Is a Wave of Bank Failures coming?
81Why this video commentary by Jim Cramer scares me
Recently, I watched a video of Jim Cramer on TheStreet.com. Now, whether you agree or disagree with him, you have to admit that this guy has been around for years and knows the financial system and knows alot of the players in it. In the video, he talks about why Bank of America should dump Countrywide and he discusses the banking/credit problems and mentions names of mid-size banks that are in serious trouble (nothing shocking as we all know that this is a serious credit crunch). He states that if BofA goes ahead and purchases Countrywide, that it will drag the whole BofA franchise down - again no suprise here.
What scares me, is what he said at about 1:25 into the video. He says that if BofA refrains from buying Countrywide then it's in pretty good shape by itself and that BofA is big enough where it "could conceivably go hat in hand to a sovereign fund and sell off 10% of the company..........which they may have to". WHOA! Wait a minute, you mean you're telling me that even Bank of America is in big trouble here (even without the burden of acquiring Countrywide)? We all know that Citigroup had to sell off part of the company to foreign sovereign funds (at ridiculous interest rates).
Just how much trouble are these big banks in?
He also notes that WaMu and Capital One are in big trouble too.
Watch the video at the link below and decide for yourself just how much trouble the U.S. banking system is in.
Update July 11, 2008: IndyMac Bank Fails and is Seized by Federal Regulators. An apparent run on IndyMac Bank by depositors seeking to withdraw their funds in a panic was apparently the last straw for flailing institution. The bank will be taken over by the FDIC. While accounts of $100,000 or less are protected, as many as 10,000 customers could lose some $500 million in uninsured deposits.
Update July 14, 2008: Looks like the federal government is indicating that IndyMac, Freddie Mac, and Fannie Mae will be propped up, but after that the spigot may be turned off. As the AP news article below says "The U.S. government is signaling it won't throw a lifeline to struggling financial companies -- except for mortgage linchpins Fannie Mae and Freddie Mac -- marking a shift to a new and potentially more volatile phase of the credit crisis." So what happens when companies like Lehman Bros., Washington Mutual and others that have problems need help.....well they may be left to sink or swim and then we'll really feel the effects of this mess. Also, please see the Reuters article below "Many more bank failures likely after IndyMac". One analyst estimates that as many as 300 banks could fail over the next three years. Things may have just started with this credit crisis and it may get a whole lot worse!
Find More Information at These Links
- Washington Mutual Slips on Liquidity Concerns
July 24, 2008 Bloomberg Article: Washington Mutual Inc. tumbled for a second day in New York trading after Gimme Credit LLC said unsecured creditors were ``pulling funds'' from the biggest U.S. savings and loan. Washington Mutual disputed the report. - AP News Article: Government not expected to help more companies
Looks like the U.S. government is indicating that there won't be any bail outs after Fannie and Freddie. Look for a deluge of bank failures over the next year or so as the spigot runs dry. This portends a severe economic contraction ahead. - Reuters Article: Many more bank failures likely after IndyMac
More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150. - IndyMac Bank Fails - May be Most Expensive Bank Collapse Ever
July 11, 2008: In what could turn out to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bank was taken over by federal regulators on Friday. - Investment Banker Hits Streets of New York in Search of A Job
Joshua Persky, former investment banker and MIT graduate hands out resumes at Park Ave. in search of a new job. - Banks Brace for A Rough Second Half of 2008
The ride in the first half was rough, and indications are that the second half of 2008 may be even worse. - Jim Cramer video on why B of A should walk away from Countrywide
- Banks Get $136 Billion From Governments, Private Sources: Table
Banks are having to rely on government and private investors to keep afloat. - The Fed is Delaying the Day of Reckoning
Article from the Financial Times - Is it Time to buy Gold & Silver?
- Fed takes boldest action since the Depression to rescue US mortgage industry - UK Telegraph
Article from the Daily Telegraph: The US Federal Reserve has taken the boldest action since the 1930s, accepting $200bn of housing debt as collateral to prevent an implosion of the mortgage finance industry and head off a full-blown economic crisis - A Must See Documentary on the U.S. Housing Bust!
This video documentary on the U.S. mortgage meltdown provides excellent insight into just how severe the credit crisis is and how it got there. This one will open your eyes! - Bear Stearns on Verge of Collapse
Bear Stearns is being propped up by J.P.Morgan Chase and the New York Federal Reserve in an action that is reminiscent of the 1930s. - After Bear Stearns Collapse - Are more on the Way?
Article from AP describes the Bear Stearns collapse and other banks that may be on shaky ground. - Analyst: Dozens of U.S. banks will fail by 2010:
Reuters article discussing analyst projections that between 50 and 150 banks may fail in the U.S. over the next 2 years. - Borrowed Reserves And Tin-Foil Hats
Good analysis from Mish's Global Trend Analysis blog site. - Is Alt-A the next shoe to drop in mortgage mess?
N.Y. Times business article seems to indicate that Alt-A loans (low-end of the prime scale) may be the next big source of problems in the mortgage industry.
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