Chairman of the FDIC Sheila Bair is on CNBC and talking about the banking system. She said that when the FDIC took over Indymac Bank, the loan default rate was 22% and assets were sold at 37 cents on the dollar. Yikes.But she was quick to say that the banking system as a whole "is solvent." My question would have been to ask how many individual banks are not solvent. During the Depression of the 1930's, 25% of banks went bankrupt and while the number today may not be as high, the vast majority of banking activity takes place in a handful of very large institutions. For all practical purposes Citigroup is dead. Bank of America committed suicide by purchasing Merrill, and while that couyld be unwound it is still a huge negative for the banking industry.
How much more deleveraging needs to take place before we can see recovery? I have no idea, but I'm not sure anyone else really knows.
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