Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes.Ain't that interesting? The small town banks who've been good stewards of the economy don't think that the bailout is a good idea, and they're resisting.
At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.Mr. Adams is right. When I was in Business school, they made us take a course on business ethics. My instructor grilled us like errant schoolboys, and many of us resembled that remark. The main lesson was that a businessman should be trustworthy and the consumers would reward that trust. One of the truisms of the marketplace is that value is based on perceptions. If the consumer percieves that a market segment can't be trusted, that consumer will vote against that segment with his investment dollars. Witness the crash last week. Lots of folks have lost confidence and the market reflects that lack of confidence.
Understand, much of what is going on in the market this month is about confidence. The other factor driving the market is that the market is punishing inefficient players. It's all about using other people's money and we're seeing a lot of volatility because the market is doing what it does best, driving inefficient players out.
1 comment:
Good analysis, but I don't think we can quite trust market momentum to sort out this mess just yet.
The 900# gorilla in the room that no one can see is derivatives trading, things like options, short sales, hedge funds, credit default swaps, etc.
There's so much abuse of leverage with the derivatives markets that the Street is unable and/or unwilling to sort it out, and needs help from regulators.
Until the regulators put the brakes on leveraged trading in leverages, which is what is happening today, the overall equities markets and the credit markets remain vulnerable to the gross volatility we have seen, and our economy remains hostage to the groups like the commodities traders who bid oil up to $147 this summer, when it's natural price should have been well below $100.
We have to get control of derivatives trading.
Some sorts of trades should just be abolished, and others subject to strict limits to prevent runs like we had in oil in July.
If we can't summon the courage to confront these people, high stakes gamblers really, who have wrecked our economy with their trading tactics, we are in for a long and painful recovery.
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