Bank Failures, Bankruptcy, Meltdown, Mortgage Defaults, Secondary Market, Spillover

More bank failures expected

From CNBC:

More banks are likely to fail before the financial sector recovers, market pros say, which is creating a cautionary environment for both investors and consumers.

With the housing rescue package that made its way through Congress last week aimed primarily at mortgage giants Fannie Mae and Freddie Mac, the rest of the industry will essentially be left to fend for itself amid a largely dour outlook for consumers and the economy.

That lesson got sent home in a big way over the weekend, when the Federal Deposit Insurance Corp ordered the closing of two small banks, First National Bank of Nevada and First Heritage Bank of California, and sold them to the Mutual Omaha Bank.

It all creates a difficult environment that has market pros strictly advising caution in the days ahead until the crisis in the financials shake out completely—whenever that might be.

“My real concern is that we’re not finished,” says Kathy Boyle, president of Chapin Hill Advisors in New York. “Wall Street would like to think that the worst is over, but we’ve been saying that for a while.”

Wall Street has called a bottom to the problems in the credit markets pretty much every quarter for the past year. Since then we’ve seen a number of banks collapse under the weight of their bad debt, including investment-house Bear Stearns and Alt-A mortgage giant Indymac.

No offense to the economists on Wall Street and in Washington, but the cycle of bank failures is only just beginning. Sure, IndyMac took a prety big fall, but it’s in the smaller regionals that things are really going to start collapsing. And once the dominoes start falling, bigger bank implosions will almost certainly follow.

The big question that no one seems to be able to answer: how bad will it get before there really is a bottom? Will big guys like Wachovia or Washington Mutual drop by the wayside, or will the carnage be limited to smaller regional players?

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