Ruth K: “Cascading Bank Failures”

 

The monetary world I saw coming to pass in the mid 1980s is now upon us.  See below. Oh how I wish bankers like Mick Guttau, now Chairman of the Federal Home Loan Bank of Des Moines, had listened back then – when I tried to warn him.   The future is not looking prosperous folks.  Since the mid 1980s  this system has given us a false reality of “prosperity.”  If your bank does keep its doors open – the value of your savings held in it will likely be greatly diminished.

When North writes,The banks’ account books are lying. The regulators know this. They do nothing about it until a bank simply cannot do business any more.” – I can vouch for that.  I saw it as a regional phenomenon in the 1980s, dealing with those regulators.  Then, they just re-inflated us “out of” the mess at the time.  In reality, they only made it worse.  Now the inflation is global.  Today the only ones left inflating are governments.  This will only last so long and then the government(s) will be destroyed or “re-defined”.

[the rest is under "read comments"]

 

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2 Responses to Ruth K: “Cascading Bank Failures”

  1. Iowa says:

    Ruth:http://market-ticker.denninger.net/uploads/KeyCharts/CHGDELGraph.pngThe lines are going straight up. There is no sign of tapering off. Banks are suffering horrendous losses. The losses are charged against bank capital. The banks are being gutted. Greenspan wants higher capital requirements. So do I. But this would bust thousands of banks. Denninger comments. No fractional reserve system can survive with charge-off rates much beyond 1% over any material amount of time. Rates beyond 2% threaten near-imminent collapse. This is inherent in how fractional reserves work – with a 6% Tier Capital ratio 2% charge-off rates eat dramatically into your Tier Capital – and this assumes that your "assets" are marked accurately. You can try to make this up with "earnings" (and the banks are) by charging outrageous interest rates, but as you can see from the above chart all this has done is feed back into higher delinquency and loss rates, becoming self-defeating.We will now see his theory tested: the 2% limit. So far, the system is holding. Investors don\’t care. Regulators don\’t care. Local banks are trapped. The losses are going to get much worse over the next two years, as Alt-A and Option ARM mortgages re-set. At present, at least 75% of Option ARMs are under water. Thos will hit 90% in 2011. These people have no equity to use to buy another home. They are likely to walk when the re-set takes place. Commercial real estate has only begun to decline. For an anecdotal story from Las Vegas, click here. The banks are hiding these losses by refusing to sell houses whose loans are non-performing. It\’s a massive cover-up. We know that many large banks are withdrawing as much as 90% of their foreclosure auction properties from bidding less than 72 hours before the auction, yet those loans were neither cured nor was the property sold privately. The latter is easily-verified – there\’s either nobody living in the place at all or if there is, they haven\’t paid a nickel. If you want to know why there\’s a "backlash against banks over mortgage modifications", this is why. They write it down, they have to report the change in "value" of their so-called "asset." This in turn, if done at the scale where it should be, would force major financial institutions to admit that they are in fact worth bupkis. This is not just in Residential Real Estate either; the losses in commercial real estate being papered over are staggering. We continue to see losses of 25, 30, even 40% or more when banks fail, with the most outrageous recent example being Colonial where BB&T took a 37% write-down .vs. their book value across their entire line of business, with some sub-categories being mis-marked by half or more! This is an outrage.I ran this by a friend who used to be a banker. He says this analysis is on target. He predicts more than 1,000 busted banks. The banks\’ account books are lying. The regulators know this. They do nothing about it until a bank simply cannot do business any more. Then the FDIC has its weekend closing. This is not going to end. It is going to increase.

  2. Iowa says:

    Ruth:This is paralysis. Consumer credit fell in July by $21.6 billion, or 10% at an annual rate. This is the sixth consecutive month of declines, the longest stretch since 1991, a recession year. We are supposed to be close to a recovery, yet the decline is acclerating. Economists had forecast consumer credit would drop $4 billion in July, according to the median of 31 estimates in a Bloomberg News survey. Projections ranged from declines of $12 billion to no change from the previous month. The Fed initially said consumer credit decreased by $10.3 billion in June. Next, here is a chart from the FDIC on the percentage of FDIC reserves against deposit liabilities. It is down to 22 cents per $100 of deposits. This is why it had to borrow $30 billion from Congress. This debt must be paid off (wink, wink).

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