For sure not everyone can be as clever as you Sid, but they somehow will stumble through the storm.....but to be certain, we ALL will need the best they have to offer to get out of this ditch. Unless, of course, you'd rather put your faith in the Washington bureaucrats who as we know have always chosen the right path.
It's a slippery slope BT.....trust me...I know firsthand. by definition: "A tricky precarious situation, especially one that leads gradually but inexorably to disaster" Yep....that about sums up what has been happening in my realm for the last 8 months.
LOL! I'm sure you meant that in all seriousness, Terry. I did not detect an iota of sarcasm. :lol: Seriously, you know how I feel, but I can assure you that I would rather put my faith in the bankers than in anyone in Washington. All kidding aside, I know we will get out of this eventually.
Interesting perspective Sid....however, you did overlook this view that was also contained in the piece you referenced. I know Ken Lewis. I have worked with Ken Lewis. If you count Ken Lewis in your motley collection of banking idiots, then frankly there are very few of us that could pass muster.....Ken Lewis is nobody's fool, but he sure as hell has his hands full right now.
I was born in 1937 which according to most history I have read about the great depression was toward the end until the wartime production led to recovery. I do remember a number of things in the WWII era including the celebration when it ended and our move to Florida in 1945. As far as any personal memory of the economics or bad times they just aren't there. But thanks for asking!
Terry, as our president would say....Let me be clear. I don't think of individuals as being "idiots". My experiences over the years both inside and outside of banking have led me to believe that as a group bank managements are fully capable of displaying poor judgement. IMO, for a specific bank to be sound and consistently profitable, there must be strong leadership at the top....leadership that is capable of not following the trend du jour.....leadership that understands the reasons for sticking hard to the fundamentals of sound credit decisions.....yada, yada. As a young banker back in the late 60s and 70s, I could sense the desire of bank managements to get bigger via acquisition and it worried me. Once banks began to grow this way, they became enamored with size. Their stockholder profiles changed, and the managements began to feel the pressure on earnings in a way that enticed them away from fundamentals thinking. Managements began to look for "creative" ways to make money. Once you introduce terms like "creative", "aggressive", "imaginative", etc. to bank managements' vocabularies, you are headed down the wrong path. Those who blame the government for "forcing" banks to lend money to those on the lower end of the credit scale are taking the easy way out. Bank managements who are strong can resist that kind of pressure and in a sense say, Up yours. But perceived stockholder pressure and failure to be strong led banks as a group to stray from the fundamentals and to allow loan portfolio quality to deteriorate by making poor credit decisions on a massive scale. Thet's where the collective leadership failed the individual banks and the industry as a whole.
This has been the malaise infecting all walks of business in this nation. It has circumvented sound, long term strategy.
My business deals with office technology, hardware, support, maintenance and supplies. The credit market is the single biggest threat to our future. The tightening has eliminated entire vertical markets for us. Most of our customers prefer to lease equipment because it preserves cash flow and can be expensed. Also, with technology ever-changing, upgrades at the end of lease terms are almost a certainty. We love leasing as well as it broadens our prospect base and we get paid in full very quickly. Now it is impossible to get leases for anyone in the home construction, automobile or real estate markets and that includes existing and long term lease customers with sterling credit histories. This has been going on for months now and is a clear and present danger to my company.
Sid, Sid, Sid.....I have a great deal of respect for you, your knowledge and insights into the banking industry and its environment. But, I can tell from the above, that you've never had the distinct pleasure of being involved with a bank under regulatory oversight or been fully engaged in a federal regulatory exam where the rubber TRULY meets the road. As federal regulatory exams begin, and they are annual events for healthy banks - and for unhealthy banks, you share office space with them - the examiner in charge and his/her boss will fly in from Washington to meet with your Board.....first with management in the room they will explain to them - the Board that is - the concept of "joint and several liabilty" for the directors - just to make sure they have their full and undivided attention - then brief them on relevant aspects of federal law, the examination process and how important it is for the Directors to ensure that management and its policies are in complicance with the relevant federal law and the Board's responsibilty in that regard.......then management will be asked to leave the room to enable the regulators and the Board to discuss those issues without the burden of management in the room. Suffice to say, that when the regulators leave the Board Room, it doesn't take a "strong management" to say "up yours" to the federal regulators, it takes a fool who doesn't like his job..... The Community Reinvestment Act is a federal law....it compels banks to provide credit to low and moderate income households. Compliance with CRA standards are part and parcel of every national banking exam and non-compliance with its elements are not taken lightly by the regulators and therefore, your Board. It is taken every bit as seriously as non-compliance with Truth in Lending or any of the litany of alphabet soup( Reg A through Reg Z) regulatory structure that is federal banking law. While there are no criminal penalties for non-compliance with CRA, so long as federal regulators carry in their pocket the power to deny any application for new branches, products, affiliations, mergers, acquisitions, joint ventures, new subsidiaries, disclosure, etc, etc and last but not least "cease and desist" powers only a foolish board and management say "up yours" as it relates to CRA compliance. I'm not placing blame on anybody....simply stating the fact that federal regulation compels banks to provide credit to low and moderate income households and it ain't optional......to suggest that it was the primary cause of the credit debacle is unreasonable, but to suggest that it was not a factor is also unreasonable. I have seen conference rooms full of people scanning computer printouts of collateralized mortgage securities on a line by line basis searching for zip codes that meet "CRA" income criteria......and bankers would pay premium prices for those securities and get a hearty pat on the back......you tell me. Nobody is forcing anybody......the regulators would perhaps suggest that "strongly encourage" is a more accurate description. :wink:
.....you are not alone in that respect Krebsie. It is a clear and present danger to us all, including and particularly the bankers.
Terry, I am not familiar with the details of CRA, but I would ask, are there guidelines for the loans in question as a percent of deposits or capital? I would expect that the regulators would want to set guidelines to make sure that, a) banks did not evade the requirement, and b) the amounts loaned did not interfere with the banks' capital adequacy. Given the above, it appears to me that the banks eventually were enticed by the profit in packaging these loans for sale to investors like FNMA and others, so they went hog wild. It wasn't an issue for the banks because the loans were off their books. I speculate that many of them got caught with a ton of unsold mortgages, which in part led to the crisis we are experiencing. If the actual scenario is anywhere close to what I've described herein, how does this excuse the banks from poor judgement and from conduct contrary to sound banking principles? Also, how would the regulators justify encouraging banks to violate sound lending principles by encouraging them to "load up" on subprime loans as opposed to making them up to a relatively safe portion of their entire loan portfolios? That's what I'm talking about when I assert that banks are evading accountability by blaming the regulators.
I read this morning that there will be enough money in the cumulative bailouts when approved to pay offover 90% of the outstanding mortgages in the US. At the face of it this sounds outrageous. But wouldn't that make the banks liquid, relive the consumer of his biggest debt and flood the government with tax revenues since the mortgage deduction would be gone? One bill, one plan. Big results. Hey, I'm just thinking out loud. Now I need you bankers to tell me why this is crazy and keep it in the context of the "War and Peace" size stimulus bill as now written. Thanky much!
Sid, nobody can excuse bankers from exercising sound credit judgement.....but this is a different situation than back in the day. We have a vicious cocktail of cheap money, mortgage brokers on every street corner, misaligned incentives wherein the brokers only get paid to originate, securitized asset pools with FANNIE standing at the ready to buy everything in sight, AIG credit enhancing mortgage pools by insuring against default and bankers need to score "CRA loans". Throw in FANNIE's demise and subsequent material deleveraging and you dry up liquidity, AIG's demise and you increase default, throw in broker originated paper and you have GOD knows what but it does contain some really nice zip codes......and suddenly you have a decimated balance sheet, counter-party risk of immense proportions and a frozen credit environment. Recall the "typical Main Street banker" scenario I laid out in an earlier post.....that's where we're at....it's a whole lot more than bankers making bad loans......I would submit that if we only had to deal with the debt originated by bankers without the excesses of brokers, AIG, FANNIE and yes, the implications of CRA, we'd be in a very, very different place.
Pay off the mortgages....that would be bold. I wonder how long it would take for people to borrow their equity and be back at the same spot. :wink:
If people did that then it WOULD be all on the bankers, would it not? In this scheme you give everyone a chance to start fresh and get back to old fashioned lending standards. It immediately ends the banking crisis, possibly the housing crisis and gets money flowing through the Treasury and the economy in general at an acclerated pace. And you can do this for the same price tag without adding layers of bureaucracy and being unsure where the money goes. It sounds crazy. Why?
It's not crazy at all. It makes "too much" sense. That's why it will never get done. It would eliminate Congress' ability to load up a stimulus bill with pork barrel spending. It is too pure as a solution to the problem.
.....if they paid off your mortgage, would you have to agree to a salary cap, sell your boat and not go on vacations???? :wink:
LOL! Priceless. We may not solve the country's problems here on Skybox, but as a group we sure have a keen sense of humor. :lol: