Banks Seem More Stressed-Out Than Stress-Tested

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Services for Real Estate Pros with TheHousingGuru.com

electrocardiogramPerhaps the bank “stress tests” should have included a prescription for Valium, for many banks seem more stressed-out than stress-tested. When the results of the bank stress tests were announced, the government proudly proclaimed that the banking system was sound, that banks would be able to handle whatever adversities the economy could dish out. The results also showed an expected baseline for unemployment and a worst case scenario, and Treasury Secretary, Geithner assured us that their calculations demonstrated that our banking system could withstand a worsening economy.

 

But the stress tests didn’t imagine that the economy might sink below their more adverse scenario. While it may have been difficult for them to envision employment levels sinking below those of recent recessions, that is the reality for the millions of jobless who have no prospect for employment. The stress tests’ worst case unemployment numbers have been exceeded in each of the first three quarters of this year; and today’s release of the numbers for August show that we’ve already reached their fourth quarter worst case projection.

 

According to the FDIC, 25% of our banks are currently unprofitable, suffering from mounting foreclosures, defaults from small business, and with a second wave of foreclosures looming on the horizon. Then, we have what some have described as the commercial real estate “landmine,” set to explode in 2010 with repercussions into the next year. With defaults including auto dealerships, hotels, malls, and retailers, our banks seem more stressed-out than stress-tested.

 

The government’s problem bank list has exploded in just over a year. In June of 2008 the list included slightly more than 100 banks, a number that had tripled by March, and that has now grown to more than 400. Some experts have predicted that there may be as many as 500 additional bank failures; half that many would be a disaster that would impact regional banks especially hard. While the government has demonstrated that big banks—with big lobbying budgets and friends in high place—will not be allowed to fail, the smaller regional banks pose a prime target with their balance sheets overflowing with defaulting construction, development, and commercial real estate loans.

 

The failure of several hundred community banks will wipe out the FDIC deposit insurance fund, and while the government, with taxpayer support, is providing loans to cover the shortfall, the amount only adds to the deficit. Worse, multiple bank failures will be a heavy blow to local business who depend upon “relationship banking” for loans and lines of credit. The “stress” from the banks, like a virus, may continue to infect the economy.

 

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Rainmaker
468,836
Janice Roosevelt
Rory Burkhart Team, Keller Williams - West Chester, PA
OICP ABR, ePRO,Ecobroker

It's not surprising, what with "bankers hours" for so long :)

Sep 04, 2009 04:02 PM #1
Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Janice - "Bankers hours," perhaps we should all be so lucky : )

Sep 04, 2009 05:27 PM #2
Rainmaker
896,717
Jane Peters
Power Brokers Int'l - Los Angeles, CA
Connecting you to the L.A. real estate scene

And I was looking forward to a quiet, stress-free weekend - thank you John :(

Sep 04, 2009 07:53 PM #3
Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Jane - Just ask your friendly banker to share some Valium and you can relax  : )

Sep 04, 2009 09:11 PM #4
Rainmaker
224,250
Suesan Jenifer Therriault
JTHIS-Professional Home Inspection Team - Blakeslee, PA
"Inspecting every purchase as if it were my own".

Hey John, I supposed they can always raise our taxes more and lend it to the banks. Then when they get paid back they can do what ever with that money and when the new cause comes along they can raise our taxes again. As long as they have us to fall back on, everything will go on the way it is. Or will it?
Sue

Sep 05, 2009 01:47 PM #5
Anonymous
Anonymous
Anonymous

John,

Be sure to read my upcoming post on Royal Flush.

Sep 05, 2009 04:59 PM #6
Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Sue - Ahh, taxes, one of my favorite subjects.  On the one hand I complain about the way my tax money is being spent; but then, it would be nice if I had to pay millions in taxes : )

Terry - I'll await your post.

 

Sep 05, 2009 08:44 PM #7
Rainmaker
41,202
Michael Therriault
Michael Therriault Contracting - M.T. Contracting - Blakeslee, PA
The name to remember when you want it done right.

I suppose you would not be surprised if I said that as long as we can pay taxes government will continue to waste money. After all, they don't have to work for it. I don't mind paying taxed when the money is being spent wisely, but I just don't see that happening.

Sep 05, 2009 09:45 PM #8
Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Michael - I think the days of government spending prudently are forever gone, and the biggest reason for this problem is career politicians, most of whom have never run a business or even held a job in the private sector.  They have no concept of earning money, and, as you stated, since they don't earn the money they collect, they're likely to waste it.

Sep 05, 2009 10:30 PM #9
Rainer
156,739
Sandy Childs
Keller Williams Realty - Spartanburg, SC
Realtor - Spartanburg, SC

John: This is a great post. I think that we are in for more trouble if something is not done soon.

Sep 06, 2009 10:58 AM #10
Rainmaker
453,503
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Sandy - I agree, but it seems that our political leaders aren't ready to admit the problem's existence.

Sep 06, 2009 11:05 AM #11
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