Well,
thank you. In fact I had your thread bookmarked for a long time and occasionally read the argumentation.
I would absolutely underwrite your "externally" determined "fate" of the U.S. economy. That is pretty clear to me. I guess the U.S. does indeed have some comparative, hey well actually a competitive advantage at a couple of things left though ... in providing "security" for example or "technical excellence" (the high-end R&D that hopefully spawns the next wave of ventures... call it the next Cymer)
"cause and effect" ... this is difficult. See, one makes an empricial observation and another. And there is a correlation .. that is something you can infer eaisly . But what factor causes the other ? Getting variables correctly assigned into "input" and "output" factors in a model is pretty tricky.
What yield curve I was referring to (in the conext of regional banks)
I meant the yield curve for US "Soverign" stuff of "riskless kind" with the FED at the short end and the T-Bonds at the long end.. I do know that the regional banks refinacne from the FED and also from the Federal Home Loan Board. The NIM in their quarterlies of the "dull, safe regional banks" are 300-400bp. Obviously parts of their refi is at higher prices (CD, deposit) while other parts are virtually cost-free (checking accounts) because they are non-interest
Oddly enough some of these "dull banks" as you seem to describe them (not explicetly though) seem to be growing nicely, Loans and deposits up 5-10%, occasionally 15% per year on year without any kind of M&A thrown in.. (will try to cite examples). Yes, these are smaller banks tied to maybe a more "thriving" community. But they indicate it is indeed possible to be growing and avoiding excessive exposure to "toxic" leverage.
Now on the "real meat" that you provided: You say "The environment under your yield curve indicates imprudent, moral hazard, risk avoidance" ... sorry - I cannot decipher this statement of yours correctly (maybe because English isn't my native language). So let me try to probe to get it right:
First you mention "MY" yield curve. Do you mean my implied return that I would "demand" for an investment ? Moral harard ? Why that for these "safe banks" I wonder what you are inferring here.
Look, I have not invested in such entities yet, just wanted to scope out and find some mispricings out there. Obviously, a WaMU etc. were able to be brought to their knees, into pseudo-BK or shotgun-weddings because of overleverage, toxic debt. It'S pretty clear to me that any bank can have a run engineered at them - I guess reduced leverage should help in such a context.
Which brings me to the question, why do you think these banks suddenly (?) became distressed. Was it the "perception" of their sudden instability that was "orchestrated" by some manipulative forces (these banks just continued to do what they did "succesfully" over the last 8 years with no problem whatsoever before) -- call it the "Bank Runners in action"
Was it the abrupt change to "Mark-To-Market" that allowed the hedge-fund "community" to fiddle with the basis of which to mark to (setting off an avalanche that all distressed sellers later just compounded) ? -- call it the "Accoutning Trap"
or just excessive leverage on its own coupled with too loose lending and the factors above are not real factors and therefore meaningless ?
Some observation: Looks like I heard some sort of your argumentation line some time ago in my economic classes in college. Reminds me of Robert Lucas, "rational expectations" ... does this fit ?
CROSSY |
