When Main street is calm, Wall Street takes risks. This is a simple extension of our money paradox and another variation on Minsky Moments. If risk and uncertainty is low, bankers have to go out and seek new opportunities which means taking on new business risk. Bankers cannot make a sizeable risk premium if businesses are stable and economic uncertainty is minimzed. It is not clear we are in a overall calm period, but a lot of traditional lending has not been risky.
We have seen reports that subprime lending is back and at levles seen before the Great Recession. The consumer balance sheet have improved in aggregate but those who are borrowing need the money and are risky credits.
No comments:
Post a Comment