Welcome to Banking Update, a roundup of articles and news from around the Internet. Worries about the “bubble” in 30 year mortgages, the impact of Europe’s banking crisis on the U.S. and problems with small banks. Also, worries about the safety of bank deposits, the root causes of depressions and how to live well on $21k a year. On to the links.
What impact will the European banking crisis have on the U.S. economy? European banks have “a pivotal role in influencing credit conditions in the United States” according to an article in the Washington Post.
Congress passes a two month extension of the social security payroll tax cut. A fractured and dysfunctional Congress that guides our nation’s fiscal policies can’t seem to plan beyond two months. Expect further extensions of the payroll tax cut in March after contentious, politically inspired “debate”. With the national election looming, neither political party will dare to increase the tax burden on Americans – the payroll tax has become an enshrined permanent “benefit”.
The 30 year mortgage was the cause of the S&L crisis of the 1980’s. Government guarantees on 30 year mortgages may be causing another financial bubble. According to Edward Pinto, if interest rates rise, the market value of long term mortgages will plunge, imperiling the banking industry.
The latest Gallup poll shows that growth of the economy rather than wealth redistribution is the biggest concern of most Americans.
Small banks are choking on foreclosed real estate. A total of 150 banks with assets of less than $5 billion hold foreclosed real estate exceeding their tangible equity. Dumping the foreclosed real estate would require the banks to recognize losses that would impair their capital ratios.
Mortgage borrowers can expect to pay higher rates. The “offset” to the cost of extending the payroll tax holiday is an increase in fees on government backed mortgages which will be passed on to borrowers in the form of higher interest rates.
Is your money safe in the bank? Some interesting thoughts from Robert Prechter on exactly what is backing up your bank deposits.
How to live high on $21,000 per year while deeply in debt – a guide to America’s debt addiction.
The depression of the 1930’s and the current depression have the same root causes. The only way out of it is massive government spending and fixing the financial system which is obstructing recovery. Vanity Fair author Joseph Stiglitz argues that “What’s needed is to get banks out of the dangerous business of speculating and back into the boring business of lending. But we have not fixed the financial system. Rather, we have poured money into the banks, without restrictions, without conditions, and without a vision of the kind of banking system we want and need. We have, in a phrase, confused ends with means. A banking system is supposed to serve society, not the other way around.”
That’s it for today. Have a great Christmas holiday!