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Ninety Banks Have Failed This Year
Sunday, July 11, 2010 
National Farmer's BankIt's probably not a good thing that so many banks have failed this year--victims of a terrible economy and questionable mortgage lending practices:
With 90 closures nationwide so far this year, the pace of bank failures far outstrips that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 45 banks. The pace has accelerated as banks' losses mount on loans made for commercial property and development.
The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.
As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.
The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.
A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.
The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.
The shutdown of banks and the bailout of the banking industry continues unabated. With each shutdown, more and more people are thrown out of work, shades of the Depression.
The problem with making that comparison is that it allows newspapers to trot out the same old nonsense from Amity Schlaes:
President Obama may be about to repeat Franklin D. Roosevelt's mistakes -- but not the ones captured in this narrow discussion.
By fixating on the debt and stimulus plans, Obama and Congress are overlooking challenges to the economy from taxes, employment and the entrepreneurial environment. President Roosevelt's great error was to ignore such factors -- and the result was that sickening double dip.
Taxation is an obvious area the Obama administration ought to reconsider. Income taxes, the dividend tax and capital gains taxes are all set to rise as the Bush tax cuts expire. The Obama administration portrays these increases as necessary for budgetary and social reasons. A society in which the wealthy pay their share, the message goes, has a stronger economy. The administration and congressional Democrats are also striving to ensure that businesses pony up. The carried-interest provision in the tax extender bill seeks to raise rates on gains by private equity and hedge funds. If that were not enough, a so-called enterprise value tax would be levied on partnerships that sought to elude the new high taxes by selling their companies.
Roosevelt, too, pursued the dual purposes of revenue and social good. In 1935 he signed legislation known as the "soak the rich" law. FDR, more radical than Obama in his class hostility, spoke explicitly of the need for "very high taxes." Roosevelt's tax trap was the undistributed-profits tax, which hit businesses that chose not to disgorge their cash as dividends or wages. The idea was to goad companies into action.
Very high taxes didn't go away right after 1935, though. Schlaes seems to gloss over the fact that taxes stayed at a high, confiscatory rate until Ronald Reagan stepped in fifty years later. And even then taxes weren't cut enough. The interim period saw a normal series of business cycles--ups and downs--and was illustrated for all to understand as "the post-war boom." The government was thus flush but business was held back and grew at slow rates--banker's rates--and we suffered in the 1970s as a result.
It's also not true to say that President Obama is doing a bad job of managing the economy--he's doing nearly exactly what any Republican would do. He hasn't raised taxes to that magical 80% rate for people making over a million dollars a year and he's been very corporate friendly. He has done virtually nothing for the small businessman and he's kept Wall Street happy.
I hate to break it to the poorly-read acolytes of Miss Schlaes, but if the Street is happy, then things are gangbusters and we need not pay much attention to the carping of also-rans. President Obama is running things like a Republican would, and no one has the guts to admit that.
Why else would the liberal base of the Democrat Party be screaming for blood? Answer me that.
Norman Rogers | tagged Banking, Economics, Economy, Finance, History, Ignorance, Incompetence, Investment Banking | in A Man of Business, American History, Correcting The Public Record, Crazier Than a Shithouse Rat, Democrat Party Nuttiness, Democrat Politicians, Master of the Obvious, Monetary Issues, Norman Rogers, Phony Nostalgia Email Article 
