Friday, January 08, 2010

'Move Your Money' - 'Walk Away' - Big Banks Face A Double Play

Big banks - the banks that were recently rescued as 'too big to die' - may be seeing increasing losses on two fronts soon.

First front - 'Move Your Money'. People are closing their accounts.

Many concerned depositors are moving their checking, savings and credit accounts from big banks over to local community banks and credit unions. It's a small act of rebellion, but something any angered depositor can do. Easy to promote, it's become a national movement.

Community banks reinvest one's deposited dollars in one's community. Big banks don't. By reinvesting in community, community banks help stabilize and even increase property values and the tax base. Big banks won't. Community banks remember your face.

Want city government to hold your city together? Want to stabilize the tax base? Put your money in community banks.

Second front - 'Walk Away'. People are walking away from their mortgages.

Mortgage under water? "Walk away," says the Sunday New York Times in the link above.

For those whose houses are worth far less than their mortgage debt, more and more people are simply giving up ever having credit again and walking away. It's the smart thing to do. Those who walk away can rent a similar house more cheaply. Let the bank take back the old house.

But the banks can't sell all the houses they are getting back. From Sacramento, California, to Providence, Rhode Island, the listings on Realtor.com show houses that are going for what the cash market will bear. Get a mortgage on a $40,000 house? Not likely.

There are 50 homes for sale at $40,000 and under in Sacramento. Hello, cash? 220 homes in St Louis, Mo, for $20,000 or less. $15,000 for a Delray Beach, Florida, condo.

As owners walk away from their mortgages, banks can fail.

If they fail, will these banks be worth rescuing again? Or will they now be too small to rescue?

If we keep shrinking them down, do we still have to rescue them?

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