Friday, June 19, 2009
Three more bank failures
Just another Friday: 3 more bank failures brought to you by the FDIC.
Bank failures are now coming at a steady trickle that is set to accelerate meaningfully over the next year. Bank failures are highly deflationary in a credit-based society and create further pressure on asset prices. The pace of bank failures is reminiscent of the early 1930s. Things are unfortunately continuing to get uglier and uglier for the economy. The next bear leg down in the stock market, which has already begun, will reflect the economic realities that can no longer be ignored. The expected bear market bounce/rally, a technical event having nothing to do with fundamentals or green shoots, is over.
Another wave of pain is dead ahead. In the next few months, the FDIC will be broke and have to tap the taxpayers for some more money. The pending bankruptcy of California is also an interesting event looming in the not-so-distant horizon. Many banks and states like California continue to bury their heads in the sand and avoid their obvious insolvency issues. The can keeps getting kicked down the road but the end of that road is near for many of these institutions. These are not "black swan" events as they can be fully anticipated, but will be called such by some in the mainstream financial media.
State and other municipal bonds are a terrible investment in aggregate and will get creamed along with stocks and corporate bonds.