You can bank on it! Or Heaven and Hell With MacMae

Yes, bank on it, but only up to $100,000 with certainty...

Regulators on Friday shut down Silver State Bank, saying the Nevada bank failed because of losses on soured loans, mainly in commercial real estate and land development. It was the 11th failure this year of a federally insured bank. Nevada regulators closed Silver State and the Federal Deposit Insurance Corp. was appointed receiver of the bank, based in Henderson, Nev. It had $2 billion in assets and $1.7 billion in deposits as of June 30.

Now that 'bank' is a four-letter work what will take the place of some of our most fabled expressions (you can take that to the bank, you can bank on it, etc.)?

Would Jesse James not rob banks today because "that's where the losses are?"

And why do banks have 'safes' if nothing they hold is safe?

This weekend Fannie Mae and Freddie Mac are being sent into receivership.

This plan is apparently a modified Bear Stearns bailout where equity holders get Bupkis (not not Dick Bupkis) and bond holders get bailed (full faith and credit! - stock holders only had faith). So the bailout strikes a blow for secularism.

Mac and Mae had found it hard to raise new capital- no wonder with the Sword of Damocles dangling and twisting over their heads, held by the thinnest of fraying threads.

F&F were too leveraged to go private. To lose their government backing they would need more capital. But to raise capital would dilute earnings and ruin profitability. Lending spreads would have to rise and then the contribution of F&F would be gone. In short F&F could not get 'there' from 'here'. The corporate finance constraints were clear to anyone who thought about it. Either their profitability was to be reduced (lousy investment) or their lending spreads were to become bloated (undermining their mission). The question was how long the government would let them limp trough the crisis until they were dealt the death blow. And this is a crisis where they are supposed to do some heavy lifting. No wonder no one would invest in them.

In God we trust, but not in government.

In the end seizing them was the only thing to do (aka receivership). Now they should be able to perform their mission better. But they are now to be run by government and that is not a good thing. The team that operates them in receivership could hardly do worse than the old teams. There is more questioning about political influence when entities like this become government run. But that is the path to salvation at this time. And we do not have a good idea what salvation looks like. But it allows continue operation and service provision a key need for the government and the markets - to say nothing of banks. If you are a bondholder it looks more like heaven but if you are a stockholder it looks more like hell.