Following on George’s point about threats to recovery, check out what Institutional Risk Analytics has to say about the Obama Administration’s latest plans for the banking sector:
Suffice to say that before Treasury Secretary Tim Geithner and the other G-20 finance ministers set about to raise capital levels, they need to understand that the earnings of the banking industry are going to be impaired for years as the cost of resolving failed banks is repaid. … And as the banking industry shrinks defensively in order to conserve capital and fund liabilities impaired by realized losses, the credit available to the US economy also shrinks. … talking about raising bank capital at the present time is the functional equivalent of the imposition of the Smoot-Hawley Tariff Act of 1930. We desperately need a different approach.
Analysis from Chris Whalen and IRA has been spot-on as the financial meltdown has unfolded — warning before it happened even. What they are predicting now is continued credit contraction with the possibility of a second crippling shock to the financial system caused by new, higher capital mandates from regulators.
In other words, 2009 might end not all that differently than 2008.
