The Next Shoe to Drop
This is a note I sent my cohorts recently out of frustration over what I thought was the discounting by some of the readers of my Business Insider articles of QA’s banking analysis, which was showing that the worst of the banking problem was over.
I guess everyone either (1) already knows what I am saying, (2) they think I am just another “blogger-type” blowing smoke; or (3) there is so much other noise out there counter to what I am saying that they just can’t accept it.
It reminds me of the day I was watching the Big Bank Executives getting grilled in front of the Senate Finance Committee a couple of years ago. Of course, the executives were getting beaten up pretty good by the “extremely wise and insightful” Senators and generally the Executives were fairly meek in their responses to the grilling. Most of the discussion was around the banks’ mortgage lending, but at one point Senator XXX puffed up his chest and said, “What are you going to do when the next shoe drops–bad credit card lending?” The Senator said, “My Expert Economists are telling me that credit card lending is going to be the next multi-Trillion dollar problem that you banks are going to drop on us.”
I was a bit surprised when the CEO of Bank of America responded almost immediately, “Now, Senator, I hardly think that will happen–the amount of all credit card lending for the entire industry is less than $1 Trillion. Our analysts estimate industry losses for that part of the market will be around $10 Billion.
Now I don’t know about you, but even at that time I felt that there was a fairly big gap between the Great Senator with a “multi-Trillion dollar” perspective versus the Questionable Banker with a “$10 Billion dollar” perspective.
Having already made myself somewhat familiar with the FDIC Banking database, I knew that there was information available to determine which of the two perspectives was more correct, so I went into my den and got on my computer and onto the FDIC website.
And do you know what I discovered after about five minutes of looking?
The CEO of Bank of America knew more about what he was talking about than the Great Senator XXX who was backed by his so-called expert economists.
As you know, I have never liked economists in general nor anecdotes (although i have just told you one) in particular. Personally, I prefer to use “composite” information based upon reliable information than the type of side-bar anecdotes that many of the experts use to extrapolate into nonsense. The trouble is it takes more work to do the former than it does the latter–although in all truth–not much more work.
So now with that being said, I will stand behind QA’s findings and analysis showing that the “worst of the banking industry’s problem” is over.