The Bankers’ Panic Starts in 3, 2, 1 …


The banks still aren’t alright:

Wells said delinquencies of more than 90 days in its main portfolio of consumer loans – including mortgages and credit cards — rose 4 per cent to $1.5bn, the first increase since 2009. Early stage delinquencies in its retail business remained flat at 6.13 per cent after falling for three quarters. The bank increased its provision for consumer-banking losses for the first time in two years.

“The economic recovery has been more sluggish and uneven than anyone anticipated,” said John Stumpf, Wells chief executive. [Editorial note: Not anyone, chief.]

Citi said the percentage of mortgages that were 90 days delinquent rose for the first time in almost two years — from 3.87 per cent in the second quarter to 3.88 per cent in the third. John Gerspach, chief financial officer, said the bank was seeing “re-defaults” on mortgages that had been modified to make them more affordable. “We could begin to see increased delinquencies and net credit losses,” he said.

About this, a few thoughts:

1.      We are going to have a mortgage and credit-card delinquency problem for as long as we have an unemployment crisis. Being upside-down on the mortgage is not why borrowers default: Unemployment correlates strongly with mortgage defaults.

2.      Frank-Dodd is not going to bring stability to the financial-services sector. It does all of the wrong things and few of the right ones.

3.      We have some very weak state finances, in California, Illinois, and New Jersey, for instance. But the credit-default market thinks that the biggest U.S. banks are even weaker than these basket cases.

Politicians promise the moon on the economy, and it is fair to hold them to the standard they set for themselves. Barack Obama, in particular, must be judged harshly when one considers the difference between his economic promises and his economic delivery. But in the real world, we have to keep in mind that public policy is only one factor affecting growth, employment, trade, etc. — an important one, to be sure, but not the only one. We’ve seen some good ideas coming out of the Republican leadership: Ryan’s entitlement-reform proposals, Ron Paul’s $1 trillion in cuts, Rick Perry’s energy-liberalization program, and more. Getting even one or two of those done would be a real career-making achievement for any president or congressional leader. Government can’t fix every economic problem, or even most of them, but it can fix its own finances and rationalize regulation. It is imperative that it do so.

We have a lot to do, and the time available for doing it diminishes daily. The banks aren’t really the problem, but a symptom of a larger and deeper problem that has been afflicting the U.S. economy for decades.

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