Wall St. Banks Confront a String of Write-Downs

[George]

Wall St. Banks Confront a String of Write-Downs

Wall Street banks are bracing for another wave of multibillion-dollar losses as the crisis that began with subprime mortgages spreads through the credit markets.

In recent weeks one part of the debt market after another has buckled. High-risk loans used to finance corporate buyouts have plummeted in value. Securities backed by commercial real estate mortgages and student loans have fallen sharply. Even auction-rate securities, arcane investments usually considered as safe as cash, have stumbled.

The breadth and scale of the declines mean more pain for major banks, which have already written off more than $120 billion of losses stemming from bad mortgage-related investments.

The deepening losses might make banks even more reluctant to make the loans needed to prod the slowing American economy. They also could force some banks to raise more capital to bolster their weakened finances.

http://www.nytimes.com/2008/02/19/business/19banks.html?ei=5065&en=3c5a1bcd8911fae0&ex=1204002000&partner=MYWAY&pagewanted=print


Oooh no this can't be good for anyone, could it? :thinking

[RobertB]

They also could force some banks to raise more capital to bolster their weakened finances.
Given the pervasive nature of this financial mess, and given that no one sems to know when, if ever, this mess will end and what the final ramnifications will be, it seems to me that the banks will not be able to raise enough capital to replace the "fiat" money they have lost. Credit derivatives are out there in perhaps the trillions of dollars and their failure could conceivably collapse the entire world economy.

[cbressler1976]

can I ask a stupid question?
if we have money in a savings account....can the bank take that away and we won't be able to get our money?? Some people here wrote about taking their money out of the bank and putting it under their mattresses....so what do we do?? this is a serious question....is our money in our savings account in trouble?? i know that my question is probably stupid...but I worry very easily and when I read that I was really nervous...we don't want to invest our money (we already have some invested) we want to keep money in savings for emergencies....where should we keep our emergency money now??

[Theresa]

can I ask a stupid question?
if we have money in a savings account....can the bank take that away and we won't be able to get our money?? Some people here wrote about taking their money out of the bank and putting it under their mattresses....so what do we do?? this is a serious question....is our money in our savings account in trouble?? i know that my question is probably stupid...but I worry very easily and when I read that I was really nervous...we don't want to invest our money (we already have some invested) we want to keep money in savings for emergencies....where should we keep our emergency money now??

I was the one who made the comment about withdrawing my money and putting it under my mattress. I was serious - wasn't making light of the situation. The response was that if the market collapses, our money wouldn't be worth anything anyway. I would still like to know what to do. Investing in metals doesn't seem to make sense for me.

[cbressler1976]

I was the one who made the comment about withdrawing my money and putting it under my mattress. I was serious - wasn't making light of the situation. The response was that if the market collapses, our money wouldn't be worth anything anyway. I would still like to know what to do. Investing in metals doesn't seem to make sense for me.
I was just worried that they would take our money and that we won't be able to get it out...

[Issachar]

cbressler1976, what I can tell you is that the US runs on a "fractional reserve system". Imho, it is a concept from the devil. What it means, is that your money is not really in the bank. At best, perhaps 10% of it is there but more likely 2-4 percent. If 5% or less of the US depositors went to the bank simultaneously to withdraw their savings, it would crash the system. Not really though because it would not be allowed. In that scenerio, known as a bank run or run on the banks, they would shut down the banks and not let people have their money; known as a bank holiday.

You are at an advantage though. While just about everyone in the US (and elsewhere) is believing that nothing serious is going to happen (all will be well, they say) you will be watching and paying attention. You will know when it is the right time to withdraw; I think. The first one's in will get theirs. Ever watch "It's a Wonderful Life" with Jimmy Stewart? Look at it 50 minutes in. It's on youtube. At about 50 minutes in, you'll see a minor bank run.

Issachar

[Nova]

I was just worried that they would take our money and that we won't be able to get it out...

Uhm. You do know that the money doesn't sit in the bank, right? The bank loans it out toward home loans, car loans, businesses, etc. I think banks are only required to hold 10% in cash (I could be wrong on the exact amount.) Either way, the bank uses savings to fund loans & investments.

In essense, you are asking, how risky are banks? And should we expect bank runs/closures? Honestly, I don't know how to answer you. The FED thru TAF has been loaning banks billions of dollars this past month. Primarily to shoreup the shaky banking situation. I expect the FED will do whatever it can to keep banking solvent. But at some point in time, yes, banks will become too risky. I think we aren't at that point yet. And can't predict when we will reach that point.

If you have a house loan, I'd put my money in the bank that holds that loan. So if there is a bank run & you can't get your money-MAYBE it could credited toward your mortgage.

I don't think keeping dollars under your mattress is any buffer for the future. First, because the buying power of the dollar is dropping. And secondly, because the timing for the crash of our currency & bank runs are likely to fall close to the same time. This is just speculation on my part. I have a hard time wrapping my head around the things I see coming.

[Nova]

Issachar, we were both typing at the same time. So I didn't have a chance to read your post first.

[cbressler1976]

cbressler1976, what I can tell you is that the US runs on a "fractional reserve system". Imho, it is a concept from the devil. What it means, is that your money is not really in the bank. At best, perhaps 10% of it is there but more likely 2-4 percent. If 5% or less of the US depositors went to the bank simultaneously to withdraw their savings, it would crash the system. Not really though because it would not be allowed. In that scenerio, known as a bank run or run on the banks, they would shut down the banks and not let people have their money; known as a bank holiday.

You are at an advantage though. While just about everyone in the US (and elsewhere) is believing that nothing serious is going to happen (all will be well, they say) you will be watching and paying attention. You will know when it is the right time to withdraw; I think. The first one's in will get theirs. Ever watch "It's a Wonderful Life" with Jimmy Stewart? Look at it 50 minutes in. It's on youtube. At about 50 minutes in, you'll see a minor bank run.

Issachar

Thank you! :hug
I'm sure if I keep reading the posts here, I will know!! You explained it to me before....I have learned so much here....it's a shame that they didn't teach me this in school! I even went to college!!! ...scary, huh?

[cbressler1976]

Uhm. You do know that the money doesn't sit in the bank, right? The bank loans it out toward home loans, car loans, businesses, etc. I think banks are only required to hold 10% in cash (I could be wrong on the exact amount.) Either way, the bank uses savings to fund loans & investments.

In essense, you are asking, how risky are banks? And should we expect bank runs/closures? Honestly, I don't know how to answer you. The FED thru TAF has been loaning banks billions of dollars this past month. Primarily to shoreup the shaky banking situation. I expect the FED will do whatever it can to keep banking solvent. But at some point in time, yes, banks will become too risky. I think we aren't at that point yet. And can't predict when we will reach that point.

If you have a house loan, I'd put my money in the bank that holds that loan. So if there is a bank run & you can't get your money-MAYBE it could credited toward your mortgage.

I don't think keeping dollars under your mattress is any buffer for the future. First, because the buying power of the dollar is dropping. And secondly, because the timing for the crash of our currency & bank runs are likely to fall close to the same time. This is just speculation on my part. I have a hard time wrapping my head around the things I see coming.

This stuff scares me..:faint..do you think that this will happen this year??
Then what do you do? We need to be able to get to the money....that's why we don't have this money invested...