How can the economy be booming, as some people think, if every bank in the country is losing money?????

Question

That doesn't seem to compute. If the economy was booming, wouldn't the banks be filling up with money rather than taking heavy losses?

Spreading losses out over several quarters is just another way of cooking the books. Every bank is taking big hits from the subprime market. When it's all said and done, the losses will total several hundred billion.
Citi Group needed 7 billion dollars influx just to pay its current bills. It plans layoffs in the tens of thousands. Doesn't sound like good times to me.
National City, no. 9 bank in the country, may face bankruptcy, it's rumored.
Not good times when banks go broke.

Answer 1

This is a good question to use to bring a bit of truth to these forums for a change. The economy is most certainly not booming. I have never heard of an economy with a record number of home foreclosures, a weak dollar, and an increasing national debt considered "booming".

The problem is not the current state of the economy, but rather how we got here, and what must be done to resolve the issues that have caused such a social decline. It is fashionable to blame president Bush for this crisis, and I tend to agree that he has played a large role. But it is also the fault of the American people, especially those who have racked up insurmountable credit card debt for there IPods and XBox video games. Americans are not saving money, but instead are increasing there debt to the banks.

The massive increase in fuel prices is perhaps one of the most notable causes for the decline in the U.S. dollar, and the economy as a whole. The president has been passive on this issue, and has seemingly steered his support to the fat cat oil companies and there lobbyists instead of the American people, many of whom must now choose between food and medicine.

The incredible foreclosure rate, which is also partly the fault of the Bush administration, has not been addressed by the democratic congress with any resolve. How can those elected to represent and defend us allow such atrosities to take place?

My point is that the economy is as close to a depression as I have seen in my lifetime, but that we will never dig ourselves out of this hole until responsibility is shared by those who have created this mess. It is the American people, the democratic congress, and the president who have made this mess, and it will take all of us to fix it.

Answer 2

What the general public is overlooking in this subprime meltdown is the fact the Federal Reserve notes, our currency, is backed by the assets of private banks. Many of those assets are in mortgage securities. Every single dollar of loss banks suffer from subprime losses lowers the value of the dollar in the international currency market.
This is a much more serious problem than it appears.
The economy needs capital in order to expand. The economy gets capital from banks. When banks don't have money to loan business, business stops.
At this point, the central bank is being forced to lower interest rates on capital it loans to banks. What this does is circulates more money that hasn't been earned by the economy. This deflates the value of the dollar further.
The only saving grace in the situation is the possibility that the general economy will expand at a greater rate to absorb the lossed value caused by the subprime meltdown.

Answer 3

No bank is losing money. They may not be making more than they were because of the housing market. But their profits are still huge.

Also, real estate is just part of the economy, not the whole thing.

BTW, real estate in most of the country is still increasing in value.

Lenders who passed on the subprime loans to underqualified persons maybe losing money, but that was a poor buisness model not economy. How can you bet the record low interest rates were going to stay there? But they did.

Answer 4

The banks are taking heavy losses for the second earning season in a row...and the economy is NOT booming. There is a Bull market anywhere, even in the Bear Market we have now. The Financials Sector heavily weights our economy, so their poor performance is what is dragging things down....however, there are other sectors out there that are doing well (Bull Markets)...like Defense/AeroSpace; Natural Resources (not Ethanol or Gold) and Emerging markets. So, whoever told you our economy was booming may have been pointing to these Bull Markets...the overall economy is not doing so well. It is, however, 4.6% higher than a year ago...never mind it lost 9% so far.

Answer 5

One does not rule out the other. The losses are from bad loans. Not all banks are taking a hit. US Bank one not in the subprime business, as well as many other bank. As for influx of money, I have no specific figures but I would venture to guess that since the stock market is doing so good there might be an influx there.

Answer 6

I guess it's the same as the more bad economic news that comes in, the more the fed has to lower interest rates. When the stock traders see the interest rates lowered, they buy buy buy. They don't care if a depression is on the horizon, or the dollar is worthless. The housing market's crashing? Buy buy buy !

Mr. Smartypants - I think you have the answer.

Answer 7

It is booming, for Countries like Abu Dhabi.
They just purchased a 4.9 percent stake in Citigroup, making 10% of Citigroup controlled by Middle Eastern investors.

Great news for The USA huh?

Answer 8

"every" bank isn't losing money. Only the biggest ones who played a bit fast and loose with lending are, and so far, they've only had negative profits for one quarter.

of course, it is quite possible that one or more of them will have another quarter of negative profits -- which is what drives the stock market crazy.

Answer 9

I'm happy the banks are taking a beating. The banking industry does not equal the economy.

Answer 10

Oh common...every republican knows the economy is booming...just look at the housing market....and the value of the dollar....and the GDP....