Saturday, May 29, 2010

"Bank Contagion Spreads to Northwest"

The title page in today's WSJ section on "Money and Investing" is the article "Banks Contagion Spreads to the Northwest".  The article describes the closing of Frontier Bank (Everett) and the (functional) buyout of Sterling Financial Corp. by Thomas H. Lee Partners LP and Warburg Pincus LLC.  The article uses FDIC data to rank US. States with the most bank failures since 2008. Washington ranks third (behind Georgia and Florida) with 10.5% of all banks in the WA state in failure. The article comments:

"The six Washington banks to fail in 2010 represent about 7% of the state's banks at the start of this year. One Oregon bank has failed. The largest financial institution in terms of assets to fail, Frontier Bank of Everett, Wash., had $3.5 billion in assets and 51 branches when it was seized by regulators April 30. Frontier succumbed to the weight of its construction-loan portfolio. ...
Another measure of the distress can be found in the Texas ratio, [I added link-RMF ] which assesses the probability of failure based on nonperforming loans, reserves, capital and other factors. Some 25 banks in Washington, Oregon and Idaho had a high probability of failure based on that ratio in early 2010, more than double the number a year earlier, according to McAdams Wright Ragen."

I am not sure if  a full accounting of how much Whatcom County has contributed to the nation's banking crisis has ever been done. At a cost of $539M, the closure of Horizon Bank (Bellingham est. 1922) ranks as one of the most costly bank failures in the Pacific Northwest since 2008. However, the closure of Washington Mutual is the largest bank failure in U.S. history period. Other notable Western Washington bank failures include, WestSound, Evergreen,Venture,Rainier Pacific, Frontier, City Bank.  Nearly all of these are attributed to the mortgage/construction speculation and over-building crisis that still plagues the nation and our county.   Of the 451 "troubled banks" on the latest MSNBC/Investigative Reporting Workshop list, 23 are from WA state, although some of these have already been closed/reorganized.  This is from this morning:
Or if you prefer google maps real estate view:

Economist Naomi Klein has argued that the banking and housing crisis should be the swan song of Milton Friedman and neoliberalism's influence upon economics.  I think here in the Northwest we should argue that the collapse of our banking infrastructure should be the swan song of the influence of the construction industry as a mainstay of our economy.  If you don't build high paying jobs, your populace cannot afford mortgage payments.  Construction of housing is a service provided to a strong economy; an economy that has to be stabilized by a versatile, high tech, and stable employment. 

Discussion of the value of home construction for the economy is ongoing in the nation. An excellent summary at Seeking Alpha: "Does Housing Construction Drive Employment?" points out some of the benefits and disadvantages of using housing to drive the local economy.  However, we have to make this discussion pertinent to our local economy in Bellingham/Whatcom County. For example:

  • Does over-reliance on the housing economy bring us an economic future that we want here? 
  • Who are the winners and losers in such an economy? 
  • What do the alternatives look like?
[to be continued]

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