Gee,if you took it at face value, the FDIC’s report, which says that problem banks increased by 46%, reaching a level not seen since the mid-1990s, says things are not as bad as in the savings and loan crisis. But of course, we are seeing this deterioration despite the Fed and Treasury throwing money at banks. Oh, just large banks.
From Bloomberg:
The Federal Deposit Insurance Corp. said banks categorized as “problem” institutions increased 46 percent in the third quarter to the highest level in 13 years as the credit crisis battered the financial industry.
The FDIC identified 171 problem banks as of Sept. 30, up from 117 in the second quarter and the highest since December 1995, the regulator said today in its quarterly report.,,,
Banks are rated by regulators based on measures including asset quality, earnings and liquidity. They are ranked on a numerical scale, 1 being the highest and 5 the lowest. A bank with a rating of 4 or 5 is designated a problem….
“Declining asset quality is the main reason for the weakness in earnings,” said Bair, 54. The erosion was concentrated in residential mortgages and construction and development loans, she said.
The banking industry wrote off $27.9 billion in loan losses at the end of September, an increase of 157 percent from the $10.9 billion reported in the third quarter a year earlier.
Funds set aside to cover loan losses increased to $50.5 billion, more than triple the $16.8 billion reported in the year- earlier quarter.
“Many institutions are aggressively growing their reserves,” Bair said. “But overall reserve growth continues to lag behind the growth in troubled loans.”
Yves here. Translation: “Banks are squeezing their customers as hard as they can, but they cannot get blood from a turnip.”
Loans 90 days or more overdue jumped 13.1 percent to $184.3 billion from $162.9 billion in the second quarter, the FDIC said
“We anticipate that a challenging credit environment will persist for some time to come,” Bair said.
Yves again. Translation: Things are sure to get worse in 2009.
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I thought our system was insolvent.. oops now back to the scheduled programing.
“We anticipate that a challenging credit environment will persist for some time to come,” Bair said.
This is the understatement of the year ;-)
And these numbers are roughly as accurate as an Internet survey of measured lengths conducted at home in the privacy of your bedroom.
One of the inherent problems in the regulatory forbearance and benign neglect is that it totally screws up information gathering mechanisms. We need good numbers to be propagated throughout the economy so people can best allocate themselves to productive purposes. Confidence creation and prayer that things will improve because addressing the problem will make it worse have become such big, swinging priorities that they have impeded our ability to do what’s most prudent.
Collectively we are saturated in debt way above our eyeballs and all Paulson and Ben want to do is try to get us to borrow more..
It really is a sad state of affairs when an economy is based on the continuing expansion of debt and credit.
People are actually shifting their purchases to more cash/debit cards (which you think would be a good thing) but in reality it is putting the economy into a tailspin. I guess there was a lot of useless junk people were buying on credit
I’m so fed up with their economic system and the government it hides behind…
even if the TARP’s newest initiative succeeds in getting rates down, one has to believe they will remain there for term (at least 5 years) to make it reasonable to buy. Isn;t this the price vs. rate falacy that so many were sold for so long. It makes 0 economic sense for anyone to enter the market even with lower rates, unless you think it is a new paradigm. And when you consider how they are spending trillions to drive down the rates to artificlally inflate the rates, it makes doubly no sense.
naturally, ratesn WILL eventually blow out and with them mortgage rates. if in 5 years the rate blows to just 6-7% (vs. a 5% buy), that would imply a 5-25% capital loss in order for the next buyer to be able to purchase the home with a like payment. Since incomes are not growing and not likley to in the context of wage labor arbitrage, the governement is merely snowjobbing the current buyers into a capital loss later. This entire fantasy rests again on the Greenspan mantra that interest rates will remain perm low. The recent Fed action attest to the fact that this simply can not be true.
Banks are pillaging their customers. Worthy borrowers are being restricted or finding themselves with much higher rates. In the near future this will cause major demand and production destruction. Firms are at an inflection point with regards to long term capital decisions. They will begin to make decisions that will reduce output in the long run. The deflation is being further set upon us by the banks loan aversion and credit line renegotiation.
This two to three year period of major deflation will only lead to a dramatic return of inflation. Rather than the tired cliche “whipsaw inflation,” lets call this “backdraft inflation.” The next 8 years will be fun.
Skool!
Re: "Fed and Treasury throwing money at banks. Oh, just large banks."
> I thought the TARP-like bailouts were just for Friends of Hank & Ben, so no shock that the money hasn't trickled down to the lower level minions — because it seems to have got stuck in XMAS bonuses and vacations and various perks for those that are well connected. Is it thus any wonder that lending remains contentious and that confidence will not be restored until there is a pursuit of justice.
Without universal justice and accountability, FDIC failure rates will rocket and if The Obama crowd doesn't face that reality, The Great Depression will look like a picnic!
In the last cycle ('90-'92) there were over 15,000 banks (excluding S&L's) in the US. Consolidation has reduced this to less than half the number; also, GDP has grown over the period and banks' balance sheets reflect this. Sheila Bair should also report against the value of insured deposits for these institutions at risk.
Speaking of risk-is anyone game enough to raise anti trust issues with banks such as JPMorganChaseChemicalManufacturersHanoverBancOneWaMu? As in 'TBTF' ('too big to fail')
CrocodileChuck
CrocodileChuck
Interesting OT:
“Neal, we’re out of propane!” I figured he was experiencing personal financial stress and I offered some consolation. “No, we’re out! Everybody’s out … all three elevators in the area can’t get fuel to dry the corn crop.” Their crop is coming in wet this year, 22% moisture as opposed to the more normal 18%, and it must be dried to 13% or 14% for storage no propane at this time of year means crops left standing in the field overwinter with the hopes of harvesting in spring. Today I happened to talk to one of the staffers who works for Steve King, IA-05’s Congressman, and he confirmed that this is a systemic problem – a friend in the region with a propane business is running trucks all over to get enough fuel for the elevators they service.
http://theautomaticearth.blogspot.com/
The FDIC list is backward-looking, because it relies on Call Reports. The actual condition of a bank is revealed during exams. And in the last crisis, large numbers of banks not on the list failed on short notice as the result of examiners reclassifying assets and (quite often) finding evidence of fraud, particularly in commercial real estate lending. In other words, the FDIC list is a poor predictor.
10-yr Treasury Freaks Out Doc
http://finance.yahoo.com/q/bc?s=%5ETNX
Days range = 3.058 – 3.264
As for as 10-year treasury Constant Maturity, the range we are in now, goes back yield wise to about June 1958 and a period of low yields that go back beyond 1953:
http://www.economagic.com/em-cgi/data.exe/fedbog/tcm10y
What does it imply?
http://research.stlouisfed.org/fred2/series/DGS10
> Paul Krugman says:
Don't panic about the stock market…Panic about the credit markets instead. Interest rate on 3-month Treasuries at 0.02%; interest rate on high-yield (junk) bonds over 20%.
http://krugman.blogs.nytimes.com/2008/11/20/dont-panic-about-the-stock-market/
The 30-year yield tumbled 46 basis points to 3.46 percent, the biggest drop on record. The yield is the lowest since regular sales started in 1977. Yields on five-year notes declined to 1.88 percent, not seen since 1954, according to data compiled by Bloomberg and the Fed.
Direct Correlation
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSQiBCOuoGGM&refer=home
The Standard & Poor’s 500 extended its 2008 tumble to 49 percent, poised for the worst annual decline in its 80-year history. The S&P declined 6.7 percent to 752.44.
“Bond yields, we feel, are somewhat distorted by what’s happening in the derivatives market,” said Chris Ahrens, an interest-rate strategist at UBS Securities LLC in Greenwich, Connecticut, one of 17 primary dealers that trade with the Fed.
“Changing the terms of the TARP as suddenly as he did undermined investor confidence,” said Richard Schlanger, a bond fund manager in Boston at Pioneer Investments, which oversees $44 billion. “It’s a frightening situation.”
“You have the cloak of a declining inflationary environment,” said Tom Tucci, head of U.S. government bond trading in New York at RBC Capital Markets, the investment- banking arm of Canada’s biggest lender. “People are denying it, but we are mirroring the whole Japanese situation and if that’s the case interest rates are going to go a lot lower.”
>> On topic, will this add to FDIC failures — yah think???
Oooops, for got his other link, which is nice:
http://online.wsj.com/mdc/public/page/2_3022-bondbnchmrk.html?mod=topnav_2_3000
Lots of nice expanding spreads for junk yields, and IMHO, this goes back to a thing I posted here about a month ago:
From Yves meets Doc link:
Hussman Sees Trouble Ahead
http://www.usnews.com/blogs/the-ticker/2008/08/26/hussman-sees-trouble-ahead.html
Years ago, Larry Williams used to look for a situation he called the “Jaws of Death”—noting that when bond prices were weakening but stock prices were strengthening, the two differing trends opened a set of “jaws” that tended to snap shut, usually due to abrupt weakness in stocks.
He points to expectations for lower volatility in the stock market (measured by the VIX index) at a time when credit markets are getting more worried. See the chart below:
Those jaws could be setting markets up for a tough reckoning. Let’s give Hussman the last word:
In short, the markets are presently trading on a theme that largely overlooks the potential (and in my view, the reality) of a significant U.S. recession. At the point of recognition, we may very well observe abrupt weakness in both stock prices and the U.S. dollar.
http://www.nakedcapitalism.com/2008/08/fannie-freddie-sale-goes-well.html
Over and out, copy?
Yves again. Translation: Things are sure to get worse in 2009.
But, but, but I was watching CNBC Closing Bell and I heard a guest saying that we were in the 7th inning of a 9 inning ballgame! Sounds like things are going to get better from here on out.
[rolol]
How Citi will recapitalize:
We just got one of those boilerplate letters in the mail with the monthly Citi mastercard bill.
"We are changing your Card Agreement….We are changing the following sections regarding APRs:
Default APR. The default APR equals the greater of (1) the Libor Rate plus up to 26.99% or (2) up to 29.99%.
Yeehah! Give'em another $20billion, Hank & Timmy!
Yves, and I’m not sure if you’ll believe this number, but using most recent numbers, total credit outstanding in 2008Q2, which neglects much of the recent debt guarantee activity, divided by 2008Q3 preliminary GDP yields a debt-to-GDP ratio of 353.8%.
If we just made ugly approximates of 20 year amortization on that debt and 5% interest, 18.5% of our GDP is allocated to debt service. It’s pretty close to our FOR. Yes, I know you can’t just think of it like that on a national scale, but still — wow. Any small increase in real interest rates paid will just cream us on that kind of multiplier.
I’m sorry to dump this stream of consciousness here, but remember, guys, that’s a record high, 50% higher than 2003! As our GDP drops from recession, this will go up, unless the credit market contracts even faster. We’ll find out for sure with the next release, but consumer credit isn’t contracting at all yet. M2 is still growing.
Guys, we haven’t even started to deleverage yet in the official metrics. This is just the pain of deceleration.
GO NDK!!!! Nice comments. I keep asking for scenarios or guesses on what event or events are going to stop the mighty whirlitzer?
Is there a medical professional that wants to step out in front of a TV when this moment happens and give a prognosis of the patient?
Would you like that popcorn with extra butter?