You (and/or others) have made the point that as credit tightens non-financial sectors will slow down, and as other sectors slow down earnings will drop, which will take the stock market down.
However, if banks continue to hold assets in Level 3 pools without marking them down, they can presumably continue to extend sufficient credit to keep the economy operating smoothly.
If the latter occurs, there may be (i) no recession to speak of, or (ii) it may be mild - or (iii) the best efforts of the banks won't be enough and all hell will break loose again some time down the road.
On what basis do you surmise that it's the middle road - the second of the above?
I think we will get some BOGO Fridays in the near future. Mish does have a nice article on how it will not take as many banks to make a big mess this time due to consolidation.
Of course we won't have bank failure rates like in the 80s. Instead we'll have a slew of arranged marriages as seen with B of A/Countrywide. The issue yet to be settled is how much public money will have to go into the dowry.
Curious writes:
I recall seeing that there are about 8500 banks now. How many were there in the 1980's?
From Mish's Global Economic Trend Analysis... The title is a bit misleading in that it is but a portion of the landscape that is covered therein. Mike "Mish" Shedlock covers a lot of bases here and does so in a manner that ties them together as viewed from the centerfield bleachers. IMO it is a good read and addresses some of the questions that you pose.
Curious, I think the commercial RE bubble was much bigger in the '80s than the current one. And most of these banks will fail because of CRE and C&D (construction & development) loans. And - believe it or not - I think the FDIC learned a few lessons (although maybe FFDIC will argue they didn't).
The number of problem banks is much smaller than in the '80s too. 100 failures seems likely. Maybe as many as 300. But 300, 400, or 500 a year seems unlikely.
Remember most the FDIC insured banks missed the residential bubble (except maybe HELOCs).
Tim, yes, really ANB is the only bank of any size to fail so far this cycle. I expect the significant failures will be in that same size range: $1B to $10B in assets - but I'm not sure how many of them we will see.
I'm with Andrew -- it would be much more useful to compare failures in term of dollars than strict counts.
Bank's general exposure to RE -- commercial, residential, construction, MBS -- is huge these days, therefore I would consider CR's estimates as conservative (as always). Oh, did I mention their exposure to ever-worsening consumer credit and absolute paucity of reserves???
However, we don't have a zillion little flaky S&L's to go bust, so the absolute numbers just can't get there.
Dollars vs numbers would be a useful metric. But percentage of dollars would give a better sense of the significance - assets of failed banks as a percentage of all bank assets.
And most of these banks will fail because of CRE and C&D (construction & development) loans.
Any view at what level those could be a problem for a bank ?
I'm looking at the FDIC quarterly report for a local (not regional) bank. Small town, 4 branches total.
Other construction loans and all land development and other land loans - roughly $23mil (out of total loans & leases of $107mil).
Total assets $171mil, total equity capital $25mil, risk based capital ratio 0.2266
The problem with the FDIC report is that it is deep in detailed information, with little guidance what to look for and how to relate the various things I see. I understand much more than I did before I started reading Calculated Risk, but its still daunting to wade thru this.
In terms of writedowns the big money center banks collectively passed...what 100-200 billion by now?
Bank runs are all but inevitable, it's just a matter of time.
I'd find a more factual breakout of FDIC potential liabilities interesting. If, for example, it's realistic to suppose 100 FDIC insured mid- or small-sized banks were to fail this year, is there a way to project the likely exposure? The two instances cited in this post, multiplied by fifty, wouldn't be cause for immediate concern.
Bank runs may indeed be inevitable, but I don't see that anyone here or elsewhere has credibly shown that to be the case.
If Hel. Ben is still the FED chief, M&A like JP&BS is more likely to be repeated to the effect that the banking sector is nationalized. So CR estimation probably hold for the first phase of wealth destruction. But when secondary waves comes, I don't know. How about the CDS ?
If JP or C fails does that really matter how many banks will fail ?
I have a better chance of winning the powerball 3 weeks running than JPM has of going TU.
Citi? It depends if they can bail faster than take on water. Even then it's unlikely but possible as they only have 1 more Q of horrorshow writedowns, followed by lessening losses.
I don't have a position on whether or not bank failures will be numerous, but will become concerned if it appears FDIC will require propping up in excess of income from premia or as a result of exhausted reserves.
As I say, I haven't seen credible evidence of an overwhelmed FDIC yet. Of course it could happen.
What I find unhelpful is bald assertions without either supporting stats or a working premise.
The matrimonial aisle will not be well worn once the constant nagging Jaime Dimon gets from his Bear Sterns' bride turns partner-longing CEO's into commitment-phobic bachelors.
There may very well be bank runs pretty soon, as depositors with deposits in excess of $100K get spooked as the bank failure numbers increase. If they hit the wrong institutions, it could tip them over the edge...
Mish makes an important point related to this. When a large bank fails today that's equivalent to many smaller banks failing in the 80s (because of the huge amount of consolidation).
The S&L crisis counted branch failures as bank failures so the numbers are somewhat exaggerated.
The failures that will come with this crisis will be equivalent in severity to that crisis (perhaps much worse), but the total number of failures will probably appear a lot fewer (and so the bulls will be pointing to the absolute number of failures frantically).
IMB isn't looking too stable here. They have been ranked lowest on the safety & soundness list on Bankrate for quite a while. That institution might be a little complicated to unwind, and will almost certainly put a strain on the FDIC's balance sheet. I wonder if Ben figures it's on the too big to topple list.
I don't have the exact statistics, but one of my favorite little facts is this -- the national average bank exposure to RE currently exceeds that of Texas bank's exposure to the oil industry in the 80's... and none of them survived independently.
I seen the current Texas ratio calculation for IMB at around 140%. I hate to cite a Yahoo message board post but this one does a good job of qualifying the calculated value. Now conditions have changed since the inception of the Texas ratio (during the S&L meltdown) but a value of 140% would have indicated an almost certain 'Tango Uniform' outcome back then...
I appreciate the implications which might be drawn from that ratio.
The subject of FDIC's role as it assumes control of an insolvent bank is taken up elsewhere on this site. I think it's best to recall, however, that the agency is not required to employ its own resources except to the extent those of the failed institution are exhausted.
Bentonville and Staples serve well enough as examples - the former having been somewhat costly while the latter was much less so. These banks are not without assets, and it is not unheard of for depositors to receive some portion of their uninsured deposits returned to them in the course of liquidation.
Of course, I'd prefer to have a clearer picture of FDIC's exposure, as I said above, but I do believe the interpretation of the ratio you mention is subject to real-world effects which are not always brought into discussion.
Can anyone point me to a good resource that would advise me the safest financial institutions/products in which to sink my cash?
More specifically my questions are like: "Are CDs safer than money markets?", "Do FDIC insured CDs count against my 100k insured limit?", "Does adding my son to my joint account raise the FDIC insurable level?", "Are 'trust banks' safer?", etc. Asking the bank employees these questions has only gotten me divergent answers.
Does anyone know how solid of a bank USAA is?
If these questions have been addressed before I apologize. I am very worried about my mountain of cash; I feel like I am going to get screwed one way or another. Any help would be greatly appreciated.
Now I have (presumed correct) Texas Ratios for all my local banks (other than one odd BoA branch). The results are eye opening. I ran the numbers for 3 quarters (9/07, 12/07, 3/08).
One local bank has been floating between 1% and 2% (which is very very good).
The other local bank went 28% 32% 36% (not so good)
The two regional banks (both ~$2B assets) did 15%, 16%, 20% and 19%, 20%, 23%.
There is one other very small local bank, which curiously seems to be getting a handle on a problem (31%, 21%, 13%). The numbers there are so small, that working out 1 or 2 loans might be enough to mess with the results. That one I'm ignoring.
You better play, then. JPM is CDS central, which is why they were chosen to buy BSC.
tj & the bear | 05.31.08 - 8:49 pm | #
That's some oktoberfest sized pretzel logic there. They wed a failing bak with another failing bank? Or perhaps the ailing bank got hitched to the prime counterparty who has deeper pockets than the Fed and can print money almost as fast.
I know bank stocks are opaque but even cursory talks with midlevel bankers over beers provides more than enough illumination.
Captiousnut,
I just transferred $3million in CD's into $100,000 CD's in a number of different banks. My bank arranged it all. Although they lost the deposits they didn't raise a stink, in fact they proposed and implemented the plan. I suspect they collect a fee from the banks to which they divert the funds.
Having said that, I do think that the banking system is fundamentally sound. The regulators are much more on top of things and much more in control then they have been in the past. So far failures have been minimal and confined to pretty small institutions. I think that given agressive regulators and perhaps an overly accomadative Fed we are more likely to see failures of ancillary financial institutions rather than failures of banks.
dryfly: Bankrate calculated the Texas ratio for all the banks it covers. Go to the finance site (not the Memoradum) for the bank and you will see the non-performing loans as a % of the equity and loss reserves. Take a look at Indymac. LOL.
What is different about this crisis is the huge derivative positions that underpin and link these banks together. The whole financial system is sittng on a rotten foundation and it may not take much to make it crumble.
The bullet was dodged with the Bear Stearns fiasco. Can they keep the ugly stepsister from crashing the party next time around?
Mr. Z, well another Bear fiasco and "they" might just nationalize lots of the banks. At least for a time, until they get them cleaned up. That would be a "learning experience" for Americans, LOL
June 1 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said Middle East leaders haven't indicated concerns with their fixed exchange rates to the dollar,...
``I haven't heard anyone say to me that the peg is a problem,'' Paulson told reporters in Doha after meeting with central bank Governor Abdullah Bin Saud al-Thani and Prime Minister Sheikh Hamad Bin Jasim al-Thani.
(Yeah sure and nobody has told him he has bad breath either, I suspect).
Paulson is getting an update on the fixed currency rates kept by most oil-rich countries in the Gulf during a four-day trip to the region. He is also seeking to encourage Middle East nations flush with $4 trillion from oil prices that have doubled in the past year to keep investing in the U.S., as American banks battered by the subprime rout seek to raise capital.
The U.S. welcomes investment from the Middle East, Paulson said, adding that adopting guidelines being drafted by the International Monetary Fund would help state-run funds avoid a protectionist backlash in the U.S.
``We would be concerned if too many assets were owned by governments,'' he said. (Yeah sure, only about 70% of America is for sale; the rest is off limits.)
The Treasury chief also repeated his belief that a ``strong dollar'' is in the interests of the U.S. (That's the ticket; keep the dollar and imports up and discourage exports by keeping the dollar over valued. What a gift we have in Paulson). LOL
The bank failure rate will be nowhere near what it was in the 1980's. A simple reason actually. In places like Texas, if you wanted to open a bank in the next county, you had to charter a new bank. They were all tied together, but when one went down, 30 or 40 or 50 of its "sister" banks went down as well. Those restrictions no longer exist, therefore, there are fewer banks today.
A better metric would be assets of defaulted banks vs. assets of all banks in aggregate.
Has anyone ever made a plot of bank failures by year weighted by some size measure, like total deposits?
CR,
You've said words to the effect of the below a couple of times now:
I suspect bank failures will become much more common (although nothing like the late '80s)
Please could you expand on the basis for your conclusion?
Thanks in advance for any insights you may choose to impart.
In particular, why you do you think the '80s were worse than now?
Is it because there were particular sectors of the economy that were in distress then that compounded the issue?
Is it because you think the recession from the credit crunch will be mild so that banks will have a chance to recapitalize?
We will see fewer bank failures, because we have many fewer banks these days. Consolidation has wiped out most of the minors.
CR,
You (and/or others) have made the point that as credit tightens non-financial sectors will slow down, and as other sectors slow down earnings will drop, which will take the stock market down.
However, if banks continue to hold assets in Level 3 pools without marking them down, they can presumably continue to extend sufficient credit to keep the economy operating smoothly.
If the latter occurs, there may be (i) no recession to speak of, or (ii) it may be mild - or (iii) the best efforts of the banks won't be enough and all hell will break loose again some time down the road.
On what basis do you surmise that it's the middle road - the second of the above?
Thanks for any response you may offer.
Danny,
I recall seeing that there are about 8500 banks now. How many were there in the 1980's? TIA.
If the chart went back a few more years it would make the S&L crisis look tiny. In 1933 alone more than 4,000 banks failed.
Today's failure rate is nothing.
I think we will get some BOGO Fridays in the near future. Mish does have a nice article on how it will not take as many banks to make a big mess this time due to consolidation.
They're gonna have fun 'containing' the bank failures!
From 1929 to 1933 about one third of all US banks failed. During the S&L Crisis less than 10% of all banks failed.
I doubt that the failure rate in this downturn will reach one percent.
Of course we won't have bank failure rates like in the 80s. Instead we'll have a slew of arranged marriages as seen with B of A/Countrywide. The issue yet to be settled is how much public money will have to go into the dowry.
"we will be on Bank Failure watch every Friday afternoon"
Some people have all the fun! I think I'll try watching paint dry instead...
Curious writes:
I recall seeing that there are about 8500 banks now. How many were there in the 1980's?
From Mish's Global Economic Trend Analysis... The title is a bit misleading in that it is but a portion of the landscape that is covered therein. Mike "Mish" Shedlock covers a lot of bases here and does so in a manner that ties them together as viewed from the centerfield bleachers. IMO it is a good read and addresses some of the questions that you pose.
S&L Crisis vs. Current Crisis
Curious, I think the commercial RE bubble was much bigger in the '80s than the current one. And most of these banks will fail because of CRE and C&D (construction & development) loans. And - believe it or not - I think the FDIC learned a few lessons (although maybe FFDIC will argue they didn't).
The number of problem banks is much smaller than in the '80s too. 100 failures seems likely. Maybe as many as 300. But 300, 400, or 500 a year seems unlikely.
Remember most the FDIC insured banks missed the residential bubble (except maybe HELOCs).
Best Wishes.
the size of the deposits at the banks that fail is what will be surprising.
Zephyr, I wrote that in the post.
600 hundred failures per year were common before the Depression, and then there were thousands of failures before the FDIC was created in 1934.
As I noted, I expect this cycle will be much smaller than in the '80s too.
Best to all.
Tim, yes, really ANB is the only bank of any size to fail so far this cycle. I expect the significant failures will be in that same size range: $1B to $10B in assets - but I'm not sure how many of them we will see.
Best to all.
CR, Yes, but I thought the peak number of 4,000 was worth noting.
We may not get that many but how many regional banks is a CFC and a BSC worth.
I'm with Andrew -- it would be much more useful to compare failures in term of dollars than strict counts.
Bank's general exposure to RE -- commercial, residential, construction, MBS -- is huge these days, therefore I would consider CR's estimates as conservative (as always). Oh, did I mention their exposure to ever-worsening consumer credit and absolute paucity of reserves???
However, we don't have a zillion little flaky S&L's to go bust, so the absolute numbers just can't get there.
Dollars vs numbers would be a useful metric. But percentage of dollars would give a better sense of the significance - assets of failed banks as a percentage of all bank assets.
And most of these banks will fail because of CRE and C&D (construction & development) loans.
Any view at what level those could be a problem for a bank ?
I'm looking at the FDIC quarterly report for a local (not regional) bank. Small town, 4 branches total.
Other construction loans and all land development and other land loans - roughly $23mil (out of total loans & leases of $107mil).
Total assets $171mil, total equity capital $25mil, risk based capital ratio 0.2266
The problem with the FDIC report is that it is deep in detailed information, with little guidance what to look for and how to relate the various things I see. I understand much more than I did before I started reading Calculated Risk, but its still daunting to wade thru this.
It's not the number of failures that will be record breaking....but the dollar amounts of "insured" deposits involved will be historic indeed.
It will be different this time alright!
FDIC has about 50-60 billion in capital folks....chew on that for a minute.
In terms of writedowns the big money center banks collectively passed...what 100-200 billion by now?
Bank runs are all but inevitable, it's just a matter of time.
In terms of writedowns the big money center banks collectively passed...what 100-200 billion by now?
Bank runs are all but inevitable, it's just a matter of time.
I'd find a more factual breakout of FDIC potential liabilities interesting. If, for example, it's realistic to suppose 100 FDIC insured mid- or small-sized banks were to fail this year, is there a way to project the likely exposure? The two instances cited in this post, multiplied by fifty, wouldn't be cause for immediate concern.
Bank runs may indeed be inevitable, but I don't see that anyone here or elsewhere has credibly shown that to be the case.
I'm with burnside.
I don't really think there will be many bank failures, and if there are who cares.
I mean really, you all were expecting this big housing bubble to pop and that all worked out fine....right?
FDIC 2007 Annual Report
Disclaimer:
Don't read before bedtime.
If Hel. Ben is still the FED chief, M&A like JP&BS is more likely to be repeated to the effect that the banking sector is nationalized. So CR estimation probably hold for the first phase of wealth destruction. But when secondary waves comes, I don't know. How about the CDS ?
If JP or C fails does that really matter how many banks will fail ?
Mish does have a nice article on how it will not take as many banks to make a big mess this time due to consolidation.
Yeah, I mean look at how we just lost that mega-bank First Integrity...
I agree with other posters who would be more interested in seeing these data normalized for (some notion of) size.
Size matters.
I have dutifully read the 2007 FDIC annual report.
What, specifically, was to wreck my sleep?
I have a better chance of winning the powerball 3 weeks running than JPM has of going TU.
Citi? It depends if they can bail faster than take on water. Even then it's unlikely but possible as they only have 1 more Q of horrorshow writedowns, followed by lessening losses.
Chase's balance sheet (assets $1.6 trillion) is double the size of the Fed's (800 billion).
Don't Chase credit or debit cards work just as well as Federal Reserve Notes?
So, what do we need a Fed for?
Average Joe,
I don't have a position on whether or not bank failures will be numerous, but will become concerned if it appears FDIC will require propping up in excess of income from premia or as a result of exhausted reserves.
As I say, I haven't seen credible evidence of an overwhelmed FDIC yet. Of course it could happen.
What I find unhelpful is bald assertions without either supporting stats or a working premise.
The matrimonial aisle will not be well worn once the constant nagging Jaime Dimon gets from his Bear Sterns' bride turns partner-longing CEO's into commitment-phobic bachelors.
There may very well be bank runs pretty soon, as depositors with deposits in excess of $100K get spooked as the bank failure numbers increase. If they hit the wrong institutions, it could tip them over the edge...
Mish makes an important point related to this. When a large bank fails today that's equivalent to many smaller banks failing in the 80s (because of the huge amount of consolidation).
The S&L crisis counted branch failures as bank failures so the numbers are somewhat exaggerated.
The failures that will come with this crisis will be equivalent in severity to that crisis (perhaps much worse), but the total number of failures will probably appear a lot fewer (and so the bulls will be pointing to the absolute number of failures frantically).
IMB isn't looking too stable here. They have been ranked lowest on the safety & soundness list on Bankrate for quite a while. That institution might be a little complicated to unwind, and will almost certainly put a strain on the FDIC's balance sheet. I wonder if Ben figures it's on the too big to topple list.
Burnside, the part that concerns me is the minor details. Mostly the one which indicates ~1.2% reserve ratio.
52 billion dollars insuring over 4 Trillion in insured deposits.
It only concerns me because I know who insures the FDIC.
I have a better chance of winning the powerball 3 weeks running than JPM has of going TU.
You better play, then. JPM is CDS central, which is why they were chosen to buy BSC.
burnside,
I don't have the exact statistics, but one of my favorite little facts is this -- the national average bank exposure to RE currently exceeds that of Texas bank's exposure to the oil industry in the 80's... and none of them survived independently.
barely writes:
IMB isn't looking too stable here.
I seen the current Texas ratio calculation for IMB at around 140%. I hate to cite a Yahoo message board post but this one does a good job of qualifying the calculated value. Now conditions have changed since the inception of the Texas ratio (during the S&L meltdown) but a value of 140% would have indicated an almost certain 'Tango Uniform' outcome back then...
Room_614A,
I appreciate the implications which might be drawn from that ratio.
The subject of FDIC's role as it assumes control of an insolvent bank is taken up elsewhere on this site. I think it's best to recall, however, that the agency is not required to employ its own resources except to the extent those of the failed institution are exhausted.
Bentonville and Staples serve well enough as examples - the former having been somewhat costly while the latter was much less so. These banks are not without assets, and it is not unheard of for depositors to receive some portion of their uninsured deposits returned to them in the course of liquidation.
Of course, I'd prefer to have a clearer picture of FDIC's exposure, as I said above, but I do believe the interpretation of the ratio you mention is subject to real-world effects which are not always brought into discussion.
OT but now is a good time to buy! ask either Buffett
- real estate - REALTOR.com®
Can anyone point me to a good resource that would advise me the safest financial institutions/products in which to sink my cash?
More specifically my questions are like: "Are CDs safer than money markets?", "Do FDIC insured CDs count against my 100k insured limit?", "Does adding my son to my joint account raise the FDIC insurable level?", "Are 'trust banks' safer?", etc. Asking the bank employees these questions has only gotten me divergent answers.
Does anyone know how solid of a bank USAA is?
If these questions have been addressed before I apologize. I am very worried about my mountain of cash; I feel like I am going to get screwed one way or another. Any help would be greatly appreciated.
So when is somebody going to calculate the Texas Ratio for the Fed? Or the FDIC (if even possible)? Or has it already been done.
Not that it would mean anything - just some fun number porn on a weekend.
Now I have (presumed correct) Texas Ratios for all my local banks (other than one odd BoA branch). The results are eye opening. I ran the numbers for 3 quarters (9/07, 12/07, 3/08).
One local bank has been floating between 1% and 2% (which is very very good).
The other local bank went 28% 32% 36% (not so good)
The two regional banks (both ~$2B assets) did 15%, 16%, 20% and 19%, 20%, 23%.
There is one other very small local bank, which curiously seems to be getting a handle on a problem (31%, 21%, 13%). The numbers there are so small, that working out 1 or 2 loans might be enough to mess with the results. That one I'm ignoring.
Very surprising results.
You better play, then. JPM is CDS central, which is why they were chosen to buy BSC.
tj & the bear | 05.31.08 - 8:49 pm | #
That's some oktoberfest sized pretzel logic there. They wed a failing bak with another failing bank? Or perhaps the ailing bank got hitched to the prime counterparty who has deeper pockets than the Fed and can print money almost as fast.
I know bank stocks are opaque but even cursory talks with midlevel bankers over beers provides more than enough illumination.
Texas ration for the fed... hahaaa
Captious, fdic.gov has deposit information, and bankrate.com offers free bank ratings if that helps.
Housing octopus could grab smaller banks
Fed official warns it's too early to sound all-clear on financial turmoil
Housing octopus could snare smaller banks: Fed official - MarketWatch
Or perhaps the ailing bank got hitched to the prime counterparty
That's pretty close. Again, JPM is the CDS market, and (consequently) a BSC failure posed huge counterparty risks to them.
I don't mean to encourage the anonymice around here, but, since this thread is already dead...
Anonymous@10:26 pm that listing is hilarious! ROFLMAO
"be a hero to your heirs"
Captiousnut,
I just transferred $3million in CD's into $100,000 CD's in a number of different banks. My bank arranged it all. Although they lost the deposits they didn't raise a stink, in fact they proposed and implemented the plan. I suspect they collect a fee from the banks to which they divert the funds.
Having said that, I do think that the banking system is fundamentally sound. The regulators are much more on top of things and much more in control then they have been in the past. So far failures have been minimal and confined to pretty small institutions. I think that given agressive regulators and perhaps an overly accomadative Fed we are more likely to see failures of ancillary financial institutions rather than failures of banks.
dryfly: Bankrate calculated the Texas ratio for all the banks it covers. Go to the finance site (not the Memoradum) for the bank and you will see the non-performing loans as a % of the equity and loss reserves. Take a look at Indymac. LOL.
PS Over a 100% is sure death.
What is different about this crisis is the huge derivative positions that underpin and link these banks together. The whole financial system is sittng on a rotten foundation and it may not take much to make it crumble.
The bullet was dodged with the Bear Stearns fiasco. Can they keep the ugly stepsister from crashing the party next time around?
Mr. Z, well another Bear fiasco and "they" might just nationalize lots of the banks. At least for a time, until they get them cleaned up. That would be a "learning experience" for Americans, LOL
I seen the current Texas ratio calculation for IMB at around 140%.
Well it was around 61% at the end of 2007 so things have deteriorated rapidly if you are correct.
June 1 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson said Middle East leaders haven't indicated concerns with their fixed exchange rates to the dollar,...
``I haven't heard anyone say to me that the peg is a problem,'' Paulson told reporters in Doha after meeting with central bank Governor Abdullah Bin Saud al-Thani and Prime Minister Sheikh Hamad Bin Jasim al-Thani.
(Yeah sure and nobody has told him he has bad breath either, I suspect).
Paulson is getting an update on the fixed currency rates kept by most oil-rich countries in the Gulf during a four-day trip to the region. He is also seeking to encourage Middle East nations flush with $4 trillion from oil prices that have doubled in the past year to keep investing in the U.S., as American banks battered by the subprime rout seek to raise capital.
The U.S. welcomes investment from the Middle East, Paulson said, adding that adopting guidelines being drafted by the International Monetary Fund would help state-run funds avoid a protectionist backlash in the U.S.
``We would be concerned if too many assets were owned by governments,'' he said. (Yeah sure, only about 70% of America is for sale; the rest is off limits.)
The Treasury chief also repeated his belief that a ``strong dollar'' is in the interests of the U.S. (That's the ticket; keep the dollar and imports up and discourage exports by keeping the dollar over valued. What a gift we have in Paulson). LOL
The bank failure rate will be nowhere near what it was in the 1980's. A simple reason actually. In places like Texas, if you wanted to open a bank in the next county, you had to charter a new bank. They were all tied together, but when one went down, 30 or 40 or 50 of its "sister" banks went down as well. Those restrictions no longer exist, therefore, there are fewer banks today.
A better metric would be assets of defaulted banks vs. assets of all banks in aggregate.
JMHO