By now it shouldn’t be a secret that small and medium sized banks are now going under. The question of why is followed by yet a bigger question which is: why the Federal Reserve and the mainstream media make it seem as if everything is going to be alright when clearly it isn’t. In our previous article entitled “First Republic Bank Failure”. We touched on how and why First Republic Bank may have failed. But today, Los Angeles bank Pacific Western Bank also known as “Pac West” has just collapsed. We use the term “collapsed” because it fell 53% and at the end of the day; year to date, it fell nearly 73%. Also, it should be noted that its current market share is under $2.73 per share. On top of that their consumer deposits went down 5 billion dollars in Q1 (first quarter of the year).
But just like “First Republic Bank”, we think that there is a very big possibility that they will be brought by either J.P. Morgan Chase or Bank of America. Remember in America, everyone must pull themselves up by their bootstraps unless you’re a bank because then you’d be too big to fail. When are we as a country going to let business that should fail – fail? Especially if that gambled the wrong way with the people of this country’s money, i.e., bad investments and the practice of providing people with risky loans.
It looks like something is going to have to give. What we mean by this is that the United States will have to come to terms and understand that it cannot continue to artificially prop up businesses that are no good for the overall U.S. economy but at the same time, the leaders of the United States are going to have to deal with the fact the maybe “the jig is up” in terms of allowing business to bailed out with free money. As Dr. Milton Friedman stated many decades ago – there’s no such thing as a free lunch. Everything has a cost – and by continuing to bail out businesses that have been allowed to go with infinite and exponential growth, we’ve already set ourselves up for the massive failure of business and in this case banks.
Another issue that we are going to have to deal with as a nation is the fact that the current treads in banking suggest that the biggest banks of the country to include Chase Bank, Bank of America, Citigroup and others appear to be in a race to acquire as many smaller banks as they can. We all know that in any industry there’s only room for 3 winners – so what happens when the people only have 3 banks to choose from? Some say only time can tell but we think if you take a look back at history over the last 1,000 years or so, time has already told us what to expect.
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