Large Banks on the Edge of Insolvency

[Purveyor]

By STEVE LOHR
Published: February 12, 2009

Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking.

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.

None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are federally insured. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.

But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined this week.

The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.

MORE...

NYTIMES: http://www.nytimes.com/2009/02/13/business/economy/13insolvent.html

[msongs]

1. let em fail - gotta clean house and get rid of their management teams while protecting

depositors. read yesterday for billions less than we are forking over in welfare we could just buy up all the banks' stock and own the damn things.

would be nasty for sure either way, but at least the parasites would have to join the unemployment lines because who in their right minds would hire execs who ran their companies into the dirt. that only works for football teams lol

Msongs

[WannaJumpMyScooter]

2. dig this quote from the man himself...

“The United States banking system is effectively insolvent,” Mr. Roubini said.


Holy shit.

[Warpy]

This is why they need to be nationalized short term

just to keep their doors open with an illegal asset to debt ratio.

It's easy to say "let 'em fail," but harder when you know there is no Chapter 11 for banks, that failing means they just shut their doors leaving depositors with nothing, and that the FDIC is going to take its own sweet time--years--to pay those depositors back.

Nationalizing would get rid of corrupt management and provide the sort of intensive oversight the industry so desperately needs after years of deregulation allowed thieves to set up shop within them. Nationalizing would keep their doors open and tighten their practices until such time as they were able to move back into the private sector.

The Fed, Fannie and Freddie need to stay nationalized with intense oversight, though.

[razors edge]

12. Wouldn't the congress

just pull the part of the bill that gets rid of the inept crooks at the last minute, like all the other bait and switch BS they do now?

Me thinks yes.

[Warpy]

14. Of course they would, they're all buddies

and those old boys in Congress love those 3 martini lunches their banker buddies provide, along with the junkets to the Caribbean.

However, top management might be a little less interested in hanging on like a fart in a phone booth with the GAO breathing down the backs of their necks.

[amborin]

3. the regionals are next...they hold lots of the commercial paper

the commercial mortgages will start coming due april....and many will default

it's the second massive wave of foreclosures....

[marketcrazy1]

7. they keep saying stuff like this

and everyone will pull their cash out of the banks. how long would it take to get your money from the FDIC if the banking system collapsed?

[eleny]

8. That's what I'm worried about

Our local bank has been around for a long time now. They have lots of local commercial paper which has been a feather in the cap. It's a conservative bunch of people running the bank but this editorial opinion has me very concerned.

[napi21]

4. I don't think the "bad assets" are as bad as everyone is portraying.

Sure there are a lot of mortgages on the brink, and a lot of that is because of the unemployment problem. I know a lot of properties have lost a lot of value,k but the most serious ones are those that were bought in the insane runup of home prices in some areas of the country and people were crazy to even consider them. I think if you look at it nationally, the majority of those mortgages will be paid. In otherwords, I think a lot of these banks are crying wolf!

I hope geithner will propose a "bad bank" to buy all of them at a 40% discount. The banks will be fine, the people (in most cases) will keep their homes, and the American people will get their money back +.

[marketcrazy1]

10. if geitner bought all the bad assets

at a forty percent discount the largest banks would be bankrupt INSTANTLY!! why do you think this has not been done.

[Warpy]

11. Asset columns are chockablock full of derivatives and

other exotic paper which had no intrinsic value but which paid a certain percentage while the real estate bubble game was still being played.

Right now, the banks don't know what parts of their asset columns are worthless and what parts might actually have some intrinsic value, the paper generated by the upper reaches of the financial shell game was just too exotic for them to know much about it but the state rate of return.

Likely the asset columns aren't as devastated as the doomsday scenario predicts, but likely they don't contain enough real assets to allow the banks to remain open legally.

Throwing money at those guys is a losing proposition, IMO, and nationalization is the only way out in the short term.

[rwheeler31]

5. Good

Get those creeps out of our lives.

[tabatha]

6. I read that Wells Fargo has no problems.

Don't know if that is correct.

[Demeter]

13. Highly Unlikely.

If you want a bank without problems, go to Canada. Or a small local bank of good reputation and practices.

[valerief]

9. I know what will save them! Corporate jets and humungous bonuses! nt

[bemildred]

15. No edge about it, they are bankrupt.

Just because they won't admit it yet, that don't mean it's not so.