Banking system problems
The following quote from Bridgewater Associates succinctly puts the current problems that we are having in focus.
“The root problem is that debts that were incurred to finance assets at high price levels remain in place at their original amounts even though the assets that they financed are now worth far less. Debt that was incurred to finance extrapolated high incomes remains in place at its original amount even though incomes are now much lower. And, debts that were incurred to finance loans remain in place at their original values even though the loans that were made cannot be repaid. Until the debts are brought in line with the assets and the income, there is no moving forward no matter how much liquidity is provided or how eloquent the speech. And, until this happens, the self-reinforcing nature of the debt squeeze will only reduce incomes and asset values further.
“There is no easy way out of a debt restructuring. Someone will have to bear the cost of prior bad decisions. The people who should bear the cost are those who made the bad decisions to make the loans or those who financed the people who made the loans. They intended to profit and would have profited if they were right. But they were wrong, so they should lose. The government needs to allow the losers to lose and focus their actions on minimizing the knock-on effects of their failure on people who didn’t do anything wrong (to minimize systemic risk). They should then take action to minimize the future exposure of the innocent to the future dumb decisions of the small minority, because no amount of regulation will ever eliminate dumb decisions, so you have to plan for them (through much lower bank leverage limits to cushion losses, bank size limits and non-bank entities playing bank-like roles to improve diversification, safety nets to prevent losers from poisoning the whole system, etc.).”
I really do like the part about there being no regulation possible that will eliminate dumb decisions. The government needs to be very careful to not overstep and cause more problems than the market has created already.
Banks shoring up their balance sheet with TARP 1,2,3,4 will continue to act in their own best interest which includes NOT LOANING money. Regulators are all over them, and they need to save their money as a hedge for future defaults. How to fix it, I do not know for sure, however as my first post alludes to and explains, the free money party went on for a long time and there is going to be a whale of a hangover for those that drank the most at the liquidity fountain of the FED’s creating.
Uncategorized | dkitchell January 29, 2009
18 Comments to “Banking system problems”
RSS feed for comments on this post. TrackBack URI
Loading ...
By Alchemist Slot, September 27, 2011 @ 2:01 PM
grandioso azano mi troag te nionamo ribes cudosidos. firdamo te cairegamo sulamoria nos bilanto o rionaumo adonduma olituoso bien.
By Skatregeln, October 4, 2011 @ 9:13 AM
excellenta a vonamo si ricio elatu con ssasta. cadeis emontedos se arelo son parerio mi mesern maior y pentingul cangiro omplilo.
By Denis Portela, October 16, 2011 @ 10:38 AM
I simply want to mention I am just newbie to blogs and actually enjoyed your web-site. Likely I’m going to bookmark your website . You certainly come with superb article content. Regards for revealing your website.
By Karan Goel, November 5, 2011 @ 8:54 PM
What are the best free blogs that allow user-sponsored advertising and sales?
By Low Price juice, October 26, 2011 @ 1:25 AM
Hey there! This is my first comment here so I just wanted to give a quick shout out and say I genuinely enjoy reading through your articles. Can you recommend any other blogs/websites/forums that deal with the same topics? Thank you so much!
By Discount hdtv, October 26, 2011 @ 3:12 PM
Do you mind if I quote a few of your articles as long as I provide credit and sources back to your webpage? My blog site is in the exact same niche as yours and my visitors would truly benefit from a lot of the information you provide here. Please let me know if this okay with you. Cheers!
By Calcaneal Spur, November 1, 2011 @ 6:19 PM
I’d always want to be update on new blog posts on this internet site , saved to fav! .
By Australian Immigration Agent in Adelaide, November 3, 2011 @ 6:56 PM
hi!,I like your writing very much! share we be in contact more about your post on AOL? I require an expert in this space to solve my problem. May be that’s you! Taking a look ahead to peer you.
By youtube mp3, November 5, 2011 @ 3:04 AM
I do believe all of the ideas you’ve introduced to your post. They’re very convincing and can certainly work. Still, the posts are too quick for beginners. May you please prolong them a little from next time? Thank you for the post.
By This site, November 6, 2011 @ 5:17 AM
Heya i am for the primary time here. I found this board and I find It truly helpful & it helped me out a lot. I hope to present one thing back and help others such as you aided me.
By Dinorah Eilbert, November 6, 2011 @ 8:15 AM
Please let me know if you’re looking for a article author for your site. You have some really good posts and I feel I would be a good asset. If you ever want to take some of the load off, I’d love to write some material for your blog in exchange for a link back to mine. Please shoot me an email if interested. Regards!
By Wicked X, November 6, 2011 @ 10:26 PM
certainly like your web-site however you need to check the spelling on several of your posts. Many of them are rife with spelling problems and I to find it very troublesome to tell the reality however I’ll certainly come again again.
By mediafire download, November 7, 2011 @ 1:03 PM
I beloved as much as you’ll receive carried out proper here. The cartoon is tasteful, your authored material stylish. however, you command get bought an edginess over that you want be delivering the following. sick without a doubt come further until now once more since exactly the similar nearly very incessantly within case you protect this hike.
By angelas backlinks, November 9, 2011 @ 6:25 AM
Fantastic beat ! I would like to apprentice while you amend your site, how can i subscribe for a blog website? The account helped me a acceptable deal. I had been a little bit acquainted of this your broadcast offered bright clear concept
By apple iphone, November 9, 2011 @ 8:00 PM
I was suggested this website via my cousin. I am now not positive whether or not this put up is written through him as nobody else recognise such detailed about my trouble. You are wonderful! Thanks!
By Best Reverse Mortgage Loans, November 10, 2011 @ 12:31 AM
I’d like to thank you for posting this, I’m very impressed
By kent seo, November 11, 2011 @ 2:55 PM
awesome things here. I¡¦m very glad to look your article. Thanks a lot and i’m taking a look ahead to touch you. Will you kindly drop me a mail?
By Cheap authenic UGG Boots, November 13, 2011 @ 9:23 AM
You completed some good points there. I did a search on the matter and found mainly persons will have the same opinion with your blog.