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Mish has a teardown of the latest outrage of Bank of America. It seems BoA’s counterparties are uncomfortable with BoA’s derivatives position and/or equity and would like either more collateral (yeah, right?) or else move the risk to the division which owns the retail banking and deposits from the public. Moral Hazard: 1
Readers who followed me at my original blog, Econblogreview, may recall that about a year and a half ago, I was harping on the relative weakness of the banking stocks as a harbinger of a new economic and stock market downturn. Certainly I have been vociferous about that in these months at The Daily Capitalist. [...] One of the problem with a leveraged economy is that some good credits turn into questionable or poor ones if the economy turns down suddenly. This is where I think the Western world is now. Thus even modest changes in economic conditions produce leveraged effects when bank solvency is in question. The Economic Cycle Research Institute’s Weekly [...] I’ll bet that this statement is something that BofA and Ken Lewis regrets mightily (press release from January 11, 2008):
Bank of America Corporation today announced a definitive agreement to purchase Countrywide Financial Corp. in an all-stock transaction worth approximately $4 billion. The purchase will make Bank of America the nation’s [...] Mish has a post up involving a discussion with a Cerdian economist named Ed Leamer. I am going to comment on one point: Leamer: Dips come from collective postponement of the postponable purchases: homes, cars and equipment. But all three of these are at record lows relative to GDP after all the postponement that has [...] |
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