Billionaire Wilbur Ross: Expect bank failures
Remember Wilbur Ross? He bought the Sparrows Point steel mill and other Bethlehem Steel assets out of bankruptcy and then sold them. Lately he's been injecting capital into traumatized financial markets. Financial chaos is his metier, and he says we're going to have a lot more of it. Here he is talking to the Wall Street Journal. Some excerpts:
On bank failures and workouts:
"I think there will be a lot of them. Remember the last time we had a big real estate crisis, a thousand depository institutions failed. We really haven’t had that this time. But I believe there are a number of the regional and medium-sized banks that are going to have a very, very difficult time getting through this process."On yesterday's lifeline thrown by the Fed, which allows banking companies to borrow Treasury securities for their reserves:
"Things are still very tight. And this is borrowed reserves, not equity."
On the credit crunch:
"Normally when money is cheap, it's also very plentiful. But now it's cheap except you can't get it, so its not plentiful at all. And it makes very little difference. If you're turned down for a loan at 6 percent or 5 -- turned down is turned down."
Here is the whole, 5-minute interview.
Comments
It would be a sad day if the Fed's 200billion borrowed reserves turn into taxpayer bailout money for the banks. What would then ever motivate the banks to become responsible borrowers if they can continue to expect being bailed out. When has the worker who looses his job been able to receive bailout money for his family? The best solution to properties with bolstered unreal "equity" is to write down the loans to reflect "equity" to correspond with real market value, reflecting current tight money markets. Making it possible for families to continue living in their homes and for banks to continue receive at least some monthly payments. Because it is doubtful the banks will find alternate new owners who will afford the monthly mortage payment any better. After that they can figure out who will take the loss on the "write down".
Posted by: Chris | March 12, 2008 11:34 AM
Ours is an economy built on leverage (whether right or wrong). If the banks fail, the economy fails. While I agree that it makes sense for banks to write down a large portion of their loans, it does not make sense to let the banks fail.
And as for the "bailout" money for the worker who loses his job, America does have a little thing called taxpayer funded unemployment insurance.
Posted by: Mitch | March 12, 2008 11:46 AM
Central banking and these "lifelines" are the reason for booms and busts. The Fed is a central bank that basically allows the gov't to control the economy and not markets. It was created by big bankers to function as their bailout mechanism so that they can "loan up" and then have someone to bail them out when the loans go sour. Big Banks will never be allowed to fail, they have created a system where they control everything and when it appears they are on the ropes, they are bailed out by the quasi-private Fed, which really isn't private at all.
Return the Federal government to not mandating a banks' note (ie Federal Reserve Note) as the "Legal Tender" and only let the gov't operate on non-fractional reserve assets (ie precious metals).
Let banks issue their own currency for a bit, when they fail, let them suffer.
It may take a bit of pain, but getting us off fake currency is the answer.
Posted by: End the fed | March 12, 2008 2:26 PM