The Banks Are Shaking in America
Published in Milliyet
(Turkey) on 21 April 2010
by Hursit Gunes (link to original)
Early this week, the Federal Deposit Insurance Corporation (FDIC) announced it had taken over eight more banks. Three of the banks are in Florida; the other two have locations in California, Massachusetts, Michigan and Washington. This year, a total 50 banks have been taken over by the U.S. FDIC.
The next day, the mortgage fraud by America’s biggest investment bank, Goldman Sachs, and the suing of Goldman Sachs by the Securities and Exchange Commission caused a shock wave across the market. All bank stocks went down. Now, investigations in Wall Street can be deeper and more intense. As a result, big banks may have to pay big compensations.
Fear Index Went Up 24 Percent
After this news, financial and other stocks experienced deep market decline, and the Chicago Board Options Exchange Volatility Index (VIX, the Chicago Stock Market commodity index) went up. The VIX, also known as the Fear Index, went up 24 percent on Friday, the highest since November.
According to the rumors, Goldman Sachs profited by selling collateralized debt obligations (CDOs), even though CDOs are known for not being profitable. Because of this, it is likely investors lost about $1 billion.
In the United States last year, according to the FDIC, 140 banks declared bankruptcy. This year’s bankruptcies are more than the last eight years combined. In the fourth quarter alone, 45 banks were taken over by the FDIC. According to an FDIC forecast, 702 banks are shaking at this point. They haven’t declared bankruptcy yet. The value of these banks adds up to 403 billion dollars. This is almost the size of the whole banking sector in Turkey.
Let me give you more numbers: From 2000 to 2007, an average of three to five banks failed each year; from 2005 to 2006, there were no bank failures. During the recession, these numbers went crazy.
Over All, the Problem Is the Politics of Money
My intention in this article is to address the problem of the politics of money. The health of banks depends on low interest rates; however, those same rates cause housing prices to go up. The inherent risk in this is the triggering of another mortgage crisis. It seems we have learned nothing from the mistakes we made. It is not an easy topic, of course. Because of this, there is talk about ways to depart from the loose monetary policy; however, the banks are demanding a loose monetary policy, cutting the branch upon which they sit.
The next day, the mortgage fraud by America’s biggest investment bank, Goldman Sachs, and the suing of Goldman Sachs by the Securities and Exchange Commission caused a shock wave across the market. All bank stocks went down. Now, investigations in Wall Street can be deeper and more intense. As a result, big banks may have to pay big compensations.
Fear Index Went Up 24 Percent
After this news, financial and other stocks experienced deep market decline, and the Chicago Board Options Exchange Volatility Index (VIX, the Chicago Stock Market commodity index) went up. The VIX, also known as the Fear Index, went up 24 percent on Friday, the highest since November.
According to the rumors, Goldman Sachs profited by selling collateralized debt obligations (CDOs), even though CDOs are known for not being profitable. Because of this, it is likely investors lost about $1 billion.
In the United States last year, according to the FDIC, 140 banks declared bankruptcy. This year’s bankruptcies are more than the last eight years combined. In the fourth quarter alone, 45 banks were taken over by the FDIC. According to an FDIC forecast, 702 banks are shaking at this point. They haven’t declared bankruptcy yet. The value of these banks adds up to 403 billion dollars. This is almost the size of the whole banking sector in Turkey.
Let me give you more numbers: From 2000 to 2007, an average of three to five banks failed each year; from 2005 to 2006, there were no bank failures. During the recession, these numbers went crazy.
Over All, the Problem Is the Politics of Money
My intention in this article is to address the problem of the politics of money. The health of banks depends on low interest rates; however, those same rates cause housing prices to go up. The inherent risk in this is the triggering of another mortgage crisis. It seems we have learned nothing from the mistakes we made. It is not an easy topic, of course. Because of this, there is talk about ways to depart from the loose monetary policy; however, the banks are demanding a loose monetary policy, cutting the branch upon which they sit.