Wednesday, July 16, 2008

Analysts say 150 U.S. banks will fail in next 18 months

The New York Times says that some banking analysts (two of which are mentioned by name) predict that "as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months." If that were to happen, that would likely exhaust the Deposit Insurance Fund of the FDIC, which will be spending $4 to $8 billion to cover the insured deposits of failed IndyMac bank. The Deposit Insurance Fund had about $52.4 billion at the end of 2007.

The worst case scenarios I've seen frequently discussed are hyperinflation and a Greater Depression. The way to survive the former would be to keep funds in more-stable foreign currencies and gold; for the latter it would be better to stay in cash and bonds (so long as none of the bonds default). A diversified set of investments is still your best bet, in my opinion.

UPDATE (September 12, 2008): The Economist (August 30, 2008) reports that the FDIC has 117 banks on its watch list, compared to 90 at the end of March, and reports that the drawdown on the Deposit Insurance Fund for IndyMac is sufficient to trigger a required funds "restoration" plan within the next 90 days.


Hume's Ghost said...

"The worst case scenarios I've seen frequently discussed are hyperinflation and a Greater Depression."

Ironic, given that income concentration at the top is now back to the level it was at in 1928-29 before the Great Depression.

David Cay Johnston has a chapter in his new book - Free Lunch - entitled "Not Since Hoover" specifically about the income inequality.

Jim Lippard said...

I kind of feel this way about "income inequality."

I've only read Johnston's previous book, which I liked, but had some serious criticisms of (see my review).

Hume's Ghost said...

I know. I quoted from your review of Perfectly Legal in a post I wrote before ... interestingly, about a day later I got an e-mail from Johnston alerting me about the then soon-to-be released Free Lunch.

Free Lunch got a sympathetic reading at Reason magazine. I actually think this book will reach a wider audience than the previous one ... as this one focuses on the way that the market is being rigged in a very un-Smithian manner to benefit a select few.

It will take me a while to try to absord that guy's argument, but I've got notes for Johnston's "Not Since Hoover" chapter that I'll post later this week.

Jim Lippard said...

Let me know when you post it, I'll let your review be my guide to whether and how soon I should read it. Thanks!

Hume's Ghost said...

Here is the post.

I don't think that will help you decide to read it or not, however. As you've already read Perfectly Legal, you'll already be familiar with these sorts of numbers, and this chapter is unique within the book as the rest are specific case studies about ways that taxpayer money are given to the already rich to subvert the market and what not.

The Fora tv talk might be a better resource for deciding to read it or not ... the talk is extensive (over an hour) yet it has a feature that lets you skip around to specific segments of the talk.

Jim Lippard said...

Does he talk about the composition of these slots? It's possible to have rising inequality yet also rising income mobility, so that people are moving around a lot from group to group. The stats in your post are given as though the membership of each group is static, though I'm sure that's not actually the case. Also, what happens if you account for inflation? It seems that it could show that the increases among the richest were less significant than they appear, but also show a more significant drop for those at the bottom.

Hume's Ghost said...

It's my understanding that those figures are adjusted for inflation.

Johnston does not talk about mobility as far as I remember.

Hume's Ghost said...

Yikes. I was trying to see if I could find any articles from Johnston addressing social mobility and I found this article, which would seem to indicate that I got part of my facts confused (in the direction of making things sound better than they are.)

Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

I had confused those making 10 million a year with the richest 400.

Some of the numbers are a bit different, too. Johnston cites there being 14,000 people in the .01 bracket in '05, but the figure (from a Piketty and Saez paper) I was using from the book gives 30,000. Frack. I'm going to have to recheck the book out from the library to double check and see where or if I got the numbers confused.

At the end of the article it asserts that social mobility has not increased ... which was my understanding, too. Although my most distinct memory on the subject is an article in The Economist from a few years ago.

Jim Lippard said...

That article has a couple sentences on mobility at the end, but doesn't indicate a source or method of measurement. As Will Wilkinson has observed, there is a difference between movement and mobility, though I'm not sure how you can easily measure the latter as opposed to the former. Movement implies mobility, but mobility doesn't entail movement.

In my own case, I've gone from the lowest quintile to the highest quintile of U.S. income earners, which I think is very common for those in the top quintile, since they're often in the bottom quintile while working part-time attending school. I came from a family which was in the top quintile; my parents divorced and my household was then probably in the fourth quintile. In grad school and the first job I took afterward were in the bottom quintile, and I worked my way up to the middle and fourth over 3-4 years, and into the fifth after about six years.

Hume's Ghost said...

Maybe investigating mobility can be a third book in the series for Johnston ...

I did notice that one of the economists Johnston relies on heavily in that chapter has also published a paper on mobility.

Hume's Ghost said...

"Some of the numbers are a bit different, too."

The copy my library had of Free Lunch is out at another branch currently, but I went to a book store and flipped back through the section ... the reason the numbers conflict is that I mixed to data sets that employed different methodologies to count tax units ... I should probably make a note of that when I get a chance to get a hold of the book again.