The Other McCain

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It’s FDIC Bank Failure Friday!

Posted on | August 20, 2010 | 7 Comments

Associated Press:

Regulators have shut down two Florida banks and one in Virginia, lifting to 113 the number of U.S. bank failures this year.

That count evidently omits today’s announced closure of Chicago’s ShoreBank. Bloomberg News reports:

ShoreBank Corp., the Chicago lender operating under a Federal Deposit Insurance Corp. cease-and- desist order for 13 months, will be shut and most of its assets will be bought by Urban Partnership Bank, two people with direct knowledge of the matter said.
Urban Partnership, created to make the acquisition, will keep branches in Chicago, Cleveland and Detroit and continue to focus on low-income communities, the people said, speaking anonymously because the matter is private.

That’s just the tip of an iceberg of economic bummers in this week’s “Recovery Summer” update. The Dow Jones Industrial Average lost 57 points today, closing at 10,213 for a net loss of 90 points on the week — down 440 points since Aug. 6. Bloomberg News again:

U.S. stocks fell, extending a second straight weekly decline for major benchmarks, as a drop in commodities pulled oil and metals producers down amid concern the economic rebound may be flagging. . . .
The major indexes capped their first back-to-back weekly drops since July 2 and closed at their lowest levels since July 21. . . .
The S&P 500 has fallen 12 percent from this year’s high in April as signs the economic rebound is stalling overshadowed better-than-estimated earnings growth.

Want some more bad news? Try this analysis of the federal HAMP mortage-adjustment program:

[F]or the median borrower, about 80% of the borrower’s income went to servicing debt. And the median is 63.5% after the modification.
These borrowers are still up to their eyeballs in debt after the modification. . . .
The borrowers [debt-to-income] characteristics are poor – suggesting a high redefault rate over the next year or two.

Further defaults and foreclosures will kill recovery in the housing sector, and without a housing recovery, unemployment will stay high and the banking sector will continue to be shaky. See how this all works together?

Brett Arends at the Wall Street Journal lists 10 reasons for pessimism, including these:

  • 5. People still owe way too much money . . .
  • 6. The jobs picture is much worse than they’re telling you. . . .
  • 7. Housing remains a disaster. . . .

Arends poses this question, “If a laid-off contractor with two kids, a mortgage and a car loan is working three night shifts a week at his local gas station, how many iPads can he buy for Christmas?”

Let’s pause momentarily to consider the possibility that the Chinese real-estate bubble is about to burst. Click and read that, then remember that China is a leading buyer of U.S. Treasuries. If that bubble bursts, how will it affect Beijing’s willingness to buy more of our debt?

Meanwhile, the Federal Reserve has returned to its policy of buying debt from the Treasury:

The Federal Reserve bought $3.609 billion of Treasuries as part of a program to reinvest principal payments on its mortgage holdings into long-term government debt to prevent money from being drained out of the financial system.

Which is to say, the Fed is trying to stave off deflation. Here’s a video report:

Commercial real estate prices dropped 4% in June and Business Insider noted: “Commercial real estate values are now down 41.3% from the peak in late 2007.”

Now, let’s talk about all those jobs that the stimulus has “saved or created.” Uh . . . California’s unemployment is at 12.3% and Harry Reid’s home state of Nevada just hit an all-time record 14.3% unemployment rate. And things are clearly (but “unexpectedly”) getting worse:

On Thursday morning, the Labor Department said that new jobless claims filed last week unexpectedly rose by 12,000 to hit 500,000, the first time since November that the half-million mark has been reached. . . .
Everyone is familiar with the monthly national unemployment rate . . .
But the new weekly jobless claims number, which is released each Thursday by the Labor Department, gives us a faster, week-by-week snapshot of unemployment. And the picture is getting increasingly ugly.
The latest number marked the third straight week of increase in new weekly jobless claims. That suggests that employers not only are not hiring, it suggests that they’re starting to lay off workers again, and that will start a whole cascade of problems for the U.S. economy . . .

Now, here’s three scary words: “Bond market bubble“:

If over the next year, 10-year interest rates, which are now 2.8%, rise to 3.15%, bondholders will suffer a capital loss equal to the current yield. If rates rise to 4% as they did last spring, the capital loss will be more than three times the current yield. Is there any doubt that interest rates will rise over the next two decades as the baby boomers retire and the enormous government entitlement programs kick into gear?

The minute you start talking bond yields, people’s eyes glaze over, but let’s let Jeremy Siegel try to explain it:

Visit msnbc.com for breaking news, world news, and news about the economy

A sure sign that Siegel is right to be concerned about the bond market? Paul Krugman is scoffing.

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Category: Economics

Comments

  • http://www.scogginsnoggin2.blogspot.com Joe

    This can’t be right. There can be no bank failures. Hadn’t you heard? The government has bailed them all out with our taxes. They’re fine! Even Fannie and Freddie. Just ask Barney. (Oh, wait…he’s changed his story…never mind).

  • http://www.scogginsnoggin2.blogspot.com Joe

    This can’t be right. There can be no bank failures. Hadn’t you heard? The government has bailed them all out with our taxes. They’re fine! Even Fannie and Freddie. Just ask Barney. (Oh, wait…he’s changed his story…never mind).

  • Rob

    Also rather unexpectedly I was at two different gas stations in Texas and I notice that the take-a-penny jar, not to be confused with the tip jar, was empty. Generally this jar is full because people don’t want their pennies au contraire my friends, people are clutching for their pennies even in state such as Texas where the economy is growing and the Californians keep on relocating.

    So, yeah….good job Obama and thank you Bush for helping making this double-dip recession possible. The only comfort I take is that Obama isn’t as strong willed as FDR to get re-elected twice and we have a strong GOP majority coming into play.

  • Rob

    Also rather unexpectedly I was at two different gas stations in Texas and I notice that the take-a-penny jar, not to be confused with the tip jar, was empty. Generally this jar is full because people don’t want their pennies au contraire my friends, people are clutching for their pennies even in state such as Texas where the economy is growing and the Californians keep on relocating.

    So, yeah….good job Obama and thank you Bush for helping making this double-dip recession possible. The only comfort I take is that Obama isn’t as strong willed as FDR to get re-elected twice and we have a strong GOP majority coming into play.

  • Live Free Or Die

    Let’s see, ShoreBank Corp. based in Chicago, can’t financially stay open, so the BIG Banksters come in to ‘save’ it, under an assumed name.Those Banksters, Goldman Sacks-of-TARP-Money, J.P. Freakin’ Morgan Chase’, & Banksters of America Corp., all bailed out by U.S. Taxpayers, are going to front more money to O-bah-muhh’s Hometown Lend-To-Anyone-Who-
    Can’t-Possibly-Repay Bank.

    O-bah-muhh loves it when a plan comes together.

  • Live Free Or Die

    Let’s see, ShoreBank Corp. based in Chicago, can’t financially stay open, so the BIG Banksters come in to ‘save’ it, under an assumed name.Those Banksters, Goldman Sacks-of-TARP-Money, J.P. Freakin’ Morgan Chase’, & Banksters of America Corp., all bailed out by U.S. Taxpayers, are going to front more money to O-bah-muhh’s Hometown Lend-To-Anyone-Who-
    Can’t-Possibly-Repay Bank.

    O-bah-muhh loves it when a plan comes together.

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