Are most all of our banks insolvent?

[jAZ]

My bank is Wells Fargo, and so far they have been a "winner" in the crisis. But this post from JMM seems to suggest that while it's hard to know without the banks hitting a tipping point that forces the issue into a visible crisis... that most of the banks are insolvent at the moment. Anyone else heard this before?

http://www.talkingpointsmemo.com/archives/2009/01/free_fall.php

01.28.09 -- 11:42PM // link | RECOMMEND RECOMMEND (17)

Free Fall
The Times has a story in tomorrow's paper gaming out where the administration seems to be going on a comprehensive bank rescue plan. The gist seems to be that we're heading toward some version of the 'bad bank' plan; but they're moving cautiously so as to avoid the ridiculousness of the Paulson days, coming up with a new plan every week or so.

The message they're clearly sending is: we're not going to 'nationalize' the banks.

What I wonder, though, is whether or not we're running into a semantic dead end that is obscuring some more pertinent questions.

The core problem is that many, perhaps most of our major financial institutions are insolvent. They have more liabilities than assets. A functioning financial system requires solvent banks. And only the government has the resources to manage the massive recapitalization to get the key institutions back on their feet. At that level of generality, the issue assumes a degree of clarity.

All the different fix permutations are just different ways of accounting for the transfer of cash. You can take the banks over and assume their debts. Or just give them tons of money to make them whole. Or you can buy their bad investments at the price the banks wish they were worth and thus get the banks out of under the consequences of the financial collapse they helped create.

It's not clear to me why the dollar amounts spent would really be different in the various permutations. It's all a question of who owns what when it's all said and done and who runs the institutions. According to a brief aside in yesterday's article in the Post, both Geithner and Summers are against having the government run the banks for a transitional period and against wiping out the shareholders of the banks that are in fact insolvent.

What that sounds like is that we'll nationalize most of the banks because we have no choice. But we'll allow the current management to run the nationalized banks and the current shareholders to own the nationalized banks.

What am I missing?

--Josh Marshall

[SHTSPRAYER]

There are thousands of solvent banks who didn't get caught up in the CDO/CMO scam. Unfortunately for society, they are not being rewarded for their integrity, Silibank and BOA are being rewarded for their incompetence and greed.

[petegz28]

How don't see how you say Well's Fargo is a winner when they have taken TARP $'s?

[HonestChieffan]

The world has more liabilities than assets.

Many many smaller regional banks are in great shape.

[jAZ]

How don't see how you say Well's Fargo is a winner when they have taken TARP $'s?

From what I've read about them...

1) They acquired Wacovia and thus the TARP
2) They didn't take on much major corporate debt or mortgaged back secuirities to begin with, which put them in a more stable position

Here's a new article on a bit more of the story. Go back and read about Wells Fargo before Wacovia. They were among the strongest banks in the nation.

http://www.forbes.com/2009/01/28/wells-fargo-wachovia-business-wall-street-0128_banks.html

[SHTSPRAYER]

My bank is Valley National. I also like BB&T, but they are not in my area. Monster banks like Sili, BOA and Wachovia always turned me off.

[banyon]

All of the banks are always insolvent, in the sense that seems intended here. That's the nature of fractional reserve banking. All it takes is a solid run on the bank and it's game over every time with these rules in place.

[petegz28]

From what I've read about them...

1) They acquired Wacovia and thus the TARP
2) They didn't take on much major corporate debt or mortgaged back secuirities to begin with, which put them in a more stable position

Here's a new article on a bit more of the story. Go back and read about Wells Fargo before Wacovia. They were among the strongest banks in the nation.

http://www.forbes.com/2009/01/28/wells-fargo-wachovia-business-wall-street-0128_banks.html

If they took TARP money they are not a winner, imo. They WERE one of the strongest banks. But as I said....take TARP funds and you are a loser, not a winner.

[LOCOChief]

From what I've read about them...

1) They acquired Wacovia and thus the TARP
2) They didn't take on much major corporate debt or mortgaged back secuirities to begin with, which put them in a more stable position

Here's a new article on a bit more of the story. Go back and read about Wells Fargo before Wacovia. They were among the strongest banks in the nation.

http://www.forbes.com/2009/01/28/wells-fargo-wachovia-business-wall-street-0128_banks.html

they're a breath away from finding themselves in the same position as the others: undercapitalized. They're in the top three of mortgage servicers in the US, all it would take is a bad day.

[LOCOChief]

If they took TARP money they are not a winner, imo. They WERE one of the strongest banks. But as I said....take TARP funds and you are a loser, not a winner.

You would be correct, and they're making the ones who don't take it the losers.

[Calcountry]

Banks, should never be allowed to become "too big to fail".

They should be subdivided when they get large. We have had a consolidation of banks for decades, and it results in catastrophic failure eventually.

The government, should institute a new bank program, and provide help to new consortiums of investors willing to establish new banks. we need more of them, not less. Let the big ones fail, sell their assets off to other banks at auctions. Customers have to put their money somewhere. The 250k insurance will cover the vast majority of the economy. Some of the rich will take a hit, but they should be diversified, and the governement, if it wants to stimulate, should pay 60 cents on the dollar to all of the money above 250K.

[Calcountry]

From what I've read about them...

1) They acquired Wacovia and thus the TARP
2) They didn't take on much major corporate debt or mortgaged back secuirities to begin with, which put them in a more stable position

Here's a new article on a bit more of the story. Go back and read about Wells Fargo before Wacovia. They were among the strongest banks in the nation.

http://www.forbes.com/2009/01/28/wells-fargo-wachovia-business-wall-street-0128_banks.html


This has been true of all the banks that have bought troubled assets. Once bought, the parents soon became insolvent. Kind of a poison pill, they thought they would have enough mass, that the poison would work out through the liver before becoming fatal, but they were wrong.

BofA, bought countrywide, then had to go for a double dip. They got greedy.

If the banks prior to all this consolidation were "too big to fail", what will the behemoths that survive this be in the future?

[Hydrae]

This has been true of all the banks that have bought troubled assets. Once bought, the parents soon became insolvent. Kind of a poison pill, they thought they would have enough mass, that the poison would work out through the liver before becoming fatal, but they were wrong.

BofA, bought countrywide, then had to go for a double dip. They got greedy.

If the banks prior to all this consolidation were "too big to fail", what will the behemoths that survive this be in the future?

That is what I keep wondering as these guys continue to consolidate but use my tax money to do it with now.

[jAZ]

Banks, should never be allowed to become "too big to fail".
Agreed, though if any business is "too big to fail" it shouldn't have been allowed to become "too big to fail".

It's not about banks, once it's "too big to fail".

[Calcountry]

Agreed, though if any business is "too big to fail" it shouldn't have been allowed to become "too big to fail".

It's not about banks, once it's "too big to fail".In general, I am against government involvement in private industries with the exception of the banking industry. It is like a utility, and provides an essential service to the economy as a whole.

For the rest of the economy, the lax enforcement of anti trust laws is a source of fallibility in the government.

Way too many mergers have been allowed to go through, creating companies that hardly resemble their original business model.

General electric comes to mind.

[Calcountry]

That is what I keep wondering as these guys continue to consolidate but use my tax money to do it with now.Banks that receive TARP funds should be prohibited from being involved in any merger or sale for at least 2 years.