Tuesday, July 15, 2008

Bank Failures

The job I have works every day with some prominent banks. IndyMac wasn't one, but that doesn't mean that some banks I know of may not have issues that I don't know of.

The failure of IndyMac represents the end-game for the idea of letting 'the market' decide on home lending, but unfortunately, may only be a signal bell for the coming rough seas. While I suspect the FDIC and the Federal Reserve have no interest in allowing more large banks to fail, there may be little the FDIC (at least) can do, and given the ham-handed way in which Bear Stearns was handled by this administration, unfortunately, any further bail-outs of large banks (other than Fannie Mae and Freddie Mac) are less likely to be acceptable to a skeptical public and Congress.

The bottom line is that while economic environments are cyclical, this cycle is going to be rough, really, really rough. Rough because of fiscally foolish policies by the administration, abetted by both Democrats AND Republicans. Tax cuts which were unneeded, and did nothing meaningful to spur the economy, were passed by both parties in 2001 and 2002. Massive spending on military boondoggles (like Iraq) have made the situation worse. Fannie and Freddie were obligated to take on loans they'd rather not, and the administrations' laissez faire attitude as it watched home equity loans, depletions of 401(k) and IRA funds, and sub-prime mortgages spiral out of control, all have contributed to a heaping helping of really bad things. We've moved our ability to produce offshore, along with the jobs and payroll necessary, we've handed the wealth to people who've fled to tax havens, and failed to require them to pay their share on the way out the door.

We have little opportunity to pay our debts, insufficient strength in the economy to look to future earnings, and created debts needlessly. When you heap on that the need to pay for health care, Medicare, and Social Security, this nation is looking at a grim next couple of DECADES. When McCain talks about change, it seems like he means no change at all, and unfortunately, I doubt Obama means anything like sufficient change and honesty - either way, either man is going to be saddled with a need to change unlike anything we've seen in 40 or 50 years or more - change will be thrust upon them.

This is bad - and it has been made all the worse by an administration which was both ambivalent and complicit in the coming disaster. Let's hope the next one isn't so craven.

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