Author: David S. White

Last week we learned that, of
America’s 8,195 banks, 416 are in trouble right now.   The FDIC calls them "problem banks."  That means the FDIC is watching those
416 banks like the proverbial hawk. 
If any, or all, of those 416 banks have reserve numbers which dip below
the fail-safe levels established by the FDIC, those banks will fail, just like
the 81 banks which have already crashed and burned so far this year, 45 in the
second quarter of this year alone. 
Banks lost $3.7 Billion in the second quarter – loans that went south
are the reason. 

No
problemo, you say – that’s what the FDIC is for – the FDIC which proudly
says that not one single dollar of deposits insured by the FDIC has ever gone
unpaid.  Why, Congress last Fall,
during that blizzard of financial meltdowns that scared us all so profoundly,
even went another step and raised the FDIC’s level of insured deposits from the
old $100,000 per account to a new $250,000 threshold.  Not to worry, right?

Not so fast.

As Labor Day approaches and we slip out of Summer and into another September, many think of 9/11 and that this September is yet another anniversary of that horrific, unimaginable tragedy. But, September will be another milestone anniversary this year – the anniversary of what some are calling the Great Panic.

In one of the first books to comprehensively examine the extraordinary financial collapse of September 2008, “In FED We Trust: Ben Bernanke’s War on the Great Panic” by David Wessel, and surely far from the last such book, we are reminded of just what was going on the last time we tore the month of August from our calendars and turned to the September page. This one focuses on Ben Bernanke and the unprecedented situation that swallowed up Lehman Brothers. All the heroic efforts to bail out Bear Stearns earlier that Spring had provoked so much controversy about the correct role of government, if any, in rescuing financial markets who were about to set off an H-Bomb in their own universe. Lehman’s bankruptcy, the biggest in history at that time, nearly lit the fuse on a global financial meltdown.

The two hardest things about vacations are getting ready to go and the re-entry when you return, like diving into the deep end of a very cold swimming pool. Making it even harder in this late Summer of Screaming TownMeetings and televised HealthCare Dueling is to digest the news that our national deficit is now projected to reach 9 Trillion (with a “T”) dollars over the next decade.

You see, they apparently had it reliably pegged at a mere 7 Trillion (with a “T”), and then some federal BeanCounters re-tallied the list and came up with a couple of Trillion that they had overlooked (nobody’s perfect!), to be added to this staggering total.

At the end of last week, world bankers had hunkered down at Jackson Hole to collectively announce that the worst from our economic meltdown since Dec. 2007 is now over – that’s the good news. They also announced – Ben Bernancke, Chairman of the Federal Reserve, that is – while happy days are not quite here again; not with high unemployment projected for at least another year, that home sales indeed are picking up (if you can pick through the foreclosed properties, that is) and that Wall Street has gone so nuts again that some have announced the birth of another Bull market as the Dow crossed the 9500 mark, still well below its heights of some 14,000 not long ago.

An excellent OpEd piece in Friday’s
NYT, "Why Own When You Can Lease?" by investment banker Daniel Alpert, articulated quite well something that I have been thinking long and hard
about since early last Fall, when the economic collapse became very real, very
quickly, for us all.

Alpert says that mortgage lenders
need to do something more meaningful and creative about working with
"underwater homeowners."  He says
there that, if they don’t, then Congress should make them.  Alpert posits that this is the only way
to stop the cascading foreclosures, empty homes which tug down the real estate
market for all of our homes, in combination with serious intransigence on the
part of home mortgage lenders, is to get rational about letting distressed
homeowners continue to live in, and lease, the homes they are losing.  Alpert makes a lot of sense; lenders
should listen.

On Wednesday, an agreement with
Blue Dog Democrats was announced, resolving ten days of stalemate on moving the
Obama National Healthcare Plan forward.   The agreement, brokered by Obama aides with the Blue
Dogs, cuts projected costs for a National Healthcare bill and exempts many
small businesses from having to providing Healthcare benefits to their
employees.

We still won’t be seeing any Obama
National Healthcare Plan pass this Summer, as the Obama Administration had both
promised and planned.  This is due
to the fiscally conservative Blue Dog Democrats flexing their new power, assuring
that their concerns now must be considered if there is to be any National
Healthcare bill passed at all.

As if in answer to my oft -repeated
fantasy of a viable, national third party, and just when the Democrats finally
got Al Franken seated, their 60^th Filibuster-proof Senate vote, the
idea of a third, balancing voice in our federal government, lying somewhere
between Republicans, on the right, and Democrats, on the left, has appeared –
Hello Blue Dogs and welcome to the national stage!

Monday saw both good and bad news
on US home sales – which would you like first, the good news or the bad news?

The good news is that, in June, US
home sales were on the dramatic upswing – the single largest monthly increase
in some eight years – an 11 percent increase as reported Monday by the Commerce
Dept., significantly higher than the 3 percent which had been forecast.  So far, so good.

The bad news is that prices are in
‘Do the Limbo’ territory – how low can you go? Median prices took a nosedive to
$206,200, as compared to $232,100, just a year ago – a drop of some 12 percent.  And far too many ‘for-sale’ houses
remaining on the market meant that new home sales took a real dive and were
down some 21.3 percent as compared to June 2008, one year ago.  Worst hit of the regional markets for
new home sales were the whopping numbers for the South, down more than 33
percent; the Northeast was down 11 percent; the West down 10 percent, and; only
the Midwest showed positive numbers with new home sales up 6 percent.

US Special Inspector General Neil
Barofsky, who job it is to oversee the Troubled Asset Relief Program ("TARP"),
has opined in his new quarterly report to Congress and testified before the
House Oversight and Government Reform Committee that the real, total cost of
all the BailOuts since last Fall could well exceed $24 Trillion, spread across
some 50 different efforts at relief – that’s Trillion, with a "T."  Now go clean up the coffee that you
just spilled all over your computer; I’ll wait.

OK, I exaggerated: the actual
number that all the BailOuts, bank rescues and other economic lifelines could
end up costing the federal government is only as much as $23.7 Trillion.   That’s $80,000 for each and every American citizen – you, me,
and that toddler riding his tricycle in your neighbor’s yard right now. 

Not only did they pay back their
BailOut Bucks to the Feds already ($10 Billion worth), but Wall St. Titan
Goldman Sachs has announced that it is having a very good year.  Goldman stock went to the moon
(tripling this year); Goldman employees are licking their collective chops in
anticipation of those hefty bonuses (think secretaries earning six figures!)
and it is business as usual in those hallowed halls again.  Is this an example of the wisdom of the
BailOuts from last Fall, a poster-boy example of what went right when so much
went wrong?  Or, does this raise
the aroma that Shakespeare long ago attributed to something smelling rotten
over in Denmark?  (Apologies to "Hamlet."
Act I, Scene 4: Marcellus’ famously misquoted utterance upon seeing the ghost
of Hamlet’s father, the late king of Denmark.)

Goldman Sachs announced this week that
it earned $3.44 billion in the second quarter of 2009, exceeding expectations –
its largest bonus payout in history is likely coming soon.  Last Fall, Goldman received $10 Billion
in TARP’s BailOut Bucks, converted itself from being an investment banker to being
a commercial bank with membership in the Federal Reserve System, and then lined
up at the Fed Discount Window to receive nearly free, or actually free at zero
percent interest, Fed money to use at its disposal in its financial operations.  Goldman also thus became eligible for the
FDIC’s guarantees on its debt offerings – something which immeasurably
strengthened their position in a fragile marketplace.

Incredibly, GM announced that it is
emerging from its Bankruptcy a mere 40 days after filing.  40 days!  We are told that some have spotted Green Shoots emerging
from the blackened soot where our economy used to grow.  By this Fall, all should again be right
with the economic world and it will be safe to go into the deep end of the Wall
Street shark tank again.  Don’t
believe it.

For one thing, and I expect no
agreement on this at all, we have not spent nearly enough to jumpstart our
economy from out of the comatose state that it has been slumbering in since the
end of 2007.  We looked like we
were going to, but then we got cold feet and we didn’t.  For another, unemployment – the
‘lagging indicator,’ to be sure – is still on its dizzying climb, each
increment assuring that another group of Americans will not shop till they
drop, or anything close.