Wednesday, December 26, 2007

Solving the Lending Crisis
The big lenders, Citigroup, Lehman, and Wachovia are diverse enough that they can probably not lend for an extended period. Eventually they will have to start lending. The banks' commercial real estate executives are not going to get the bonuses they (and their wives) are accustomed to by sitting on cash. This will flow up as banks' Return on Equity (ROI) will shrink and the senior bank executives won't get their bonuses. This may sound sarcastic and simplistic, but having worked long enough in corporate America, I realized that most important corporate decisions are based on the bosses' bonus pool. Stockholder wealth maximization my ass. It is in the bank executives' personal interest to start lending. When their bonuses drop they will find a way to start lending.

No comments: