kind of halfway in between the two approaches, and I disagree. Solomon’s division of the baby gets one a dead baby:
The hard choice facing the Obama administration is between partially nationalising the banks, or leaving them in private hands but nationalising their toxic assets. Choosing the first course would inflict great pain on a broad segment of the population – not only on bank shareholders but also on the beneficiaries of pension funds. However, it would clear the air and restart the economy.
That being said, George Soros is right about an awful lot.
Economics Update
Well, it’s official now for the British, they are in recession too.
Not surprisingly, the Pound has tanked and the dollar is generally up on this news.
The Ruble further weakened too.
We also now have ING warning that France’s AAA sovereign debt rating is at risk.
Meanwhile, on this side of the pond, the New York Stock Exchange has lowered its market capitalization requirement for companies on the exchange.
They delisted a record 53 companies last year, and my guess is that they are worried about breaking 100 this year, so they changed the requirement to account for a tanking market.
A more general indicator of economic activity, the rail freight traffic, has fallen sharply.
Generally, the high energy prices of 2008 favored the industry, but when total economic activity falls, so does rail traffic, even as it grows relative to trucking. (H/T Calculated Risk: Rail Freight Traffic Off Sharply in 2009)
In the intersection of banking and real estate, it appears that the regulators of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLB) are seriously tightening up regulations because they are still engaging in risky activity.
I just want to note that I suggested that this might be an issue in March of last year.
Also, it appears that the inventory and foreclosure numbers are worse than you think.
Banks are not wanting to flood the market, so they are holding back on placing some of their foreclosures on the MLS and delaying foreclosures on properties in default, so there is a “ghost inventory” out there that is not showing up in the numbers.
In energy, oil was up today.