I was (semi) joking in last week's piece about "Whose Bottom Will It Be?" - that after this round of bailouts we'll rally and then we'll repeat this whole process in a few months and the next bottom would be the
Merrill Lynch (MER)/Washington Mutual (WM) "bottom". Apparently, I won't have to wait that long. WaMu, America's largest S&L if my memory serves, is down 26% and now trades in the $3s. Might as well be the kiss of death once you are under $5. A couple of other major regional banks
National City Corp (NCC) down 26% to $3.30,
Zions Bancorp (ZION) down 20%, and
Sovereign Bankcorp (SOV) down 14% to low $6s.
For those who were not around we mentioned in the spring how the Feds were quietly doing a hiring binge of retired bank regulators anticipating a surge of failures.
- The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 workers in the division that handles bank failures, John Bovenzi, the agency's chief operating officer, said Tuesday. (50% increase)
- "We want to make sure that we're prepared," Bovenzi said ...
All the while "they" were reassuring us that everything was ok, and the Kool Aid was just fine to swim in. It looks like the
IndyMac (IMB) failure Friday will set off the next round - again, capital in this day and age moves quickly and the power of large pools of capial to bet down agaisnt stocks is simply akin to wounded gazelle or zebra awating a pride of lions - the scent of blood is in the air and the hedgies will attack.
We had >1000 bank failures in the early 90s S&L crisis, and I contend this disaster is going to make that one look like child's play. There probably are far less banks nowadays with all the mergers and consolidation so maybe the numbers (of financial institutions) won't be so high, but the amount of capital evaporating will be much higher from this perch. And most will be smaller and middle sized private entities we've never heard of. Another situation is our FDIC insurance fund will essentially be broke (as are almost all things in the United States of Subprime) within the first 20-25 good sized banks to go ($50 billion will only last so long and IndyMac alone will take about 10-15% of that), so where will the funds be coming from to pay
back all Americans the $100K per bank they are insured against? Hmm... I have an idea. ------------>
Can you hear the helicopters warming up? I continue to scoff at 'strong dollar' talk... dollars will be printed at a massive rate to replace capital burnt into the ether. I am chuckling at all those who believe regulation is such an evil thing - the free markets solve everything. Well they are 'correct' - the free market will solve everything. But it's going to be a bloody scene as it is being solved.
The market continues to act sick and intent on testing S&P 1225 again. We still have not had that panic in the air feeling. And what a disgrace that we cannot even hold a rally when all the King's Horses and all the King's Men used our taxdollars to save Humpty again. (for a few months at least)
