Too Late To Stop Bank Failures

[flashl]

Buffett blames banks for credit crisis

MADRID (Reuters) - Blame for the sub-prime crisis lies at the feet of banks who took too many risks in mortgage lending, U.S. billionaire investor Warren Buffett told newspaper El Pais in an interview published on Sunday.


"The banks exposed themselves too much, they took on too much risk .... It's their fault. There's no need to blame anyone else," he said.

Comptroller Dugan Tells Lenders that Unprecedented Home Equity Loan Losses Show Need for Higher Reserves.

Comptroller of the Currency John C. Dugan said today that accelerating losses in the home equity business show the need to build reserves and to return to the stronger underwriting standards of past years.

Home equity loans and lines of credit grew dramatically in recent years, more than doubling, to $1.1 trillion, since 2002. In part, that’s because of the rapid appreciation in house prices, the tax deductibility feature of home equity loans, and low interest rates.

“But another contributing factor was perhaps not so obvious: liberalized underwriting standards,” Mr. Dugan said, in a speech to the Financial Services Roundtable’s Housing Policy Council. “These relaxed standards helped more people to qualify for loans, and more people to qualify for significantly larger loans.”

MarketWatch is reporting Bank failures to surge in coming years.

"At this point in the crisis, you can't stop bank failures," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business, who has studied past financial crises.

At least 150 banks will fail in the U.S. during the next two to three years, according to a projection by Gerard Cassidy and his colleagues at RBC Capital Markets.

If the current economic slowdown deteriorates into a recession on the scale of those from the 1980s and early 1990's, the number of failures will be much higher this time around -- probably as high as 300 of them, by RBC's reckoning.

Liquidity challenged banks offer some of the highest rates on CDs. IndyMac actually tops the list on one one year CDs according to the article. The irony is that money flows to the weakest banks taking the biggest risks instead of the strongest ones taking minimal risks, all because of government guarantees. This is one of the perverse "moral hazard" effects of FDIC.

Mish's Global Economic Trend Analysis

[Double T]

1. Banking system requires a complete overhaul with HEAVY regulations..........

and much lower caps on interest rates and fees. Banks have become criminal loan sharks and need to reorganized. The MEGA bank mergers must STOP as far too much control is being given to banks like BOA, Citi, etc.

[no_hypocrisy]

2. How do we know the FDIC has the money to insure the loss of deposits from

those 150 banks predicted to fail? Congress appropriated Social Security funds to "balance the budget" (in theory), what guaranty is there that the FDIC wasn't raided by the Fed?

[flashl]

3. Whether the FDIC has money is a good question, if it does, what is its value?

Treasury is giving the 'green light' to GCC to uncouple the petrodollar.