By Michael Lombardi, MBA — Today’s Profit Confidential column
|With the failure Friday of Beach First National Bank of Myrtle Beach, SC, the total number of U.S. banks to close this year has hit 42. And we are only in April!Since 2008, 207 U.S. banks have failed, costing the FDIC about $40.0 billion. And who owns FDIC? The government, of course. So that means taxpayers are ultimately bailing out these failed banks.|
|Any way you look at it, a bank is a business. So when the FDIC (taxpayers) is bailing out banks, they are bailing out businesses. Sure, some may argue that deposit money needs to be protected, but is that not the same as saying customers of large companies need to be protected when their suppliers go bankrupt? Or similar to employee jobs needing to be protected when companies go bankrupt?Yes, I know, we need the FDIC insurance; otherwise, depositors would be stuffing their money under their mattresses and not in banks. But the oversight of the banks has been very, very poor.Billions of dollars of taxpayer money wasted because, after all these years, the government cannot implement a system to monitor banks. When will the government stop adding to our national debt and do something about the U.S. banking system?The cost of the new health-care bill, the cost of the wars in Iraq and Afghanistan, the cost of the economic bailout, the cost of the bank failures all add up…to the tune of a deficit this year for the government of $1.6 trillion dollars. The madness needs to stop. The pressure on our dollar will become far too much for it to handle — as will the pressure to raise interest rates.Our banks need to be stronger…more profitable…a pillar of society. Not the mockery of it.
Did any Canadian bank go bankrupt during the recession? Of course not. Canadian banks are highly regulated by the government and extremely profitable. Maybe we should take a chapter out of the Canadian book on how to monitor banks.
Michael’s Personal Notes:
The government owns Fannie Mae and Freddie Mac because they failed. If we look closely at Fannie and Freddie, we see they either own or guarantee half of the U.S.’ $11.0-trillion residential mortgage market.
And since the government owns Fannie Mae and Freddie Mac, and since the government is owned by the people, guess what? The government has put us in the mortgage business. Funny, I don’t remember signing up for that program.
Where the Market Stands:
Finally, the Dow Jones Industrial Average blesses my stock-market prediction as it swims past my forecast of 11,000. While the Dow Jones is up 5.7% so far this year, it’s the technology stocks that have been the real winners in 2010. The NASDAQ is up 8.7% this year.
Corporate earnings are strong, everyone feels the economy is getting better, it looks like Greece won’t go bankrupt after all…and money keeps coming back into stocks. Great, classic bear-market-rally action.
What He Said:
“A Stock Market’s Obituary: It is with great sadness that we announce the passing of the Dow Jones Industrial Average. After a strong and courageous battle, the Dow Jones fell victim to a credit crisis and finally succumbed on Friday, October 3, 2008, when it fell decisively below the mid-point between its 2002 low and its 2007 high.” Michael Lombardi in PROFIT CONFIDENTIAL, October 6, 2008. From October 6, 2008, to November 27, 2008, the Dow Jones Industrial Average experienced one of its biggest two-month losses in history.