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 Re: whars happening to banks
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Joined: May 2006
Posts: 3,971
Loquacious
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Loquacious
Joined: May 2006
Posts: 3,971 |
Quote:
What is happening with the banks ???
There is a tremendous pressure on the top level managers from both shareholders and a board of directors to produce returns and profits, often to the point of "and we don't care how you do it, as long as you make us money."
When the housing market was in a boom, many investment banks turned their eye toward the real estate market. For a small capital outlay, a lender can hold a tremendous amount of potential gain via appreciation in value that the real estate market typically offers, (not to mention the interest incomes) and translate the above into lucrative holdings & assets on a financial statement. The better an investment bank looks on paper, the more investors they attract to buy their stocks and offerings. Perception is a key catalyst to worth and growth.
When the US real estate market began to drop like a rock, we had many home owners walking away from their newly minted negative equity homes, and leaving the banks swinging in the wind. A personal guarantee on a mortgage has little to offer a lender when blood from a stone becomes a personal financial statement. The other problem is the banks are stuck with the real estate holdings, and as in the case of Lehman Bros, can't unload them, for no one wants them. There wasn't a lot of hate going around when the investment banks were pushing the markets higher... They were OK then. ;-)
It would seem our system of debt & borrow needs a periodic adjustment to shore up the house of cards built underneath it when debt loads soar. I'd want to believe we are (obviously) knee deep in one of those "adjustments" right now, and the cycle will revert to profit in x or xx months.
In this age of plenty, I don't see a return to 1929 happening, but it's beyond me to analyze it.
Insurance giant AIG is in big trouble now too. That may mean they are heavily invested in real estate as well. I would want to believe they won't be the last insurance giant to offer up woes in the news. The last time we "adjusted" the US economy, the insurance vendors radically hiked their premiums to cover their investment losses, so as is ever the case, Joe Middleclass American balanced the books for all, by footing the bills via a higher cost of living. 
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