FDIC flashes SOS – 1,000 bank failures before recession is over – FDIC not too far away from tapping into U.S. Treasury $500 billion taxpayer lifeline. Georgia leads the pack with 40 bank failures since 2008.
By the end of the recession, there will be approximately 1,000 bank failures. Does this sound extreme? It should but the numbers don’t cover the entire story. Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed. Last week, 7 banks failed. At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up. The FDIC is in a precarious situation. The Deposit Insurance Fund (DIF) is technically speaking, broke. They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long. The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad.
Broken financial generations – U.S. households only have a median of $2,000 saved in retirement accounts. The median net worth for those 25 to 34 is $3,700. Which generation will support the economy going forward? Social Security beneficiaries make up 19 percent of all Americans.
I recently had a conversation with a retired neighbor, a former Navy vet who worked most of his life at a local grocery store. I wouldn’t call him wealthy but he has his financial house in order; he paid off his home in the early 1990s, has no other debts, and lives well below his means. His big source of income comes from Social Security. We talked about the current economy and the strain we are facing. It was a good conversation and ultimately the mathematical problems we are facing for the working and middle class become extremely obvious when confronted face to face. We both conceded that government retirement programs will have problems in one or two decades (doesn’t help many who are still working). The economic issues faced between the generations will cause many hard decisions down the road.
Middle class financially squeezed by the plutocracy – 13 million people added to food assistance from 2007 to 2010. Nearly 40 percent of all unemployed have been out of work for 27 weeks or more.
The mainstream press and their lack of focus or even caring about a shrinking middle class is disturbing. Yet this shouldn’t be a surprise given that their focus of appeasing their sponsors is directly focused at keeping people stuck in a debt induced sleepwalking financial nightmare. Wall Street has successfully infiltrated our government and most policies are vetted to ensure banking success before ever becoming law or what we now pass as reform. Take this sobering figure as a measure of how deep this recession has impacted our national economy; in December of 2007 at the start of the recession 27 million Americans were receiving food assistance (already high in a supposed recovery). Today, we have over 40 million receiving food assistance and we are supposedly in a recovery. From March to April of 2010 we added 300,000 people to the food assistance column. This is what passes as recovery. Also, the persistent long-term unemployment is a perplexing issue facing the middle class:
Fairytale economics – spending into poverty legend. How the allure and trappings of consumption led the middle class into a modern form of debt servitude.
Ludwig the II of Bavaria is rarely discussed in history class but most would recognize many of his castles especially the one that is replicated in Disneyland (Neuschwanstein Castle). Ludwig spent money he didn’t have to indulge in his eccentric desire to build opulent castles. Even wealthy royalty can put their balance sheet into jeopardy if they indulge every whim and wish. The banking sector for the last decade has allowed many Americans to satisfy nearly every consumer desire they had. Boats, cars, vacations, clothing, recliners, Jacuzzis, or anything else you can imagine. Some took this to the extreme and created a massive market that demanded bigger and more extravagant homes even though average Americans were not getting wealthier or earning more money. How this was accomplished was by allowing massive amounts of debt to accumulate until a crisis imploded the economy. The credit bubble bursting has forced many into a new life of austerity. No more Sleeping Beauty castles.
Sticking it to small business – Small firms charged an average of $3,224 per month of business expenses on credit cards. Yanking the credit card from small business. $40 billion less to small businesses in Q1 of 2010 compared to 2008.
42 million Americans work in firms that have 99 employees or less. We are often told how vital small business is to the health of our nation’s economy. Usually this rhetoric is given to us by banks and Wall Street yet recent data shows a very different attitude. Words ring hollow when it comes to banks lending capital to small businesses. In fact, in Q1 of 2010 lending to small businesses contracted by $40 billion versus lending in 2008. The challenge we face is that back in 2008 when the banking system was being bailed out, one specific reason given to the public was the necessity of keeping the lending lines open to small businesses. This has not happened.
American middle class slowly disappearing under mounds of debt – How Wall Street and government sucked working and middle class Americans into perpetual debt serfdom.
People quickly forget about the nearly 1,000 point “flash crash” brought on by glitches in the Wall Street casino machinery. Still no sensible explanation has been given but today the stock market now stands below the flash crash moment. The middle class is witnessing the largest wealth transfer in history take place and it is all happening because of the Wall Street infrastructure and the government’s lack of respect for the working class of the United States. Even last month as we lost 125,000 workers the unemployment rate actually went down because over 500,000 Americans simply dropped out of the workforce. In other words people simply threw their hands up in exhaustion and gave up. The government is literally not counting tens of thousands of Americans. What does this tell you about how much they value the middle class?
Commercial real estate transactions collapse 90 percent from 2007 to 2009. The next taxpayer bailout in the $3.5 trillion CRE market. From $522 billion in sales to $52 billion. CRE market over 4 times the size of the entire credit card market.
The massive commercial real estate market is already plaguing the weak balance sheets of banks. It is the case that each Friday, we are likely to see one U.S. bank fail because due to high levels of commercial real estate (CRE) debt on their books. This market is likely to cause the failure of hundreds of banks and put the economy down into another real estate funk. The amount of commercial real estate transactions shows no sign of recovery in this market. And why would there be any recovery? This is an area for hotels, strip malls, condos, and other projects that usually reflect a healthy and growing economy. We do not have that and the problems embedded in CRE are going to stifle any growth for years to come.