Tuesday, December 28, 2010

Rescued Banks Teeter Towards Collapse

New reports have emerged that nearly 100 banks that were rescued by the federal government are again poised to fail. This is in spite of the billions of dollars these financial institutions have received at the expense of American taxpayers.

    The number of banks on the brink of collapse rose from 86 to 98 during the summer months, according to analysis of federal data from the Wall Street Journal. The banks in question have received $4.2 billion dollars in aid through the Troubled Asset Relief Program (TARP). Most of the troubled institutions are relatively small.

    The latest sign of distress in the financial system suggests the bailout may have simply been a stopgap solution for a sector still contending with the aftershocks of the greatest banking crisis in 80 years.

    The continued weakness of some banks now threatens to impede a tentative economic recovery, say experts. With many banks still troubled, lending remains tight, depriving businesses of capital to expand and hire. With expansion and hiring rare, the economy remains weak, depriving the banks of healthy customers--in short, a feedback loop of trouble.

    The Wall Street Journal defined "troubled banks" as those with less than 6 percent of their primary assets both reliable and liquid.

    Through TARP, the government has purchased hundreds of billions of troubled assets from banks in danger. Though the program was purportedly meant to benefit healthy institutions with a good chance of survival, these latest failures suggest that many banks were in tenuous shape to begin with. Seven TARP recipients have already failed, at a loss of $2.7 billion.

Continue reading at Huffington Post.com...

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