If there isn't already enough reasons to hate the economic mess George Bush put us in, a recent round of bank failures pushed the U.S. total for the year to a mark not seen since 1992.
106 banks in total have been closed in this year alone, the most since 179 banks closuresin 1992, following another Republican venture in economics, the savings-and-loans crisis.
This troubling number only goes to show what happens when we let the powerful control our destiny.
More after the fold:
The Reason for the Closures:
According to Bloomberg.com the new round of bank closures have been tied into this year's commercial real estate boom.
Declines in commercial property loans contributed to the collapse of U.S. banks this year. Losses linked to hotels, malls and condominiums pose the biggest threat to lenders as financing comes up for renewal, FDIC Chairman Sheila Bair said last week.
This news comes as the unemployment rate raised to 9.8% in September, which is the highest rate on record since 1983. All this stemming from the economic collapse of last year, which has caused major ripple effects throughout all sectors of business.
One of the major ripple effects is the Commercial loans, which have dropped severely since the collapse and made the previous loans toxic. Bigger banks have been able to weather the commercial property boom, because they usually give out less commercial real estate loans, than do smaller banks.
Banks with assets of $10 billion or less tend to have more commercial loans than loans tied to residential real estate, Foresight Analytics LLC analyst Matthew Anderson said.
Also being that the fraction that bigger banks do give out to commercial real estate, does not come close to their total number of loans given out during a given year.
"The largest banks have a meaningful dollar exposure to commercial real estate, but it’s a relatively smaller piece of what they do," Anderson said. The Oakland, California-based firm maintains a "watch list" of 466 problem banks.
It may get Worst:
According to Bloomberg.com, the Bush Administrations cutting of the FDIC has lead to a lower amount of bank closures.
The number of bank closings would likely be higher this year if the FDIC’s fund wasn’t depleted and if the agency had more bank examiners, RBC’s Cassidy said. The agency shrank under President George W. Bush before adding employees in the Obama administration. The FDIC has about 6,000 employees now, compared with 21,000 during the savings-and-loan crisis in 1991, he said.
Usually a lower number of bank closures sound like a good thing to most people, but without the FDIC stepping in, banks, or "Zombie banks", will begin to collapse on top of itself, and the prospected savings and loans held in that would be void, passed the FDIC allowed coverage of $250,000.
So we need to close the banks that are in dire straights, or we will have the loss of many major assets.
"We certainly know there are hundreds and hundreds of zombie banks out there," Cassidy said. "The only alternative for them is to be seized and it’s only a matter of manpower and money before they get to it."
So without any presence for the future, the Bush Administration had cut the one saving grace for many banks during a recession.
According to the FDIC in August, there were a total of 416 banks that would be considered to be on their "problem" lenders list.
The reason for this problem is simple, the economic deregulation, or lax-regulations, during the Bush Administration has allowed for extremely damaging underwriting and trading, that created a market full of toxic assets, which will take years to purge out of the market.
No amount of regulatory force can make it go any faster, and the one saving grace for the people during a time when banks are near foreclosing on themselves, the FDIC, was cut severely and left almost helpless in the fight to save the last few good assets, and "safe" banks, by closing down "bad" banks before their complete collapse.
We can all thank the lack of Regulations:
So again the news shows that regulations, not only work, but work a lot better than some flawed dream of a "Laissez-faire" or complete free market, ever had.
It shows that the biggest number of bank closures by the FDIC, all happened during or directly after a Republican Presidency. Even with that regard, the proponents of a free market, say that regulations kill the infrastructure of business, and clasps the movement of innovation.
They are lost and idiotic in this belief. There cannot be innovation when the primary source of innovation in this country, banks loans, are not available to businesses, because the banks are closed.