Saturday, July 26, 2008

Two more US banks fail

There is one more note I wanted to make light of today. Late last night, federal regulators in Washington seized two more regional banks in the Southwest -- 1st National of Nevada, and 1st Heritage Bank. They were immediately flipped over and purchased by the banking division of Mutual of Omaha Insurance -- yes, as in Wild Kingdom.

It's good to see the government act when it's supposed to and that depositors in this case won't lose any money; unlike IndyMac where thousands of depositors over the limit will only get fifty cents on the dollar, if that. But the Fed has had to seize seven banks so far this year and has said about 90 more banks (out of about 7000) are in really big trouble. Wipe out the trust account for deposit insurance and the markets could really go into a tailspin.

We shouldn't be too complacent in Canada that our banks are totally safe. They aren't, just safer. But many of us have a clear memory of the 1980s when Northlands, Canadian Commercial and Continental fell like dominos; followed by the BCCI fraud (and the embarrassing situation of Canada and other democracies having to bail out foreign embassies which made BCCI their deposit bank in the countries hosting them -- when deposit insurance was meant for nationals and corporations of the home countries only).

They were relatively small failures. Now imagine if we defy kismet and one of the Big Six -- or even a trust company or mortgage lender within their respective families -- should actually fail.

Oh mamma.

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Anonymous said...

It is good to see that liberals support socialism for the rich too because the only reason they proposing the bailouts in the US housing and banking industry are to save their own well connected friends. These deals are guaranteed by the tax payers. Why would any financial institution want to take over a bankrupt company without a government guarantee. All the huge bailouts in the US will do in the long run is to increase the huge amount of debt the taxpayers owe and to temporarily keep the price of housing artificially inflated to a point where many people who were smart and waited will still not be able to buy.

Currently the US is more socialist than Canada. This is not capitalism.

BlastFurnace said...

Deposit insurance was meant to protect depositors, not bail out greedy bankers -- yet ironically the saavy bankers who are smart enough to spread their assets around get covered too.

Read a few posts back to where I suggest a way to avoid the bailout situation both you and I are concerned about -- going to co-insurance where everyone from the small guy to the corporate scion would incur a penalty in case of a bank failure, say 5% of one's deposits at a failed bank would be forfeited. That would ensure equality of sacrifice. That's not socialism, it's common sense.