Monday, January 14, 2008

the severity of subprime loss beat Great Depression

--Banks haven't lost this much money, in relative terms,since the Great Depression, said Richard Sylla, a professor ofthe history of financial institutions and markets at New YorkUniversity's Stern School of Business. --U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock marketcrash of October 1929. The industry lost about $500 million in1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said. --Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bankholiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said. --Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.'' --Citigroup, Bank of America and Merrill probably wereprofitable in 2007, earning about $23 billion on a combinedbasis, even after the second-half writedowns, according toBloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys byBloomberg show. --Even with the Abu Dhabi investment, Citigroup's so-calledTier 1 capital ratio, which regulators monitor to assess banks'ability to withstand loan losses, may fall to 7 percent by theend of this year, he estimated. While above the 6 percent neededto maintain its ``well-capitalized'' status from federalregulators, the capital ratio is below Citigroup's own targetof 7.5 percent. Bank of America's Tier 1 ratio fell to 8.22 percent in thethird quarter, from 8.52 percent in the second quarter and 8.48percent a year earlier. JPMorgan's ratio was 8.4 percent in thethird quarter, down from 8.6 percent a year earlier. -- The resulting tightfistedness at the banks may help pushthe U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans,down from more than 50 percent in the second quarter of 2005,CreditSights reported, citing data from the Federal Reserve. -- The default rate on U.S. junk-grade corporate loans mayreach 2 percent to 3 percent this year, compared with about 0.9percent in 2007, according to Bank of America's Rosenberg.

1 comment: said...

Someone needs to say something about this! IS THIS LEGAL? No wonder why we have the subprime mess we have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through Quickly SO THAT EVERYONE DOWN THE FOOD CHAIN (from loan processor to the loan officer to the actual lender) can make the commissions they "WERE" making during the booming 90's!!! Now we are BAILING OUT THESE CROOKS....SOUNDS LIKE the good ol' 1980's Savings and Loan BAILOUT DAYS to me! see it with YOUR OWN EYES!