CHESSNOID

The FDIC just took over its 9th bank failure for the year. This one was called Kansas bank Columbian Bank and Trust Company and has basically the same problems as the previous failures. The bank had too many bad loans being defaulted on.

It was the ninth failure this year of an FDIC-insured bank.

That compares with three failures in all of 2007. More banks are in danger of failing this year, agency officials have said.

The FDIC estimated the resolution of Columbian Bank will cost the deposit insurance fund around $60 million.

Regular deposit accounts are insured up to $100,000.

There were about $46 million in uninsured deposits held in 610 accounts at Columbian Bank that potentially exceeded the insurance limit, the FDIC said.

Concern has been growing over the solvency of some banks amid the housing slump and the steep slide in the mortgage market. The pressures of tighter credit, tumbling home prices and rising foreclosures have been battering many banks, large and small, across the nation.

The FDIC has been beefing up its staff of examiners to handle the anticipated spike in bank failures this year.

I didn’t hear anything about it on TV probably because it is a smaller bank. I wonder if they will cover the $46 million uninsured funds this time?

What is ironic is that the bank stocks rallied Friday on news Lehman Brothers and other banks might be taken over by Korea Development Bank. I don’t actually understand the logic of why investors started putting money in them. It might be the merger mania mentality where if there is news that a company will be taken over, then the company acquiring them will pay a premium for that company’s stock. At least that is the way it was when we had a booming economy. The reason why Korea Development Bank might want to take over this is because they already have a big investment and they don’t want to lose it all under poor management and it would be cheaper just to buy the rest of the company since Lehman Brothers’ stock price is down 79% year to date. Lehman Brothers’ stock movement does remind me a lot of Bear Stearns decline.

A bigger story in the financials is Fannie Mae and Freddie Mac. Stock investors are wondering if there equity positions may possibly go down to $0. Ouch! Those stocks are already down 90% this year. Even Warren Buffett doesn’t think at the discounted amount they are worth buying. He thinks they are done and Moody’s just downgraded their bonds.

Buffett said he believes the federal government will have to step in because the pair’s troubles seem to be growing and feeding on themselves. Losses between April and June for the two totaled $3.1 billion as defaults in their portfolios mount. The pair hold about half of outstanding U.S. mortgage debt and are the largest source of funding for home loans.

“They’re looking for help, obviously. And the scale of help is such that I don’t think it can come from the private sector,” Buffett said.

Investors appear to believe existing common stockholders would get nothing if there is a government bailout, a view Buffett also shares. What remains unclear is whether investors in preferred shares - a type of investment that incorporates elements of both stocks and bonds - will also be wiped out.

On Friday, Moody’s cut its ratings on the companies’ preferred stock five notches to “Baa3″ from “A1.” A rating of “Baa3″ is one notch above junk status. It also put them on review for possible downgrade, saying they each have limited ability to raise equity. The ratings agency believes the likelihood of government intervention has risen.

Fannie and Freddie’s shares have lost more than 90% of their value this year.

I wonder if more investors will jump in to buy more financial stocks next week because of possible takeovers or start dumping them once they figure out that this is not the bottom of the housing bust nor is it a sign that the “unofficial” recession is over.