How Many Banks Could Falter?

I’ve said it time and time again: our economy is in the crapper. I’ve talked about the rising prices for a gallon of gas, a gallon of milk, a pound of hamburger, and a box of cereal, and I’ve talked about how our national unemployment rate is the highest it’s been in nearly 5 years.

As if there wasn’t already ample reason for the economy to be the preeminent issue during the 2008 Presidential campaign, now comes a report that at least 150 banks could fail over the next year. Last week federal regulators seized the assets of IndyMac Bank, one of the nation’s largest savings and loans with over 32 billion dollars in assets. IndyMac becomes the largest American lender to fail in more than twenty years, and what’s more troubling is the fact that IndyMac was not on the FDIC’s troubled bank list this spring, which could be an indication that other troubled banks may be below the radar.

As if that’s not bad enough news, taxpayers will be on the hook for the multi-billion dollar bailout of mortgage giants Fannie Mae and Freddie Mac:

Brian Bethune, chief U.S. financial economist at Global Insight, called the troubles at Fannie and Freddie a “potentially dangerous turn of events” for the U.S. economy.

He said they needed to be addressed quickly with an infusion from the government — read “taxpayers” — of as much as $20 billion in new capital for both institutions.

Right now, the Treasury can extend up to $2.25 billion in loans each to Fannie and Freddie. Officials refused to discuss what the new limit might be but dismissed one report of a $300 billion limit as too high.

Now we might only be in a “mental recession” according to Senator John McCain’s economic advisor, but if this is just a “mental recession,” then how bad is the real thing going to be?


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