fridays are for National City AND Fifth Third!

[kingcopper]

I live in a large midwestern town-city where National City and Fifth Third are two of the largest in state banks. Lets just say that more than two informed individuals have called me today with the news that they would be seized this coming weekend if things don't change. My Father-in-law had a matter of fact conversation with a local branch manager at National City and he/she couldn't elaborate except to say that withdrawls are a LITTLE more popular right now than deposits. I drove by a downtown tower and it was pretty frickin busy today. Two days from failure?

[GRG55]

Re: fridays are for National City AND Fifth Third!

I live in a large midwestern town-city where National City and Fifth Third are two of the largest in state banks. Lets just say that more than two informed individuals have called me today with the news that they would be seized this coming weekend if things don't change. My Father-in-law had a matter of fact conversation with a local branch manager at National City and he/she couldn't elaborate except to say that withdrawls are a LITTLE more popular right now than deposits. I drove by a downtown tower and it was pretty frickin busy today. Two days from failure?

Firday's are for Congressional re-votes on another massive bailout. After the markets are closed for the weekend, of course...:rolleyes:

[kingcopper]

Re: fridays are for National City AND Fifth Third!

Firday's are for Congressional re-votes on another massive bailout. After the markets are closed for the weekend, of course...:rolleyes:

Maybe the shuttering of National City would be a great scare tactic for Congress? Add in Fifth 3rd and it's a slamdunk?

[dbarberic]

Re: fridays are for National City AND Fifth Third!

I live in Northeast Ohio too. Although it is private... keep an eye out for AmTrust Bank (old Ohio Savings Bank) too. Private held, so not much info on them, but their % of assets in residential and construction loans are nearly double the benchmark of institutions of similar size. They were listed as #12 of most likely to fail on a recient research report I read. Early in the year I exchanged some emails with a VP of customer service where I “taunted” him on the dismal facts of his institution just for fun. His response was copy & paste standard “safe & sound” marketing spin.

I yanked my $$$ from them in early spring this year and went to a small credit union ranked with five stars from http://www.bauerfinancial.com

I await their fall.

[Slimprofits]

Re: fridays are for National City AND Fifth Third!

Federal court certifies class action against Fifth Third

U.S. District Court Magistrate Judge Timothy Black has granted class-action status to a 2005 lawsuit filed against Fifth Third Bancorp officials, including members of its board of directors, alleging that they mismanaged the company’s employee retirement plan by investing in Fifth Third stock.

[phirang]

Re: fridays are for National City AND Fifth Third!

Will Paulson’s Two Plans Unplug the ‘Liquidity Trap’?

By Mark Sunshine

Editor’s note: Mark Sunshine, president of the commercial lending institution First Capital, writes a guest post about why we may be heading into what’s called a liquidity trap. This means monetary policy, including interest-rate changes, can’t prevent a deep depression, but that the Treasury’s fiscal stimulus plans – including a little-noticed tax change pushed through last week – just might work.
Anyone who reads newspapers or watches TV knows that the banking system is in crisis. Credit is tight, banks are hoarding cash and short-term Treasury yields are almost 0 percent. The Fed has lost its ability to unfreeze the system and the normal circulation of money isn’t happening. Almost all of the monetary signs point to a potentially terrible new phase of deflation and dramatic economic contraction.
This week’s Fed monetary report showed that during the week ending Sept. 22, money supply (as measured by seasonally adjusted M2) increased by $165.5 billion to $7,900 billion. On an annualized basis this is an astonishing 108.94 percent growth rate. The Fed has been aggressively pumping money into the system in the hopes that radical monetary stimulus will restart lending. However, the newly created money is being hoarded by banks as they “stuff the mattress” with short-term Treasury notes.
Mark Sunshine
Here’s why these events are distressing: When the Fed douses the monetary system with cash but banks hoard it, monetary policy no longer works and the economy starts to crash. This is called a “liquidity trap” and it occurs when interest rates are at or close to 0 percent and monetary policy is no longer effective. Newly minted money is injected into the banking system but trapped by financial institutions that are paralyzed by fear. When banks don’t recycle their money through normal lending activity, it doesn’t matter how much the Fed increases the money supply. Monetary policy just won’t work. Failing monetary policy usually means that we are going to have a recession, or worse.

This is what happened at the beginning of the Great Depression and during the Japanese banking crisis of the late 1990s. In both cases, economic activity slowed dramatically and deflation occurred. No matter how hard the central bankers tried to pump money into the economy, it wouldn’t work.
Today we’re facing a similar problem. Despite the dramatic increase in money supply last week, it remains surprisingly difficult to get loans from tight-fisted and scared bankers. Corporate and consumer loan interest rates shot up to unheard-of levels compared to Treasury yields but still banks won’t lend. Financial institutions continue to express their fear through panic buying of short-term Treasuries as those yields dropped to almost 0 percent. Treasuries are the new “gold” of this millennium and have become the investment of choice for institutions that are afraid of taking risks.
The liquidity trap has neutered the Fed and its chairman, Ben Bernanke, because there isn’t much that the Fed can do with money supply or interest rates to make things better (despite reports that the Fed may cut interest rates again soon). Only fiscal stimulus – tax cuts or government spending hikes intended to increase demand — will unplug the system.
Treasury Secretary Henry Paulson’s plan, which is now law, is fiscal stimulus that will be injected directly into the banking system to supplement almost nonexistent private-sector lending with government cash and determination. Mr. Paulson may be shooting the right weapon at the right time because it will help rescue the banks while restarting corporate and consumer lending.
But Mr. Paulson’s fiscal-stimulus work didn’t end with the bailout bill.
With hardly anyone noticing, on Wednesday he pushed through very technical and obscure changes to tax regulations that provide a “tax subsidy” for acquirers of troubled banks. Just as automakers stimulate car sales through rebate checks, the Treasury is providing a form of tax rebate to acquirers of troubled banks. Everyone can thank Hank Paulson and his stealth tax-driven fiscal stimulus for the astonishing news that Wachovia was being acquired by Wells Fargo and not Citigroup. It was Mr. Paulson’s tax subsidy to Wells Fargo that provided the fiscal grease to make this deal happen. Pundits who point to the deal and proclaim that the “free markets work without government help” don’t understand the motivating effect of several billion dollars of tax benefits to Wells Fargo.
Hopefully Mr. Paulson’s fiscal moves will provide enough fiscal laxative to unplug the banking sector and get money flowing again. Only time will tell if he’s done enough or if more will be required from the next Treasury secretary.

http://economix.blogs.nytimes.com/20...iquidity-trap/

[Finster]

Re: fridays are for National City AND Fifth Third!

Quoting Mark Sunshine: http://economix.blogs.nytimes.com/20...iquidity-trap/...This week’s Fed monetary report showed that during the week ending Sept. 22, money supply (as measured by seasonally adjusted M2) increased by $165.5 billion to $7,900 billion. On an annualized basis this is an astonishing 108.94 percent growth rate. The Fed has been aggressively pumping money into the system ...

Here’s why these events are distressing: When the Fed douses the monetary system with cash but banks hoard it, monetary policy no longer works and the economy starts to crash...

This is what happened at the beginning of the Great Depression and during the Japanese banking crisis of the late 1990s. In both cases, economic activity slowed dramatically and deflation occurred. No matter how hard the central bankers tried to pump money into the economy, it wouldn’t work...

I'm highlighting some key phrases here because I think they get to the heart of the problem. The central banks seem to be operating on the assumption that to "pump money into the economy" is the same as to "pump money into the banking system". If there is one key takeaway from Sunshine's piece, it is that they are nothing of the kind.

If only the "economy" and the "banking system" were one and the same thing ...

The rub is that the central bankers are not trying to pump money into the economy! The banks can be filled to bursting with freshly minted cash, but they are in the business of lending, and lending to borrowers who are both willing and able to repay those loans. But far too many prospective borrowers are either uncreditworthy or simply don't want to borrow more. They've had quite enough already, thank you. This makes clear the root issue is not with the banks, but with Main Street. The money deficit at the grass roots level is untouched regardless of how much money surplus exists in the banks.

This explains how we can be experiencing stultifying deflation all while monetary statistics say inflation. Inflation in the sky ... deflation on the ground.

[Jim Nickerson]

Re: fridays are for National City AND Fifth Third!

I'm highlighting some key phrases here because I think they get to the heart of the problem. The central banks seem to be operating on the assumption that to "pump money into the economy" is the same as to "pump money into the banking system". If there is one key takeaway from Sunshine's piece, it is that they are nothing of the kind.

If only the "economy" and the "banking system" were one and the same thing ...

The rub is that the central bankers are not trying to pump money into the economy! The banks can be filled to bursting with freshly minted cash, but they are in the business of lending, and lending to borrowers who are both willing and able to repay those loans. But far too many prospective borrowers are either uncreditworthy or simply don't want to borrow more. They've had quite enough already, thank you. This makes clear the root issue is not with the banks, but with Main Street. The money deficit at the grass roots level is untouched regardless of how much money surplus exists in the banks.

This explains how we can be experiencing stultifying deflation all while monetary statistics say inflation. Inflation in the sky ... deflation on the ground.

Finster,

What do you think is the most appropriate way to be allocated given the situation as you understand it?

I hope this is a question you will answer.

[Finster]

Re: fridays are for National City AND Fifth Third!

Finster,

What do you think is the most appropriate way to be allocated given the situation as you understand it?

I hope this is a question you will answer.

Unfortunately, the only true solution is not to inflate your way into a mess like this in the first place! This leaves us only to select from a menu of bad options to try and palliate the symptoms.

With that in mind, perhaps Bernanke himself has already proposed the least bad option - printing presses and helicopters. As I interpret it, that means creating money without going through the normal (and obviously failed) process of lending it into existence, and widely distributing it, rather than simply trying to stuff the banks with it. Just send every US citizen a check for the same amount, say, $5000. This would come to $20,000 for a family of four. No debt added to Treasury nor anywhere else. Or just issue smaller checks at regular intervals for a year or so, or however long it takes to end the deflation.

Call it the "trickle up" theory of reliquification. The banks would obviously benefit; most of this money is going to be deposited in banks somewhere. A lot of it would go towards paying off debts, which sure couldn't hurt, either. Some will certainly be spent on consumption as well, which would address the concern about sinking demand.

[c1ue]

Re: fridays are for National City AND Fifth Third!

Finster,

In another post I postulated a possible reason for what we're seeing:

That the deleveraging process is severe enough to require much more 'credit inflation' than has already occurred.

There is around $7 trillion in deposits in banks now; it is safe to say that 'capital' is significantly above that.

If overall leverage is halved, then theoretically capital needs to double to maintain the same overall lending capability.

Thus the government will need to spit out 5 or even 10 times more money than it has in order to 'fix' the system.

Thus my earlier premise of a fiat devaluation via knocking out a zero may be more possible than not.

[kingcopper]

Re: fridays are for National City AND Fifth Third!

Finster,

In another post I postulated a possible reason for what we're seeing:

That the deleveraging process is severe enough to require much more 'credit inflation' than has already occurred.

There is around $7 trillion in deposits in banks now; it is safe to say that 'capital' is significantly above that.

If overall leverage is halved, then theoretically capital needs to double to maintain the same overall lending capability.

Thus the government will need to spit out 5 or even 10 times more money than it has in order to 'fix' the system.

Thus my earlier premise of a fiat devaluation via knocking out a zero may be more possible than not.

I agree that we may very well see an extra zero soon. It worked for France in 60'!