Time: The Bank Crisis is Over

“Better to illuminate than merely to shine, to deliver to others contemplated truths than merely to contemplate.” – St. Thomas Aquinas

Home » Economy/Business, Politics, Stimulus, TARP

13 April 2009 No Comment

wells_fargo_0409

BY: NCViking

Time Magazine has officially called the bank crisis of 2008-2009 over. Does this mean that normalcy is soon to return to the credit markets? The magazine credits the stabilizing effect of the original TARP funding and cheap, guaranteed money for providing time to allow banks to adjust and heal. It also apparently allowed time for the Administration to explore further options for fixing the problem, like the stress test and Geithner’s toxic asset program. Time points out that these things may not be necessary now with the pleasant news that Wells Fargo showed a $3 billion profit in the first quarter and declared the merger with the troubled Wachovia a success.

All of those plans, no matter how well-intentioned they may seem, are unnecessary now. Wells Fargo (WFC) indicated that it made about $3 billion in the first quarter of the year and declared its buyout of the deeply troubled Wachovia to be a success. Wells Fargo (WFC) said that the low cost of money from the government combined with a surging demand for mortgages was all the medicine that it required.

Then the article points to an ‘unusual’ thing that may be curing the ailing financial sector: the cost of capital and the free market.

Oddly absent from the discussion of how well Wells Fargo did is why the government was in the midst of testing bank balance sheets at all. The experts at the Treasury had been thrown off the scent and consequently had missed the fact that there was not need to test what is already working well. The same holds true for the Geithner plan to take toxic assets off bank balance sheets. It is academic now. What banks are earning from the difference between the cost of capital and the income from lending is now great enough for the banking system to be self-sustaining again.

I say ‘unusual’ because in these days of bank nationalization talk and the apparent need to socialize the capitalism model, it is nice to see capital infusion and the market working in tandem to calm financial waters. The last leg of this three-legged stool (as Obama likes to metaphor) would be confidence. The circumstances leading up to a crisis always vary, while fear seems to be the only common denominator. Hopefully this news will temper fears and instill a confidence that will help fuel a nice recovery.

The banking system is still weak, and jobless claims will likely continue to rise for at least another six months, but thanks to monetary policy of both the outgoing and incoming administrations, catastrophe may have been averted and it seems we are turning the corner. Keep in mind, Porkulus funds haven’t really hit yet so this has little to do with the positive things happening now. The huge, out-of-budget spending orgy was just a shrouded means to take advantage of fear to promote pet programs and pay back political constituencies. This is typical ‘K Street Politics’, not the supposed ‘Change’ we were promised, and may not have been even necessary to begin with. Go figure.

Only time will tell if the economy starts pumping again with some gusto and why it does so. At least at this moment, I am glad to be blogging about some good financial news.