The banking “don’t call it a crisis” crisis is as much about culture as it is about actual banking. The banking, such as it was, was appalling. The culture is so much worse.
Since the 1980s, debt has been a wealth-creation tool, in the hands of experts. In the hands of smug ignoramuses, it’s been a disaster. Junk bonds, sub-primes, and now ridiculous levels of debt in institutional closets are the story. The world has been writing debt like graffiti on toilets, and now all that debt has come to say hello.
To be fair – People do get paid for writing debt. It’s a bit like getting paid for shooting yourself, but it’s a living for some. Talking about “transactional relationships” high debt is the all-time booty call for people who don’t know the risks.
It’s basically a sales job thing – You sell debt. To anyone. With or without any level of credibility. That’s the problem. In the much harder world of hard money lending, that’s not even a hobby. Debt can be called anytime, and it is, and you wind up on the wrong end of the gun.
This is what happens when lenders leverage themselves out of both viability and credibility. Silicon Valley Bank accumulated its own coffin of debt. First Republic and Credit Suisse seem much the same.
If your collateral turns into stuff you wouldn’t line a birdcage with, the game is over. You own lines of credit are gone. You can blame low-interest rates, but only to a point. The property market and other forms of rabies as assets were always going to be a black hole for debt.
Business credit is different but contaminated with much hype. You notice how the expression “angel investors” has gone out of use? Angels don’t have to “fear to tread”; they don’t have to go wading around in the sewers, either. Startup loans can be totally half-ass, both ways. It’s finding an outlet that’s the problem.
The First Republic was more upmarket. That market is no longer a recommendation for anything if it ever was. The property market and its ever-rising prices and ever-inflating and more misleading opinion of itself had a lot to do with that. Prices are risk indicators, or to put it another way “Duuuh”.
The pity is that the wisdom didn’t even need to be after the event. Everyone was predicting the fan would get hit. Nobody needed to read the tea leaves; if interest rates effectively triple, of course, lenders are out of position.
Some people say that being in the car while you’re driving it helps. That’s never been proven. It looks like some of these banks weren’t even on the same planet as their investment vehicles and lending equipment.
This is/was the culture. Pure hubris. Ego fodder for people who should know so much better. The theory here is that the banks stopped doing actual business, and started writing either mythology or pure fiction as loans. Self—image reinforcement gone nuts, in fact.
Like 2008, and 1929 for that matter, the banking sector’s overconfidence went straight over the nearest cliff. Either the sector gets its finger out and does things right, or this season of meltdowns will go on for a very long time.
2008 does have a lot to do with this. After the big crash, people wanted to make money. The options were few and obvious. The same people and the same culture knew how to write lousy debt. So they did. Nobody had the brains to shut them down. So here you are.
Let’s keep it simple.
There’s a reason for doing business properly. This is it. So do it.
