From Slate
On tonights podcast at QandO, I called in at McQ’s request to discuss the economy. One of the things we discussed was the likelihood of our government continuing to bail out our financial institutions. For a number of reasons that will be problematic.
Of interest is how many institutions are likely to fail?
One way to look at that is to see what the market is implying. Weighted by assets, right now the market is pricing in about a 4% failure rate for just the next six months. That would be far above the S&L crisis’ peak, and over its full term it amounted to failures of 17% of total assets. The assets which would need to be absorbed….575 billion. How much capital would that require to absorb them….50 to 80 billion. There is only about half that available from other institutions to take them over. Of that, nearly half is in small institutions which will be of little help. As loans continue to go bad that capital is likely insufficient to cover their own losses. This implies much more raising of capital, and who is going to give it to them? Most people who were willing have already ponied up. JP Morgan and the Fed already took on Bear Stearns. Whose balance sheet is available?
The losers in this? Taxpayers and bondholders. Having just taken on Fannie and Freddie, and guaranteed their bondholders, I assume bondholders will have to start taking hits. The lesson might be for bondholders, if you are going to fail, fail early and fail spectacularly!
About Lance
I want to thank everybody who has encouraged me over the past few years to do this. I doubt it will hold but a few people's interest, but that is okay with me. Special thanks go to Peter over at http://www.liberalcapitalist.com.
I value my privacy a great deal, so I will guess you will have to get to know me over time to find out much. I am in the financial services, wealth management, investing or whatever you want to call it business. I have children, my oldest is entering college.
I have no great or imposing academic background, my grades varied from high enough to get invited to an honors program at my university to frustrating enough to cause my father great grief. My major was history, with a minor in ethics. My main interest towards the end was in the history of economic ideas before life took a turn and I ended up never going on to graduate school. However, I have a fair knowledge of history, economics, investing and would probably be considered well read. My tastes are eclectic and I pretty much find the entire world interesting.
I have an enduring interest in how people learn about and analyze the world; my posts here will examine this topic in detail over time. I make no claims to be above the very biases and errors I see in others, in fact it is my belief that we are incapable of escaping them, only moderating their control over us.
I am a member of no political party, but I would broadly consider myself a man of the right. I am inclined to free market economics, limited government and a fairly narrow view of the role of the state. A small L libertarian if you will. However, if you are looking for broad based "the left believes..." or "wingers are so...." types of attacks on liberals, conservatives, neo-cons or whatever enemy you want to slam, look elsewhere.
Lance
