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“Too big has failed” | FRBKC

Colin Henderson

This extract from the introduction in this speech summarises the situation well, both in US and UK.  It is such a clear example of taking the wrong actions (injecting cash into banks) over and over, yet not succeeding in the objective of restoring confidence.  Bank stocks have now reached the point that they have no impact on the Dow Jones index.  This means confidence is not just down but eliminated. Time to address the root problems: asset values and resulting insolvency management change Too big has failed | [pdf] Federal Reserve of Kansas City – Thomas Hoenig Over the past … Continue reading “Too big has failed” | FRBKC

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Memo to BofC | Canadian lesson ought to be benefit of early co-operative action – not “it began outside … “

Colin Henderson

I have to take issue with this statement by the Bank of Canada Deputy Governor made this morning to the House of Commons Standing Committee on Finance.  Without a full and proper understanding of the crisis, how can our leaders be exepcted to appropriately address it.  In particular this is central bank advice to the House of Commons.  Yes a global solution is required, but no it begain inside all countries borders, and here is the Canadian experience followed at this blog. Opening statement by Pierre Duguay Deputy Governor of the Bank of Canada to the House of Commons Standing … Continue reading Memo to BofC | Canadian lesson ought to be benefit of early co-operative action – not “it began outside … “

Business Models

Risk of bank default is back to Sept 08 / Lehman failure levels

Colin Henderson

Following along on the theme of what to do with the top banks, this indicator tells us the work to date has failed.  All that money being placed in banks is not reducing the expected risk.  This is a serious matter and inappropriate methodology of use of government (US, Canada, UK and European) funds.  It points to nationalisation as one alternative option to the current use of funds. The cost of insuring against a bank default – that means a bank going out of business and this is for the top banks, Bank of America, UBS, Barclays, Lloyds etc, is … Continue reading Risk of bank default is back to Sept 08 / Lehman failure levels

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Bank Nationalisation must follow failure to meet stress test for solvency

Colin Henderson

Bank Nationalisation is finally the topic de jour.  It is an undercurrent in many discussions, and strangely has the Democrats and Republicans in some kind of opposite land debates. I favour the view of Nouriel Roubini who speaks of the current procress as being death by a thousand cuts in this worth watching video.  The governments in UK and US are dribbling money into banks and the auto sector, with no end in sight, and little apparent contrition from management.  A strategy is needed for both those sectors and decisive action taken. However it has to be based on principle … Continue reading Bank Nationalisation must follow failure to meet stress test for solvency

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How bad is the stock market compared to 1930’s depression?

Colin Henderson

It is not really relevant, but there is so much talk, I took a  look at the 1930 depression which actually took almost 3 years.  In that time the stock market dropped 89% from the peak.  For that to be replicated today would require the Dow Jones to be at 1,409 by 2010. based on the peak of 14,093 in Oct 2007. The Dow today is at 6,764 representing a drop of 52% after 16 months. Continue reading How bad is the stock market compared to 1930’s depression?

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Enter the Zombie banks: Liquidity fixes for banks will not solve their solvency problem

Colin Henderson

James Baker of all people sums up precisely why the current government approaches to fixing banks’ problems is flawed.  As you will have gathered I fall in the Niall Ferguson/ Martin Wolf camp that says this situation is not just worse than we think but more importantly it is different than the prevailing wisdom.   We risk fixing the wrong problem in other words. ‘How Washington can prevent ‘zombie banks’ | Financial Times Beginning in 1990, Japan suffered a collapse in real estate and stock market prices that pushed major banks into insolvency. Rather than follow America’s tough recommendation – and … Continue reading Enter the Zombie banks: Liquidity fixes for banks will not solve their solvency problem

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Fareed Zakaria interviews Martin Wolf

Colin Henderson

Fareed interviews Martin Wolf, Senior Economics editor at the Financial Times. Here are some notes from that interview. Martin speaks of the 40 trillion dollars that have been lost in equity value in business and asset values.  He is critical of the US governments efforts to date while being directed at the right areas, as inadequate to address the depth of problem facing world economies. On banks, they are seriously undercapitalised or insolvent in some cases.  The underlying danger is that they won’t or can’t lend.  particulalry to business, thus commerce will contract.  He refers to zombie banks who can’t … Continue reading Fareed Zakaria interviews Martin Wolf

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Ken Lewis – where are you getting your political advice?

Colin Henderson

Building on a post the other day about BofA, you might think its time to single out Ken Lewis here and his apparent inability to read the obvious.  [hat tip Paul]. It has been two weeks since those incredibly painful hearings with the House Finance Committee where no-one could doubt that corporate jets are the political hot potato of the day, right behind bonuses being paid by government bailout money. Well this piece adds visuals with the rented bling-mobile after a ride on one of the most expensive corporate jets in existence.  Add the almost $4bn in bonuses referred to … Continue reading Ken Lewis – where are you getting your political advice?

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The endgame for banks – sloggers or innovators

Colin Henderson

We quickly forget about previous crashes, but over the period 1997 – 2003, $2.8 trillion in market value was wiped out from the telcoms as they experienced their own bubble through the dot.com times.  The Economist points out there are lessons for banks and for banking regulators too I would say. Their conclusion is consistent with my view that there will be some innovative winners such as O2 that are able to re-energise with innovative measures, marketing and services.  However many will as the article say, slog along “against competitors and reinvigorated regulators”.  I have gone further and supported the … Continue reading The endgame for banks – sloggers or innovators