[quote=Allan from Fallbrook][quote=evolusd]This irritates me. While it makes sense to keep some ‘performing’ loans from being written down, it ignores the second largest underwriting parameter – LTV.
I relate it to the stated-income loans of the residential boom. “Don’t worry about the borrower’s cash flow ability, the home will be worth more and the Bank will be fine!” Only this time it’s “don’t worry about our collateral position, the cash flow is fine!”
I think the Banks need to face reality about what their loan portfolios are truly made of (both from a cash flow and collateral coverage POV) and reserve accordingly.
Just my 2c…[/quote]
Evol: While I don’t disagree philosophically, the problem is what happens in reality. I think if you force “reality”, you will crater hundreds of marginal banks and lending institutions.
Is it shitty? Yeah, it is. But the facts are that there are many of these marginal banks and institutions on the bubble and it makes more sense to help them through this than to force failure.[/quote]
I agree, Allan. In my view, the time to be puritanical about this stuff was several years back. Now, the cat’s out of the bag and we have to play the hand we’ve been dealt. (Let’s see how many metaphors I can mix together in one paragraph.)
I think the rules should be somewhat flexible in times of duress (like now). (How flexible is debatable – obviously.) The time to rigidly enforce the rules so that this mess doesn’t happen again (or for quite some time, at least) is in a few years after things have stabilized.
There should be balance. Again, many institutions should and will fail. And we need a WHOLE new set of rules, regs and capital requirements for the largest banks to neuter them, for all intents and purposes. But there’s no reason to push an institution over the edge when the bank can repair itself with a few years’ time. Recall that the “price” of that repair will be borne by its shareholders, not taxpayers.
