Die, Bank of America, Die!

Bank of America gets slaughtered, with a billion-dollar loss in the second quarter. This takes the shine off recent recovery news, including more slight gains in industrial production and capacity utilization. We just can't wish the problem into the cornfield: There are billions of dollars in bad loans out there, and they're going to keep failing:

Losses on home lending and insurance widened to $1.6 billion from $724 million, and the loss on credit cards expanded to $1.04 billion from $167 million.

The bank said the provision for credit losses was $11.7 billion, with $9.6 billion of loans considered uncollectible. Reserves for future losses increased by $2.1 billion, compared with a $4.7 billion addition in the previous quarter, the statement said. The bank's reserve is now 4 percent of total loans, compared with 4.7 percent at JPMorgan Chase & Co. and 5.9 percent at Citigroup Inc., analyst John McDonald of Bernstein Research said in a report today.

It looks grim, but the government has the situation well in hand. Treasury Department pay czar Kenneth Feinberg has blocked a big portion of outgoing BoA chief executive Ken Lewis' compensation package. Shows what happens when you're not on Tim Geithner's BFF list. Also White House senior economic adviser Lawrence Summers says it's time for banks to do what's best for the country by listening to Larry Summers.

Another piece of bad news about debt that has not gotten much attention: Remember the increase in the personal savings rate, the silver lining in the great deleveraging? That's over. After peaking at 4 percent in July, according to the Bureau of Economic Analysis [pdf], the personal savings rate plummeted back to 3 percent in August. Historically, personal savings generally remained above 10 percent back when America used to win wars and produce functioning adult men and women. As recently as the early 1990s [pdf], the savings rate rarely fell below 8 percent. The rate went into negative territory during the Greenspanian double-bubble, and it seems to be headed back there now. Over time that will mean dwindling reserves for banks (what can you expect when you pay 0.000 interest on a savings account?), but maybe those can be supplemented by more taxpayer dollars. There seems to be an infinite supply of that stuff.

Comments

[Hazel Meade]

The administration to Wall Street: Here's a big bag of money and a stern talking to. Now be good boys and stop responding to financial incentives, you greedy bastards!

[Paul]

Obama: I swear to christ you better not pay out those bonuses... what's that? Yes sir, the 40 billion was wired to you this morning. Now, back to that 160 million in bonuses...

[hmm]

I'm shocked, shocked to find that gambling is going on in here!

[Naga Sadow]

doom

DooooM

DOOOOOOOOOOOOOOOOOOOM

*the above inspired by Warren*

[John Tagliaferro]

Warren is who I should give a credit to in Suki I? I used a variant of that also inspired from here.

[John Tagliaferro]

It's only bankers. Nothing to worry about.

[R C Dean]

Historically, personal savings generally remained above 10 percent back when America used to win wars and produce functioning adult men and women.

Ouch.

Historically, my personal savings rate has been, shall we say, sub-optimal. The past couple of years, though, including some "deleveraging", its averaged somewhere north of 20%. I plan to keep it there.

Which I guess means I'm part of the problem, since My Masters in DC tell me that, as a consumer, I am underperforming.

[briareus]

You greedy hoarding bastard, how dare you perform as anything other than the mere quanta of productive human capital that you damn well know you are.

The quicker we are all toiling in the camps under robot guardsmen the better.

You selfishists make me sick.

[Aresen]

Have you ever heard of Morton's Fork?

[John]

To save implies that you have a belief that our masters in Washington won't destroy the currency. I applaud your optiimism. Me, not so much. I am paying off variable rate debts and buying assets. I never thought I would be a goldbug or an inflation kook, but here I am.

[hurlybuehrle]

Saving =/= hoarding cash. Getting your cash into tangible assets with intrinsic (or more stable) value is an excellent form of saving.

I am doing much the same as you folks. Quickly wiping out my debt, living a bit more modestly (apart from rent), and saving a ton.

[R C Dean]

What makes you think my savings are held in cash?

Some goes into gold, and much of the rest is invested, mostly (these days) overseas in companies that hold lots of hard assets.

[JW]

I have always wondered is the "savings rate" also included 410/403/IRA investments? That could explain the delta between then and now.

I'm saving my ass off, but it's all going into my 403b account.

[Rakune]

A traditional IRA is concided 'defered income' and a Roth IRA is counted as savings. The difference of course is the taxes. After you withdraw from your 403b and pay your taxes, then you can either save or spend whatever is left over. So IRA plans do affect the actual current savings rate.

[Paul]

Personal savings? What's that? Oh, that thing I had before I got married. Gotcha.

[Chief Rain on the Parade]

Wasn't the Bank of America one of Reason's pet institutions specifically for making questionable loans not long ago?

[Hazel Meade]

Right, because illegal immigrants are so well known for their financial irresponsibility. One wonders how their faimilies back in Mexico manage to deal with all the debt they pile up.

[Bergholt Stuttley Johnson]

Those loans are "questionable" because they go to people you don't like, not necessarily because there is significant repayment risk. Please go ahead and STFU now.

[Suki]

You could have just said racism.

[Bergholt Sidney Johnson]

I could, but I like to mix things up a bit. Shit gets old, do you know what I am saying?

[Suki]

Oui!

[Warty]

That reminds me of the old JUMP ART JUMP signs. Hurry up and die, Modell.

[Invisible Finger]

the personal savings rate plummeted back to 3 percent in August.

Normal people think the news is bad, The Fed and Treasury see this as their plans working as designed.

Cash For Clunkers, and the 8K FTHB tax credit. We need YOUR money!!!

[Colin]

Don't you worry about BoA -- they're gonna start charging %1 of their credit card customers an annual fee.

That should get them back to profitability real soon.

[JW]

This explains why they are calling me EVERY DAY to see if I want any more loans from them.

My mortgage was sold to Countrywide and well, you know the rest.

[Aresen]

You didn't pay?

[Brandybuck]

It looks grim, but the government has the situation well in hand.

Bwa ha ha!!!

[ron]

can anyone recommend a good national bank that didn't take tarp funds, or do those even exist

[R C Dean]

I use USAA Federal Savings Bank, although you need to be a USAA member. Their on-line banking has been the best in the business for years now. No TARP for them, as far as I can tell. Knowing their members, taking TARP would have been their death knell, the world's first run on an on-line bank. With EFT, it could be over in minutes.

[Invisible Finger]

Why do you care if it's a national or state charter?

Or are you merely interested in banks with thousands of branches? In that case, the answer is no, those banks by definition are too big to exist so they took TARP funds.

[Paul]

The First Bank of Paul never took American Structured Securities Rescue Act for a Prudent Economy funds.

'Cept I got it all tied up in mason jars somewhere beyond the apple tree.

[JW]

Ha! Capital One took TARP funds and then used those funds to buy the bank I've used since the 70's, when I opened my first checking account.

Not sure if that's good or bad thing yet.

[Suki]

The Intergalactic Bank of Suki never took any government funds at all evah! Go ahead and send, we can work out the details later. We play really good interesting too!

[JW]

We play really good interesting too!

I love it when you talk pidgen to us.

[Suki]

Me ruve u rong time.

[hmm]

Did you really think the saving rate was going to stay that high? It wasn't an increase in saving. It was a decrease in buying. Oddly enough two totally different things. Especially from a cultural or phsyc stand point.

[Fedora]

What happend to transparenty?Could it be that the OPM the Feds & Treasury dumped in the pot made it merkie? OPM ( Obama, Pelosi,Madoff ) will do it. also add some morter &start; stirring with your pitch-forks, and you have a bunch of DC MORTER FORKERS

[Ebeneezer Scrooge]

Historically, personal savings generally remained above 10 percent back when America used to win wars and produce functioning adult men and women.

When was this mythical age that you speak of?

I'm not an economist but somehow the economic theories floating around smell really funny.

First of all there's all this "liquidity problem" theory floating around. It says that people and especially small to mid-sized businesses can't borrow money.

Somehow I don't see the evidence. I know lots of people who've got banks offering to give them mortgages and loans. I know more than a few small business owners who are not complaining that they can't get loans.

What I do see, are lots of individuals who are choosing not to buy houses and get mortgages. And lots of small businesses which are choosing not to take out loans.

Then I see individuals who would, by any historical measure, have been risky mortgage candidates, and sure enough they're not finding it easy to got mortgages.

Maybe the bar is a bit higher now, but I don't see this supposedly catagoric "unavailability" of money to loan that's so widely spouted. I think that whole line comes from the same people who brought us TARP.

That part of our "economic woes" doesn't doesn't look particularly real.

Then there are banks that got their asses way over extended, for whatever reasons. Some combination of government interference and personal stupidity, though which of those you think is dominant depends whether you vote R or D.

But the impact of this mess is far more likely to hit big corporations and their ability to play with big chips at the poker table. So maybe there's a crisis in the corporate universe (greatly amplified by the government saving us from ourselves). But I've seen the insides of corporate America enough that I just don't believe -- if it were left alone -- that it would kill our economy off whole sale. For most Americans in fact it probably wouldn't make a hell of a lot of difference in the long run. If it was left alone.

If there's a crisis here, it's one of the government coming to save us from ourselves.

Then there's the whole situation with real estate, which is probably still over priced. This actually looks something like a crisis, because it underpins our financial collateral to such a broad extent.

But while I'm not sure I see yet through the dust clouds the R's and D's are putting up, it seems the market could not have gotten this far out of whack without serious government messing with the system.

It could not have happened, for example, without interest rates staying as low as they did for as long as they did.

I still don't know why that happened but recall, the theory floating around was that the baby boomers had all their retirement money in the banks so there was a glut of available money to loan. It needed to find somewhere to go to work.

That can't have changed much in two years. What did change is the fact that real estate prices crashed.

btw, I still don't get how it is that western Europe had the same problem with real estate that we did, at the same time. ???

If the biggest component of mortgage interest is, historically, the expectation of inflation, then I really really don't see how interest rates stayed so low while we were spending money on Iraq and Afghanistan like it's free. Nor do I see why interest rates are staying so low now.

What is it the banks know, or think they know, that keeps long term mortgage rates low even now?

In any case the market will clear out sooner or later.

Remember the increase in the personal savings rate

Too many things impact where people decide to put their money, if they have any extra. Not sure this "savings rate" number means anything in particular, at any given moment in time.

The real estate and over extended banking messes have slowed the rest of the economy down and that's driven unemployment up to around double the normal rate. Unfortunate for those who've lost their jobs yes, but this problem will work itself out as the market corrects real estate prices.

Then there's this funny idea that the US dollar is going to tank permanently. I don't believe it.

The euro has been stronger than the US dollar recently. Somebody tell me why that's based on anything but mis perceptions.

Uncle Sam is over spent and borrowing like made so that's devalued the US dollar. Fine, but take a real look at the governments that make up the Euro. They're even more in debt than the US, and their projected long term debts are also worse than the US.

On top of that European economic growth hasn't kept pace with US growth since when, before WWII?

People may be knee-jerking right now about Uncle Sam's surge in debt. But tell me why in the long run the euro is on any better footing?

Russia's economy is so pathetic that we can ignore it. China and India are "growing", but that will continue at blazing speed only if the Europeans and Americans are buying their products.

In the long run I still fail to see how the US dollar is going to get unseated, unless our economic output drops orders of magnitude. But even now, when we're supposedly on the economic ropes, out output hasn't dropped by factors of 10.

Anything is possible. US economic output could just end tomorrow. But the probability is tiny.

I don't believe the hype about the long term demise of the dollar.

Finally there's the fact that our government is in debt up to its ears. That's a problem, but by any rational measure it shouldn't be a crisis. If there were any prospects of the politicians taking rational steps from here to get the over-spending under control.

But they won't. The only thing they're debating at this point is how much over-spent the plan from here is going to be.

The only real crisis I see is that's more than temporary here, is that our leadership is not rational and is intent on spending us into oblivion.

But given the national mood, it's not out of the question that a fiscally responsible politician could actually get elected in this country.

Summing it up, there are reasons that we should be having an economic head ache right now. But the only real long term threat I see, is the (lack of) quality of our leadership.

What am I missing?

Wow, hit preview and this is a big long post.

[Ebeneezer Scrooge]

So my worst case prediction is, the US economy becomes an carbon copy of western Europe. Our growth rate goes from what it's been, to ranging from stagnant to slow.

Quality of life overall drops for the average American. The opportunities to get ahead and move up/down the ladder are much less. Maybe the euro becomes roughly as strong as the US dollar.

In the long term, the west slowly dies as Europe has been doing since the turn of the 20th century. But China's and India's economic power remains heavily dependent the success of everybody else. Because the prospects that they're going to get their shit together, are somewhat worse than ours.

[Dr_Mike]

One question about that "Personal Savings Rate:" Looking at the August data, Personal Saving is 324.1 Billion, or 3.0 %. But Employer Contribution to employee pensions was 1,046 Billion. Looks like 9.7% is "savings" that doesn't appear on the books. I don't even see a category for my 401(k) contributions, just my employer's contribution.

I've seen references in the past that don't count 401(k) type investments as "savings." But what the heck else is it? From what I've seen America has much more savings that the .gov lists, because tax-sheltered retirement accounts somehow don't count as savings.

[J Glenn Lowe]

Die Banker Die by J Glenn Lowe - A Tribute to Wall Street Banksters and Fraudgate

http://www.youtube.com/watch?v=YGFZ1Jj3ui8

[J Glenn Lowe]

Screw the banks!, they get to fall now, so what? We don't need them anymore. - Die Banker Die is dedicated to B of A and their Psychotic CEO - Watch on You Tube -
http://youtu.be/YGFZ1Jj3ui8