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Bank Failures in Perspective

October 28, 2009, 11:01 am

Bank failures in the last coupe of years, in terms of institutions as well as assets, are still well below the S&L crisis of the 1980's.  So what justifies the current nationalization of the banking sector and the short-circuiting of institutional failures and the subsequent creation of moral hazard.  Via Carpe Diem.

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Category: Economics
  • Daran

    The graph itself isn't very informative by itself. The article at Carpe Diem holds the interesting details: the number of banks as percentage of total (about 1%) and their assets as percentage of total (.8%). Unfortunately the 'never let a good crisis go to waste'-crowd is in charge.

  • http://maxedoutmama.blogspot.com MaxedOutMama

    Well, I've got bad news for ya. Give it a year, and you're going to be looking at very different picture. And the year after? Worse yet.

    If you really want to know what's coming down the pike in the way of bank closures, go here:
    http://www.msnbc.msn.com/id/32651151/ns/business-us_business/

  • morganovich

    one might also note that the interval between banking crises was much shorter this time.

    an astute student of moral hazard might then ask whether the fact that the government bailed out the S+L's might have led to increased risk taking, providing an explanation for the shortened interval.

    an attentive prognosticator might then be driven to ask, "will the next one come even sooner"?

    at least the S+L's were bailed out in such a way that it made large profits for the treasury. TARP will be a massive loser. it is virtually inconceivable that it could even break even.

    also, the % of assets failing figure is not really an apples to apples comparison as a great many large institutions are effectively wards of the state at the moment. (citi, bofa, gmac, aig, ...)

  • nom de guerre

    mmmm. and these same "unfailed" banks are the same ones holding the bag on hundreds if not thousands of abandoned/walked-away-from/payments no longer being made on homes and CRE, right? all those homes, land, and businesses that are technically in default, the banks just....choose...not to count them as such. "we haven't foreclosed! still a good loan!" i know of 50 or so within a 1-mile radius of where i live. just pretend it's not happening! worked fine back in the '70's for the billions in 3rd-world debt they pissed away - have read they made loans to africa *solely* so africa could send it back as this month's "payment", keeping the loan current, and the debt "good". that's also pretty much what japan's been doing since 1989, is it not?

    but that was then. now.....hell, there are websites out there like "justwalkaway.com" telling folks how best to do it. nothing personal: just business. like when your bank cancels your credit card out of the blue, or jacks up the APR to 29.99%.

    sooner or later, the banks WILL have to acknowledge the obvious. then duck and cover. 800 point dow drops will seem like the good old days when it happens - and happen it will. lots & lots of bank employees have gotten canned, or will soon be canned. what might they do in their spare time? might they blab about secrets?

    meanwhile, "pump-n-dump 2" continues apace. (although it appears to be running out of steam lately.)

  • epobirs

    http://www.city-journal.org/2009/19_3_financial-institutions.html

    Morganovich, there it is, laid out in detail. We made bad policy decisions and then were shocked when people responded accordingly.

  • Val

    I have to agree with nom de guerre. The only reason that we appear to have a much better rate of bank failure now is because they just won't admit to being failed banks. The gov't is propping them up, and they are hiding (amongst the lot of them) 100's of billions (foolishly best case scenario) or trillions (likely scenario) off their balance sheets in SIV's. They are also trying to maintain the value of real-estate by creating an artificial shortage in supply. They are insolvent. The consumer has racked up 10's of trillions in debt, and it must be repaid somehow. Consumption will drop, economies will contract, and the 'fixes' will cause further damage to more than just our pocket books. Look and you will find much, much more, and it isn't just here in the states. My guess is it won't play out quite as nom suggested, in a very short and very severe correction. It will more likely be a greater amount of woe in a much greater amount of time. Even more likely is a combo - steep drop followed by many years of misery (as defined by high unemployment and low growth, or even contraction). The consequences of several decades worth of over indulgence, culminating in an orgiastic display of back room deals and greed all nurtured by regulatory collusion and complete disregard for economics 101, will not be softened by some party trick shell game as they are doing now. The piper may be distracted for a short time, but he will collect his payment, as he must.