Wednesday, October 15, 2008

Bank Loan Officers ... Panic

Nothing like a rising default rates to cause Bank managers to panic. The Beige Book suggests that the clamp down on credit cards, etc., (raising rates, cutting limits, snapping to 'penalty rates', and pulling lines altogether) was causing consumers to retrench, even as they were paying greatly higher costs for gasoline and their tax-rebate money was ending.

We have to try to keep bank managers from panicking, as much as possible:

To some extent, I suspect that loan officers, even credit-card companies, are fighting the last battle, so to speak. It's human nature, right?

Unfortunately, making this year's vintage of loans the super best ever, may, paradoxically, raise the probability that the existing vintages get ... worse.


Last, we should pressure small banks, as a group, to stop paying dividends, as a matter of prudence, for a year. Publicly doing so can only help the system and help them with ... unruly shareholders, who ... are short-term oriented.

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