Tuesday, June 05, 2007

Real Estate Loans as Percent of American Banks' Total Portfolio

Again, I am just a dumb economist.

I play video games, pick my nose, jump out of trees, run into bushes and climb rocks.

What do I know?

I'm too busy melting ants in my back yard with a magnifying glass and that's when I'm not polishing off a 5th of Jack Daniels drawing pretty pictures on my parent's walls with the 164 box of Crayola crayons.

So why listen to me, or for that matter any one of these moron economist types out there that "claim" there's some kind of housing bubble?

Well that might be changing because banks, mortgage brokerage outfits among other financial service firms that had exposure to real estate are posting losses. Default rates have started to skyrocket and more and more often banks are being left holding collateral for loans that is worth less than the amount they lent out on it due to overly-optimistic appraisals. And while rich, middle aged gray haired men who thought they knew better than us dumb monkey-economists who swing from tree branches and scratch our armpits, these losses along with the increasing chance the board of directors will fire their asses are making them more receptive to listening to the other camp. That "camp" I like to call "reality."

So here's a little tidbit that I think we can all enjoy and it also shows you we're not out of the housing bubble yet. Not by a long shot; Real estate loans as a percent of total loans for all the banks in the US;

(adjustment of the y-axis is duly noted)

You see, banks are going to have to eat through their excess loans and diversify into other loans like commercial, equipment, and other loans. Sadly though, most businesses or sole proprietors who want those kind of loans are just going to pony up real estate as collateral for these loans anyway, not really reducing the exposure of banks to real estate. And I've thought of some great ways to diversify banks' loans portfolio's to lower their exposure to real estate that would turn them profitable in 2008, not to mention lower the overall risk of their loan portfolio. Only problem is (and I'm not kidding) that I've literally approached banks and offered them such services and they poo-pooed me away because (as you know) I'm just a dumb economist.

But something tells me that there will be a potential consulting gold mine for economists, consultants and other various finance professionals out there who know why there was a bubble and are able to help banks salvage their crumbling operations. I think it will just take another two quarters of losses that quadruple the losses experienced in the first quarter of 2007 in the banking industry to finally convince the middle aged, MBA'ed, non-stop-golfing gray hairs that maybe they ought to listen to economists.

Too bad we'll all probably be too busy playing with our Legos eating our Jello Pudding Pops.


Anonymous said...

So Dude, what's stopping you? Get a briefcase and go do that consulting thing. Make that gold mine -- better yet, make that gold mine yield gold. There's a difference.
If you decide to go into consulting, though, you might consider toning down that faint whiff of contempt for your clients I'm inferring from your posts.
-- pedro

Captain Capitalism said...

Oh, I've already pitched it to a couple banks and I do consult. But there are times where being the "bad cop" will get you the contract instead of the "well, I understand mistakes might have been made, WHICH IS NO FAULT OF YOUR OWN"

Sometimes it's better to just come in like Ronald Speirs and say, "you're relieved."

Anonymous said...

Well well well. I run a successful software company (5 years old, $6-7m rev) and tried to get a $150k revolver. DENIED! Maybe I will get my sweet justice. Thanks for the hope Captain!