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Subject: Abelson in this week's Barrrons. An exerpt related to the bank sector.
Last week, if you recall, we ran a chart that depicted the
rapid rise of mortgage-related loans to a formidable 61% of total bank credit. The point was that the banks now had huge exposure to the
real-estate bubble and were occupying an ideal position to absorb the full jolt
of the fallout, as we put it, when and if the bubble went pop.
Which brings us to this week's second chart, courtesy of MacroMavens and entitled "Never a Rainy Day?"
It's a nice companion to last week's number because it shows that even while
increasing their exposure to real estate to a rather hair-raising degree, the
banks have been setting aside a smaller and smaller proportion of reserves
against losses.
As Stephanie Pomboy, MacroMavens' proprietor and no stranger to this space, comments
with her customary timidity: "That our economy and financial system are
uniquely exposed to real estate is troubling. But the real issue is that we've
no cushion for losses. Consumers and their bankers have grown so confident that
the Fed will arrest any asset decline that they have sought (and achieved)
maximum exposure, minimum protection."
After a brief "bout of conservatism" induced by the
dot-com crash, she notes, consumers eagerly went back to viewing cash as trash
and their housing as savings. Meanwhile, bank-loan-loss reserves have sunk to
their lowest level in 19 years.
And, Stephanie glumly predicts, "with hints that the
housing market is already coming off the boil, the road ahead is sure to get
bumpy. As it does, the absence of any cushion will begin to rub the economy and
the financial sector raw." That'll leave
That inelegant set of circumstances prompts her to observe
tartly that in his parting remarks at Jackson Hole, referred to in this space
last week, Mr. Greenspan, "with the kind of bristling bravado only a man
outside the ring can have," admonished his successor to get tough and
"resist any temptation to monetize." Don't try, in other words, to
wash away the problems with torrents of liquidity or, to change the metaphor,
paper them over by cowardly recourse to the printing press.
Sighs Stephanie: "Yeah, that's easy for you to say,