Peregrine

I read that just now. Anyone have any more details on Fairfax's problems with short-sellers in 2006? What exactly happened there? Thanks.

ROAs and NIMs are much lower for banks than they used to be and appears to continue to contract. There's certainly less cushion for them to take on loan losses than before. That seems likely. What seems odd is the notion that that banks are restricting lending to even very good credits.

This is one of the things I question. I know there hasn't been enough demand from highest-credit borrowers to soak up all the deposits. But hasn't there been a class of borrowers shut off from credit that normally had access to it? In July 2011 I had a net worth in excess of $5m, and I couldn't get a 100k loan at a 50% LTV on a 4-plex in Sacramento with a 16% gross rental yield. My only other debt was my house mortgage -- less than 400k. They seem to be somewhat full of shit when they say they can't find anyone to lend to. Hmm..that's interesting. If you don't mind answering, what banks did you approach? At face value anyway, all the big banks have been complaining about anemic loan demand - particularly the ones that have weathered the financial storm better than others. I think it's very possible that a select few are seeking to grow market share while the vast majority are still retrenching. I think poor loan growth is due to a combination of both low demand and far stricter underwriting standards. Moreover, F&F make up an even larger percentage of the mortgage market than they did before the crisis so bank's loan growth depends far more on the commercial side than before. Mortgage originations have been at record levels in recent years but commercial loan growth has been flat since 2008 end. Combine that with the fact that deposits have grown 75% over the same time span and it's clear to see that banks have been drowning in cash. Also, the new capital rules are forcing banks to keep a higher percentage of earning assets in liquid securities, meaning less room for loans on the balance sheet anyway.

Hi Eric, I think when interest rates get higher, it will have a host of different effects on many things including the banks' ability to attract as many noninterest-bearing deposits like they have. Would banks be able to retain such a large proportion of cheap deposits when conditions are markedly different five years from now? That's a difficult question. Macroeconomics has so many first-, second-, and third-order effects that a rise in interest rates cannot simply occur in a vacuum. Savings accounts at all US depository institutions have increased 76% since the end of 2008. There clearly has been a "flight to safety" that has aided banks' deposit-taking abilities. The problem is that there isn't enough loan demand to sop up all those deposits.

Investing involves consideration of the opportunity cost of capital. Over the long-term, equities will be by far the most attractive asset class where ever interest rate levels are. So you can either stay invested in equities at these relatively lofty levels or earn almost nothing on fixed-income investments or even worse, completely nothing on cash. Faced with these options, I think the choice is fairly obvious for the value investor. Btw, this is my first post on this forum. Have lurked here for a while and finally decided to plunge in!