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Posts Tagged ‘banks’

The consumer and especially the small business owner are in need of bank lending.  Granted, it is credit and debt that got us into this problem.  We are in a period of time when the credit machine was way out of control and out of balance.  Now, we are at the opposite end of that spectrum where banks are lending very little at all. 

Without a good balance of healthy lending occurring, it is going to be tough to get any traction with a recovery. 

So, why aren’t banks lending?  Well, you can draw the conclusion that banks aren’t confident enough in the recovery to lend money thus they are hoarding cash.   I do believe that is the case for a lower percentage of banks.  Then another conclusion you can draw is that the banking system is in trouble.  CNBC reported last week that banks were actually missing their monthly payments back to the federal government.

More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.

The statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.

The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.

SNL Financial’s analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.

Under the TARP program, the U.S. Treasury invested in preferred shares issued banks looking for funds. The banks were to make regular dividend payments to the Treasury, and have the right to repurchase the shares at some point in the future.

While many of the largest U.S. banks easily repaid billions in TARP aid, more than 600 smaller banks still hold $130 billion from the program, created at the height of the financial crisis.

This isn’t a real good sign of health.  So far this year, 83 banks have gone under. For the same time period last year, only 40 banks had failed. 

Thoughts on the Stock Market

We have had a few good weeks in the market following the roughly 12% decline in the market that started in April.  Does this signal that we are out of the woods?  It will take a lot more than a few good weeks.  In October 2007 at the beginning of the bear market, we had an initial decline of roughly 10%.  Following that decline was a period where the market went up. However, the bear market resumed shortly thereafter.  I would still be cautious.

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In 2006, I was writing to my clients in my private client letter about what I felt was occurring in the financial markets.  I described what I felt was coming as a Category 5 hurricane.  I think that I even named it Hurricane Greenspan at the time.  Although he is a distant memory, he had a lot to do with the problems that we are facing today.

It feels like we were hit with a category 5 hurricane last year.  Unfortunately, I think that another one is brewing and might even be getting very close to shore.

Every Friday it seems another bank fails.  Last Friday we saw a sizable bank fail.  The Failure of Colonial Bank marks the 6th largest bank failure in U.S History.  It is a bank of $25 billion and 346 branches in 5 states.  Besides the troubling nature of this story and the fact that the Government cannot bail all of them out, the FDIC insurance pot takes another big hit.  It looks like the 13 billion dollar fund will lose another $2.8 billion because of this bank failure. That insurance fund designed to protect you and me is quickly dwindling.

Another hurricane indication would be the Government’s sale of Government Bonds. The Treasury Department sells bonds to raise money for Government spending.  It is the way the Government borrows money.  Last week the Treasury Department sold 75 billion dollars in bonds.  Do you really think that China and other countries are lining up to lend us money?  No, you would be correct.

So, who is buying these treasury securities and lending money to the United States?  Ok, if you have high blood pressure or a weak heart, please stop reading.

Our own Federal Reserve Board is buying many of those securities and lending money to the US. For a great expose on this, read this article.  I don’t need to tell you how desperate that is and how much trouble we are in considering that is occurring.

I hate to say it but this is going to end badly.  All of this is going on at the same time we are facing an unemployment crisis and a whole list of problems in this country.  Once again, I advise you to watch your risk and don’t fall for the notion that this is just a normal cycle.  In other words, don’t drink the kool-aid.

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