STAFF NEWS & ANALYSIS
Nine U.S. Banks Seized in Largest One-Day Haul
By Staff News & Analysis - November 02, 2009

U.S. authorities seized nine failed banks on Friday, the most in a single day since the financial crisis began and the latest stark sign that substantial parts of the nation's banking industry are being crippled by bad loans. The move brought the total number of failed banks in 2009 to 115 — their highest annual level since 1992 — with analysts expecting more to come. Among the lenders seized Friday was Los Angeles-based California National Bank, in what was the fourth-largest U.S. bank failure this year. The largest institution to fail in the current financial crisis was Washington Mutual, which boasted $307 billion in assets when it was shuttered in September 2008. U.S. Bancorp [headed by CEO Richard Davis, pictured left] on Friday acquired the nine banks that had been held by FBOP Corp, picking up $18.4 billion in assets and $15.4 billion of deposits. Visibly worried employees lined up to file into Cal National's head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers' fate explained to them, regulators said. – Yahoo News

Dominant Social Theme: Sign of the times?

Free-Market Analysis: We point out in the article below that the prospect of a commercial real-estate crash did not quite jibe with the idea that America and Europe were powering their way toward vibrant economic recovery. In truth, the enormous amount of money that has been printed has found it's way only modestly into securities markets, causing a price rise in averages, albeit with very low average trading volumes. Perhaps a few traders are working the marts higher, but as yet trading volumes indicate the disturbing absence of the retail investor. Yes indeed, monetary stimulation has large limitations within the context of a financial crisis of this magnitude.

This financial crisis is special. It is the last one of a series of serial crashes that were increasingly serious. The Crash of 1987 was a spectacular but quick blowoff. The slump of the early 1990s was niftily solved by gradually increased monetary stimulation. The downturn of 2000-2001 – the tech crash – was of great severity, but again monetary stimulation managed to reflate the bubble. This time the crash has stretched across regions, asset classes and investment vehicles with a thoroughness that is truly breathtaking. There is a reason that central bankers and affiliated entities have dumped some US$20-$50 trillion into the markets recently (numbers are hard to come by). The system, this time, is being virtually rebuilt dollar by dollar. And every time they print another one, they decrease the purchasing power of all the others already circulating.

For nearly 30 years, the system has not had a chance to breathe. Wave upon wave of reflation has lifted up the system and prevented bad businesses from being purged. Central banks support too-big-to-fail businesses on a regular basis, whether or not this policy is recognized within political systems. Enter the new age of Moral hazard. When a crisis of this magnitude strikes a fiat-money economy, there is nothing much managers can do except massage statistics, ignore bad news and try to prop the system up by hook or crook.

The failure of so many more banks in America is just another symptom of the fragility of the current system and how over-banked it is. Retail and commercial banking remain in the biggest bubble of all because they are the first to be salvaged or managed by central banks, which are creatures, in some sense, of the banking industry.

After Thoughts

The closure of so many banks is usually looked on by the mainstream media with horror. Indeed, it does indicate that the powers-that-be have not managed to reflate the previous economic bubble with any efficiency. But in some sense it is also a good thing banks are closing. That means the system is purging. We would rather some big banks closed, as well. Wait a minute … they were already bailed out!

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