The Bonddad Blog: Read This Now

Wednesday, April 21, 2010

Over at Macroblog there is a great discussion on bank size. As always, the issues are incredibly complicated.

brodero said...: We have got our eyes on the wrong problem....Big is not bad in fact I
submit it is long term good for this country..what the problem was
LEVERAGE......Bear Stearms Lehman
Washington Mutual,Countrywide did not have adequate capital to meet their risk....It is simple too...
Preprovision earnings power is essential for survival for making
long term loans...Preprovision earnings to Loans is very good with
the Big Boys well over 4% to loans...meaning they could take at least 4% a year hit in loans before
capital is touched. The smaller banks have a terrible preprovision earnings to loans ratio less than 2%....not too mention the inadequate capital...remember Big is long term good...amount of leverage if too much is verybad,,,

This is why the system blew up....
see below
http://www.sec.gov/rules/final/34-49830.htm; April 21, 2010 at 3:00 PM