Can i ask what is happening with the banks?

Question

i heard the government is seizing banks or something but the banks are closing

Answer 1

Real Estate values appreciated at artificial rates, financed by "creative" lending practices.  These practices were  often instigated by wall street investors, their products sold just as creatively to other investors, many of whom turned out to be banks.  When the values of the underlying collateral (real estate) began to fall, and payments from adjustable mortgages began to rise and qualifying for credit became stricter, a lot of borrowers were caught in a "perfect storm" with no where to go but bust.  Investors got nervous.  Then, a highly placed banking official suggests that a specific institution (IndyMac) might be in trouble.

If you had an account worth more than $100K in a troubled bank, and could only be sure that the 1st $100K was guaranteed to be returned to you if that institution failed, what would you do?  Well, as I understand it, depositors pulled $100 Million a day out of IndyMac for 10 straight days, until IndyMac was insolvent.

For now the FDIC, who insures that you will get that first $100K in your account, took over IndyMac and is sorting everything out.

Our whole financial system depends on confidence to function.  I think you will see less function with every bit of erosion in the public confidence in the financial system.

Answer 2

The history of banking is a shaky one. Today we live under what is known as fractional reserve banking, which means that banks are only required to have a fraction of the money for the loans they make. An example, to loan one hundred thousand they are only required to have about ten. They then bundle and sell these loans to investors, and fund managers. When something goes wrong they fold. Until 1913 banks were required secured currency, payable in gold on demand, so, depositors and the public in general had at least some security. Today taxpayers by way of government bail out failed banks to some degree, customers deposits up to one hundred thousand dollars are guaranteed, stockholder are another story, they lose.

Answer 3

washington mutual and nat'l city just took a 30% loss!  banking is really taking a beating.  luckily i work for a more conservative bank who isn't going under because we're not liberal with lending or interest rates...so we're not going under.  

the housing market is taking a beating because places like national city have loaned out more money then they have to people who can't afford to pay it back which is causing foreclosures.  i live in ohio and from what i hear ohio and michigan are the two worst states as far as housing is concerned.  

the government has got to do something!

Answer 4

Many banks made some really bad choices in the past few years when the real estate market was going crazy. By making bad loans the banks now have homes that people are not paying for and the bank can't sell for the amount which they loaned that person because they were loaning out more money than the houses were really worth.

Some banks will close. Some will merge. Some will grow. Hopefully they have learned and will not make those type loans in the future.