The rise, and Potential fall, of America’s Banks

These days, you can roll up to an ATM at the grocery, the pharmacy, the gas station, the hardware store, the office, even the ballpark. You can check your Bank of America balance on your iPhNot just to get the banks lending again. To keep them alive.

The government is expected to announce Tuesday a plan that analysts expect will include lifting soured mortgage assets off selected banks' books, possibly along with guarantees against other losses and maybe more direct injections of cash.

Financial industry experts say it is a matter of choosing the best of several options, none of them very palatable.

And no one knows for sure what will work because nothing like this has happened in living memory.

Getting it wrong could trigger a replay of what happened after Lehman Brothers collapsed last fall — the stock market in free fall, seizure of the credit markets, ripples of layoffs. Perhaps even a run on other banks — so many customers rushing to pull out their cash that it would make the bank run in "It's a Wonderful Life" look like, well, a feel-good holiday movie.

"The banks are at a terrible junction," says Robert Reich, a labor secretary under President Bill Clinton. "The bottom is falling out. Almost every area of the credit markets, we're finding people unable to repay their loans. That means many banks are basically insolvent."

"If one big bank implodes," he says, "the reverberations could be endless."

So how did we get into this mess?

And how do we get out?

The blame game
Washington and Wall Street are still playing the blame game. But most financial experts agree that a cocktail of bad economic policies and lax government oversight led lenders, borrowers and investors to take huge risks.

Greed and recklessness trumped fear and reason, and they led banks to the brink.

To understand how the things went awry this time, go back a couple of decades, to a time when you could walk into your hometown bank branch and speak to a teller who knew your name and kept a pen-and-paper record of your mortgage.

Banking was a simpler affair, and a no-nonsense one: If you didn't make enough money to qualify for a loan, you didn't get one.

But in the 1980s, falling interest rates and loose lending standards opened banking to the masses.

Credit was cheaper, and the government pushed to make more Americans homeowners. The housing boom was on.

Banks and savings and loan associations, or S&Ls, spread across the country offering cheap, 30-year mortgages. By 1980, banks had $1.5 trillion in outstanding mortgage loans, more than double the amount from 1976.

It was, says Eugene White, an economics professor at Rutgers University and an expert on the Great Depression, all about the government's postwar policy of selling a "piece of the American dream."

"But by doing that, we forgot about the risks," he says.

Then came the bust. Unable to pay their mortgages, homeowners and businesses began defaulting in droves. Deliquencies soared, triggering the savings and loan crisis, battering the stock market and prompting a huge, taxpayer-financed bailout.

Sound familiar?

Fast forward to today. Not exactly an example of lessons learned.

Some ingredients of the S&L mess, such as cheap credit, loose lending standards and weak oversight, also are part of the current debacle. But two new trends — the rise of the global banking behemoth and the packaging of debt into securities that investors could buy and sell — made this meltdown unique.

And much worse.

In the span of a decade, Citigroup, Bank of America and JPMorgan Chase, once bread-and-butter providers of free checking accounts, grew into international banking conglomerates that buy and sell stocks and manage assets for fees.

The "universal bank" model, which took hold in the late 1990s, changed the face of global finance. And it linked Main Street with Wall Street in a way never seen before.

Banks themselves became ubiquitous in American life. From 1995 to 2008, the number of bank branches grew from 81,000 to 99,000. Over the past decade, the number of ATMs swelled from 187,000 to 406,000.

These banks lured first-time homeowners, many of whom believed housing prices would go up forever, with attractive lending rates and lax requirements. Bad credit, no credit — it seemed almost anyone could get a mortgage loan.

Source: msnbc, US

one. You can text Chase, and Chase will text you back.

That's banking today: It has grown from an almost quaint relationship between teller and customer into a massive, dizzyingly interconnected network that touches almost every adult in this country.

And right now, the federal government — working without a road map, and without a net — is putting together a plan to keep U.S. banks from collapsing.