Comments on: Bad News & Good News On Wall Street

By: Kurt Brouwer

Kurt Brouwer — Wed, 17 Sep 2008 18:55:10 +0000

Good point. However, if a bank is getting hurt, but its competitors are getting crushed, eventually the bank with less damage wins. That is, when things recover, the relatively unscathed bank will be in a much stronger position.

By: Penelope

Penelope — Wed, 17 Sep 2008 16:39:31 +0000

One last thought.

What you said about some of the banks coming out of this crisis stronger is true on a relative basis, not absolute. They’re also taking their lumps.

By: Penelope

Penelope — Wed, 17 Sep 2008 15:07:29 +0000

Regarding the FDIC’s list, IndyMac wasn’t on it. Whoops. So, the regulator is clueless, too. Also, a few months ago the FDIC said that their insurance fund is adequate, now they’re saying the opposite and charging the healthy banks more in premiums.

Due to the small amount of capital relative to assets inherent in the banking business model, those “fire sale prices” come at the expense of taxpayers.

By: Kurt Brouwer

Kurt Brouwer — Wed, 17 Sep 2008 01:23:22 +0000

Penelope — Good points. On the topic of conventional wisdom and housing, conventional wisdom has not been much use in this financial panic. I suspect the same will be true going forward. The housing bubble built over a number of years, so it will probably take quite a while to bottom. However, bottoming out may just be a matter of having stagnant home prices from these levels for several years.

On the topic of banks, I think there are something like 100 problem banks on the FDIC’s watch list. If past crises are any indication, 30-40 of those will fail or be bought out by a larger competitor at fire sale prices.

One interesting point in all this is that very large commercial banks — J.P. Morgan/Chase, Bank of America, Wells Fargo — seem to be coming out of this crisis in a much stronger position than they went in.

By: Penelope

Penelope — Tue, 16 Sep 2008 23:56:09 +0000

Conventional wisdom says that the credit crisis isn’t over until the housing market bottoms. It’s hard for me to argue with that logic, and housing will likely be hurting for a while (lots of ARMS to reset next year, homeowner equity still shrinking/large number of owners upside down, weak economy hammering homeowners, etc.).

We all know about AIG and WaMu, it’s the ones that haven’t surfaced yet that I worry about (WB, FITB, NCC, COF and a ton of small banks). How many more of these can the government backstop? And if they don’t (like LEH), do the forced asset sales depress prices enough to push the other marginal ones over the cliff?

Bottom line…it may still be the early innings.

By: Kurt Brouwer

Kurt Brouwer — Tue, 16 Sep 2008 05:52:33 +0000

Penelope — This could be a once-in-a-century reconfiguration of the financial system. At least, we hope it is. I don’t want to do this again. You’ve been pretty accurate so far during this crisis. What’s your call?

By: Penelope

Penelope — Mon, 15 Sep 2008 23:31:05 +0000

Hi, Kurt!

There’s no doubt that we’re going through a once-in-a-century reconfiguration of our financial system, and in the long run this will all just be a bump in the road. But, the long run can be an awfully long time. What’s your guess for the near term? Was this capitulation that we witnessed today? Have the financials put in a bottom?

Penny