Restating the Obvious

Withdrawal pangs

This quotation, stripped off AP and MSNBC, is from Sheila Bair, chairwoman of the FDIC. It was meant to be reassuring:

"Of the 8,500 banks in the country, 90 were in trouble in the first quarter. The FDIC does not disclose the banks’ names.

“ 'That number will go up and the number of assets will go up, but it will still be a fairly low range when you look at this historically,' Bair said."

I dunno what she considers historical. 1932, maybe. Under New Deal regulation, two bank failures a year were a lot, and, with one exception, they were little banks.

The weird thing about this slow-motion crash is how much cushion banks had, at least if you don't cast the accounts with too beady an eye. Credit Suisse wrote off $38 billion in one quarter and still reported a profit.

Other big banks performed similar gravity-defying feats late last year. It seemed to me early this year that this could not be kept up, and when the second quarter results were published, the one that caught my eye was Wachovia, a really big bank.

Most banks were profitable in the second quarter, but Wachovia posted a small loss, not even a billion. Still, what that suggested to me was that Wachovia was tapped out, and if it was tapped out, there must be others on the brink.

Apres Wachovia, le deluge.

I was right, too. Wachovia breaks out of the pack with a third quarter loss of over $8 billion, several times the hopeful but deluded expectations of "analysts," who have been shooting high for a long time now.

WaMu loses over $3 billion. That's in a quarter, 90 days. That's about $3,000 a minute. Pardon my skepticism, but this is not a stable situation.

Bair is out making happy talk, trying to calm the depositors. Move along, folks, nothing to see, move along quietly.

This is not business as usual. Big banks have not been in this kind of trouble since the Great Depression. Today, they're bigger and there are more of them than ever in history. New Deal legislation was ditched almost 15 years ago. They're playing it by ear now, and Bair, for one, seems to have a tin one.

I've recommended Charles Kindleberger's "Manias, Panics and Crashes" before. If you haven't read it yet, this would be a good time to start.