Aug
25
The Sky is Falling! (Also known as the banking collapse)
Posted (Van Santos) in Business on August-25-2008

If one watches the news with any regularity, let alone any financial news, one could easily think the US banking industry is in total collapse. Just look at a sampling of headlines in the press today:

Five minutes to midnight for banks

Experts predict more banks will go bust

FDIC gets ready for bank failures

An “expert” predicts more banks will go bust? Wow, I’m sure I can find a scientist willing to predict that the sun will rise in the east tomorrow. The FDIC is getting ready for bank failures. Isn’t that the reason for the agencies existence in the first place?

What we are witnessing with the above headlines isn’t news, its sensationalism.

There are several things to point out:

  1. Regional and money Center banks alike are reporting massive losses and write-downs. Lehman Brothers (LEH), along with others, need to raise capital due bad loans, Freddie Mac (FRE) and Fannie Mae (FNM) may be taken over by the government, and how could we forget Bear Stearns? All that said, there are still others that continue to push along – Wells Fargo and American Express haven’t been hit with staggering losses and are attracting major investors.

  2. To date, 9 banks have closed. Let me repeat that. In 2008 a total of 9 banks have closed. Just for some perspective, in 2002 a total of 12 U.S. based banks closed. While it is not comforting to see banks close, it happens.

  3. What the government is facing, as it stands today, pales in comparison to the S & L crisis. From 1986 to 1989 a staggering 125 billion dollars was lost and 296 financial centers were closed. Go back even further and you’ll see that 9000 banks closed between 1930 and 1933.

  4. People often attribute the current situation to the real estate bubble. Yes, default rates and subsequent financial mess is due to bad loans but the bad loans are due to predatory lending and greed. Real estate values didn’t cause the collapse; over extended consumers coupled with profit seeking institutions are to blame.

Anything could happen between today and tomorrow, but as we view the news today remember the challenges of the past. The industry is *NOT* doing well, far from it, I am simply saying that it’s not facing total collapse at this point. Some are even predicting that hundreds will shut over the next few years and, if such a scenario does take place that still does not constitute a collapse. Banks will still exist. Your money will be available. If you have good credit, and are willing to pay the interest, you will still be able to get loans.

The financial markets got greedy and, now, some are paying the price. Major institutions are still able to find capital in order to run their business; those who cannot are purchased by competitors.

Booms and busts, ups and downs, are all part of a free market. Welcome to capitalism.

Related posts:

  1. Banking Collapse Update: FDIC chimes in
  2. FDIC running out of funding? Update on the banking collapse.
  3. Integrity Bank of Alpharetta, Georgia, 10th bank to close this year
  4. Ameribank – another retail bank – shut by Feds
  5. The Stock Market, AIG and the financial crisis
  

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Comments:
Banking Collapse Update: FDIC chimes in « The Emotional Cripple on August 26th, 2008 at 11:05 pm #

[...] Collapse Update: FDIC chimes in 26 08 2008 As of follow up to my post from yesterday, I wanted to highlight data just released from the [...]

Integrity Bank of Alpharetta, Georgia, 10th bank to close this year « The Emotional Cripple on August 30th, 2008 at 3:46 am #

[...] Without a doubt, it must be scary to have your money in a bank that goes under.  I would hate to be in that position myself.  While institutions will continue to report losses as well as go under for the next year, this is not a financial collapse. [...]

FDIC running out of funding? Update on the banking collapse. « The Emotional Cripple on September 17th, 2008 at 1:54 pm #

[...] of funding? Update on the banking collapse. 17 09 2008 From very early on I have held the belief that we are not in the middle of a banking collapse, rather we are in the middle of a market correction. It is also important to separate banks that [...]

Two more banks shut down by the FDIC - Strategic Capital Bank, Champaign, IL and Citizens National Bank, Macomb, IL on May 24th, 2009 at 2:39 am #

[...] Last August I wrote a piece about “The Syk Falling” or the banking collapse. My position then reflected my belief that what the nation was facing at the time was NOT a banking collapse, but part of a free market boom and bust. [...]