Busted: Bankers and The Global Economy

August 11, 2008

Banking Healthier Than Last Crisis?

healthy banking or bust
“healthy banking or bust”

There is no end of perspective, outlook or propaganda on the internet. You can surf until your bloodshot eyes can’t see anymore. One news agency will sometimes play both sides of a topic for weeks or months at a time and you can see it for yourself in real time if you are disposed to do so. If you are listening and lame enough to believe everything you read and hear, you are whirling around in your seat from the stress and pressure.

A consistent outlook is that the banking system is healthier than it was during the last crisis. When was that? Assuming we can remember back that far, consider the wonder of the U.S. Savings and Loan debacle. Those were some nasty times and bankers still didn’t learn much except how to create more trouble. Staid economists like this writer know better. But that isn’t the issue.

“Indeed, the recent spate of bank failures seems remarkable only if one compares it to the unusual period of tranquility that preceded it”, a spokesman for the Federal Deposit Insurance Corp., Andrew Gray, said. “If anything, the rate of bank failures is returning to historic norms.”

Between 1986-1995, over 1,000 institutions with total assets of over $500 billion failed. By 1999, the Crisis had cost $153 billion, with taxpayers footing the bill for $124 billion, and the S&L industry paying the rest. At this writing, 8 U.S. banks have failed. Even at worst, the FDIC is projecting that 100 to 200 banks will fail in the next 18 months. This simply doesn’t compare with the S&L debacle, so banking is clearly in better shape.

Naturally, the stellar minds that cooked up that dogma didn’t consider that comparing then with now is like comparing apple and oranges. They are both fruit and they may be overripe, but that is where the similarity ends. Why?

The reality has everything to do with Federal Reserve policy. The Fed has become the official policeman of the U.S. economy and finally the banking industry. In order to keep the economy on its feet and save the banking industry from certain collapse as well as a complete bursting of the confidence bubble, the Federal Reserve has heavily subsidized the banking and finance industry by floating loans in secret to troubled banks across the nation.

The debacle that brought this reality to fruition was not just predatory lending in the mortgage market, but a variety of untested and fraudulently-based banking instruments created by bankers to make more money, largely through the sale of securities for investment purposes. When the market froze up from lack of liquidity, panic and improper management, the economic fraud began to show itself, threatening not just the banks, but the entire economy.

Further, when Bear Stearns neared collapse the entire economy was prepared to go down the sink. To avoid this very real likelihood, the Fed put a new floor in the economy, consistency loaning to banking institutions and protecting them from their own foolish decisions and greed.

The FDIC or the funds that they hold have hardly been touched because the federal government has developed another economic salvation for banking and finance. The reality is that the jury is still very much out on the success that the Federal Reserve has enjoyed in bailing out the banking and finance industry. The cost is already much higher than the previous crisis and has impacted the world. In effect, the federal government through the Fed has bypassed the old system and upped the ante. The whole economy is on the line behind the success of government and Fed actions while inflation threatened to unhinge the system. The health of banking has become a national shell game of sorts: certainly not healthier than the last crisis.

~E. Manning

April 5, 2008

Banking Sees Downturn In Revenue Growth

For the first time in living memory, the U.S. commercial banking industry faces a decrease in growth and revenue, resulting in the need for draconian cuts. As additional proof of a flaring crisis early last year, the entire financial services sector, consisting mostly of commercial banks, quietly fielded job cuts that totaled a record 153,000. This is expected to be followed up with another 200,000 job losses in the banking industry alone and the effects from the subprime crisis set in. Considering that approximately 2 million jobs exist within the U.S. commercial banking industry, a job loss of 10% in one year is noteworthy.

Financial services companies collectively announced in January of 2008 that they were cutting 16,000 U.S. jobs and would remove 6,000 more positions in February. March figures at this date are unavailable. August of 2007 saw a peak bloodletting level of 36,000. Labor market analysts expect an increase in cuts this year as the economy worsens and further cost cutting measures are required. Despite huge losses in the double-digit billions, the industry is resisting significant layoffs. Larger layoffs in the securities industry are expected as well with the collapse of Bear Stearns. Huge layoffs in the tens of thousands from any one large company haven’t happened yet, but are expected at any time while the industry takes a close look at its internal health.

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