Marketplace Scratch Pad

Morning Reading

Scott Jagow Aug 14, 2009

This morning, we could be in for another big bank failure, just in time for the anniversary of Wall Street’s meltdown. Plus, why the Chevy Volt might cause blackouts.

The biggest bank failure of 2009 is still probably forthcoming. It might be Colonial BancGroup, which is suddenly in danger of being taken over by the FDIC. I say suddenly because of this from the New York Times:

If Colonial does fail, it will call into question both the effectiveness of the regulation of rapidly growing banks, and of the capital standards regulators use. Even now, Colonial claims to be adequately capitalized. As recently as March, it met the criteria for being “well capitalized,” the highest designation.

How could a bank be well capitalized and facing government orders to find more capital? One reason is that the government’s rules allow banks to ignore the declines in market value of many loans and other assets in computing how much capital they have. Had Colonial been forced to count the losses it had already acknowledged, its capital situation would have appeared dire earlier than it did.

Colonial, which is based in Alabama, also faces a criminal investigation into accounting fraud. Last week, TARP inspector general Neil Barofsky requested a raid on Colonial’s offices.

In the Wall Street Journal, David Weidner anticipates the coming anniversary of Wall Street’s meltdown. He says, in retrospect, the collapse probably wasn’t painful enough:

Recent evidence suggests not only has Wall Street survived, but it is essentially unchanged. The casino ethos is alive and well in the record value-at-risk numbers at some firms and the hand-wringing at rivals that temporarily short-leashed trading desks and suffered lower profits as a result. Bonuses are rising and banks are hiring again to capture gains in the volatile commodities and other speculation-fueled markets…

Banks continue to move slowly in recognizing and shedding problem assets — again hoping the problems will just go away just as the CEOs of Lehman and AIG hoped during the summer of 2008.

If it feels like déjà vu all over again, it’s because nothing has really changed. The thing about the government-run death panel is not that it put some of these firms out of their misery, it’s that it let those carrying the disease live.

The president of TransGas Energy, Adam Victor, has an interesting op-ed in the New York Post. He says because so many utilities still use heavy fuel oil to generate electricity, GM’s Chevy Volt not only could cause more pollution, it could short-circuit the electrical grid:

If a few thousand well-meaning dupes plug a few thousand new Chevy Volts into electrical outlets (especially in urban centers), you could actually add millions of pounds of dangerous, dirty, unregulated pollution and carbon into the air we breathe — possibly more pollution than would be offset by putting the Volts on the road.

That’s if the electricity grid can handle the added load. In fact, all across the nation, the grid is fragile, antiquated and maxed out.

Victor has been fighting the city and state to build a new plant:

Think about it: New York City’s elevators, water supply, air conditioners, computers and backup servers, subways and traffic lights all depend on a reliable electricity supply. Yet, even after terrorist attacks and blackouts, local politicians have put the whims of local NIMBY groups ahead of plans to even clean, green, state-of-the-art power-generating facilities.

The PBS NewsHour had a good, simple debate on health care last night:

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