On today’s show we are looking at a headline article in the WSJ.
The topic is banking. Think about it. Every bank’s risk management department would have stress tested the existing loan portfolio. They would have looked at the maturity dates of each loan, and forecast what would happen to those loans if they were refinanced at today’s rates.
We have not seen a massive wave of defaults yet. Yes, a few hotels have fallen over, and a bunch of corporate debt has caused bankruptcies. Trucking company “Yellow” is a great example of a company that fell into a debt trap. The SF Hilton is another.
By and large the banks are still showing strong balance sheets. But the signs are clear that they are not writing new loans. They want to write new loans. That’s how banks make money. They just can’t.
That’s why Jamie Dimon, CEO of JP Morgan Chase was quoted as saying “All loans are bad”. This is not an issue of a few mid-sized banks. This is every single bank. We had more than a decade of low interest rates being “normalized”. Doubling and in some cases tripling the cost of capital in less than a year is inflicting massive pain across the entire debt based economy.
The Wall Street Journal article totally misses the essence of problem. The article is shrouded in sanitized language.
Host: Victor Menasce