Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.Shedlock expanded this brief analysis, noting that:
The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.
Most of these failures will be relatively small ones. The median TARP infusion for the 98 banks was $10 million. The grand total of the 98 banks was about $4.2 billion. In contrast the first 8 large recipients received a total of $125 billion, now repaid.It would appear then that the financial crisis and the mortgage bubble effect has yet to play out entirely . . . and the numbers of banks with bad loans and bad capital ratios continues to increase and will soon increase the 320 or so banks that have already failed since 2008. Among the big banks Citigroup continues to struggle despite the move afoot to get out from under government loans.
Commercial real estate loans gone sour are at the heart of many small bank failures. One consequence of these failures is the too big to fail banks keep getting bigger.
Liberals, God bless them, remained convinced that the bank and investment house bailouts were the right thing and the only thing to do back in 2008. New York Magazine, in a major hit piece aimed at Libertarians offered this analysis:
Most of the libertarians I spoke with said they would have let the big banks fail in 2008. “I wouldn’t have done anything,” says [Mises Institute President Douglas] French. “The key to capitalism is you have to have failure.”Note the past tense of NY Mag's discussion that assumes that the crisis has past and that wealth has been restored to all affected parties and that the massive dispensing of funds was done efficiently and effectively by our government bureaucrats with no wasted earmarks by our politicians and no under-the-counter transactions . . . and the government created no winners and losers.
The financial crisis was not an indictment of their worldview, libertarians argue, but a vindication of it. Letting the banks fail would have been painful. But the pain would have been less than it will be now that the government is propping up the housing, banking, and automobile industries. Plus, the economy would have recovered by now. “You’ve probably never heard of the depression of 1920,” says French. “You haven’t heard of it because it came and went in one year, because the government didn’t do anything to prop up failed businesses.” (Other economists argue that the government’s response was actually consistent with the philosophy of John Maynard Keynes.) Letting banks fail would also avoid moral hazard, say libertarians, since investors wouldn’t take such risky bets the next time around.
It’s a compelling story. But like many libertarian narratives, it’s oversimplified. If the biggest banks had failed, bankers wouldn’t have been the only ones punished. Everyone would have lost his money. Investors who had no idea how their dollars were being used—the ratings agencies gave their investments AAA grades, after all—would have gone broke. Homeowners who misunderstood their risky loans would have gone into permanent debt. Sure, the bailouts let some irresponsible people off easy. But not intervening would have unfairly punished a much greater number.
As the WSJ noted, the bank failures continue at an increasing pace and the dangerous mortgage lending practices which brought down the economy are being continued by Fannie and Freddie. The cost to the taxpayer is $130.6 billion to date without a dollar having been repaid. If you have not investigated the decreased resale value of your property in comparison to the mortgage the bank holds on it, you may be in for a grand awakening. Spreading the losses of the financial decline among all taxpayers is idiotic when the politicians approving such a move have not the slightest idea how bad an idea it was. The harsh effect of capitalism directly on the perpetrators would have resulted in a similar bank failure rate at a much smaller cost.
As for Keynsian economics, which encourages government "spending," the faulty theory had the effect of extending the Great Depression until WWII brought about a recovery. As American philosopher George Santayana said: "Those who cannot remember the past are condemned to repeat it."