Failed Bank List Grows to Eighty-One
This week four more banks joined the FDIC failed bank list, including the second largest of the year – Guaranty Bank of Austin, Texas.
While Ben Bernanke may believe recovery is just around the corner, there are still some rather large red flags on the horizon.
McClatchy reports the following:
Delinquency and foreclosure rates for U.S. mortgages continued to rise in the second quarter, with loans to the most qualified borrowers going bust at an unnerving clip, especially in hard-hit states such as Florida and California.The numbers reported Thursday by the Mortgage Bankers Association show clearly that rising job losses are worsening the nation’s housing troubles and threaten the Obama administration’s efforts to keep owners from losing their homes.
The Orlando Business Journal also reported Friday that as of June 30th, “Nationwide, a total of $3.4 trillion worth of property values was in risk of defaulting.” That’s right – $3.4 Trillion worth of loans at risk of default.
Guaranty Financial Group was crippled not by engaging in overly risky practices but because it bought highly rated, straightforward structured mortgage-backed securities. It lent to home builders. Both of these things were what it specialized in, it’s “core compenentcy,” as it’s CEO puts it. They didn’t buy subprime loans, and didn’t buy much of the super-toxic 2006 and 2007 loans. They thought they would be safe. And they were wrong.
Did we all get it wrong? Calculated Risk has charts of US mortgages by type and loans that are seriously delinquent or in foreclosure by type. The disturbing thing about the second chart is that it clearly shows the crisis has expanded to the Prime loan market in great numbers.
With so many loans defaulting, the list of problem banks remains large. Banking analyst Meredith Whitney predicts more than 300 banks will fall soon. See Calculated Risk for an unofficial list of problem banks.
Where does all this leave the FDIC? Once again, Calculated Risk provides some very informative charts pertaining to estimated losses to the FDIC. And Karl Denninger lays it all out in The Market Ticker – “about 75% of the FDIC’s “insurance fund” has been depleted over the last year.” So is the FDIC broke? Karl think so.
I believe the FDIC is broke and knows it; that under the law they should have seized these three banks (and many dozens more, including some really big ones) some time ago, but doing so will force them to tap the Treasury “emergency” credit line. They’re well-aware that this could instill quite a bit of panic in the public (never mind Congress!); as such they, along with OTS and OCC are conspiring to (once again) hide the truth and pray for an economic recovery before they are forced to act as the law demanded months or even years ago!
A new quarterly report from the FDIC is due out soon. Perhaps that will shed more light on the situation. Or not. Stay tuned.