Ramsey:
You missed my point. Mexican banks are said to hold something approaching $65 billion in bad loans. Now that's a big, dramatic sounding number that makes great press, but you have to understand much more about the nominal hole to draw a conclusion. What are the assets underlying the loans? How badly are they impaired? $65 billion in bad loans does NOT mean that the government has to write a $65 billion dollar check. For example, if a bank has $1mm loan against an office building, and the owner is not current on his payments, this would be considered a "bad" loan (and the entire $1mm would be considered in default). Now, assuming the owner is permanently impaired and cannot bring the loan current, the "hole" is the difference between the building's current market value and the loan value. If the building is remarketable for $900,000, then the bank is out ten cents on the dollar ($100,000) not $1mm. Were this level of impairment typical throughout the economy, then Mexico's $65 billion banking crisis could be resolved by something between $6bb and $10bb.
Reporters aren't bankers, so the nuances tend to get lost in the desire to maximize the story's impact. As I suggested before, Japan's banks are dealing with many, many loans where the underlying collateral may be potentially worthless or severely impaired (i.e. Tokyo real estate values have fallen by 70%-80%--so assuming minimal equity and little amortization, the bank could be out a like amount of its loan value). As I said before, the Mexican economy never suffered from the same kind of bubble, nor is there a surfeit of industrial capacity. So, as I said before, the problem is not comparable to the Japanese situation. And, also as I said before, the U.S. government has demonstrated in the past that it cannot, and will not, allow a meltdown of a southern neighbor.
Hope this helps you sleep.
Best regards,
Gregg |
