Friday, August 21, 2009

More Bank Woes | Finding Focus

http://online.wsj.com/article/SB125081267424648035.html

The WSJ writes about mortgage securities on the balance sheets of many regional/community banks. The irony is that for banks that had idle money because there was not growth in their communities, deployed their money in these assets. At the time, it did not seem like such a bad idea as the assets were highly rated. So they avoided making bad loans, but didn't avoid having bad loans on their balance sheets.

You'll also remember insurance companies have gobs of this 'stuff' too, but that seems to be working itself out, though I don't really know how.

So the sticky booger analogy of these assets being made and then flicked with some real sticking power still works. As I was closing down my client, I had another blast from my past. The computer consultant was there. I told him that I always remembered the conversation that we had on computer viruses, and that his sticky booger analogy has been useful in discussing it!

This post is back into the stewardship of money vein. Money sitting around and collecting dust is not good stewardship because there are safety issues (theft, fire, etc). Banks have to earn a return, so you can see that their investing in these supposedly safe securities with a wee bit more yield would be attractive. We saw how that story ends.

The point is that these securities still have to work their way out of the system. And mortgages have two facets: underlying collateral value and repayment. Ultimately prices need to stabilize (otherwise people walk away and give the keys to the bank) and employment needs to stabilize. Employment still is the income stream that most people need to pay their mortgage.

I live in a very small neighborhood. Two people are losing their jobs in the next few months. As I talk to young people, they are depressed about their futures. But as I look back over history, I also see that this 'stuff' gets worked out. Looking back in retrospect always offers greater clarity than a contemporary view of matters.

We can make a decision about how we choose to engage in forging those solutions. This crisis is surely one that will be a turning point in the complexion of our nation. I've been doing some reading in various places. First, I have a real interest in old investing books. I ordered a bundle from Fraser Books who specializes in the reprinting of these books. Investment advice really has not changed much in 100 years. Second, I'm reading Jose Ortega y Gasset's, Man in Crisis. It is one of the books that I found at the used book store in Sylva, NC. There are some real gems in this book, and I will share some of them.

My particular interest in this book is in his historical perspective of generational change. He distinguishes between a linear, soft change, to an abrupt change that serves to challenge the past and break free from it. We see those jolts in our history lessons. These changes release a great bit of energy (and war serves as a manifestation of such release). I cannot help but wonder if we are on the precipice of such a change--a change that will shape the contour and complexion of our nation.

He writes something very interesting, which I'll paraphrase: We are what we focus on. We are a great nation--and the focus for our forefathers was the securing of our collective freedom. At some point in time the focus has become blurred. I'm excited about the book because I believes that it falls into my hands at a time that is meaningful. Here I am, almost 50, and I'm feeling the need to have an understanding of what that generational change is, what it will mean, and whether or not it is a hard or soft evolution.

I believe that this book will give me some needed focus. Since the demise in the credit markets (something I was very focused on), I've felt rather directionless in terms of focus. I feel like this book will give me a construct from which to write with more purpose and clarity.