bostonbubble.com

[krishnarama]

BK,

I agree with what you say about credi bubble and the aftemath of the credit bubble bust. I also agree that the boom in real estate ireached beyond the borders of west. It is everywhere. You all remember that we had a gigantic bubble in telecom debt leading to year 2000. Everybody thought that once that bubble burst you will see so many banks going under. But guess what?. None went under. We had several hundred billion dollars or perhaps trillion dollar bubble in telecom debt. It was all liquidated later on. But banks didn't finance all that debt. It was all securitized and sold it to investors. It was the investors in those securities who took the pain. Just as then,most of the mortgage debt is also securitized and sold it to investors in the current bubble. But this time several times the telecom debt. Most of the banks didn't finance this mortgage debt directly. But those banks created hedge funds and packaged those securities into CDO,CDO squres,CMOs ,SIVs and sold it to investors. Some of the banks provided assurance for the safety of these funds. All these hedge funds are taking losses. All those losses are being realized gradually at all the financial companies.At the same time they are being recapitalized . But this is at the cost of the existing share holders. Who is losing now?. It is the investors in those banks and the investors in the hedge funds offered by the same banks. I am not trying to understate the problems in the financial industry. They are serious problems in the industry.No doubt about it. I don't know where we are in the cycle. But if you want to see series of major bank failures as a sign that we are finally entering into liquidation phase,you are probably looking at the wrong direction. See what happened at Bear . Fed bailed them out. They are not going to stop there. But there is more pain felt by the sahreholders,investos in mortgage.This is same as banks going under in old pre securitization days. Yes liquidation is happening,but not at banks level. It was in the investors portfolios. Mortgage lending will gradually decline over a period of time. But it is not the end of the world either. Also you are taking about current crisis since August 07. Yes most people mark August 07 was the starting point of the current crisis. But it was in early 2007 that several hedge funds blew up. Before that there were several public financial companies that borrowed short and lent long term disappeared.Actually prices in BOSTON made a top in summer of 2005. I saw the first declines,although very small, in late 2005. The current decline is now more than 2 1/2 years. But it is also very rapid decline just as it was appreciated very rapidly.

[john p]

http://internationalecon.com/Finance/Fch60/F60-0.php

[BK]

I still believe there will be an increase in the number of Bank failures - it will not be at a level like the 1930s. But, Banks only survive when they are making lots of loans and making fees from these transactions. Fewer transactions will drive less competitive Banks out of Business.

Bank failures are not an imaginary threat that never occurs......see below

Here is a list of Bank failures since 2000- Yes- Banks do sometimes fail!

http://www.fdic.gov/bank/individual/failed/banklist.html

Bank Name Closing Date Updated Date
Hume Bank, Hume, MO March 7, 2008 April 28, 2008
Douglass National Bank, Kansas City, MO January 25, 2008 April 28, 2008
Miami Valley Bank, Lakeview, OH October 4, 2007 April 28, 2008
NetBank, Alpharetta, GA September 28, 2007 April 28, 2008
Metropolitan Savings Bank, Pittsburgh, PA February 2, 2007 April 28, 2008
Bank of Ephraim, Ephraim, UT June 25, 2004 April 9, 2008
Reliance Bank, White Plains, NY March 19, 2004 April 9, 2008
Guaranty National Bank of Tallahassee, Tallahassee, FL March 12, 2004 April 28, 2008
Dollar Savings Bank, Newark, New Jersey February 14, 2004 April 9, 2008
Pulaski Savings Bank, Philadelphia, PA November 14, 2003 July 22, 2005
The First National Bank of Blanchardville, Blanchardville, WI May 9, 2003 April 28, 2008
Southern Pacific Bank, Torrance, CA February 7, 2003 April 28, 2008
The Farmers Bank of Cheneyville, Cheneyville, LA December 17, 2002 October 20, 2004
The Bank of Alamo, Alamo, TN November 8, 2002 March 18, 2005
AmTrade International Bank of Georgia, Atlanta, GA September 30, 2002 September 11, 2006
AmTrade International Bank of Georgia, Atlanta, GA
Spanish Version September 30, 2002 September 11, 2006
Universal Federal Savings Bank, Chicago, IL June 27, 2002 April 9, 2008
Connecticut Bank of Commerce, Stamford, CT June 26, 2002 April 28, 2008
New Century Bank, Shelby Township, MI March 28, 2002 March 18, 2005
Net 1st National Bank, Boca Raton, FL March 1, 2002 April 9, 2008
NextBank, N.A., Phoenix, AZ February 7, 2002 April 28, 2008
Oakwood Deposit Bank Company, Oakwood, OH February 1, 2002 April 28, 2008
Bank of Sierra Blanca, Sierra Blanca, TX January 18, 2002 November 6, 2003
Hamilton Bank, N.A., Miami, FL
Spanish Version January 11, 2002 April 28, 2008
Sinclair National Bank, Gravette, AR September 7, 2001 February 10, 2004
Superior Bank, FSB, Hinsdale, IL July 27, 2001 April 28, 2008
The Malta National Bank, Malta, OH May 3, 2001 November 18, 2002
First Alliance Bank & Trust Company, Manchester, NH February 2, 2001 February 18, 2003
National State Bank of Metropolis, Metropolis, IL December 14, 2000 March 17, 2005
Bank of Honolulu, Honolulu, HI October 13, 2000 March 17, 2005