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alstry (35.13)

a HUGE banking crisis?????

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July 17, 2008 – Comments (4)

Right now I am talking to more and more people who are taking money out of their local banks.  A number are drawing down deposits to get to below the $100K FDIC limits.

After talking to a few bankers and business people, it appears that the majority of dollars in US banks, especially business deposits, are actually above the $100K limit.  Really, the only place for these people and businesses to go is put deposits in many many different banks or buy treasuries.  Buying treasuries is by far the simpler route to go.

As more and more people continue withdrawing money out of banks, the bank reserves are going to dwindle making our banks very vulnerable. 

It is clear that this process is already underway.  People like Denninger are warning people to take action before its too late.  I have already read a number of articles on the subject.  Stories like IndyMac are only going to get the average person to do the same.

Now the question is how far are we into the process and how far will it go?  How will our banks deal with a river of deposits flowing out their doors?  Citi reports tomorrow morning....it could be interesting.

4 Comments – Post Your Own

#1) On July 17, 2008 at 6:09 PM, alstry (35.13) wrote:

The problem with the above is that the behavior feeds upon itself. 

You think the Fed and banks are worried about it? 

Maybe that is why we get multiple people testifying per week to tell us how safe everything is and why we can't short certain banks....until some Senetor scares the begeebers out of us.

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#2) On July 17, 2008 at 6:59 PM, DemonDoug (80.36) wrote:

Buying treasuries is by far the simpler route to go

This is something I think a lot of people don't realize.  Treasuries give you a higher percentage return than savings accounts, are generally just as liquid (and even if they drop in value it's just a short time to maturity), and you also get the tax benefit of not having to pay state taxes on your interest income from them.

The problem with the above is that the behavior feeds upon itself. 

And this, unfortunately, is something the mass media either doesn't get or is intentionally hiding.  I heard on my local news yesterday the question "Are we headed for another Great Depression?"  And they asked an analyst about it, who said that 3,000 banks went belly-up in the 1930s, but they expect only 50-100 to go bad this time.

Of course, like all good softballers, they didn't give a follow up question that asked about all the bad debt and commercial paper that is now starting to really nail the regionals.

MER lost 4.6-4.9B (depending on what news source you read).  I suspect LEH is also going to be done very soon.  That's 2 big money sources that were passing through a lot of this mortgage paper.  All going down big time.

I also have to wonder about BAC and WB - with CFC and Golden West, you wonder if these purchases are going to absolutely destroy these companies.

Kind of interesting, driving up the 101 to ventura, I saw all these offices with "Countrywide" on it, as well as a civic center that also had Countrywide's name on it.  Indymac is all over downtown pasadena.  I don't think LA county is going to avoid recession (as the financial pundits keep saying we will).

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#3) On July 17, 2008 at 7:45 PM, lquadland10 (< 20) wrote:

    Li bore Lending rate going up. So the next arms reset will file bankruptcy's because they can't refinance.  DO YOU HEAR IT COMING?

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#4) On July 18, 2008 at 1:40 PM, wolfhounds (28.95) wrote:

Demon nailed it with the commercial paper issue which I detailed in my blog of STI last month. Nobody knows the exposure because banks aren't required to disclose under accounting rules. This one is yet to blow up, but it will.

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