not necessarily, though it would sure help...-g-
seriously, while loans to consumers are a very likely future source of problems, i expect trouble to arrive earlier...we already had a bit of a preview in the form of the Sunbeam and LTV bankruptcies, as well as the Cali utes near-bankruptcy (i suspect the banks will be forced to take huge writedowns on those too). looming in the background is currently Xerox , to name another high profile potential candidate. i expect at least two, if not three, big international telcos to go belly-up in this downturn, and possibly take a raft of suppliers with them...and i suspect we will be duly surprised when that happens. many of the weaker credits have in recent months made liberal use of emergency credit back-up lines as the capital markets have shut down for them.
flying miles below the regulatory radar, we have all sorts of more than suspect commercial paper (a.k.a. 'accident-in-waiting') biding its time in money market funds and waiting to blow up...the thing is, that while the banksters did get all those receivables they securitized off their books, the risk is still all theirs, since they 'insured' it in order to transform absolute junk into triple A rated paper.
i won't even get started about real estate...areas which have experienced hefty RE bubbles in recent years with the concomitant overbuilding, are all prone to busts in the course of this downturn.
the opportunities for banksters to f*ck up during a lengthy boom are practically endless...and in this boom i'm sure no scheme was harebrained enough to not qualify for a loan.
all you have to do is look at what was considered worthy of an IPO in the past two years...the same carelessness probably reigned in credit land too. after all we all knew it was a new era, and the boom would never end.
incidentally, loan loss reserves, and reserves in general(vs. assets) at the banks have hit multi year lows in qu. 3 2000. at exactly the wrong moment. always happens this way, only this time the credit bubble is so huge, that no benign outcome is mathematically possible imo. |
