Smart Borrower Blog

The Banks Are Bleeding


Jul 18th, 2008 @ 4:06 PM by Alden Smith


If you take a really good look at the way things are right now concerning banks, mortgages and bailouts, you see a whole lot of trouble on the horizon.  Freddie and Fannie are in the soup, and it would be no surprise to me that the government will step in to pull their collective butts out of the fire.   I spent time this AM working on research for tonight’s post, looking at the banks that are in trouble and posting loss after loss.  It is not a pretty picture.

Besides the troubles at Fannie and Freddie, we see Citigroup Inc, the largest U.S. bank, posting a smaller-than-expected quarterly loss on Friday.  Claims are due to $11.7 billion of write-downs and credit losses.  Good news, indeed, if you consider smaller-than-expected good.  It is the $11.7 billion in loss that worries me.  No matter where you stand, that is a lot of cash. 

Merrill Lynch & Co. are also posting poor results, with heavy losses of $4.89 billion for the quarter, tied to write-downs from exposure to CDOs, residential mortgages, bond insurers and other investments.  ML is dumping its stake in Bloomberg to try to stop the bleeding.

Istar Financial, Inc., which lends primarily to real estate-related businesses, said it expects to post a second-quarter operating loss. 

These stats are just a few of things going on.  Last week, we saw that 90 banks were headed for financial difficulties, and this appeared before the trouble at IndyMac. 

I think it is inevitable that the government will have to step in and take a hand in Freddie and Fannie.  Although we hear how liquid they are, I find it hard to believe that the government would be taking such a great interest in them at his time if there were nothing to it. 

Who will inevitably pay for all this?  Unless you’ve been living in an ice cage in the Antarctic for the past 20 years, you can bet your booties that it will trickle down to the American taxpayer.  We do, after all, finance the government.  I feel we have not seen anywhere near the bottom of this worst case scenario yet.  People will continue to lose homes, foreclosures will rise, and, more banks will see difficulties.  And no matter what you may think, I feel that it is all a matter of poor regulation by the government.  Advocates of big business are totally against regulation, as is understandable.  But when the burden finally falls to ground zero, and the American taxpayers try to pick up the pieces, then regulation will look awfully good to a lot of people.  Without tighter regulation, it will be business as usual, and the kids in the candy shop will have a field day.  And to me, that is just plain criminal and wrong.  It is up to the American taxpayers to see that this doesn’t happen in the future.  Maybe our vote will mean a little bit of something once again.  It is obvious that those minding the store are not doing so well right now…

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