Coming Soon: Banking Crisis of Historic Proportions [View article]
Tempo dulu - - -
I hope to do a follow-up analysis of the current state of banking within a month or so. Not a lot has changed, but there will be a few new things to discuss.
Coming Soon: Banking Crisis of Historic Proportions [View article]
There are a number of very good comments in this thread. I don't want to imply lack of appreciation for them by saying that I am very appreciative of the most recent. In particular, carey_jim, you have a very interesting historical discussion. Anyone who skimmed over it, but is reading this, should go back and read it more carefully. Also, Bruce, I agree that we need to find sustainability in a form other than that of a rapidly growing economy, a model with which our demographics are in conflict.
Thanks to all the commenters who have taken time to read this article and add to the discussion and thanks to all readers who have stayed with it all the way down to this point.
Coming Soon: Banking Crisis of Historic Proportions [View article]
I bought SKF this morning and will probably short KRE this afternoon. I think KRE will be weaker than KBE. Hedgers could go equal dollars long KBE and short KRE.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Donald - - -
To address your question properly would require an analysis that would include input as follows:
1. Assets per branch per bank failure today.
2. Assets per bank failure in the 1930s.
3. Normalization of the results on a per capita basis and to reflect the purchasing power degradation of the dollar 1930s to 2000s.
I don't have the data at my finger tips. But you have asked a great question and I am putting it in my notebook of worthy investigations in case I see some of the data in the future. (Warning, that notebook has a lot more entries than I'll ever get to, so this is not a promise to complete the project.)
On Aug 16 02:04 PM Donald Ingram wrote:
> John - > Correct me if I'm wrong, but is it not so that during the Great Depression > the banks were not allowed to operate branch banks? > I know that roughly 50% of the banks - numbering in the thousands, > failed during the Great Depression. > With the FDIC's current method of counting failed banks - they count > the parent bank as ONE failure, even tho that parent operates hundreds > of bank branches that are not counted as bank failures. > Is this not misleading the public, by way of exclusion, the true > number of failed banks? Rather than just reporting the parent company > of these branches as ONE bank failure? > Your thoughts please? > Also would be interested in the comparison of the true total number > of failed bank units during this current depression - to the failed > number of banks at this same juncture in time during the Great Depression. > > I think the results would be surprising. Thank you.
Coming Soon: Banking Crisis of Historic Proportions [View article]
All Streets - - -
Very interesting discussion. I have one big reservation: I believe too many prople would look at your government loans as "free money" and treat it frivilously. We have a big problem with financial illiteracy in this country. Giving money to a financial illiterate is like giving a book to a conventional illiterate. The book is either used as a physical object or fireplace fuel. It won't get used in a way that values it properly.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Vivian - - -
Thanks for your thoughtful comment. I have one nit picking reply to your statement: "the State of Alabama was nowhere in the deal, despit what the writer wrote".
Colonial bank was operating under a license from the State of Alabama, so the state was very much involved. The following is a quote from the Colonial Bank website (colonialbank.com/):
"On Friday, August 14, 2009, Colonial Bank, Montgomery, AL was closed by the Alabama State Banking Department. Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver."
I try to research my articles thoroughly. When errors sneak through, I always try to thank the commenters who point them out. In this case, I can only thank you for the rest of your comment, which was well stated.
On Aug 16 12:33 PM Global Investing Editor wrote:
> As a shareholder in BB&T which picked up the pieces in Colonial > Bank last Friday with the FDIC; but the State of Alabama was nowhere > in the deal, despit what the writer wrote, I think we are in quandary > between laudable goals: saving depositors' their deposits which is > a national obligation; and saving banks which is not. BBT bought > the Colonial accounts in a sharing deal with the FDIC which makes > BBT too big to fail. We are creating more and more oligarchic banks > which are too big to fail in order to save depositors. which will > win? as a BBT shareholder natch I am glad it is now too big to fail. > but as a taxpayer I am not so sure
Coming Soon: Banking Crisis of Historic Proportions [View article]
mikiev - - -
Tim fell victim to false premises. Quoting from his article: " I do not see failures accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom." That was written almost 12 months ago.
We all fall into false premise traps. One year from now, you can return to this article and create a new list of false premises. Do you have any wonder why economists are characterized as the people who say: "On one hand......, but then on the other......"?
On Aug 16 11:27 AM MikieV wrote:
> Amazing to see how different your thoughts are, compared to the comments > Tim made in Sept 2008: > > seekingalpha.com/artic... > > > Tim didn't expect to see many more bank failures, and you are worried > we may see them in historic numbers. > > What a difference a year makes. :)
Coming Soon: Banking Crisis of Historic Proportions [View article]
John S. Gordon - - -
Great question. I am not prepared to discuss this, my studies of that time period are quite superficial. I know I'll get there, bur it will be too late for this discussion, by far. Maybe someone else is better able to respond.
On Aug 16 09:29 AM john s. gordon wrote:
> to what degree was the financial hardship of 1873-1907 caused/exacerbated > by adherence to the gold standard? opinions please.
Coming Soon: Banking Crisis of Historic Proportions [View article]
chap08 - - -
Good points. We have a legitimate debate on a couple of points and not so much on others.
1. You are correct, but is that necessarily a good thing? Might it not have been cheaper (for the taxpayer) and much quicker to resolve if the "system" (the too big to fail oligarchy) had been put in receivership by the government and reorganized into solvent and insolvent parts, with the solvent parts already coming back into private ownership? Certainly a more quickly reorganized AIG and C would have been helpful. After that, we could debate who else might have gone under. Maybe no one else, maybe BAC.
I have an alegory for what has happened involving forestry. The course of action taken to save the forest has been to spend all of the effort to try to save a few diseased old growth trees while ignoring the rest of the vegetation. The result is that (1) younger growth that might have been nurtured to more strength has been allowed to whither in neglect; (2) the disease has spread to more trees; and (3) the original diseased trees are still afflicted.
My question is: Have we "saved the system" only to perpetuate its weaknesses?
2. I agree, but for the same (or less) government $ deflation could have been contained at least as well as it has been to date and we could have already have addressed structural defects that are still present. Another metaphor: I fear we have just put new siding on a house still infested with termites.
3. Again I agree. But the steep yield curve will not help much if banks are not increasing credit, a problem we (temporarily, I hope) have now.
4. The only fire power the Fed has is printing money. There is high risk of casualties from friendly fire in that action.
5. The failure rate for banks which I am fearing would only be a small part of the problems in the economy if it occurs. In fact, I would characterize it as a symptom of economic problems, not a cause. I am not suggesting that bank failures are a major risk to the economy; I feel that the economy may produce a major risk of bank failures. This viewpoint was not well developed in my article.
Thanks for bringing up these discussion points. It has helped my understand weaknesses in my presentation.
On Aug 16 09:15 AM chap08 wrote:
> While I dont disagree with the facts in this article, it really says > nothing new and it ignores some key facts: > > 1. Systemic failure is now far less likely than it was last year. > > 2. The Fed has avoided hard defaltion and will continue to move towards > inflation. This will help the banks. > 3. A steep yield curve will also be held in place by the Fed - ideal > for the banks to make money. > 4. The Fed will take further action as it needs to - it has a lot > more fire power if it needs it. > 5. Banks that can be allowed to fail will be allowed to fail. There > is a severe risk to individual bank shares but you over estimate > the risk to the wider economy. The remaining banks will have more > pricing power and be stronger. The costs will be picked up by future > consumers and tax payers.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Castle - - -
I also trade (though not in banks at the moment) and I agree with your process for trading. You'll note that I did not try to give any investment advice here. I will give an opinion on trading when I see some technical analysis factors indicating the recent momentum (up) is turning. John Paulson has just revealed large positions in banks (especially BAC). I don't know if he thinks he is investing or trading. The thought has occurred to me that this could be a case of pump and dump. I'll ask this question again in a few months when his actions will reveal his strategy.
I also hope I am wrong. I don't want to see my worse case scenarios. I am afraid that my most likely good scenario (2 -2.5% GDP annually over the next few years) will not avoid significant banking pain. The ERCI leading indicators are pounding the table for a blowout recovery. I am afraid that the ECRI methodology may be failing to properly discount the drag of the deflating credit bubble. Government and Fed policies are keeping some of the air in the bubble that, if it were to escape more quickly, would give a short term shock, but longer term would be much more accommodative to healthy economic growth.
On Aug 16 07:58 AM castle wrote:
> Most of us here are not fortune tellers but traders. Traders trade > what they see. The financials have been in a rally for while now. > Most are trading above there moving averages. I see no reason to > exit my positions until they cross to the downside. This is basic > trading fundamentals. Lets hope your analysis is in error, it would > not be good for any of us.
Coming Soon: Banking Crisis of Historic Proportions [View article]
I hope to do a follow-up analysis of the current state of banking within a month or so. Not a lot has changed, but there will be a few new things to discuss.
On Dec 27 09:05 PM Tempo dulu wrote:
> looks like you were wrong.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Thanks to all the commenters who have taken time to read this article and add to the discussion and thanks to all readers who have stayed with it all the way down to this point.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Coming Soon: Banking Crisis of Historic Proportions [View article]
Coming Soon: Banking Crisis of Historic Proportions [View article]
To address your question properly would require an analysis that would include input as follows:
1. Assets per branch per bank failure today.
2. Assets per bank failure in the 1930s.
3. Normalization of the results on a per capita basis and to reflect the purchasing power degradation of the dollar 1930s to 2000s.
I don't have the data at my finger tips. But you have asked a great question and I am putting it in my notebook of worthy investigations in case I see some of the data in the future. (Warning, that notebook has a lot more entries than I'll ever get to, so this is not a promise to complete the project.)
On Aug 16 02:04 PM Donald Ingram wrote:
> John -
> Correct me if I'm wrong, but is it not so that during the Great Depression
> the banks were not allowed to operate branch banks?
> I know that roughly 50% of the banks - numbering in the thousands,
> failed during the Great Depression.
> With the FDIC's current method of counting failed banks - they count
> the parent bank as ONE failure, even tho that parent operates hundreds
> of bank branches that are not counted as bank failures.
> Is this not misleading the public, by way of exclusion, the true
> number of failed banks? Rather than just reporting the parent company
> of these branches as ONE bank failure?
> Your thoughts please?
> Also would be interested in the comparison of the true total number
> of failed bank units during this current depression - to the failed
> number of banks at this same juncture in time during the Great Depression.
>
> I think the results would be surprising. Thank you.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Very interesting discussion. I have one big reservation: I believe too many prople would look at your government loans as "free money" and treat it frivilously. We have a big problem with financial illiteracy in this country. Giving money to a financial illiterate is like giving a book to a conventional illiterate. The book is either used as a physical object or fireplace fuel. It won't get used in a way that values it properly.
Liked your website.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Thanks for your thoughtful comment. I have one nit picking reply to your statement: "the State of Alabama was nowhere in the deal, despit what the writer wrote".
Colonial bank was operating under a license from the State of Alabama, so the state was very much involved. The following is a quote from the Colonial Bank website (colonialbank.com/):
"On Friday, August 14, 2009, Colonial Bank, Montgomery, AL was closed by the Alabama State Banking Department. Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver."
I try to research my articles thoroughly. When errors sneak through, I always try to thank the commenters who point them out. In this case, I can only thank you for the rest of your comment, which was well stated.
On Aug 16 12:33 PM Global Investing Editor wrote:
> As a shareholder in BB&T which picked up the pieces in Colonial
> Bank last Friday with the FDIC; but the State of Alabama was nowhere
> in the deal, despit what the writer wrote, I think we are in quandary
> between laudable goals: saving depositors' their deposits which is
> a national obligation; and saving banks which is not. BBT bought
> the Colonial accounts in a sharing deal with the FDIC which makes
> BBT too big to fail. We are creating more and more oligarchic banks
> which are too big to fail in order to save depositors. which will
> win? as a BBT shareholder natch I am glad it is now too big to fail.
> but as a taxpayer I am not so sure
Coming Soon: Banking Crisis of Historic Proportions [View article]
Tim fell victim to false premises. Quoting from his article: " I do not see failures accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom." That was written almost 12 months ago.
We all fall into false premise traps. One year from now, you can return to this article and create a new list of false premises. Do you have any wonder why economists are characterized as the people who say: "On one hand......, but then on the other......"?
On Aug 16 11:27 AM MikieV wrote:
> Amazing to see how different your thoughts are, compared to the comments
> Tim made in Sept 2008:
>
> seekingalpha.com/artic...
>
>
> Tim didn't expect to see many more bank failures, and you are worried
> we may see them in historic numbers.
>
> What a difference a year makes. :)
Coming Soon: Banking Crisis of Historic Proportions [View article]
Great question. I am not prepared to discuss this, my studies of that time period are quite superficial. I know I'll get there, bur it will be too late for this discussion, by far. Maybe someone else is better able to respond.
On Aug 16 09:29 AM john s. gordon wrote:
> to what degree was the financial hardship of 1873-1907 caused/exacerbated
> by adherence to the gold standard? opinions please.
Coming Soon: Banking Crisis of Historic Proportions [View article]
Good points. We have a legitimate debate on a couple of points and not so much on others.
1. You are correct, but is that necessarily a good thing? Might it not have been cheaper (for the taxpayer) and much quicker to resolve if the "system" (the too big to fail oligarchy) had been put in receivership by the government and reorganized into solvent and insolvent parts, with the solvent parts already coming back into private ownership? Certainly a more quickly reorganized AIG and C would have been helpful. After that, we could debate who else might have gone under. Maybe no one else, maybe BAC.
I have an alegory for what has happened involving forestry. The course of action taken to save the forest has been to spend all of the effort to try to save a few diseased old growth trees while ignoring the rest of the vegetation. The result is that (1) younger growth that might have been nurtured to more strength has been allowed to whither in neglect; (2) the disease has spread to more trees; and (3) the original diseased trees are still afflicted.
My question is: Have we "saved the system" only to perpetuate its weaknesses?
2. I agree, but for the same (or less) government $ deflation could have been contained at least as well as it has been to date and we could have already have addressed structural defects that are still present. Another metaphor: I fear we have just put new siding on a house still infested with termites.
3. Again I agree. But the steep yield curve will not help much if banks are not increasing credit, a problem we (temporarily, I hope) have now.
4. The only fire power the Fed has is printing money. There is high risk of casualties from friendly fire in that action.
5. The failure rate for banks which I am fearing would only be a small part of the problems in the economy if it occurs. In fact, I would characterize it as a symptom of economic problems, not a cause. I am not suggesting that bank failures are a major risk to the economy; I feel that the economy may produce a major risk of bank failures. This viewpoint was not well developed in my article.
Thanks for bringing up these discussion points. It has helped my understand weaknesses in my presentation.
On Aug 16 09:15 AM chap08 wrote:
> While I dont disagree with the facts in this article, it really says
> nothing new and it ignores some key facts:
>
> 1. Systemic failure is now far less likely than it was last year.
>
> 2. The Fed has avoided hard defaltion and will continue to move towards
> inflation. This will help the banks.
> 3. A steep yield curve will also be held in place by the Fed - ideal
> for the banks to make money.
> 4. The Fed will take further action as it needs to - it has a lot
> more fire power if it needs it.
> 5. Banks that can be allowed to fail will be allowed to fail. There
> is a severe risk to individual bank shares but you over estimate
> the risk to the wider economy. The remaining banks will have more
> pricing power and be stronger. The costs will be picked up by future
> consumers and tax payers.
Coming Soon: Banking Crisis of Historic Proportions [View article]
I also trade (though not in banks at the moment) and I agree with your process for trading. You'll note that I did not try to give any investment advice here. I will give an opinion on trading when I see some technical analysis factors indicating the recent momentum (up) is turning. John Paulson has just revealed large positions in banks (especially BAC). I don't know if he thinks he is investing or trading. The thought has occurred to me that this could be a case of pump and dump. I'll ask this question again in a few months when his actions will reveal his strategy.
I also hope I am wrong. I don't want to see my worse case scenarios. I am afraid that my most likely good scenario (2 -2.5% GDP annually over the next few years) will not avoid significant banking pain. The ERCI leading indicators are pounding the table for a blowout recovery. I am afraid that the ECRI methodology may be failing to properly discount the drag of the deflating credit bubble. Government and Fed policies are keeping some of the air in the bubble that, if it were to escape more quickly, would give a short term shock, but longer term would be much more accommodative to healthy economic growth.
On Aug 16 07:58 AM castle wrote:
> Most of us here are not fortune tellers but traders. Traders trade
> what they see. The financials have been in a rally for while now.
> Most are trading above there moving averages. I see no reason to
> exit my positions until they cross to the downside. This is basic
> trading fundamentals. Lets hope your analysis is in error, it would
> not be good for any of us.