Friday, September 21, 2012
5. Drought Conditions
I defer to you on your banking knowledge being exponentially greater than mine.
Is there really a regulatory problem so large than Too Big To Fail trumps Too Local To Exist? I wouldn't doubt it, but if it is true then all we've done is make banking riskier for everyone rather than safer.
The rivers are plenty high to allow freight traffic. The problem is more likely the high prices on bulk commodities due to the impending reduction of supply. Don't know if you'd call that environmental or economic, but it's sure going to hit both consumers and producers in the pocketbook.
Rail is definitely not affected by water levels.
Rail through April
Look at YTD numbers for the various categories.
I am waiting for Septembers water freight with great trepidation. The shape of that curve will tell me something about how low we will go.
The problems are occurring on multiple levels - in the current environment, CBs need to jack up consumer lending but will have terrible trouble doing so due to regulations, and since everyone's short on credit-worthy borrowers, the bigger banks are extremely competitive on commercial right now.
That link is very good - the problem for that bank was not poor credit decisions, but an environment in which they couldn't lend enough related to their deposit base. This, paradoxically, makes you less competitive on your deposits, because you have to control loss risks and expenses there adamantly, and you can't get returns high enough to remain competitive on rates, so you are going to see your loss rates rise as you lose bigger stable deposits.
So their decision is right for the shareholders - staying in business as a solo operation would entail assuming higher risk on ever diminishing real returns.
CUs are also in deep trouble, but they tend to have a little more cushion because they don't have to pay taxes.
I wrote years ago that the best advice I could give most CBs after Dodd-Frank was to get the hell out, and I haven't changed my mind at all. In fact, recent regulatory moves have reinforced my opinion. This is a very toxic market for CBs, and although some in certain areas with good management and better economic conditions can still make a go of it, many of them really should be shut down.
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