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Great Article on Financial Collapse

Wednesday, April 8th, 2009
Posted in Education by Joel Gross

Forbes was kind enough to publish an article discussing the financial collapse from the perspective of one of the few smart bankers left in the country, Andrew Beal owner of Beal Bank. Here are a couple of quotes to take to heart:

The FDIC’s stated purpose is to “encourage liquidity in the banking system,” and Beal would love the extra capital, but FDIC staffers have told him, without providing details, that the program was not designed for him. “We must be the only bank that has tripled in size in the last eight months, but we aren’t eligible for nothing,” says Beal. “The crazy thing is guys who weren’t real responsible are eligible.”

He thinks the government is going to be “disappointed” by its various programs to revive lending. He says Treasury Secretary Timothy Geithner’s new plan to guarantee loans to buyers of toxic assets won’t lead to many sales because the problem isn’t liquidity but price. They are not low enough. Half the country’s banks–4,000 in all–would be bust, he says, if they marked their loans to what the loans would fetch in an auction. He says banks are fooling themselves by refusing to mark busted assets down.

“Banks are on a prayer mission that somehow prices will come back and they won’t have to face reality,” Beal says. And that reality, according to Beal, is going to get a lot worse. “Unemployment is going over 10%, commercial real estate hasn’t even begun collapsing and corporate credit defaults are just getting started,” he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.

As for the cause of this mess, Beal points a finger at the government for giving its imprimatur to just a handful of credit rating agencies, then insisting that money market and pension funds buy only paper with top grades. He also blames government for luring people into debt by backing everything from bank deposits to Fannie and Freddie to student loans.

Go here to read the full story:

http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html?feed=rss_popstories

Very good stuff.