Seven more U.S. banks fail going into the holiday weekend, brings total to 52 for 2009
The market does not like this news. The Dow down over 2.5% at the time of this writing. This does seem to be accelerating and that does not bode well as a sign for future events to pass. We are going to see more regional and local banks go bust as the loans on their books go into default and that make their capital reserve inadequate for what regulators are requiring. This also is putting a severe strain on the FDIC and its funds. It already has had raise rates this year to cover the number of banks that went bust in 2008.
News (Bloomberg):
Six banks in Illinois and one in Texas were seized by regulators as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.
Popularity: 6%
Fannie Mae & Freddie Mac expand eligibility on home loan refinancing options
Honestly I see what is trying to be accomplished with this expansion of the acceptable loan-to-value amount to 125% of the home’s value. The goal of the program is to allow more people to refinance their home loan to a lower interest rate that will hopefully make it less likely the homeowner will default on the mortgage.
Instead, it is more likely going to set a “floor” in more home prices. This is actually preventing the market from reflecting the actual value of all these homes that are being refinanced through this government sponsored loan program. Yes, foreclosures are hard on the people being affected, there is no doubt in this. But on the other side you have to think about the people who are striving to own their own home. This in effect is artificially keeping prices higher than they would normally be without this intervention. That is counter-productive in the way it punishes people who did not get an regular mortgage over these more exotic loans that had a huge rate hike baked in the formula. Personally I would like to see less intervention and more market forces determining the outcomes of all these private contracts and agreements.
News (Reuters):
Mortgage finance companies Fannie Mae and Freddie Mac will expand efforts to prevent foreclosures by allowing refinancings by borrowers whose outstanding loans exceed the value of their homes by up to 25 percent, the Obama administration said on Wednesday.
Popularity: 8%
U.S. home mortgage applications fall almost 19% in June 2009
With interest rates creeping back up to previous levels, it is no surprise that refinance activity has slowed considerably as of late. In the article they state the the “5%” level is where the rates need to be for the market to maintain the activity that began when the government started aggressively pushing interest rates down to try and decrease the amount of defaults and foreclosure that have been associated with these sub-prime and Alt-A loans resetting to higher rates that are tied to the LIBOR or 10-year treasury bond.
News (Reuters):
U.S. mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30 percent, data from an industry group showed on Wednesday.
Popularity: 13%
World Bank approves $535 million loan package for Ghana
ACCRA, June 30 (Reuters) - The World Bank approved a $535 million package for Ghana on Tuesday aimed at helping stabilise the economy knocked by the global financial crisis, the bank said in a statement released in Accra.
Popularity: 10%
Fed’s Bullard says must shield Federal Reserve’s independence
This pains me to say but at the moment, Bullard is correct on this point. With the Fed pursuing their policy of quantitative easing (print money), there is a real concern with foreign investors that hold significant U.S. bond holdings that an erosion of the Fed’s independence could be a sign that a more populist approach to this stage of the economic recession. If the investors think the amount of money printing will increase to pay for more stimulus and bailouts then they will demand much higher yields and will increase the cost of imported goods which in turn will import inflation into the U.S. Long term I do think the independence on the Federal Reserve will be eroded because they are not maintaining the normal policy central bankers use of “price stability”.
News (Reuters):
St. Louis Federal Reserve Bank President James Bullard said on Tuesday that public anger over the U.S. financial crisis and subsequent bailouts could cause big problems if this escalated into a political challenge to the independence of the U.S. central bank.
Popularity: 10%
FDIC closes 4 more U.S. banks to bring the 2009 total to 44
And more to come. Many loans are going into default and that puts stress on the banks to raise their reserves to they are within federal and state guidelines for capital reserves ratios to deposits.
News (Reuters):
U.S. regulators closed four small banks on Friday — two in Georgia, one in Minnesota and one in California, bringing the total of U.S. bank failures to 44 this year.
The Federal Deposit Insurance Corp said the closings were:
– Community Bank of West Georgia, a small bank in Villa Rica, Georgia, with assets of $199.4 million and total deposits of $182.5 million, as of May 15. A buyer could not be found, so the FDIC was appointed as receiver and will mail checks to insured depositors for their insured funds on June 29.
– Neighborhood Community Bank, of Newnan, Georgia, with $221.6 million in assets and $191.3 million in deposits, as of March 31. CharterBank, of West Point, Georgia, agreed to assume the insured deposits and $209.6 million of the assets. Neighborhood’s four offices will reopen as CharterBank branches.
– Horizon Bank, of Pine City, Minnesota, with $87.6 million in assets and $69.4 million in deposits as of March 31. Stearns Bank, NA, of St Cloud, Minnesota, agreed to assume all of Horizon’s deposits and to buy $84.4 million of its assets. Horizon’s two offices will reopen on Saturday as Stearns branches.
– MetroPacific Bank, of Irvine, California, with $80 million in assets and $73 million in deposits, as of June 8. Sunwest Bank, of Tustin, California, agreed to assume all of the deposits, excluding those from brokers, and virtually all of MetroPacific’s assets. MetroPacific’s sole office will reopen on Monday as a branch of Sunwest Bank.
Popularity: 12%
Bernanke Grilling May Weaken Case for Expanded Fed Oversight Powers
Editor’s Note: After the report of the internal Fed email about disclosure of losses at Merrill Lynch being delayed, it does possibly impact the credibility of the Federal Reserve. My biggest reservation is with the Fed who dictates monetary policy, having the ability to deal with systematic risk. The Fed has a track record with financial crisis es come along, to lower interest rates to artificially low levels, bailout the bad actors and then pump money into the system to stimulate through the crisis.
Yes it does get us through the tough times but I see it as the us collective wanting to treat the symptoms and not the cause. The easy way out is usually not the best way, especially in the long run. With this track record in place, we are now talking about giving the authority who practices lose monetary policy the ability to selectively pick the winners and losers when they usually create the problem from the initial monetary policy. I hope others understand this and agree that more concentrated power is not better.
News (Bloomberg):
Chairman Ben S. Bernanke’s grilling by legislators over Federal Reserve conduct in Bank of America Corp.’s takeover of Merrill Lynch & Co. may reduce the odds the central bank will win new powers in a regulatory overhaul.
Popularity: 10%