Rising Rates Threaten Bank Stocks - WSJ.com

Rising Rates Threaten Bank Stocks - WSJ.com:

People blame the banks for not lending. Let's think about this!


"And, you speak of loans? Let's see? The economy is in the tank. Unemployment is 20% (or very close, 17.5% as of November) and all of the government's policies are to provide artificial (i.e. consumption) stimulus while at the same time passing and planning to pass more and more taxes and cost increases on business and labor!

Example: a bank will lend to someone for 5 years. So let's do an assessment:

1) This isn't enough time for the borrower to amortize the cost of whatever the business is borrowing the money for - so, part of the repayment of the loan will have to come from after-tax dollars. And, lo-and-behold, the government is going to be raising the tax rate so the old forecast (read: business plan) is probably underestimating the revenue that will have to be raised to provide the after-tax income to amortize the loan.

2) Now, the next change to the business plan is the cost of labor. New health care mandates will boost this. We know the government is fibbing on the true costs, but even these will add to the expenses the business has to face.

3) Oh yes, the interest rate. Let's see? Currently the rate is pretty low - but, we are talking about a 5-year loan (could be longer and the situation would be worse). So, if the Feds are going to be spending 25% of so of GDP and the economy is only projected to increase enough to keep the unemployment rate where it is today (Fed tax revenue at 15% of GDP), then one has to look out for higher interest rates. Will they be double-digit of high double digit? Whatever, the interest cost on the loan will be up. Has this been factored into the borrowing?

4) On and on.

5) Oh yes, the FDIC is getting tougher and tougher on wanting safe loans. So, how will the FDIC look at this loan? Let's see, they've already closed over 100 banks this year. How should the bank and its board look at this?

Clearly the answer is - don't lend!!!!!!!!"