Posted: Tue Jul 15, 2008 2:26 am Post subject: Investor Confidence in Banks Spiraling Downward
Investor Confidence in Banks Spiraling Downward
Quote:
Even as the Bush administration moved to rescue the nation’s two largest mortgage finance companies, confidence in the banking sector spiraled downward Monday.
In Southern California, lines snaked around branches of IndyMac Bancorp, the large lender that was seized by federal regulators on Friday, as customers hurried to withdraw their money. As the anxiety spread through the financial markets, two other big banks, one in Ohio and another in Washington State, were compelled to assert that they were sound.
Even as federal regulators issued assurances that depositors’ savings were safe, Wall Street analysts circulated lists of lenders that might be vulnerable. Shares of regional banks plunged in one of the sharpest declines since the 1980s.
Looking at the performance of bank stocks over the past 12 months, it appears that many banks are now insolvent, or close to it. Their stocks nearly worthless now. Many bank runs are about to happen.
Posted: Tue Jul 15, 2008 2:53 am Post subject: Re: Bank Depositors' Confidence Spiraling Downward
Hogan wrote:
Bank Depositors' Confidence Spiraling Downward
Looking at the performance of bank stocks over the past 12 months, it appears that many banks are now insolvent, or close to it. Their stocks nearly worthless now. Many bank runs are about to happen.
Bank runs cause panic; panic causes bank runs. One thing I'd like to get a little clearer on though - If a bank becomes insolvent, it still has deposits - if a depositer tries to get their money out of an insolvent bank, do they just have to wait for the FDIC to pay out? I'm not sure how to ask this question - do banks (typically?) keep deposits and loans separated in their accounting systems, or in the event they need to cover a failed investment, do they spend the deposits to do that? I know they typically lend more money (10+:1) than they have in deposits, so doesn't that mean your ability to withdraw your money can dry up pretty quickly if they start covering shortfalls with your deposits?
Posted: Tue Jul 15, 2008 3:08 am Post subject: Re: Bank Depositors' Confidence Spiraling Downward
jbrovont wrote:
Hogan wrote:
Bank Depositors' Confidence Spiraling Downward
Looking at the performance of bank stocks over the past 12 months, it appears that many banks are now insolvent, or close to it. Their stocks nearly worthless now. Many bank runs are about to happen.
Bank runs cause panic; panic causes bank runs. One thing I'd like to get a little clearer on though - If a bank becomes insolvent, it still has deposits - if a depositer tries to get their money out of an insolvent bank, do they just have to wait for the FDIC to pay out? I'm not sure how to ask this question - do banks (typically?) keep deposits and loans separated in their accounting systems, or in the event they need to cover a failed investment, do they spend the deposits to do that? I know they typically lend more money (10+:1) than they have in deposits, so doesn't that mean your ability to withdraw your money can dry up pretty quickly if they start covering shortfalls with your deposits?
Leanan wrote:
My bank failed last fall. (Yes, it was due to the mortgage crisis.) At the time, it was the largest bank failure since the S&L crisis.
It was pretty scary to see the headline on CNN that Saturday morning. I immediately went to my bank's web site. There was a notice saying the FDIC had taken it over, and no transactions would be possible until 5pm Sunday night.
Luckily, I hadn't been planning to do any transactions. And I had some money in other banks. They were a little late coming back online, but by Monday morning, access to my accounts was restored. The FDIC found another bank to take it over, and all my accounts were automatically transferred there.
The new bank was ING Direct. It is probably pretty safe, all things considered. It's pretty big, and based in Europe. And it hasn't been much affected by the mortgage mess. (Apparently, they gave out mortgages the old-fashioned way: to people who could afford them. And they didn't re-sell them.) Of course, if there's a major financial crash, who knows what will happen.
Anyway, as long as the FDIC is still backing banks, you don't have too much to worry about. It won't take weeks to get your money if your bank goes under.
I do recommend having more than one bank. Just in case. (Also remember that you're not insured for more than $100,000 per bank. Doesn't matter how many accounts you have, $100,000 is the max you're covered for per bank.) And make sure you have online access to your funds. That is probably the best way to get your money out, if necessary. Transfer it to another bank with a click. Or write yourself an electronic check
Hope that quote helps. Leanan's example was another bank taking over his failed bank. I wouldn't take any chances, though. As more banks fail, the FDIC may become overwhelmed. Who knows how long it could eventually take to get your money back, if ever. Just remember that IndyMac's recent failure supposedly wiped out about 10% of the FDIC's guarantee reserves. And that was just one bank failure.
Posted: Tue Jul 15, 2008 6:44 am Post subject: Re: Investor Confidence in Banks Spiraling Downward
That would be "another bank taking over her failed bank."
The bigger problem comes when the FDIC has depleted their reserves rescuing numerous banks. Right now they still have funds to clear these failed banks' deposits and there are other banks in a position to take things over. If the failures get hot and heavy, the amount of time until you can get to your deposits may increase substantially.
If the FDIC burns through its reserves, Congress will have to bail them out. I bet they'll go to the front of the line, but that's still going to take some time. Besides, at some point our foreign creditors are going to ask why they should keep ponying up new money to loan us.
Joined: Sep 29, 2004 Posts: 2330 Location: Pennsylvania, USA
Posted: Tue Jul 15, 2008 8:36 am Post subject: Re: Investor Confidence in Banks Spiraling Downward
Well, the destruction of money via failing banks should kind of work itself out. Bailouts do nothing but make the current economic problems worse. Get used to it, the only ones who can really bail us out are us. A large amount of money needs to be destroyed to restore it's value. What, do you think that the rich are going to allow it to come out of their ass? Don't think so. It will be extracted out of your ass and it will hurt!
My Grandfather smirked when I showed him my deposit slip for my first bank account which I got when I was in the 5th grade at school. He said, "don't trust banks, son." My parents got a little mad at him for that, but I always remembered it. They dismissed it as the ramblings of an eccentric old man. I asked my grandmother about it when I got old enough to understand things a little and she said that he had his own business vulcanizing tires onto wheels in the '20's and they lost everything in the crash of '29. They had to limp along on piece work and her teacher's salary for the duration of the Great Depression. After that, he never put another dollar into any bank and kept a safe at home. He HATED bankers and I mean HATE almost to the point of physical violence. God bless his soul.
History tends to repeat itself, so be prepared. Things look pretty bad. Every dollar that FICA pays out is borrowed and the country is already hugely in debt. How they will figure out that accounting nightmare without a time trusted technique: WRITEOFF, is beyond me. My Grandfather was very familiar with the term writeoff and he warned his grandson about it; me.
PS: I'm watching Bernanke address Congress and he's describing Peak Oil! He is debunking the myth about speculation and saying that the price of oil is directly inline with declining reserves in the face of demand! _________________ "That's the problem with mercy, kid... It just ain't professional" - Fast Eddie, The Color of Money
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