Posted inUncategorized

The danger to the economy: Size does matter

One of the biggest underlying problems behind the financial crisis is size. These are the wages of years of mergers and industry consolidation, combined with weak or non-existent regulation. Thus, Wachovia today posted a loss of $8.9 billion — enough to add to the public funding of Amtrak by nearly eight-fold. In a healthy market economy, a bank with such performance could simply be allowed to "fail," with depositors covered by the FDIC and the shareholders who enabled the disaster taking the fall.

But Wachovia is too big to fail. Like its cousin investment banks on Wall Street and Freddie Mac and Fannie Mae, its collapse could bring down the entire economy. If necessary it will be propped up, as the Fed and Treasury have done with those other giants. (The immediate damage: $25 billion). That’s your money. Of course, the executive class will continue to take home tens-of-millions paychecks as a reward for these disasters.

And yet, the brain surgeons in the executive suites of Wachovia are merely trying to fix the bank enough to sell it. Jamie Dimon’s JPMorgan Chase seems to be the last shopper standing at the garage sale of the American economy. The result, in addition to calamity in Wachovia’s hometown of Charlotte, will be an even bigger behemoth to hold taxpayers hostage next time.

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Posted inPolitics: National

The mess we’re in

The FDIC, one of those "liberal" "socialist" things foisted on free-market America by Franklin Roosevelt, had to step in Friday to avoid a major bank run. More failures are expected and — dirty little secret — only about $2.5 trillion of the $7 trillion deposited in U.S. banks are actually federally insured.

Seven trillion sounds like a lot. But Americans are in hock to $12 trillion in mortgage debt as housing prices have collapsed, the last big factory of America (making houses) has all but shut down, and foreclosures are reaching records. The Iraq war will cost another $3 trillion. The U.S. national debt is $10 trillion (nearly double from 2001). That ought to tell you something about the mess we’re in.

What’s being little reported about the seizure of IndyMac "Bank" is that the institution is a bastard child of Countrywide, Angelo Mozilo’s death star of subprime calamity (now a boulder around the neck of Bank of America). IndyMac was spun off because it was collatoralizing mortgages too big to be sold to Fannie Mae and Freddie Mac, now on federal life support. The bubble was so huge, fed by so much fraud and bad policy, that the barons had to find "innovative" ways to keep it going.  And all that time, the regulators waved it on. This is the mess we’re in.

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