Comments on: Bank leverage: forever blowing bubbles part two

By: homerovelazquez

homerovelazquez — Mon, 31 Aug 2009 02:45:58 +0000

Why always we go into the same mistakes?
Do we not learn the lessons of past recessions?
I hope that decision makers have a cool brain and they are not only
guided through speculation and greed
Just my view
Homero Velazquez

By: WoodlandMike

WoodlandMike — Sat, 29 Aug 2009 14:35:52 +0000

Sadly, it seems our Fed is a one-trick pony: the only way it knows to foster growth is to blow bubbles. One might have hoped Bernanke had learned something from the Greenspan bubble debacle, and might hint at raising rates, or at least try to talk down the markets — but this does not seem to be the case. He doesn't see any inflation beyond the CPI. This is a colossal and dangerous intellectual failure.

When will the markets understand that there is nothing fundamental underpinning this rally, that it is only a monetary reflation? Can we as a nation afford the collapse of yet another bubble? This doesn't promise to end well.

By: hbl

hbl — Sat, 29 Aug 2009 14:18:04 +0000

Good clarification… re-reading I see that asset choice was your main point. I think I was responding more to the tone of the article you linked titled “Leverage Rising on Wall Street at Fastest Pace Since ‘07 Freeze”.

By: Edward Harrison

Edward Harrison — Sat, 29 Aug 2009 12:29:19 +0000

Hbl, I haven't had a chance to look at the Fed data yet but reflation is not
working because the FDIC reports that the bank sector is still reducing
assets.

So one could view this in the light I suggest, namely we are seeing a
re-allocation of resources from less to more risky assets as the low
interest rates have caused inventors to need to increase risk profiles to
generate the return they seek.

But just like in prior episodes, this is likely to end badly as the excess
return means excess risk that will become evident only during the next
downturn. It seems this crisis has meant we have collectively learned
nothing.

By: hbl

hbl — Fri, 28 Aug 2009 20:00:19 +0000

Troubling. To put it in quantifiable historical context, do you happen to know which "Federal Reserve data" the article is based on? (I'm guessing somewhere here but can't search now).

TOTBKCR (one of the weekly updated series) doesn't yet show marked reflation in TOTAL bank credit... but of course that isn't the only type of lending and the total could mask a growing trend within the finance portion.