You’re dragging this thing way off track. The original topic here was, in simple form, “Banks (over)using TAF funds – signs of imminent danger or not?” My point was, simply, that the TAF is a source cheap, easy capital so a logical banker will use the funds instead of paying more, both in rates and operating expenses, to raise deposits. Nothing wrong with this.
Now, before I address the TAF a bit more, let me say that I actually agree with a lot of your previous post (maybe I differ in degree – I’m bearish, but perhaps not as bearish as you are). But let’s stick to the topic, shall we?
Banks using TAF funds doesn’t bother me at all (again, it’s logical under the circumstances). However, the mere EXISTENCE of the TAF does bother me. But so does a 3% Fed Funds rate. As do all of these ridiculous “bailout” plans being proposed by our Congress. As did the now failed SIV Superfund. As does the idea of the monoline bailout. As does the $143 billion stimulus plan. As does the… and so on and so on…
My point is that the TAF is a tree. One single tree. And by itself it isn’t that important, frankly. It only has any meaning at all in the context of the forest, which is comprised of those issues in the previous paragraph and many many more. And even in the context of the forest, the TAF is one of the smaller trees. That’s why I’m suggesting that spending a lot of time on this one issue is not particularly worthwhile. If the TAF disappears tomorrow the banks can replace these funds with deposits, albeit they’ll probably have to pay an additional 100 – 150 bps to get the same money. So, yes, their margins will get hurt, but it’s not the end of the world. The TAF is an enabling mechanism but the banks can live without it… just less comfortably. So I’ll say it again, the TAF in the whole scheme of things is a bit of a red herring.
(Also, I didn’t ask whether you were a CEO. I asked whether you were the CEO (etc.) of a BANK. That’s pertinent as we’re discussing BANKING.)
stx,
I think I addressed your issues above as well.
kdenninger, you wrote above that: “None of this is difficult to figure out if you approach it from an analytical basis and know how to read financial data.”
I’m going to completely disagree with you here and explain why. I’ve found that any reasonably intelligent person can learn/understand about 90% of almost any industry fairly quickly. The economics, critical profit drivers, financials, etc. The problem is that the last 10% is the only part that matters. That’s what distinguishes real expertise from amateurs. There are a LOT of ninety percenters out there that don’t even know what they don’t know, although they will be quite dogmatic regarding those things that they think they know (but don’t). Personally, I’ve exceeded the 90% threshold in two industries, one of which is banking. If I’m really lucky that number might get to three (or maybe four) before I die. As Mark Twain once said, “It ain’t the things you don’t know that get you in trouble; it’s the things you know for sure that just ain’t so.” Just something to think about.
