Jaws, the Bank Sequel

Too-big-to-fail is morphing into bigger-than-ever swallowing up failing-faster-than-ever.

The nation's largest banks, infused with taxpayer billions, are feasting on the weak as the Washington Post reports that "no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected."

FDIC chair Sheila Bair sums it up succinctly: "It is at the top of the list of things that need to be fixed. It fed the crisis, and it has gotten worse because of the crisis."

This alarm follows news that her agency's insurance fund, which guarantees deposits, shrank another 20 percent in the second quarter, down to $10.4 billion, the lowest level since the savings and loan crisis in the early 1990s.

So far this year 81 banks have failed with another 416 on the FDIC'S "problem list."

Meanwhile, the bailout-bloated sharks are flourishing. J.P. Morgan Chase, Bank of America and Wells Fargo each now holds more than $1 of every $10 on deposit in the country. "Those three banks, plus government-rescued and -owned Citigroup," the Post reports, "now issue one of every two mortgages and about two of every three credit cards, federal data show."

As politicians debate socialized medicine, the country has moved toward a bastardized form of socialized banking, fed by the government for the ballooning profit of the few, who are squeezing out struggling smaller competitors by being able to borrow at lower interest rates while doing little to ease the consumer credit crunch, the original object of the bailout.

Now that the President has reappointed Fed chairman Ben Bernanke, the Obama economic team can get to work trying to undo some of its unintended consequences by starting to rein in superbanks with much tougher regulation.

The Mideast Money Drain

With the economy in a nosedive, the Democratic Congress is beginning to turn its anti-war focus on the dollars that are being drained by Bush's Mideast policies.

"In a shift from last year’s failed legislative efforts to force a reduction of troops," the New York Times reports, "the Democrats’ new approach is...focusing on the financial cost of military operations and on the war’s implications for the nation’s troubled economy."

This coupling comes on the heels of a new book, "The Three Trillion Dollar War: The True Cost of the Iraq Conflict" by Nobel Prize-winning economist Joseph Stiglitz with Linda Bilmes, which estimates that Iraq has already cost almost ten times as much as the first Gulf War, almost a third more than Vietnam and twice as much as the First World War.

Stiglitz told a British think tank this week that war spending was a hidden cause of the current credit crunch after our central bank responded to the financial drain by flooding the American economy with cheap credit.

"The regulators were looking the other way and money was being lent to anybody this side of a life-support system," he said, leading to a housing bubble and a consumption boom that has driven the economy into recession and saddled the next president with the biggest budget deficit in history.

If this argument is too complicated for politicians to make, Senate committees are beginning to hone in on the billions that have been wasted or stolen during the past five years of presumably protecting us from terrorists--an estimated $3.8 billion misspent by Musharraf in Pakistan along with billions more that have vanished in Iraq.

When voters get their stimulus checks of a few hundred dollars this summer, they may want to think about that.

"Mine Is Bigger Than Yours" Hits Home

In the words of Mel Brooks' philosopher-producer Max Bialystock, "If you've got it, baby, flaunt it!" That's just what many Americans have been doing with their homes until the credit crunch brought down the curtain with record foreclosures.

Amid bailouts and interest rate freezes to keep the show going, a painfully apt book emerges to underscore that the housing crisis, despite what the politicians are telling us, is not only about greedy bankers, mortgage brokers and hedge funds.

The thesis of "House Lust" by Newsweek reporter Dan McGinn: "Owning a home has long been considered the fulfillment of the American Dream. But in the last decade, as the real estate market boomed, Americans’ fascination with homes turned into a frenzy. Everywhere we turned, people were talking about, scheming over, envying, shopping for, refinancing, or just plain ogling houses—in the process, we’ve transformed shelter from a basic necessity into an all-consuming passion."

For some, huge homes have become what Cadillacs were half a century ago, an emblem of conspicuous consumption, proof to the world that owners have "arrived." In 2005, the average newly built US house measured 2,434 square feet, as opposed to 1,000 feet in Britain, Italy and Sweden and the 750-foot shoeboxes in Levittown after World War II.

"Everyone knows the direct causes of the present housing collapse: low interest rates, lax mortgage lending, rampant speculation," Robert J. Samuelson writes in the Washington Post. "But the larger force lies in Americans' devotion to home ownership. It explains why government officials, politicians and journalists (including this one) overlooked abuses in 'subprime' lending. The home ownership rate was approaching 70 percent in 2005, up from 64 percent in 1990. Great. A good cause shielded bad practices. The same complacency lulled ordinary Americans into paying ever-rising home prices."

The crisis may slow down builders in affluent areas from tearing down adequate houses and replacing them with "MacMansions" that not only require higher costs for upkeep but contribute to global warming with the energy consumed to heat and cool them.

As Congress and the White House push along legislation to head off a recession, a report on economic overreaching may be in order to remind Americans that, even in building their castles, less may be more.

Credit Crunch from the Cheap Seats

For the middle-class old, of which I am a card-carrying member, the sub-prime mortgage loan crisis is like distant thunder. As storms roil the markets, most of us know we won't be drenched but, from experience, we are braced to pay a price for our prudence.

It happened when the dot.com stock market bubble burst, and it's happening again with the drop in interest rates to help bail out the greedy, the gullible and the reckless that will cut into what we can get from Certificates of Deposit and bond-fund holdings to supplement Social Security and pension income.

Many of us, recalling our parents' shock in the Great Depression, mistrusted the stock market boom of the late 1990s and, in large part, resisted the euphoria over the "new economy."

Just before the Millennium, in a doctor's waiting room, I felt old and foolish overhearing the receptionist and a messenger comparing their capital gains on AOL and Amazon stock. Maybe there was a free lunch after all, and my generation was just too stubborn to belly up to the bar.

When the bubble burst, our conservatism was rewarded with the lowest interest rates in half a century that cut modest incomes from savings by more than half. As Social Security became the largest part of our safety net and the costs of health care rose, we were becoming the newest poor until interest rates finally began to inch back up from 1 and 2 percent.

Now that another wave of greed is threatening to swamp the economy, the government will rightly do what it can to save the homes of people who were roped into no-down-payment and variable-rate mortgages by sharks who "innovated" credit markets into disaster.

It would be churlish to complain about our modest losses compared to the real victims, but there is cold consolation in having lived long enough to know enough to resist the something-for-nothing lures that keep coming up for each new generation.

Greenspan and Groucho

In his complex commentaries, the former Fed chairman always seemed the ultimate anti-Groucho, immune to pith and irony.

But ironies abound. Even as Alan Greenspan sums up his public life, news of the book itself reflects a central lesson from it--the difficulty of controlling events in a free-enterprise society.

The New York Times was given an exclusive first look to report on publication date, Monday. But the Wall Street Journal bought a copy, published excerpts last night, and other news organizations followed.

The big news, according to the Journal, is Greenspan’s assertion that “the party to which he has belonged all his life deserved to lose power last year for forsaking its small-government principles.”

“They swapped principle for power,” the Times quotes him as writing. “They ended up with neither. They deserved to lose.”

In coming days, there will be debate over Greenspan’s role in promoting the housing bubble and his apparent approval of sub-prime lending, which has now led to a credit disaster, as well as other facets of his management of the Fed under four presidents.

In the media blitz next week to push his book, Greenspan may want to revert to his show-business roots as a saxophone player and give interviewers a few of Groucho’s cryptic one-liners. Otherwise they won’t understand his explanations any more than they did when what he said really mattered.

Panic at the Banks

In Los Angeles yesterday, the scenes were right out of a movie about the Great Depression 75 years ago--long lines of anxious depositors clamoring to get their money out of failing banks.

The panic was set off by news that the parent of Countrywide Bank, the biggest home-loan company in the nation, was caught in the current credit crunch and might be forced to file for bankruptcy. Despite reassurances to the contrary, crowds overwhelmed branch offices to the point that staff members were serving coffee to long waiting lines and taking names of people, asking them to come back later.

In the black-and-white movie, “It’s a Wonderful Life,” Jimmy Stewart uses his honeymoon money to calm panicky depositors and stay solvent. Things are different today. Filings with the Securities and Exchange Commission show that Countrywide Chairman and CEO Angelo Mozilo recently exercised options and then sold 672,000 shares of company stock, at a profit of almost $13 million.

With individual accounts insured by the FDIC for up to $100,000, there is less cause for worry today. But many holders of bank Certificates of Deposit are retirees, too risk-adverse to invest in the stock market and mutual funds.

They play the CD Sweepstakes Game on-line or call friends with computers to check on which Internet banks are offering a fraction of a percent more than others. For people who spent their lives dealing with bankers in brick buildings, the prospect of wiring or mailing money into thin air only adds to the anxiety.

While crowds besiege their offices, Countrywide is still running Internet ads to entice us into putting new money into those CDs. The more savvy will be asking why the bank’s executives are pulling their money out of the company stock.