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Google books
provides the extracts below from The
Crisis in American Banking.
(emphasis mine) [my
comment]
The
Crisis in American Banking
By Lawrence White
Introduction
Lawrence H. White
This volume offers six original essays keyed to the continuing crisis in
the U.S. banking industry. Five were first presented at a small
conference—more like a series of seminars—on “The Crisis in
the Banking Industry,” sponsored by NYU’s Austrian Economics
Program (which is directed by Israel Kirzner). The conference was organized
by Mario Rizzo and myself, and was held at New York University on April 29,
1991. The papers generated lively discussion among the authors and other
participants in the conference, and have been revised to reflect (or deflect)
constructive criticism received there. A sixth paper, by Richard Salsman, was
solicited soon after the conference. All six have been updated to reflect
developments through September 1991.
The U.S. banking system, its regulation and deregulation, and its troubles,
have been much in the news lately. Banking topics have been discussed by
economists in a number of monographs and conference volumes. The
rationale for adding the present volume to the discussion is the hope that
its contributors provide fresh perspectives by viewing the banking scene from
unusual angles. In particular, several authors draw ideas from modern
Austrian economics or from public choice theory that have seldom been applied
to explaining contemporary banking problems.
A pervasive theme of the contributions here is that the U.S. banking
crisis is fundamentally linked to the political regulation of banking.
(Popular alternative explanations point to supposedly excessive competition
or deregulation in banking, or to a supposed decline in the ethical standards
of bankers in the 1980s.) Taken together, the chapters below (1) indicate
that government regulatory, macroeconomic, and fiscal policies have seriously
impaired the health of the banking industry; (2) contribute to explaining how
rent-seeking, ideology, and the historical accretion of regulations have
given banking policy its current unfortunate form; and (3) consider the
long-term prospects for reform of banking regulation, and for the banking
industry itself in light of the current and foreseeable regulatory
environment.
In the first chapter 1 attempt to provide an overview of the U.S. banking
Industry’s troubles and the FDIC’s insolvency, and to trace them
to regulatory and macroeconomic policies. The secularly shrinking profits
brought to banking by techological change, as discussed in this volume by
George Kaufman, explain why the banking industry should contract, but not why
its contraction should be punctuated by a crisis involving high levels of
loan losses and bank failures. I suggest that cyclical losses in bank
lending, especially severe today in the area of real estate lending,
represent correlated errors induced by unpredictable monetary policy.
Regulation (particulary restrictions on geographic and product-line
diversification) and deposit insurance explain why U.S. banks, as the thrifts
did earlier, have reacted to a downturn with increased risk taking. Increased
risk taking has led to dramatic exits in the fashion of the Bank of New England,
rather than simple shrinkage or redeployment of capital. Policy reform should
seek to remove the distortions that promote excessive risk taking.
Roger Garrison addresses the impact of government budget deficits on the
economy in general and on banking in particular. He argues that unusually
large borrowing, to cover today’s deficit, forces market participants
to guess about tomorrow’s policy for servicing or repaying the debt,
and to guess about how other market participants will view the situation and
respond. To what extent will a continued debt burden absorb domestic
saving, causing high real interest rates and crowding out domestic
investment? To what extent will it absorb funds from abroad, keeping real
interest rates at their normal level but weakening demand for export goods?
To what extent will taxes be raised, when, and on what? To what extent will
the debt be monetized, causing inflation? Deriving surprising illumination
from standard national-income accounting, Garrison shows that some combination
of these (jointly exhaustive) repercussions must follow a deficit.
Empirical studies may show no strong or regular connection between deficits
and any one of these repercussions, but Garrison points out that it
would be fallacious to conclude that deficits have no repercussions or are
harmless. The lack of a predictable mix of repercussions in fact
means that market participants face added uncertainty. This excess
uncertainty hinders decision making in the banking sector—portfolios
will prove to have been misallocated when guesses about answers to the above
questions prove to have been mistaken, or rates of return will be reduced by
greater hedging—and in the rest of the economy.
Thomas Havrilesky examines the role of private interests (the S&L and big-bank
lobbies) in shaping banking legislation between 1985 and 1987, a period in
which thrift industry problems incubated, hi provocative language he argues
that banking- and thrift-industry policy, like politics generally, is about
“rent-seeking” or redistributing income. Critical changes in the
regulatory rules governing S&Ls in the 1980s (an increase in the deposit
insurance ceiling, regulatory forbearance to close insolvent thrifts, relaxed
accounting standards) appear to reflect the capture of legislators and
regulators by the S&L lobby. Studying the statistical relationship
between a Congressperson’s contributions from S&L or big-bank
lobbies (Political Action Committees, or PACs) and his or her voting or bill
sponsorship, Havrilesky finds evidence that each lobby was influential.
Congress- people who sponsored pro-big-bank bills received a bigger share of
their PAC money from big-bank PACs; those who voted as the S&L lobby
preferred likewise received greater proportionate S&L PAC contributions.
Popular accounts of the thrift-industry fiasco, and of the FDIC’s
current difficulties, have blamed fraud and mismanagement among bankers,
citing anecdotal evidence of renegades like Charles Keating. Richard
Saisman’s essay provides a useful historical perspective by showing
that the same sort of charges were made in previous U.S. banking crises: the
“wildcat banking” episodes of the antebellum period; the money
panics of the National Banking era, especially the Panic of 1907; the banking
collapse of the Great Depression; and the S&L crisis of the 1980s. In
each case bankers were blamed for ills that Salsman—drawing on
important “revisionist” work by monetary theorists and historians
in the last twenty years—indicates should in fact be traced to
government interference in banking. Legal restrictions, in the later
episodes combined with central banking and deposit insurance, have created
climates in which unsafe banking practices can persist and become
institutionalized. He concludes that systemic bad banking is a symptom
of bad policy, rather than an independent cause of crisis.
Why then have bankers been made scapegoats? Saisman cites a number of cases
in which federal legislators, agency heads, and commissioners have led
the movement to blame bankers, rather than government policies, for the
banking system’s failings. Selfinterest provides an obvious
motive. A question that remains to be answered is why the popular press
have not been more discerning.
Walker Todd and Gerald P. O’Driscoll, Jr., provide further evidence of the
destabilizing effects of government deposit guarantees. They
emphasize that explicit deposit insurance is only one part of the
“safety net” whose historical growth they document; implicit
guarantees are an additional and crucial part. They warn that government
supervisory agencies will not rein in excessive risk taking by banks (being
inherently prone to err on the side of wishful thinking) until it is too
late. Political pressures will then be brought to bear on the
supervisors (the FDIC and the Fed) to bail out failing institutions, as long
as deposit guarantees of any amount are in effect. They find evidence
of these pressures not only in the much- discussed doctrine that some banks
are “too big to fail” but also in the abuse of the Fed’s discount
window for bank rescues, a feature of the current system that has scarcely
been mentioned elsewhere. The central bank discount window,
under classical lender of last resort doctrine, is supposed to provide only
liquidity support to the banking system, not capital support to
individual insolvent institutions. Walker and O’Driscoll note
that Fed loans to banks declared insolvent are repaid out of the FDIC’s
Bank Insurance Fund, and the BIF is ultimately replenished with taxpayer
money, so the current system “converts unsound banking policy use of
the discount window to keep insolvent banks afloat into unsound fiscal
policy.” They conclude that to achieve stability the entire safety net
needs to be reformed, not only deposit insurance.
Todd and O’Driscoll argue for a comprehensive set of reforms that
would eliminate federal deposit guarantees. At the very least, they favor a
bank closure policy that exposes depositors and shareholders, but not
taxpayers, to losses. Observing that the deposit guarantee system will soon
be transferring wealth from the average citizen (through taxation to
recapitalize the FIJIC) to the wealthy citizen (who has parked savings in
insured deposits), they reasonably suggest that having an FDIC makes
the average citizen worse off. Risk-free savings vehicles paying
competitive rates are already available in the form of Treasury bills
and savings bonds.
Looking beyond the current crisis, George Kaufman surveys the secular trends
that are shrinking the banking industry in comparison to other financial
service providers. He finds that these trends stem partly from technological
changes (such as advances in telecommunications and computerization), and
partly from bad policy decisions (such as mispriced deposit insurance,
forbearance to close insolvent institutions, and geographic and product-line
restrictions). Shrinkage of the banking industry due to loss of
comparative advantage is efficient and nothing to mourn. But shrinkage due to
ill-conceived public policy is not efficient. Kaufman calls for correctly
pricing deposit insurance, and for removing restrictions on the geographic
and product-line powers of banks. He warns against softening the
balance-sheet standards for banks, which some voices have urged as a way to
combat a supposed “credit crunch.” With broader powers but
without subsidies, efficient U.S. banks should be able to compete on a level
playing field. The success of foreign banks and nondepository financial firms
in recent years shows that lesser deposit guarantees (and correspondingly
higher capital ratios) do not preclude growth.
As this preface is written, the state of the U.S. commercial banking industry
and the FDIC continues to suggest disturbing parallels to the state of the
savings and loan industry and the FSLIC a decade earlier. With the
BIF’s balances down to $2 billion in late 1991 (less than the amount
needed to close the Bank of New England earlier in the year), the FDIC
appeared to be putting off closing banks that were insolvent (on a
market-value accounting basis, i.e., when counting their assets at market
value rather than book value). After predicting earlier in the year
that 180 to 230 institutions would be seized in 1991, the FDIC reduced its
estimate in December to only 137. In pleading for “recapitalization”
of the BIF, FDIC chairman William Taylor acknowledged in so many words that lack
of funds was hindering the agency from closing unsound banks. Such a
policy of forbearance carries the danger of duplicating in
banking the second phase of the thrift crisis, that is, of creating a
new cohort of “zombie” institutions rationally pursuing risky
strategies at the expense of future taxpayers who pick up the tab for losses
by government deposit insurance agencies.
In November 1991 the FDIC’s Bank Insurance Fund was
“recapitalized” by omnibus banking legislation granting the
agency an additional $70 billion in borrowing authority. The FDIC
Improvement Act requires the FDIC to repay any borrowings from its asset
sales or insurance premiums. It remains to be seen whether the agency will be
able to repay, or whether taxpayers will be presented with the tab at a later
date. The legislation includes a number of deposit insurance reforms:
changes in accounting and examination rules; a schedule of restrictions to be
placed on undercapitalized instutitions; a mandate for the FDIC to impose
risk-based Insurance premiums by 1994; and a requirement that the agency
resolve failures by the method generating the least cost to the FDIC, even if
that means exposing uninsured depositors to losses, beginning 1995. Proposals
for structural reform of banking, to eliminate geographic and product-line
restrictions, were excluded from the legislation.
With its new access to funds, the FDIC is expected to begin working off a
backlog of insolvent but not-yet-seized institutions. The agency officially
expects to close 200 to 239 banks, with total book assets in the neighborhood
of $100 billion, in 1992 alone. Private analysts estimate $50 billion in
losses to the FDIC from the closure of some 150 sick savings banks in New
York and New England, in addition to losses from closure of ailing commercial
banks. As the situation unfolds, observers who currently fear a replay of
the $150 billion FSLIC bailout may find that they were overly pessimistic—or
overly optimistic. Either way, the policy regime that allowed both the
earlier and later problems to develop does not seem to be on the verge of any
dramatic change. The reluctance of Congress to enact real reforms means that
the critical analyses and reform proposals in this volume, against the wishes
of their authors, will remain relevant for some time to come.
--------------------------------
Why Is the U.S. Banking Industry in Trouble? Business Cycles, Loan Losses,
and Deposit Insurance
Lawrence H. White
We learned from the U.S. thrift-industry debacle that congress peopie
and regulators have incentives to mask and deny the size of insolvencies
among deposit-taking institutions when they first arise. Rather than
promptly resolve the widespread insolvencies that existed among thrifts in
1981, the authorities chose to revise the regulatory accounting rules,
to practice “forbearance,” and to gamble that
economically insolvent thrifts might climb back into the black
(Eisenbeis 1990, 19—20). As it turned out, the cost of resolving the
problem grew, to the point where taxpayers have been saddled with an enormous
expense in covering the thrift deposit guarantees made by the late FSLIC.
Estimates of the expense, beginning at $10 billion in 1986, have been revised
upward steadily to more than $150 billion (as of 1991, excluding Interest).
The Industry’s and the FDIC’s Troubles Are Large
In light of this experience, a sense of déjà vu accompanied
news reports, beginning in late 1990, that the Federal Deposit Insurance
Corporation, the agency that now guarantees both thrift and bank deposits,
would soon run out of money without taxpayer assistance. The FDIC’s
Bank insurance Fund shrank as its annual disbursements in resolving bank
failures, whose numbers swelled tremendously the last decade (see figure
1.1), exceeded its income from deposit insurance premiums. Beginning 1988
with $18.3 billion, the BIF lost $5.1 billion in 1988—89, and another
$6.8 billion in 1990 alone, leaving its balance at only $6.4 billion at
year-end 1990. The most recent FDIC projections imply net losses for 199
1—92 of $19 to $38 billion.’
As they did with the FSLIC, the authorities have persistently
underestimated the FDIC’s problems. Early in 1990 FDIC
officials projected that the agency would break even for the year. By midyear
they projected 1990 losses of $2 billion. In September 1990 FDIC chairman
William Seidman raised the estimate to $3 billion. In retrospect the FDIC
first found that it had actually lost $4.8 billion In 1990 (the BIF’s
balances had declined to $8.4 billion at year-end 1990 from $13.2 billion at
year-end 1989); later it revised the year- end 1990 balance to $6.4 billion,
implying 1990 losses of $6.8 billion. 2
The federal Office of Management and Budget projected in September 1990 that
the FDIC would need infusions of $22.5 billion over the next five years to
remain afloat. In October 1990, Seidman professed not to see the FDIC
fund in danger for the foreseeable future, maintaining that the fund would
remain in the black through the end of 1991. As 1991 began Seidman was asking
Congress for a $10 billion loan to provide a margin of safety, though he had
previously indicated that the fund could use a $25 billion infusion. The
Congressional Budget Office projected in January 1991 that the BIF would
develop a $2.8 billion deficit by mid-1992, but that (with increases in
premiums) it would return to solvency by mid-1994. In March 1991 the Bush
administration proposed that Congress provide the FDIC with $25 billion in
borrowing authority. Within a week Seidman testified that under a
“pessimistic economic scenario” the fund might have to borrow $30
to $35 billion, and the administration’s request for FDIC borrowing
authority was increased to $70 billion, just in case. As of June 1991,
the FDTC’s “baseline projection” gave the BIF a year-end
1991 balance of $3.2 billion, while its “pessimistic scenario”
projected a year-end balance of $1.7 billion. By the fall of 1991 it
was evident that even the “pessimistic scenario” was overly
optimistic. Seidman was projecting that the fund would be insolvent
at year’s end, and reported that it had already borrowed $2.9 billion
from the U.S. Treasury.
As in the thrift meltdown, the projections of private-sector experts
have been more pessimistic ex ante and have proven to be more accurate ex
post. Bank consultant David Cates projected in October 1990, before
the recession had been officially declared underway, that in a recession
banks could lose $86.3 billion in equity, 41% of the industry’s
cushion, and taxpayers could face a bill as high as $40 billion to cover FDIC
losses. Cates’s credibility was enhanced by his projecting that, under
such a scenario, the Bank of New England would fail. The Bank of New England
failed in January 1991, amidst depositor runs, with losses expected to make
it (at $2.5 billion) the third most expensive resolution in the FDIC’s
history. Lowell Bryan, a bankwatcher at McKinsey and Company, similarly
projected in December 1990 that the FDIC would need injections of
$20—40 billion over the next few years. A study by the independent bank
rating service Veribanc found that the FOIC was already insolvent at year-end
1990, facing resolution costs for then- insolvent banks (estimated at $11.6
billion) in excess of BIF balances. Edward Kane estimated in mid-1991 that
the BIF was already $40 billion In the hole as of the end of 1990, if one
recognized as a BIF liability the negative net worth that would appear under
mark- to-market accounting for insured banks’ assets.5
An authoritative study of the FDIC’s condition appeared in a report
by James R. Barth, R. Dan Brumbaugh, and Robert E. Litan, dated December
1990, commissioned by the Financial Institutions Subcommittee of the House
Banking Committee. Barth, Brumbaugh, and Litan (1990, 6) concluded that the
BIF at the end of 1990 appeared to be where the FSLIC was in the mid-1980s,
“without sufficient resources to pay for its expected caseload of
failed depositories.” The authors rehearsed a number of
scenarios, varying in the assumed severity of the incipient recession and the
degree of forbearance to be exercised toward larger banks.
They estimated (Barth, Brumbaugh, and Litan, 93, 103) that even under a
“mild recession” the FDIC’s bank resolution costs for
1991— 93 would run between $31 and $43 billion, exhausting its expected
resources of $28—31 billion (consisting of start-of-period reserves of
$9 billion plus premium and interest income of $19—22 billion).
A major source of concern is that larger banks have begun to appear
on the FDIC’s list of “problem banks.” The list
numbered 975 banks at the midpoint of 1991, slightly fewer than in the
immediately preceding years, but the aggregate assets of problem banks
had increased. Likewise, although the number of bank failures In the
first half of 1991 (fifty-seven) was fewer than in the first half of the
previous year (ninety-nine), the average asset size of failed banks was much
much larger: $475 million versus only $65 million (FDIC 1991,2,4).
In fact some of the very largest U.S. banks are teetering. The
Economist commented in December 1990: “Nobody knows just how much
rubbish EU.S.1 banks have on their books, or how many loans might become
rubbish if a recession deepens. Among the banks that fail may be prominent
money-centres.”6 Barth, Brumbaugh, and Litan (1990, 13) commented that as
of the end of 1990 “most” of the nation’s largest banks
were “on—or conceivably over—the edge of insolvency....
(Many of these banks not only currently have weak balance sheets by any
reasonable standard, but they also are highly exposed to additional
deterioration in their capital positions from their significant involvement
in high-risk lending.” They reported (Barth, Brumbaugh, and Litan 1990,
50) that six of the top twenty- five bank holding companies had “high
risk loans” (loans for highly leveraged transactions [HLTI, medium and
long-term LDC loans, and commercial real estate loans) in excess of four
times their “adjusted tangible common equity” (tangible common
equity plus allowance for loan losses less 1% of all performing loans). That
is, a 25% fall in the value of such a bank’s high-risk loan portfolio,
together with a normal 1% loss rate on other loans, would wipe out its
capital, leaving it insolvent.
FDIC call reports show that the large banks (those with more than $10
billion in assets) as a size class have the weakest loan portfolios.
Across most categories of loans, the large banks have the highest percentages
of loans past due or noncurrent, and the highest percentage of loan
charge-offs (FDIC 1991, 3). In recent years the class of large banks has had
the highest percentage losing money. In the first half of 1991, 11.2%
of all banks (1,361 of 12,150) lost money, while 19.6% of large
banks (9 of 46) did so (FDIC 1991, 5).
Marketplace reflections of troubles at the large money-center banks are not
hard to find. In 1980 Moody’s Investors Services rated the debt of
fourteen major banks “AAA”; today it gives only one U.S. bank
that rating (Salsman 1990, 71). Moody’s now rates a fifth of Chase
Manhattan’s debt even below investment grade (Byron 1990, 16). Stock
traders’ expectations of likely future difficulties in banking are
reflected in low share prices (relative to current reported earnings) for all
banks, but especially for large banks (Barth, Brumbaugh, and Litan 1990, 15).
While healthier banks trade at slightly above book value, money center banks
have been trading well beLow (Salsman 1990, 72).
In addition to the asset-quality problems at large banks, Barth, Brumbaugh,
and Litan (1990, 51) pointed out that the Bank Insurance Fund is also
threatened by renewed troubles at savings banks. They noted that BIF-insured
savings banks in the aggregate lost $670 million in 1989. The latest
available figures show the situation worsening. The number of
“problem” savings banks, which stood at thirty-one in mid-1990,
had risen to fifty-eight a year later. Savings banks in the aggregate dropped
a staggering $2.5 billion in 1990, and lost another $662 million in the first
half of 1991, exceeding losses In the first half of 1990. In New England,
where most savings banks are located, two-thirds of the twenty-three largest
institutions were unprofitable in the first half of 1991 (FDIC 1991, 7).
With the FDIC running out of cash, there is a great danger that the
agency is neglecting to close insolvent banks, just as the FSLIC
neglected insolvent thrifts for years. “Zombie”
institutions (economically “dead” but still operating) may
be afoot, piling up obligations that will eventually be laid at the
doorstep of taxpayers. Barth, Brumbaugh, and Litan (1990, 81) note that
during the years 1980—85, with fewer annual failures, the typical
failed bank was resolved about fifteen months after it first appeared on the
FDICs problem list. By 1987—89, amidst two hundred failures per year,
the typical failed bank was not resolved for 21—28 months after first
being listed.
The Immediate Source of Trouble Is Bad Loans
U.S. banks are failing or troubled primarily because so many of the risky
loans they made in the 1980s are in default. In the four quarters ending
September 30, 1990, the banks’ net charge-offs for bad loans were $30.5
billion, the largest doflar amount for any four- quarter period ever, and a
record high percentage of assets. Chargeoffs in the first half of 1991
continued at roughly the same high rate. Despite the charge-offs, the
proportion of troubled loans on bank portfolios continued to rise. At the end
of September 1990, the total of noncurrent loans and leases plus “other
real estate owned” (foreclosed mortgage property) was $89.6 billion, up
by $14.2 billion (19%) from a year earlier ($75.4 billion), and at a record
level as a share (2.65%) of total assets (FDIC 1990, 1—3). By the
midpoint of 1991, the total ($107.9) and the share (3.19%) had both risen
even higher.
Despite the taking of historically large loan-loss provisions in 1989 and
1990, another round of large provisions was needed in 1991, and still another
round was expected to be needed in 1992. Loan-loss reserves were down to
65 cents per dollar of noncurrent loans as of 1991:2, down from 73 cents as
of 1990:3, and down from 83 cents a year before that. Losses from commercial
real estate loans, LDC loans, and HLT loans were expected to increase in the
recession, especially among the larger northeastern banks (FDIC 1990. 2).
The nature of the banking industry’s bad loans has been widely
reported. Southwestern banks, making up the majority of failed banks in the
last few years, suffered big real-estate and energy loan losses in the late
1980s. The big money-center banks took sizable write-downs of LDC loans
in 1987, such that all large banks posted negative returns for the
year, and another milder round of write- downs in 1989. In both years,
loss provisions on overseas loans more than accounted for the total negative
income recorded; domestic business was profitable (Duca and McLaughlin 1990,
483). In 1989 through 1991, New England banks took large losses on real
estate loans. Depressed real estate markets are pushing the value of much
of the collateral held by banks below the value of the loans carried on many
banks’ books (Barth, Brumbaugh, and Litan 1990, 47), so that more loan
defaults are expected. Bank inventories of foreclosed real estate were still
accumulating as of mid-1991 (FDIC 1991, 2).
The Causes of Loan Losses Are Cyclical, Secular, and Regulatory
How can we explain the profile shown by figure 1.1, an extraordinary
growth in the annual number of bank failures after 1981? Commercial bank
profitability has trended downward since 1970 (FRBNY 1986), a trend that has
continued in recent years and is consistent with banking firms exiting from
the market. But the gradual secular trend in bank profitability cannot
plausibly explain the dramatic shift in the trend of bank failures, or why it
occurred when it did. The onset of a sharp recession in the second half of
1981 undoubtedly helped swell the number of failures in 1982 and 1983. But we
clearly cannot explain the pattern solely by reference to the business cycle.
The number of failures was much less In previous recessions, and failures
continued to climb even after the 1982—83 recession gave way to a
period of sustained expansion.
Cyclical Factors
A recession swells the number of bank failures for obvious asset quality
reasons. With unemployment up, more household loans go bad. As recession
took hold in 1990, delinquency rates in home-improvement loans and revolving
credit reached their highest levels in ten years (Farrell 1991, 29). More
importantly, with corporate bankruptcies, business loans go bad. In the
1982—83 recession, energy and agricultural business loans especially
went into default. in the most recent downswing, commercial property loans
have been the most conspicuous source of losses and were the principal reason
that the Bank of New England failed.
It would be myopic, however, to treat the recessionary phase of the cycle as
the ultimate source or the exogenous cause of asset- quality problems.
The loans that go bad were typically made years earlier during the expansion.
Hundreds of banks had asset-quality problems well before the 1990—91
recession officially began, and bad assets brought on the 1988—89 wave
of Texas bank failures in advance of the national recession. Viewing the
upsurge in loan losses ex post, we see a “cluster of error” in
bank lending: overexpansion in certain loan categories (LDC loans, commercial
real estate, HLT loans), or overoptimism regarding their repayment prospects.
8 At the end of 1990:3, real estate assets (real estate loans plus
mortgage-backed securities plus foreclosed properties) comprised 30.6% of
total commercial bank assets, up from only 18.8% at end of 1984 (FDIC 1990,
1—2). Overbuilding in commercial real estate was evident from office
vacancy rates, which approached 20% in many cities (Mandel 1991, 30).
Analysts at the Federal Reserve Board (Duca and McLaughlin 1990, 487) noted
that “concerns about the quality of real estate loans appear strongest
in areas in which land prices had risen sharply in previous years.”
This pattern—that recession is the sharpest where the expansion had
previously been most vigorous—is consistent with “monetary
maIinvestment’ theories of the business cycle, a class of theories that
includes the work of the Austrian school in the 1920s and 1930s and that of
Robert E. Lucas, Jr., in the 1970s and 1980s. As Lucas (1981, 9) has
commented, this work insists on “the necessity of viewing (recurrent
business cyclesi as mistakes.” The theoretical problem is then
“to rationalize these mistakes as intelligent responses to movements in
nominal ‘signals’ of movements in the underlying
‘real’ variables we care about and want to react to.” That
is, a monetary malivestment theory traces the clustered business failures and
unemployment of the recession phase to decisions (retrospectively
inappropriate) made by labor and capital owners during the expansion phase,
and appeals to monetary disturbances to explain why these decisions appeared
sensible at the time they were made.
Rational-expectations work in monetary business cycle theory emphasizes
that unanticipated monetary expansion generates unexpectedly high nominal
demand for outputs. The Austrian theorists emphasized that new money,
injected into the loanable funds market, reduces real interest rates in
the short run. Both effects misleadingly signal businesses that their
real profitability has increased, and so spur the unsustainable real
expansion that constitutes the boom period. Real interest rates (measured
by the annualized nominal interest rate on three-month T-bills minus the
contemporaneous annual inflation rate) In the United States fell during the
1970s, and were actually negative from 1974 through 1980 (Kohn 1991, 729). Merely
holding inventories appeared to be profitable. With disinflation after 1980,
real Interest rates rose sharply, and nominal demand no longer outran
expectations.
Richard Saisman (1990, 25—28) has offered the interesting hypothesis
that U.S. banks may have been directly (as well as indirectly,
via the business cycle) weakened by expansionary monetary policy.
The Fed rapidly expanded the monetary base, leading in textbook fashion to
the multiple expansion of bank deposits and loans. Meanwhile, Saisman argues,
banks were not able to raise or Internally generate enough capital to
keep pace, so that their capitali asset ratios fell. This
argument implies that movements in the banking industry’s capital/asset
ratio should be predominantly associated with movements in the denominator
(assets), with the numeratar (capital) remaining relatively stable. At least
in the 1980s, however, industry aggregates do not show this pattern. Figure
1.2 plots year- to-year compound growth rates (differences in natural log levels)
for capital, assets, and the capital-asset ratio. It shows that capital
growth has been at least as volatile as asset growth.
Regional Factors
Various regions of the United States have taken turns being worst hit with
bank asset-quality problems during recent quarters. but all except the
Midwest and Central regions have been seriously hit. Southwestern
banks’ portfolios have not yet recovered from problems that came to a
head in 1988 and 1989. At midyear 1991 the “troubled real estate asset
rate” as measured by the FDIC (“noncurrent real restate loans
plus other real estate owned as a percent of total real estate loans plus
OREO”) still exceeded 10% in Arizona, Texas, Oklahoma, and Louisiana
and exceeded 8% in New Mexico and Colorado. Northeastern banks have had the
biggest recent problems with real-estate loans. Troubled real estate asset
rates exceeded 10% in Rhode Island, Massachusetts, Connecticut, New
Hampshire, New Jersey, New York, and the District of Columbia and exceeded 8%
in Maryland and Virginia. No other state in the nation had a rate exceeding
8%, and only four (Maine, Vermont, Pennsylvania, and Florida) had rates
exceeding 6%. Nationally, 11.2% of banks lost money in the first half of
1991, but 25.7% in FDIC’s Northeast region did so. The biggest
increases in loan loss provisions were taken during that period by banks in
the Northeast and in the West. The largest increase in noncurrent loans was
recorded by banks in the West. where 19.2% of banks lost money.
Secularly Shrinking Profitability
For the aggregate of federally insured commercial banks, the ratio of net
income to assets has declined from 0.68 for 1980—85 (the average of
annual figures) to 0.53 for 1986—90:2 (Barth, Brumbaugh, and Litan
1990, 121).° At the lower tail of the earnings distribution, where net
income can be negative, cumulative losses can deplete capital and cause
insolvency. Some 354 banks have reported losses every year from 1986 to 1989
(Fromson 1990, 119).
Much has been written in recent years about the erosion of the profitability
of commercial banking under the impact of competition from nonbank
intermediaries and from securities markets. Securitization is estimated
to have reduced the spread on residential mortgages by fifty to one hundred
basis points (Barth, Brumbaugh, and Litan 1990, 116, citing Rosenthal
and Ocampo 1988). Increasing numbers of corporations, especially those with
better bond ratings than the money-center banks, find it cheaper to issue
commercial paper to investors directly than to borrow from banks at
traditional spreads. With deposit interest rate ceilings being lifted after
1980, there has also been greater price competition for deposits among banks
and between banks and thrifts.
In light of this we should note the apparently contradictory view that
observed spreads between deposit and loan interest rates have not shrunk. A
Federal Reserve Bank of New York staff study of Recent Trends in Commercial
Bank Profitability (1986, 16) declared that “despite all the structural
changes relating to interest rates and interest rate competition of recent
years, there has been no visible impact on the net interest margins of the
banks.” It is true that, abstracting from Loan loss provisions,
industry-wide net income has been stable as a share of assets (Duca and
McLaughlin 1990, 477). Net interest income actually shows a slight upward
trend over the 1980s, from 3.03% of assets in both 1980 and 1981, to 3.40% in
both 1989 and the first half of 1990 (Barth, Brumbaugh, and Litan 1990, 121).
This only means, however, that in an accounting sense it is loan loss
provisions, and not declining spreads as they are measured ex ante, that
account for the decline in return on assets. Increasing loan loss provisions
(typically a belated response to increasing default rates) reveal ex post
that spreads actually have declined for loans of a given risk class. Loan
Loss rates have been rising more or less steadily since 1962 (Barth,
Brumbaugh, and Litan 1990, 117, 119). Lower-quality loans have been booked at
ex ante spreads that used to be reserved for higher-quality Loans. Barth,
Brumbaugh, and Litan (1990, 117) argue that the movement of blue-chip
borrowers to the commercial paper market, making banks unable to place loans
of the traditional sort, helps explain why banks have taken on the additional
risk that is evident from rising loan losses. The loss of traditional
borrowers does explain why commercial and industrial (C&I) loans fell
from 21% of bank assets down to 19% over the course of the 1980s, to be
replaced by loans with higher default risk. But it does not explain why
banks, as Barth, Brumbaugh, and Litan (1990, 128) elsewhere document, chose
to take on more portfolio risk over the course of the 1980s by reducing the
share of cash and investment securities in their portfolios, or why they
increased the share of real estate loans by more percentage points than the
share of C&I loans declined. It does not explain why “within the
real estate loan category, banks shifted toward the riskiest borrowers,”
namely construction and development loans and commercial mortgages.
Most importantly, the shrinkage of margins on traditional loans does not by
itself explain why banks have underpriced loans to their new borrowers. That
is, it does not explain why they collected exante spreads too small to
preserve income net of loan losses except in those unlikely states of the
world (which did not obtain) in which the new loan portfolios had no higher a
default rate than the old. To explain this mistake we need either to
explain why banks would have failed to perceive that default rates were
likely to be higher, or we need to explain why they became more willing to
take on portfolio risk.
The Roles of Regulation and Deposit Insurance
The roots of the thrift industry crisis in regulation and deposit insurance
are now well understood (Kane 1985, 1989; Brumbaugh 1988; Benston and Kaufman
1986). A number of long-standing legal restrictions, particularly
restrictions against product-line diversification, made (and still make) thrifts
weaker and more vulnerable to adverse shocks than they would otherwise be.
Such restrictions alone cannot explain why failures exploded in the 1980s,
for they did not suddenly become more binding. But they help to explain why
the adverse cyclical and secular factors discussed above brought down as many
thrifts as they did.
In the most general terms, the surge of thrift failures in 1981—82 can
be attributed to interest-rate risk.’ By funding Long-term fixed- rate
mortgages with short-term deposits, thrifts were implicitly betting heavily
against a large rise in interest rates. They lost the bet. The
average explicit interest cost of savings deposits in FSLIC insured
institutions rose from 6.6% in 1978 to 11.2% in 1982 (Kane 1989, 12—13,
table 1—2). Although interest rates on new mortgages also rose, the
thrifts’ assets consisted largely of conventional fixed-rate mortgage
loans made in the 1960s and ‘70s, paying between 6% and 9%. Borrowing
at 11% to fund old mortgages paying 6 to 9%, hundreds of thrifts soon found
their equity consumed by negative income flows.
The thrift crisis continued (or a second thrift crisis arose),
despite the fall in interest rates after 1982, because the
regulators’ failure to close literally hundreds of insolvent thrifts
created an army of institutional “zombies,” economically dead but
not yet buried, that rationally gambled for “resurrection.”
In general terms, unclosed thrifts substituted credit risk for interest-rate
risk. Long-odds gambling in the form of high-risk lending offered the owners
of insolvent thrifts their best hope of getting back into the black, making
their shares worth something again. The downside risk fell entirely
on the FSLIC: the owners of thrifts with zero net worth had literally
nothing to lose. Cole, McKenzie, and White (1990) provide econometric
evidence that thrift failures in the late 1980s were swelled by risk- taking
strategies begun earlier in the decade, strategies motivated by low net worth
and forbearance. Failed thrifts had riskier portfolios than nonfailed
thrifts, namely, higher concentrations of nonresidential mortgages, land
loans, and real estate investinents. “Moral hazaid” behavior is
indicated by the lower failure probabilities for institutions whose ownership
structures gave their managers less to gain from risk taking: mutual
institutions compared to stock institutions, publicly traded stock
Institutions compared to closely held stock institutions. Failure
probabilities were higher for banks with higher managerial expenses.
[this sounds familiar]
Competition from zombie thrifts, who bid deposit rates up and
loan rates down, made survival more difficult for still-solvent thrifts.
By 1986 the average explicit earnings spread on new mortgage loans was
smaller than it had been since 1972, and the spread net of average thrift
operating expenses had reached a historic low (Kane 1989, 12—13, table
1—2). The result was a mushrooming number of economically insolvent
institutions (Kane 1989, 26, table 2—1) and an accumulation of red ink
that finally exceeded the FSLIC’s resources by hundreds of billions of
dollars,
Because commercial banks were carrying less of a mismatch between the
repricing frequencies of their assets and liabilities than were thrifts, the
banks were less victimized by the run-up in the level of interest rates in
1979—82. But banks with large maturity mismatches (borrowing short to
lend long) did suffer large losses because of frequently inverted yield
curves (short rates above long rates) during the period (FRBNY 1986,
117—21). The yield curve returned to its normal slope in 1983. The
number of problem banks grew steadily up to 1986, however, with the rising
failure rate among commercial and industrial business and increasing loan
losses. The secular trend toward declining spreads continued to exert itself.
The increasing number of banks approaching the brink of insolvency has
meant, as it meant in the case of thrifts who reached or crossed the brink a
few years earlier, an increased attraction to financial
“gambling.” Booking high-risk loans without premia
sufficient to cover probable defaults is a way to maximize the expected value
of the bank to its owners, given that the owners can pass losses In
excess of equity on to the FDIC. Deposit insurance, in other words,
has created in commercial banking the same two “moral hazard”
problems that have been much discussed in connection with the second wave of
the thrift industry crisis.
1. Insured depositors (de jure or de facto) do not discipline weak institutions
by demanding higher deposit rates or by moving funds to stronger
institutions. Riskier banks can essentially sell a lower- quality product at
the same price because customers are fully covered against product failure.
Without risk-sensitive insurance premiums as a substitute for depositor
discipline, deposit insurance subsidizes risk taking. A bank’s expected
return on assets can be increased by taking on a riskier (higher-variance)
loan portfolio, but its cost of funds does not rise even though the
bank is more likely to fail. Maximizing expected net payoff therefore
pushes the bank to a riskier position on the risk-return frontier than would
be taken by a bank whose uninsured depositors demanded compensation for an
increased risk of default on their claims, or by a bank whose insurer priced
its premiums to reflect insolvency risk. Banks have accordingly chosen
lower capital/asset ratios as deposit guarantees have grown in scope and in
implicit value.
2. In combination with forbearance, deposit guarantees enable and
encourage insolvent banks to gamble for resurrection from economic
insolvency. An insolvent institution can bid for funds with little
risk premium to try to grow back into the black. Its owners have everything
to gain and, with FDIC absorbing the downside risk, nothing to lose. With
enough forbearance they can even operate a Ponzi scheme, using new deposits
to pay the interest on old deposits [This is what has happened during
the last twenty years] (Kaufman 1988, 574).
The U.S. system of deposit guarantees thus serves as a background condition
explaining banks’ risk-preference behavior: it encourages banks close
to insolvency to take on greater risks. This “moral hazard”
problem likely intensified in the 1980s because the effective coverage of
deposit guarantees was extended, and because the guarantees were increasingly
mispriced. The Depository Institutions Deregulation and Monetary Control Act
of 1980 raised explicit deposit coverage to $100,000 per account, from
$40,000. This made it cheaper for depositors to get full coverage for
large amounts by spreading funds among banks, with or without the
help of a broker, and correspondingly made it easier for risk-prone
banks to acquire funds (Kaufman 1988, 574).
Perhaps more importantly, the FDIC extended de facto full coverage to
all liability holders of large banks. The FDIC increasingly resolved
bank failures by “purchase and assumption,” arranging takeovers
that fully protected uninsured liability holders from loss, as in the
Franklin National Bank case in 1974. There still remained the threat that
uninsured depositors might take losses if a bank had to be liquidated because
it was in such bad shape that no purchaser could be found. The FDIC removed
even that threat in the 1984 Continental illinois case, when the FDIC itself
effectively purchased (nationalized) the insolvent bank (O’Driscoll
1988, 666). The FDIC enunciated the so-called too big to fall
doctrine, under which even uninsured liability holders would be protected
from any loss. Consistent with the extension of de facto guarantees, Short
and Robinson (1990, 14—15) note that while high-risk banks
normally had to pay a premium rate to attract large uninsured CDs in the
mid-1970s, studies of more recent data do not consistently show risk
premia on CDs or subordinated debt. Finally, because banks’ exposure to
interest-rate risk increased with the increased volatility of interest rates
in the 1980s, but their deposit insurance premiums did not, the risk subsidy
implicit in FDIC guarantees increased (Benston and Kaufman 1986, 62).
Evidence of increased bank gambling can be found in the changing
composition of bank portfolios. Cash and investment securities
declined to only 27% of assets in 1990 from 36% in 1980. Loans rose to 61% of
assets from 54%, real estate loans to 23% from 15%. Within real estate,
as noted above, banks shifted toward riskier borrowers, namely construction
and development loans and commercial mortgages (Barth, Bmmbaugh, and Litan
1990, 128). In 1989, bank real estate loans exceeded C&l loans for the
first time ever (Fromson 1990, 120). Further evidence of increased bank
gambling can be seen in the rising cost of resolving failed institutions:
20.3% of deposits in 1989 failures, double the 10.2% figure for 1985 failures
[TODAY, THE COST OF RESOLVING FAILED INSTITUTIONS IS 100%. Failing banks have
no assets left in them] (Barth, Brumbaugh, and Litan 1990, 29, table 4). Higher
resolution costs mean either that authorities were slower to close banks
after their economic net worth crossed into the negative region, or
that the banks’ net worth fell more rapidly [With the cost now 100%,
the authorities are more desperate than ever to hold the system together]. Increased
reliance on high-risk “double-or-nothing” lending strategies can
have both effects. It can increase the discrepancy between the economic
value of assets and their value according to regulatory accounting
principles, so that authorities are slower to recognize negative net worth.
And it can make asset values fall more rapidly because returns on high- risk
assets are more sensitive to changes in the state of the world.
Just as competition from zombie thrifts impaired the profitability of solvent
thrifts, competition from zombie banks has weakened solvent banks. These
spillover effects are ironic, because the ostensible purpose of deposit
insurance was to prevent spillover effects (namely the spread of runs) from
unsound to sound banks. Short and Robinson (1990, 7—8) find that Insolvent
(but still open) Texas banks bid up the deposit rates paid by other Texas
banks, and may have increased the number and size of insolvencies. They also
point out that the FDIC policy of resolving institutions with assistance,
absorbing bad assets to keep them open, puts unassisted institutions (who
have to swallow their own bad assets) at a competitive disadvantage.
Conversely, others have noted that the shrinkage of the thrift industry, in
part due to RTC closures, has helped strengthen commercial banks by giving
them retail deposits that are on average a cheaper source of funds than
brokered deposits (Duca and McLaughlin 1990, 488).
Policy Implications
A banker quoted anonymously in the New York Fed study Recent Trends in
Commercial Bank Profitability (FRBNY 1986, 43) explained clearly the
incentive of an unprofitable bank to gamble for recovery;
One banker said that traditional corporate banking faced two alternatives,
both of which are “routes to going out of business.” One is just
to say “no” to underpriced risky deals. The other is to take the
risks, the alternative most organizations are driven to by the need to occupy
an existing staff of loans officers and supporting personnel. This latter
alternative, he said. simply results in going out of business “more
dramatically,” especially in a disinflationary period when the
Inflation that temporarily hid the risks is no longer there to mask them.
Our current deposit guarantee system allows a bank to take the risks without
a correspondingly greater cost of funds, despite the increased likelihood
that it will exit the business “dramatically.” We have seen all
too many dramatic exits in recent years. Taxpayers have discovered that
they are the financial “angels” obliged to cover the costs of
what threatens to be a very expensive show.
A minimal goal for banking policy would be to give bankers the proper
incentive to choose the less dramatic route to going out of business.
A bank should be led to retire gracefully as Its profitability declines,
rather than to run up a bill for other banks, or taxpayers, in the course of
fighting the inevitable. If market forces dictate that the banking industry
as a whole is to shrink, let It not consume others’ wealth in the
process. Let it shrink quietly and promptly, so that financial resources can
be reallocated with minimum waste to what promise to be more valuable uses.
The absence of incentives to gamble for resurrection can be seen in
historical banking systems with unlimited liability for bank shareholders. In
such systems unprofitable banks would voluntarily wind up their affairs
without waiting for insolvency. Bank owners had no incentive to pursue
double-or-nothing strategies even as the bank’s net worth became
negative, because further losses in net worth continued to fall entirely on
the shareholders, rather than on depositors or on a deposit guarantee agency.
It may be that unlimited shareholder liability, or even extended liability,
is not generally the optimal risk-sharing arrangement between shareholders and
depositors. That is a question financial markets can resolve in the
absence of subsidies and legal restrictions. It is not obvious that extended
liability is incompatible with tradable shares, though for obvious reasons
shareholders whose own exposure depends on the wealth of their coshareholders
might want shares to carry covenants regarding ownership qualifications.
In the absence of government deposit guarantees, a caveat emplor policy
prevails. With entry free into both limited-liability and extended-liability
banking, depositors who choose limited-liability banks are choosing freely to
expose themselves to default risk, in exchange for whatever comparative
benefits limited-liability banks can offer them. The usual objections to
such a policy are (1) that depositors would attempt to free-ride on one
another’s efforts to monitor the bank, so that too little monitoring
would take place; and (2) that depositors would run on suspect banks, setting
off contagious banking panics.
The first objection is not really specific to banking. Quality-assurance
problems of this sort are generally handled by certification agencies. In
banking, a private clearinghouse association has historically been the agency
acting to certify the solvency and liquidity of its member banks, primarily
because each member bank (who accepts the liabilities of its fellow members
daily) has a strong interest in receiving such quality assurances (Timberlake
1984; White 1992, ch. 2).
The second objection is undercut by the historical evidence that a run
on a suspect bank is not generally contagious. In the absence of
legal restrictions that weaken banks in similar ways, bank failures do not
occur in droves, and so depositors do not rationally infer from one
bank’s difficulties that all others are about to default. No
contagions are recorded in Canadian or Scottish banking history. where
banks were free to branch nationwide and to capitalize adequately. Even in
the United States there is little evidence (outside the exceptional years
of 1929—33) of runs spreading generally from insolvent to solvent
banks (Kaufman 1988, 566—71; Schwartz 1988, 591—93).
Depositors fleeing suspect banks generally redeposit their funds in
sound banks. Such movements were occurring in the early 1930s, and one
suspects that the private interest of weak banks in opposing such a
“flight into quality” explains why small banks
enthusiastically supported the formation of the FDIC, while many large banks
opposed it. If so, the same sort of interest today would oppose
“coinsurance” proposals (limiting deposit guarantees to, say, 90%
of deposits). Weak banks (a category that today includes many of the largest
banks as well as the smallest U.S. banks) may fear that coinsurance might
deliver on its advocates’ claims: it might reimpose market discipline.
Proposals to limit deposit guarantees to “narrow banks” (Litan
1987) are a step toward the goal of an undistorted financial system provided
that banks are free to issue explicitly and credibly unguaranteed accounts on
whatever terms informed customers find agreeable. A number of options are
open to banks to make their accounts run-resistant or even run-proof.
Deposit contracts could contain notice-of-withdrawal clauses. Checking
accounts could be linked to money-market mutual funds, equity rather than
debt claims. Capital adequacy assurances, or even extended shareholder
liability, could be offered. Some sort of private deposit insurance might be
feasible.
Assuring that the best sorts of financial contracts win out on a level playing
field requires eliminating the discriminatory practices in the current
operation of the clearing and settlement system (e.g., the exclusion
of money-market funds from direct use of the Fedwire, and the unpriced
guarantee of interbank payments made by wire). Ideally the payments system
would be entirely privatized.
The case for government deposit guarantees in a deregulated environment is
not persuasive. Any government deposit guarantees that remain in this
environment must at a minimum be self-financing. If the guarantee system
cannot cover its costs, it is hard to defend its efficiency. If the deposits
of banks (however narrow) are provided with government guarantees at rates
subsidized by general taxation, there are inadequate incentives for savers to
seek efficient alternative intermediary forms (such as mutual funds). In the
context of proposals currently on the table, this means that if making the
Bank Insurance Fund sell-financing by raising FDIC assessments on banks makes
the banking industry shrink that much faster, so be it.
--------------------------------
Bankers as Scapegoats for Government. Created Banking Crises in U.S.
History
Richard M. Saisman
Introdudion
If there is anything more tragic than our current banking crisis, it is
that the crisis is being blamed on the wrong group, on the bankers,
instead of on the primary culprit, government intervention [exactly!!!]. The
tragedy lies in falling to identify the fundamental cause of the problem,
thereby ensuring its continuance. Bankers are not entirely innocent of
wrongdoing in the present debacle, but to the extent that bankers have been
irresponsible, it has been primarily government intervention that has
encouraged them to be so. More widely, it is irresponsible government
policy that has made the U.S. banking crises of the past century so frequent
and seemingly so inevitable. Government has created these banking
crises—sometimes inadvertently, at other times with full
knowledge—by making it nearly impossible to practice prudent
banking. Having done so, government has then pointed to bad
banking practices as sufficient cause for still further interventions in the
industry.
I. The Context of the Current Banking Crisis
The view that today’s banking crisis is due primarily to the mismanagement
and fraud of private bankers underlies most popular accounts of the
crisis.’ Critics are Inclined to blame private bankers for banking
instability because they wrongly believe that unregulated banking systems are
inherently unstable and that regulation is required to restrain some natural
tendency of private bankers to engage in mismanagement and fraud. Central
banking is said to provide a restraining influence on the destabilizing urges
of the private banking system, while free banking is seen as inherently prone
to instability. The recent, burgeoning literature on free banking overthrows
this conventional wisdom and defends free banking as an inherently stable
system made unstable only by legal restrictions and central banking-related
interventions. In this view, bad banking comes not from free markets
but from perverse public policy. [absolutely]
Guided by erroneous assumptions about the nature of free
banking and central banking, analysts of the current crisis typically stress
the symptoms (bad banking practices), and overlook the underlying disease
(government intervention), as the cause of our problems. For example,
many commentators and bank regulators are satisfied to cite anecdotal
evidence from the current banking crisis to draw the obvious conclusion that
bankers like Charles Keating are incompetent and dishonest, and then to claim
that these and similar cases represent the sum and substance of an
explanation of the banking crisis. Such figures simply are not
representative of the entire industry. While there is no denying that bankers
such as Charles Keating exist, we can only understand the fundamental cause
of our banking crisis by identifying the institutional arrangements
that make such bankers possible. As I argue below, central
banking and legal restrictions have institutionalized unsafe banking.
Today’s banking crisis is only the latest in a long series of U.S.
banking crises blamed on bankers but actually caused by government
intervention.
My reaction: I am
working on an entry putting everything together.
Eric de Carbonnel
Market Skeptics
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