If You Think The Banking Issues Are One And Done, Think Again!

The banking chaos appears to have calmed somewhat this week with no new banks targeted for deposit outflows. The chart shows that, as of close of business on Thursday, March 30, small and mid-sized bank stock prices have stopped falling. Note: they haven’t risen, either. Lest anyone think that this was one-and-done and it’s over – think again! When something in the financial system breaks, it is never a one-off event.

In April ’07, New Century Financial (sub-prime lender), filed BK. In August, liquidity in sub-prime securitized mortgages dried up. (Note, however, that the Fed actually cut rates in September ’07.) New Century was just
just
the beginning. On March 14, 2008, Bear Stearns announced it was having liquidity problems – the Fed gave it a liquidity line of credit. That didn’t work and two days later, JPM bought them for a pittance. As you can see, there is always more than one cockroach!