Monday, July 14, 2008

Paging George Bailey, You Have A Call

Most of us have never witnessed an actual run on a bank, where nervous depositors crash a teller's window demanding their money. Our closest view comes from the classic film, "It's a Wonderful Life", and the scene when customers swarm the Bailey Building & Loan. George Bailey, played by Jimmy Stewart, steps up to calm everyone down.
In the coming weeks, we'll need that type of Bailey-like resolve as the country sorts through the worse U.S. banking crisis since the Great Depression.
That's not an overstatement. Just consider what's going on.
The feds have taken over insolvent Pasadena, California-based IndyMac bank, where this week depositors flocked to check on their accounts. On Wall Street, we're witnessing an investor run on the bank, as fund managers and others flee well-known national and regional bank stocks. Talk of insolvency and FDIC takeovers abounds.
Some of the biggest names in banking--Citibank and JP Morgan Chase--are getting ready to announce quarterly earnings and it's going to be butt ugly. Meanwhile, small banks are cobbled by loan problems and may implode. Throughout the country, web sites, newspapers and business tabloids have been running stories about the "Texas ratio" of smaller banks.
The higher the percentage ratio, the greater the risk the bank tanks, unless it gets a cash transfusion.
And as anyone with a set of ears knows, housing loans are a huge problem--which is why the Bush Administration is stepping in to stabilize mortgage giants Fannie Mae and Freddie Mac.
There's more bad news to come.
Every banker worth their salt is scrambling for fresh capital (as is the U.S. auto makers and airlines.) but there's only so much money out there. After all, Warren Buffett can't buy everything.
As a wee reporter, I spent a few years covering the banking industry including the mammoth savings and loan crisis and subsequent taxpayer-backed industry bailout that cost about $200 billion. Throughout, I was constantly amazed at how many everyday folks were so blase' about the financial meltdown going on around them.
This time it's different.
Trouble has hit home--literally. People are noticing and have every right to be concerned.
We're not at a full-blown depositor panic and let's hope we don't get there. But there's little doubt that a growing number of the nation's banks, big and small, are on the brink.
Where's George Bailey when you need him?


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