The Bankwatch

Tracking the consumer evolution of financial services

“That contagion stuff is real” | Moynihan BofA

Some contradictory comments coming from BofA and Morgan Stanley.  Definite shades of 2008 in the wind.  Last time it was US Subprime mortgages.  This time it is sovereign debt.  Different catalyst, same result. 

Bank of America chief executive Brian Moynihan said he is confident the bank can withstand any fallout from the European sovereign debt crisis, even if it hurts the US, Bloomberg reports. “That contagion stuff is real,” Mr Moynihan said during an event in Washington on Wednesday.

Banks’ business models are no longer well designed to operate in times of financial stress. The ever tighter relationship between banks and governments resulting from tactical measures such as controlling money supply and inflation (Open Market Operations, Quantitative Easing, GDP management etc) results in the socialisation of banks balance sheet risk amongst the citizens. The socialisation of risk is further snowballed by banks ever increasing willingness to take on new risk that enhances short term annual bonuses and dividends but increases long term risk.

Banks no longer operate as independent entities in effect and are operating at the whim of managing investors by ever increasing dividends.

The merry go round screeched to a halt in 2008, and the same is happening now, as hedge funds pull money out of the big banks, and banks themselves refuse to lend / deposit with each other and choose the ECB (European Central Bank) instead.

We appear to be in a Sept 2008 moment yet again.

Written by Colin Henderson

October 6, 2011 at 21:39

Posted in Uncategorized

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