There is a lot of stress of late not just on investors but stress tests.
In Europe banks--mimicking their American counterparts--are set to take the test, more than 130 of them. And apparently there are other stress tests planned, not unlike television networks when one has it others feel the need.
Some banks will no doubt fail the test, most likely smaller to mid-sized ones without the benefit of an official not-too-big-to-fail sanctioned put option.
Last week indexes that track the financial well-being of these banks receded and, magically, they're back up so far this week. So what's up with all this?
Well, in our rather provincial, forget-all-the-noise view, we like banks. They're a lot like girls. We like some of them, not all of them. When interest rates start back up--and they will--loans will increase and banks, less unfettered, will start booking profits on the spread.
That's there meat and potatoes if you rule out their ability to make trading profits. But then again making profit on loan spreads is a form of trading.
Loans are necessary for business expansion whether they come from banks or otherwise. Otherwise sources may prove even more risky and difficult to regulate.
Why make a loan if there's no profit in it? If you don't understand that--which apparently most regulators and corporate-haters don't--it's not going to happen.
Taking on risk requires reward. Without it the so-called case of economic lockjaw all the hand-wringing is about will continue.
As always one has to do one's homework. Much of but not all of the vilifying of banks is in. Sure, there might be per usual some volatility, but banks that survive (and some should be allowed to fail) will do well until the next time.
Unlike the popular saying, "It's different this time," which almost always proves false, the "next time" is infallible in a world governed by academics, bureaucrats, regulators and politicians.
In the meanwhile, pick wisely, don't over stay your welcome and make some money.
t. man hatter
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