Banking Crisis

[jillayne]

I need some help and direction. I'd like to study the banking crisis at a deeper level and would like some recommendations on blogs to read that have a pulse on the current banking crisis and what might be in store for us.

There's less than $350 bil left in the TARP plan. Chances of the banks needing another bailout in 2009 seem high. Do we nationalize the banks? Partially nationalize them? Create another RTC?

Are Fannie, Freddie, and the Fed Reserve turning into another RTC by buying up all these bad mortgage backed securities?

What seems like eons ago, I asked synthetik and sniglet for advice on what I should be reading to study the subprime crisis and SB readers were generous enough to refer me to CR and other fabulous blogs.

I'd love your advice again. Thanks and Happy New Year to all.

[rose-colored-coolaid]

[Charles Dean]

[jon]

The bank mergers are combining regional banks into a few national banks. There isn't a monopoly yet, so there isn't any application yet for anti-trust. There does need to be more enforcement and investigations of fraudulent lending, not to mention finding all the other Madoffs that are no doubt still out there.

[Charles Dean]

I think over the next 2 years, we're going to see ALOT of suits in handcuffs, Enron style. In fact, if I was an exec at a company who was screwing people over, I would already be overseas now, sipping pina coladas and paying off the local federales in order to avoid extradition.

[rose-colored-coolaid]

[biliruben]

- A liberal, political blog with some good, but very bearish, economic analysis.

- Sort of a catch-all stock site. Often bearish, but occasionally some good, solid macro-analysis.

- MISH's a perma-bear. He goes into amazing depth, but you have to divide by 10.

[jillayne]

Bookmarking them...now off to read. Thanks biliruben.

[jon]

[rose-colored-coolaid]

[Charles Dean]

With FHA and Fannie and Freddie, housing finance has been nationalized for quite awhile. Fannie and Freddie were always pseudo government entities and usually had control over about 50% of home mortgage.

I think now it will just be that way to a larger extent.

Yeah, I don't think that we're going to actually see a revisiting of the old anti-monopoly laws, but I think there's a good chance we'll see some new legislation that is similar to avoid the "too big to fail" problem.

AIG is I think the best example of this. Multiple different entities all under the one umbrella. Many of which are profitable on their own. The whole company was taken down because of credit default swaps. One part of the company took on enormous risk that they shouldn't have that had massive repercussions. Also that they wouldn't have if CDS' had been properly regulated like all other insurances are.

[sniglet]

[sniglet]

What the ultimate form of banking will be when we emerge from the depression is difficult to foresee. However, the general course of the downturn is eaiser to predict.

Don't forget that the ULTIMATE end-game is to see the savings rate rise substantially and to MASSIVELY reduce the debt burdens on individuals and businesses. The only way these things are going to happen is for defaults to grow substantially (i.e. wiping out debt), and for borrowing to be greatly reduced.

Any attempts by policymakers to prop up asset prices (and thereby avoid defaults) will fail. Sure, there will be plenty more interventions and capital injections, but they will do nothing but prolong the inevitable.

At some point the governments will reach some point at which additional bail-outs just aren't possible. Notice how each intervention so far was bigger than the previous ones (and needed to be to have any impact). The government is setting itself up as the first and last resort for all lending and investing. Each bail-out spooks even more investors to put their money into "safe" government guaranteed instruments (withdrawing it from the private sector, which forces more businesses to beg for government help). The super-low interest rates are ample evidence of this phenomena (i.e. that there is ferocious demand for government securities).

Nevertheless, the government simply doesn't have the wherewithall to pick up the slack for the entire free-market financial system. I predict that sometime in the next year or two the government will be FORCED to throw up it's hands and allow some massive institution to fail, simply because the sum of money required to prop it up would be so huge that even the most eager interventionists would never be able to get public support for the legistlation. If Congress thought passing a $700 billion bail-out was difficult, just try a $5 trillion one.

Aside from outright bail-outs, I suspect that regulators are actually going to become more lenient in rule enforcement just to avoid the government having to handle even more defunct institutions. We will be saddled with zombie banks for years, as the government REFUSES to pull the trigger on many institutions (i.e. and accept the losses that would be necessary).

In the end, I think we WILL wind up with a mass of bank failures, similar to the 1930s. All the government intervention so far merely delays the inevitable. There are limits to how much money the government itself can poney up, and once those limits are reached, look out below...

Of course, I have outlined this case for deflation on my blog.

[WestSideBilly]

[rose-colored-coolaid]