Discussion in 'Wall St. News' started by ipatent, Aug 15, 2009.
Simply epic and awesome.
Thank you for posting this.
I can't help but love it when raw, bloody TRUTH is exposed, especially from those who are or were on the inside, and know how the game is played.
This is now bookmark number 1 for me.
He's right. Adding debt just puts off the inevitable. The end game either involves massive defaults on a scale much worse than the '30s or hyperinflation to wipe the debt away. My guess is the latter, with a taste of the former first.
I read 2 articles on bloomerg. It is getting bad.
Fair-Value Accounting Is âHorror Flick Monsterâ: Chart of Day
Aug. 14 (Bloomberg) -- Investors should beware the Financial Accounting Standards Boardâs decision yesterday to consider expanding fair-value rules, said Brian Wesbury, chief economist at First Trust Advisors LP in Wheaton, Illinois.
âLike a horror flick monster that just wonât stay dead, FASBâs accountants are proposing to expand the application of mark-to-market accounting rules across the board to include all financial assets, including regular loans,â Wesbury said.
The CHART OF THE DAY, fashioned from one Wesbury is presenting to investors, tracks the performance of the Standard & Poorâs 500 Index since the Securities and Exchange Commission and FASB clarified the meaning of the rules in September 2008.
âTwice the market was teased with a sense of potential changes for mark-to-market accounting. Twice those hopes were dashed and twice the market fell to new lows,â Wesbury said.
The biggest reason that stocks have rallied since March, Wesbury said, is that the House Financial Services Committee forced FASB to loosen its mark-to-market rules. Other reasons for the rally are the easiest monetary policy in the Federal Reserve Boardâs 96-year history and the end of panic selling, he said.
To contact the reporter on this story: Brendan Moynihan in Brentwood, Tennessee, at 9254 or firstname.lastname@example.org
Toxic Loans Topping 5% May Push 150 Banks to Point of No Return
Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bankâs equity and threaten its survival.
The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.
The biggest banks with nonperforming loans of at least 5 percent include Wisconsinâs Marshall & Ilsley Corp. and Georgiaâs Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michiganâs Flagstar Bancorp. All said in second- quarter filings theyâre âwell-capitalizedâ by regulatory standards, which means theyâre considered financially sound.
âAt a 3 percent level, Iâd be concerned that thereâs some underlying issue, and if theyâre at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,â said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasnât commenting on any specific banks.
Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of âproblem banks,â which stood at 305 in the first quarter.
Nonperforming loans can eat into a companyâs earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with nonaccruing ratios of at least 6.2 percent as of March were closed last week. In addition, Chicago-based Corus Bankshares Inc., Austin-based Guaranty Financial Group Inc. and Colonial BancGroup Inc. in Montgomery, Alabama, each with ratios of at least 6.5 percent, said in the past month that they expect to be shut.
âThis is a fairly widespread issue for the larger community banks and some regional banks across the country,â said Mix of LECG, where William Isaac, former head of the Federal Deposit Insurance Corp., is chairman of the global financial services unit.
Ratios above 5 percent donât always lead to failures because banks keep capital cushions and set aside reserves to absorb bad loans. Banks with higher ratios of equity to total assets can better withstand such losses, said Jim Barth, a former chief economist at the Office of Thrift Supervision. Marshall & Ilsley and Synovus said theyâve been getting bad loans off their books by selling them.
Bloombergâs list was compiled by screening U.S. banks for nonperforming loans of 5 percent or more, and then ranked by assets. The list excluded U.S. territories and lenders that have already failed. Also left out were the 19 lenders that underwent the Treasuryâs stress tests in May; they were deemed âtoo big to failâ and told by regulators that government capital was available to keep them in business.
Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. Thatâs almost 15 times the size of the FDICâs deposit insurance fund at the end of the first quarter.
About 2.6 percent of the $7.74 trillion in bank loans outstanding in the U.S. at the end of March were nonaccruing, the highest in 17 years, according to the most recent data from the FDIC. Nonaccrual loans peaked at 3.27 percent in the second quarter of 1991, during the savings and loan crisis, and averaged 1.54 percent over the past 25 years.
âOff the Chartsâ
âThese numbers are off the charts,â said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon, referring to the nonperforming loan levels at companies he follows. Banks are losing the âability to try and earn their way through the cycle,â said Howells, who previously spent 13 years at Minneapolis-based U.S. Bancorp.
Corus, with more than two-thirds of its loans nonperforming, has the highest rate among publicly traded banks. The company said last month that itâs âcritically undercapitalizedâ after five consecutive quarterly losses tied to defaults on condominium construction loans. Randy Curtis, Corusâs interim chief executive officer, didnât respond to calls for comment.
Marshall & Ilsley, Wisconsinâs biggest bank, reduced its nonperforming loans last month to 5.01 percent from 5.18 percent after selling $297 million in soured loans, mostly residential mortgages in Arizona, the Milwaukee-based company said Aug. 10.
Deadline for Nonperformers
The bank has âbeen very aggressive in identifying and tackling credit challenges,â Chief Financial Officer Greg Smith said in an Aug. 12 interview. Smith said 26 percent of loans classified as nonperforming are overdue by less than the industryâs typical standard of 90 days. With those excluded, the ratio would be around 3.7 percent, he said.
Synovus, plagued by defaulting construction loans in the Atlanta area, said nonperforming loans rose to 5.4 percent in the second quarter from 5.2 percent the previous period. Disposals of nonperforming assets reached $404 million in the quarter ended in June, the Columbus, Georgia-based company said.
Synovus is selling troubled loans and will continue its âaggressive stance on disposing of nonperforming assetsâ as long as the level is elevated, spokesman Greg Hudgison said in an e-mailed statement.
Flagstar is based in Troy, Michigan, the state with the nationâs highest unemployment rate. Flagstar has $16.4 billion in assets and reported last month that 11.2 percent of its loans were nonperforming; about two-thirds were home mortgages. Flagstar CFO Paul Borja didnât return repeated calls for comment.
The bankâs allowance for loan losses was 5.4 percent of total loans at the end of the second quarter, compared with 3.3 percent at Synovus and 2.8 percent at Marshall & Ilsley, according to company filings. All three reported at least three straight quarterly deficits.
The FDIC doesnât comment on lenders that are open and operating and doesnât disclose which banks are on its problem list. The agency will probably impose an emergency fee on the more than 8,200 banks it insures in the fourth quarter to replenish the insurance fund, the second special assessment this year, Chairman Sheila Bair said last week. The FDIC attempts to sell deposits and assets of seized banks to healthier firms to avoid eroding the fund, said agency spokesman David Barr.
To determine which banks are most troubled, regulators compare the ratio of nonperforming loans to the percentage of equity a firm has relative to its assets, said Barth, the former OTS economist. A company with 5 percent nonperforming loans and equity of 8 percent is better positioned than one with the same amount of troubled loans and equity of 4 percent, he said.
Flagstarâs equity-to-assets ratio in the second quarter was 5.4 percent, Synovusâs was 8.9 percent and Marshall & Ilsley, which raised $552 million through a stock sale in June, was at 11 percent, according to the banks.
The three lenders that failed last week -- Floridaâs First State Bank and Community National Bank and Oregonâs Community First Bank -- all had nonperforming loans above 6 percent and equity ratios below 4.5 percent.
âThe nonperforming ratio, in and of itself, should be a great concern,â said Barth, a professor of finance at Auburn University in Alabama and senior finance fellow at the Milken Institute in Santa Monica, California. âIt becomes even more troublesome when it goes above 3 percent and the equity-to-asset ratio is quite low.â
While 5 percent can be âfatalâ for home lenders, commercial real estate lenders may be able to withstand higher rates, said William K. Black, former lawyer at the Federal Home Loan Bank of San Francisco and the OTS. Commercial loans carry higher interest rates because theyâre riskier, he said.
âAt the 5 percent range, youâre probably hurting,â said Black, an associate professor of economics and law at the University of Missouri-Kansas City. âOnce it gets around 10 percent, youâre likely toast.â
To contact the reporter on this story: Ari Levy in San Francisco at email@example.com
Everyone including Barak Obama is ranting that US healthcare average vrs UK, France, Germany etc. is $5000 more per person. This mean $1.5Trillion per year of POTENTIAL SAVINGS.
Even if US is able to save half, $750B annually means alot.
It does seem to make a point that Great Depression II might have been averted. Long recession or stagnation can still be possible. USD has far too many supporters to fall like ruble or peso type currencies.
Where is Obama getting those numbers. He knows how many people are going to start going to hospitals after his health care reform? Oh thats right...he is Obama and has a time machine because surely he would not just pull numbers out of his ass, right?
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