Comment: Spring in the air for U.S. banks?
(Elvis Picardo is an investment analyst for Northern Securities in Vancouver and a guest columnist for reuters.com. The opinions expressed are his own)
VANCOUVER (Reuters.com) - Concerns that the U.S. economy may soon find itself in the same sorry situation as Japan in the 1990s may prove to be unfounded.
Japan was trapped in a debt/deflation spiral in that decade, as the bursting of the real estate and stock market bubbles of the 1980s saddled the financial sector with massive non-performing loans. The scenario sounds too familiar for comfort for those investing or employed in the U.S. financial sector today.
Yet although rampant real-estate speculation and the availability of easy credit were the root cause of the problems in Japan and in U.S. banking today, the Japan parallel ends there.
Efforts to jump-start the economy in Japan were hindered by a lack of transparency, a reluctance to crystallize losses related to non-performing assets, and delayed response by the central bank. By contrast, the U.S. capital markets have an unmatched degree of transparency, and banks have already reported close to $200 billion in mortgage-related asset writedowns and losses.
Most importantly, the Federal Reserve is pulling out all the stops in an attempt to control the damage and ease the credit crunch. Its measures include slashing the fed funds rate by a total of three percentage points since September, and introducing a lending facility for primary dealers.
While the financial sector may not be out of the woods yet, one hopes that the changing season heralds a turnaround in their fortunes as well, as the coming of spring marks an end to the winter of discontent.
