wow, nice quote from a book I just came across

Discussion in 'Economics' started by stock777, Mar 4, 2008.

  1. On banks failing:

    Why Banks Fail
    After many years of working to counter the effects of financial crises, we
    have developed a point of view about why banks fail. The simple causes, in
    our opinion, are traceable to errors made while underwriting loans.
    However, this answer is not very satisfying in itself and it leads to more
    questions, such as: Why were these underwriting errors made in the first
    place? What impacts do special conditions that are generally not present in
    more developed and stable markets have in these bank failures? Do these
    banks operate in dangerous markets?
    Bankers operating in economies hit by financial crisis recognize that
    corporate sector underperformance places enormous pressure on banks.
    They can trace the effects of real sector underperformance on their loan
    portfolios. Since loan portfolios in most countries are kept on the balance
    sheet, without being marked-to-market, it is nearly impossible for bankers
    (or regulators) to fully and fairly assess the value of their portfolios—and
    the state of health of their banks. Moreover, because the banks themselves
    provide the lion’s share of financial intermediation in these countries, the
    capital market trading that would force visible repricing in a more advanced
    economy generally does not exist. In crisis conditions, many banks simply
    will not recognize the extent to which their asset values have declined, since
    they fear a collapse of confidence.
    Even those who knew before the crisis that they were on perilous ground,
    and who could have possibly reshaped their portfolios, generally did not. As
    we showed in Figure 3.7 above, Colombian bankers deepened their commitments
    to the very companies whose declining performance was threatening
    them. This phenomenon is common in many developed economies as well.


    Managing in Financial Crises
    Wiley Press
  2. Any type of business failure is a result of one thing and one thing only......stupidity. Don't waste you time intellectualizing it nor removing blame from those who deserve it most.
  3. Thats brilliant. PhD?

  4. In other words, they were averaging down..... :D

    Maybe the nice, fat bonuses should be delayed a few years until it's apparent they weren't garnered by fraud.

    The company/screwed-shareholders could try and get them back after-the-fact, but we know that never happens.....
  5. I'm no closet commie, but these greedy overconfident bastards really need to be reigned in by even more oversight.

    The real problem is too many gamblers with opm and not enough skin in the game.

    The compensation game is a scam.

    That clown Mozillo took the money and ran.

    I say take it back as reparations for running CFC into the ground.