Forget all the statistics put out by the Government and other private sector reports. Confidence in the banking system stinks! It stinks more than anyone can imagine. Government reports are just now starting to inidicate that the economy is not as hot as they would like. I have known this since October of last year. Many will recall in private conversation that I have been predicting recession. It has been here since December in my opinion. The stats just take a while before they can call it a recession.
Some might want to argue what a recession is. There is an offical definition of what a recession is. According to widespread definition, a recession occurs when real growth of the nations Gross Domestic Product (GDP) is negative for two or more successive quarters of a year. Humbug! The people of America have been in recession for some time now!
We have all seen the headlines. IndyMac was taken over by the FDIC. Just another bank failure in 2008. Banks fail. It happens! IndyMac is just the latest of 5 bank failures this year. It certainly won't be the last bank failure. For a list of bank failures since October 1, 2000 visit the FDIC.
So banks have failed in the past. What is the problem. The problem is that hundreds of customers are rushing to IndyMac to get their money and they can't get to it. According to Peter Viles at L.A. Land customers are waiting in lines for hours and are fainting in the heat.
The FDIC was established in 1934 in response to the bank failures that occurred in the depression. As banks failed, customers rushed to get their money. This resulted in runs on the banks. Sound familiar? To instill confidence in the banking system and to prop up the banking system, the FDIC was created and insures all deposits up to $100,000 per depositor.
What happens when a bank fails? Check out the Frequently Asked Questions about Deposit Insurance.
Why are so many customers rushing to get their money? In my opinion, they have no confidence in the FDIC or the banking system. They feel more comfortable losing money to inflation with their cash in their mattress where they can see it and touch it than they do losing money to inflation with it in the bank where it can be tied up by locked doors. So many have been swindled into bad loans, are losing their home, losing their job, and paying so much for fuel and food that they can barely survive. Pile on top of that the uncertainty of when the housing market will recover, how bad inflation will get, how long fuel prices will cost you more than a house payment, and what direction the next president will be taking the nation.
Many have theories and ideas as to what the answers to those questions are. All I will offer is this too shall pass. There now, don't you feel better.
The president tells you to "take a deep breath." Not much confidence instilled there. That is the problem. The government is not able to restore confidence. Instead of telling everyone to just relax, try to do something or at least pretend to do something that will make us FEEL better. Until you do that nothing will get better. When you figure out the magic words that makes us think it will get better, then this too shall pass.
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