ABC News reports:
"The health of U.S. banks is quickly deteriorating, and the government fund set up to protect depositors might not have enough money to insure everybody, analysts told ABCNews.com.
"The Federal Deposit Insurance Corporation, or FDIC, insures bank deposits of up to $100,000 at nearly 8,500 of the nation's banks and also keeps a watch list of banks that it considers in trouble."
"Thanks to a collapsing housing market and a weak economy, a growing number of banks are struggling to stay afloat, with not enough cash on hand to cover losses from bad loans.
"At the beginning of the year, 90 banks were on the FDIC watch list. There are now 117, FDIC chairwoman Sheila C. Bair announced at a news conference this afternoon. That is the highest number in five years, but some analysts expect the list to grow even more in coming months." (ABC)
Things certainly aren't looking very good. The housing mess worries me. On the one hand, lending institutions and the people who bought houses at the top of the market (some because they had to, some because their speculations were "irrationally exuberant") are suffering from the deflating housing-bubble.
On the other hand, we call it a "bubble" because prices were artificially inflated -- to the point that houses were priced beyond what many cities' residents could afford on their salaries.
That's not good. So, regulators are facing a tough choice: they could keep interest rates low for too long, which is what the Fed did after 9/11 (which seemed to create the most recent housing bubble); or they could let housing prices continue heading back down to earth, which would be bad for some banks.
Maybe a partial solution would be to figure out which banks, investment houses, and executives profited from committing crimes related to the current crisis, disgorge them of their profits, and use that money in some way that would help head off the situation that seems to lie ahead.
Having no expertise in this area, I'd like to hear what Paul Krugman thinks. Memeorandum has commentary.
Other Buck Naked Politics Posts:
* Hillary Calls for Unity: No Way, No How, No McCain
* Alan Grayson Wins Primary -- to Face Ric Keller
* Progress on White House Subpoenas?
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