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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 6, 2009 at 10:20 AM

Fresh worries emerge about bank debt load

Top of the News: The emperor’s new clothes failed to charm fashion critic, er, banking analyst Mike Mayo, formerly of Deutsche Bank and now with CLSA. This morning he issued a report saying the banking crisis is far from over and loan losses will exceed those of the Great Depression.

This isn’t surprising when you think about it: Even major retail banks were engaged in leveraged plays far beyond historical norms — or their expertise in managing them. And the grossly over-leveraged investment banks are in many cases now part of the giant “too big to fail” retail banks. Mayo warns that just when you think one asset class has seen the worst of defaults, they will spread to another class. And we’re not even through with the wildfire in mortgages.

This is another question mark of many hanging over the Obama administration’s bank rescue plan. Does it go far enough in addressing what are essentially insolvent institutions? Does is provide the transparency in allowing taxpayers and investors to see what’s really inside those shiny boxes marked “derivatives”? And are taxpayers being asked to take on too much risk while the financiers who so lavishly paid Obama ecconomic adviser Larry Summers make out quite nicely? Ain’t complexity fun?

The Back Story: Washington state gets a “B” grade from the economic development think tank CFed in a state-by-state report grading financial security, business development, home ownership, health care, education, and tax policy and accountability. The group takes a snapshot of the nation as it was heading into recession in 2007-2008. You can check out the report here.

Today’s Econ Haiku:

Oh, to be Larry

Where hedge funds pay you millions

For a Summers’ daze

Comments | More in Banking

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