Why We’re Still At The Beginning Of The Financial Crisis
While financial executives put a positive spin a month ago that the financial crisis was getting better due to the actions taken by the Fed, the fact remains that there is still no end in sight to the credit crunch gripping the U.S. banking system. If the housing market doesn’t start to improve soon, the economy could be gripped in stagnant growth for years.
As long as home prices remain deflated, banks will be at risk from defaults and foreclosures. This article in MarketWatch explains how the Federal Depository Insurance Corporation(FDIC) is preparing for a surge in bank failures in the next couple of years.
While loan growth soared in 2004 and 2005, most regulators failed to scrutinize many banks or restrain this heady expansion of credit. Now that the loans have been made and delinquencies are climbing, some banks may already be doomed.
At least 150 banks will fail in the U.S. during the next two to three years, according to a projection by Gerard Cassidy and his colleagues at RBC Capital Markets.
That’s a staggering number of lending institutions and brings back the bitter memories of the Savings & Loan era. All these banks that mismanaged their risk perhaps deserve to fail but the economic fallout could be considerable.
I don’t see the Fed being able to do for all these prospective bank failures what they were able to do for Bear Stearns. The most likely occurrence is that taxpayers will once again take it on the chin like they did for the S&L debacle.
