Bank stocks plunge on fresh insolvency fears

AP / Yahoo News ^ | Thursday January 15, 2009 | Stevenson Jacobs, AP Business Writer

[gpk9]

NEW YORK (AP) -- Shares of major U.S. banks plunged Thursday as the government mulled giving Bank of America Corp. a fresh multibillion-dollar aid package, raising fears on Wall Street that the battered financial sector may need an even bigger bailout.

Bank of America shares fell as much as 28 percent -- dropping to their lowest level in 18 years -- on news that the bank may seek another capital injection to manage losses from its takeover of Merrill Lynch. Citigroup Inc. shares fell to a near 16-year low as investors braced for horrible fourth-quarter earnings due Friday. And JPMorgan Chase & Co. added to the pessimism with a grim earnings outlook. Shares of all three banks came off their lows later in the day as part of a broad market turnaround.

Still, the carnage fanned investor fears that mounting bank losses and a darkening economic outlook are thwarting government efforts to resuscitate the banking sector. It raised the distinct possibility that the largest financial rescue package in history may swell even further.

"The perception on Wall Street is that things are getting worse and that the banks are bearing the brunt," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.

[snip]

[OB1kNOb]

It won't take too much more news like the following article, to make your prediction come true.

Bank stocks plunge on fresh insolvency fears

[griswold3]

Yesterday, the markets started to drop after Paul Volker’s article was perceived as a call to ‘nationalize’ the banks. TPTB assured investors that it wasn’t so they rallied a bit. When in all actually it was a call for ‘central planning’, which, IMHO, is just as bad.

I don’t like where this ‘New Direction’.

[gpk9]

"The perception on Wall Street is that things are getting worse and that the banks are bearing the brunt ..."

As well they should. Banks, investment banks actually, along with Freddie Mac and Fannie Mae, are the ones who took enormous risks buying up mountanis of mortgage-backed securities from all manner of mortgage lenders (a) giving mortgages to people who were not really credit worthy (b) on homes purchased at overly inflated prices in overly-inflated markets, said overly-inflated prices and overly-inflated markets being an indirect result of irresponsible monetary policy the the chief bank, the Fed.

The insanity of the Community Reinvestment Act was exacerbated by unrealisticly low interest rates being carried forward into an economy that had already recovered. The subprime bubble was a result of both of those factors.

Investment banks claim they didn't foresee the inevitable bursting of that bubble. How can that be? They claim to be professional people. Extremely comptetent at investing. How can it be that they didn't foresee (a) the subprime bubble forming, and (b) the inevitable bursting of that said bubble?

That's nonsense. It's not that they didn't see, or couldn't see. They didn't want to see. They looked the other way. Ignored it, as they made tons of profits selling those soon-to-be-worthless mortgage-backed securities to everyone around the world, spreading around the world what should have been a problem confined to US financial institutions.

That is irresponsibility, on a massive scale.

They might have "gotten away with it" had they sold ALL of those soon-to-be-worthless MBSs to other people, and not held some of them on their own books. They did hold some of them on their own books. Lots of them actually. Tons of them actually. When the subprime bubble did finally burst, they got nailed along with all the other people around the world they sold those MBSs to.

Paulson and Benanke aren't coming to the rescue of all the other people who bought those MBSs and bailing them out. Only certain "favored friend" investment banks and similar institutions are getting bailed out, i.e. receiving essentially free money from the Fed and Treasury to make up for their enormous losses and keep them from going bankrupt.

Bailing them out is also massively irresponsible.

But doing the responsible thing, doing the morally right thing, doesn't happen these days. Moral and fiduciary responsibility has gone the way of cassette tapes. Both have essentially vanished.

It has been replaced by pure unrestrained greed.

No financial system can withstand pure unrestrained greed for very long. It eventially crashes ...and takes many innocent people down with it.

[wolfcreek]

Sorry if I was a little blunt this morning. I'm just getting sick of people ignoring the fact we've been had. I don't see the anger one might expect only, a bunch of excuses that don't make a lot of since.

The only place I see *bipartisanship* is in the smokey back rooms of organizations like the Council on Foreign Relations. These Elitists are hammering away at the power, wealth and sovereignty of this country. If we don't find a way to stop them, we'll just be another lowly piece of the One World Government.

[gpk9]

"I had previously heard back in December that it would really start dawning on folks how bad the financial/economic situation is around February as a host of business bankruptcies and failings started announcing..."

I share your view. So do a host of other people, like Gerald Celente, Peter Schiff, Max Keiser, Jim Rogers, Marc Faber, Bob Moriarty, to name a few. They're all saying the exact same thing.

The consensus is that retail will be the next big collapse. Hundreds of well-known retailers going belly-up after shocking declines in 4Q sales, including the Christmas season.

That collapse in retail commercial real estate, combined with a developing collapse in commercial office-type real estate (thanks to hundreds of thousands of people being laid off or outright fired, and the resulting vacancies of millions of square feet of office-type real estate), will rapidly lead to an overall collapse in commercial real estate, the next BIG shoe to drop.

That will hammer financial institutions all over again, as they are holding short-term loans and longer-term mortgages on enormous amounts of commercial real estate.

But this time it won't be confined to a few large investment banks. All manner of banks will be hit, right down to your locally-owned bank.

I believe that is when we will see major panic arise, resulting in bank holidays, etc. Again, the folks mentioned above are all saying the same thing.

[griswold3]

Any ideas of what type of economy comes out the other side?

[OB1kNOb]

barter economy (I hope I’m kidding) ;-(

[griswold3]

been there, done that

[OB1kNOb]

Of the guys you mention, do you have any particular ones you personally favor reading/listening to that you think has a solid grasp of the big picture?

[gpk9]

"Any ideas of what type of economy comes out the other side?"

I am not optimistic that anything good will come out the other side. Folks mentioned in the previous response feel the same way. I and they believe this is "it" for the American financial system. The end.

The coming damand-collapse depression isn't the real problem. We had one of those back in the 30s. We survived it and eventually came out of it.

The real problem is rapidly developing on the monetary side. Trillions of fresh new printing-press dollars being added to the money supply are expanding our money supply at a truly frightening rate, never before seen in our history, at least not with the currency we have now.

That frightening growth of our money supply is occurring just in the past few months. Since September '08, with all these "bailouts". Since Sept our real money supply, what used to be reported as M3, but is no longer being reported, has essentially doubled in size, from roughly 7.5 trillion to 15+ trillion now.

Some people argue that much of that money isn't really in circulation since it is technically being held as bank reserves, but what WE think doesn't matter. It's what OTHER PEOPLE AROUND THE WORLD THINK that matters. They're stitting there with trillions of dollars worth of our bonds, mostly Treasury bonds, watching our real money supply grow at a frightening pace, and beginning to see the handwriting on the wall. The value of the dollar is going to start falling, and the value of those bonds along with it, not to mention the value of every other dollar-denominated asset in existence, including yours, ours, everyone's.

Bottom line, our rapidly expanding money supply is going to bring about the collapse of the dollar. I do mean collapse. I see it happening in two stages.

First, we're all going to wake up some morning and see the banks all closed. Before they open again, the dollar will be devalued by government decree. How much it will be devalued is anyone's guess.

That may happen a couple of times, or three times. Again, no one can say at this point.

Second, and the really BIG bust, will happen when all these people around the world see our government devaluing the dollar, and decide enough is enough. It's time to unload those trillions in rapidly depreciating bonds.

When that happens it will begin an enormous avalanche of selling all around the world. Everyone trying to dump dollar-denominated bonds at the same time.

That will cause the value of the dollar to absolutely crash, I mean drop right through the floor, and it will happen overnight as we here in America sleep in our beds.

I and the folks mentioned earlier, along with a growing number of other people, believe the crash of the dollar will be the final death blow to our economy and financial system. The end. There won't be a recovery from it.

There is growing talk about a new currency. The Amero. That is the only way I and many others can see that might keep things from collapsing permanently.

I've heard the exchange rate will be horrific. People will loose about 90% of value in the exchange.

It may nonetheless be the lesser of two evils. 90% loss of value would be better than complete collapse of our economy, financial system, and likely our nation.

[griswold3]

So the 18% participation in the TBill auction last week, really was a noticable event.

Do TPTB really mean to destroy the US?

[gpk9]

"Of the guys you mention, do you have any particular ones you personally favor reading/listening to that you think has a solid grasp of the big picture?"

In a word, no.

I believe it is unwise to focus our attention on what any one person says. I believe it is far wiser to listen to what many people say, look for consistencies that agree with what we see happening around us, and develop our own picture of what is coming.

In the past few months I have spent hours each day doing that, and have what I believe is a pretty clear overall picture of what is coming.

It more or less agrees with what those folks are saying, and they all more or less agree with each other.

[OB1kNOb]

I downloaded some podcasts of each of the guys you mentioned to listen to over the weekend. I appreciate the info and your insight.

[gpk9]

Senate clears path for $350 billion bailout bill

Folks, please don't be fooled by this nonsense. (A)Congress has absolutely no authority over that money, and (B) that money has already been spent, and way more beyond that.

[gpk9]

"So the 18% participation in the TBill auction last week, really was a noticable event."

I don't understand the thrust of this comment.

"Do TPTB really mean to destroy the US?"

Who can say what people's motivations are? I can't read anyone's mind.

[griswold3]

Meaning that there was only 18% participation of non US entities in the treasury auction. *The usual amount is 26%-30%.

[gpk9]

,i>"Meaning that there was only 18% participation of non US entities in the treasury auction. *The usual amount is 26%-30%."

That would be consistent with what I said earlier about people outside the US becoming more concerned about what is happening with our money supply and it's effect on the value of the dollar.

I would expect to see less and less interest from people outside the US in the weeks ahead.

Some of the folks mentioned earlier, along with others not in that list, are starting to talk about a T-Bill bubble and it's eventual burst.

If such a bubble is developing I suspect it would be caused by the massive flight out of stocks and into what is perceived to be the security of T-bills.

I say "perceived security" because those stampeding into T-bills very likely aren't aware of the ticking time-bomb on the monetary side.

[gpk9]

Today, Friday, Jan 16, the Dow closed up 68 points after shedding a few hundred points this week.

It is very clear now, to me at least, that the Dow is following bailouts. It drops when banks and such start crying for more bailouts, and rises when they get their bailouts.

The Dow is competely ignoring the larger more serious picture of impending large retail bankruptices, hundreds of thousands of jobs being lost, the collapsing commercial real estate market, etc.

[redgolum]

For later

[WOSG]

“
Hmmm.... do I sense an avalanche beginning? “

No the avalanche began in March, accelerated in Sept ... we now sifting through the rubble at this point.

C is a basket-case, but honestly might be a great buy at this point. You have a healthy bank that will come out of realignment of Citibank, and the toxic assets and other stuff in a ‘bad bank’ that will have to survive somehow.