Sunday, August 28, 2011

The Next Round of Bank Panics in the US

The sudden loss of 50% of its value by the Bank of America is kicking off round #2 of the 2008 banking panic. Here's a bit from a column by Barry Ritholtz in the Washington Post which gives a good overview of the situation:
For anyone who thought the U.S. banking sector was healthy, Warren Buffett’s $5 billion investment in Bank of America should be a wake-up call.

Many investors assumed the Wall Street bailouts of Bank of America and the other big banks more or less healed the sector. All it took was few trillion dollars in liquidity and a few $100 billion in recapitalization. Voila!

In fact, the banking system was not saved. The massive injections of liquidity temporarily salved the day-to-day operations of banks, but they did not repair the more profound troubles. Indeed, pouring billions into nearly identical management teams that mismanaged risk, overleveraged exposure and drove banks off the cliff in the first place was an invitation for another crisis.

In past weeks, Bank of America has been under increasing pressure from investors. Its already damaged stock was cut in half, and commentators including myself argued that the bank was headed back toward the rocky shoals of insolvency.
The world doesn't need another bank panic and ensuing recession. The US hasn't recovered from the 2007-2009 recession/depression.

Why is this happening? Because Obama is in the pocket of Wall Street and refused to fix the banks. When he came into office he had a chance to work with a blank slate and introduce dramatic banking reform much as FDR did in 1933. But unlike FDR, Obama is a bought-and-paid-for-politician. In his presidential run he promised to do many things for Americans. He just didn't mention that the only Americans he would really listen to had big office on Wall Street and made billions for their "services". Obama has allowed corruption, fraud, and crime to continue on Wall Street. As long as this lasts, the US will be stuck in a swamp of gooey muck that keeps pulling it under. You can only get recovery when you break the addiction. US politicians are addicted to lobbyist money and the sweetest honeypot is Wall Street money.

No comments: