“It was the best of times, it was the worst of times …” Charles Dickens
“At the height of the Italian Renaissance, people believed they were living in an age of decline and even that the end of the world was imminent. Similarly, in the first decade of the 21st century, we believe we are living in a catastrophic time, a time of crisis – but if you compare life for the majority of people in the developed world with any other place or time, this looks like colossal self-pity.” Jonathan Jones, GuardianThere are big winners and losers loitering or littering the financial highways:
It was the best of times …
Some of the nation's largest banks could, in fact, emerge from the crisis stronger than they entered it. While they have suffered huge losses on complex financial products, and are still facing mounting loan defaults, they were stabilized with tens of billions of dollars of taxpayer money. In the second quarter, the seven largest commercial banks earned more than $14 billion, even as thousands of smaller banks were in the red.It was the worst of times …
Big lenders are currently enjoying an advantage in their "cost of funds" -- the raw material of a bank, which is in the business of borrowing cheaply and lending at a higher rate. The handful of banks with more than $10 billion in assets were paying 1.18% to borrow money in the second quarter, the FDIC said in data issued Thursday. By contrast, banks with $100 million and $1 billion in assets were paying 1.97%, a big difference in a business where tenths of a percentage point translates into millions of dollars in profits. Wall Street Journal
For those not to big to fail, times seem particularly tough: The reality of excessive debt and falling asset prices have rendered the best efforts of the Fed impotent.
Burdened by costs associated with rising levels of troubled loans and falling asset values, FDIC-insured commercial banks and savings institutions reported an aggregate net loss of $3.7 billion in the second quarter of 2009. Increased expenses for bad loans were chiefly responsible for the industry’s loss. Insured institutions added $66.9 billion in loan-loss provisions to their reserves during the quarter, an increase of $16.5 billion (32.8 percent) compared to the second quarter of 2008. Quarterly earnings were also adversely affected by writedowns of asset-backed commercial paper, and by higher assessments for deposit insurance.
During the quarter, the number of institutions on the FDIC’s “Problem List” increased from 305 to 416, and the combined assets of “problem” institutions rose from $220.0 billion to $299.8 billion. This is the largest number of “problem” institutions since June 30, 1994, and the largest amount of assets on the list since December 31, 1993. FDIC Quarterly Banking Profile
And the biggest of big banks, Bank of America, Wells Fargo, and J.P.Morgan appear to be doing well thanks to bailouts and low costs of funds. Because those banks are regarded as "well capitalized" they pay a smaller insurance rate to the FDIC. "Regarded" is the key word. They can continue to be regarded as "well capitalized" but commercial real estate loans, credit card defaults, and pay option ARMs problems are the 800 pound gorillas in the room. Mish's Global Economic Trend AnalysisThe multiple 800 pound gorillas that continue to hang around are becoming pretty darn tiresome. My purpose in these excerpts is to point up the overhanging uncertainty that continues to plague recovery.