From the FINANCIAL TIMES:
… This time, the problem appears to be the effect of the economy on the banks, rather than the other way around. Banks, like most businesses, are exposed to the economic cycle at the best of times. But this one is more serious than others. If the economy takes another slide, many more of the loans sitting on their books will have to be written down. Renewed recession in the US could be the final straw for mortgages taken out at the peak of the US housing boom in the last decade…
So the spasm for bank stocks appears to be driven by alarm at the slowing down of the world economy – which includes China, nucleus of all hopes, as well as Europe and the US. Investors think the banks are particularly exposed…
So this market seizure looks like a classic reaction to bad economic news. Keynesians have a point when they say this suggests that politicians’ concern about deficits is misplaced. When growth is in peril, it is defensible for governments to borrow their way out of trouble – and governments are under no pressure from the markets to reduce deficits…
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EDITOR: This is a very good article and deserves careful study. However, little will be news to those who have read NewsLanc over the past years.
