The political question of what to do with zombie banks — and what to call it — is unpredictable. The economic realities of the situation, not so.
The California real estate market continues to implode, with grave implications for both Bank of American and Wells-covia. ClipNSave quote: “A lot of the loans were not designed to be repaid, they were designed to be refinanced. That works only when housing prices are going up,” Ethan Harris, co-head of U.S. economics research for Barclays Capital Inc. tells Bloomberg. Hmmm, sounds like some of the loans the Charlotte market, as well.
Meanwhile, the FDIC is having trouble getting rid of the assets it as already taken over from dead banks. This is the reason we are even talking about government ownership chunks of banks. The normal FDIC receivership mode is choked up now and would have even more trouble digesting a Citi or BofA. Hence the notion that Uncle Sam could just sit on the board of directors and “guarantee” everything the bank does.
Until the housing market finds bottom in places with billions of dollars of exposure the recovery cannot begin.
