Here is a map of unemployment rates in the U.S., by state.
Now look at the maps, by county:
California
Florida
Iowa
Kansas
Nebraska
Alaska
Texas
Washington state
It makes you stop and think when you can see the unemployment by county.
Now think about the unemployed people in each of those counties who own homes.
Then think about the banks who do most of the mortgage lending in those counties.
The recent "stress tests" for banks was based on the most 'adverse' scenario being 8.9% unemployment in 2009, and 10.3% unemployment in 2010. Here we are in May of 2009, and we've already reached 8.9% unemployment nationally- but in some areas, the rate is over 20%.
As you can see by looking at the county-by-county unemployment charts, banks in some regions of the country will be affected far more severely than others. This might partially explain why Warren Buffett is so sure that Wells Fargo is in a better position than other big banks to survive the current economic crisis.
The government stress-tested 19 big banks, and said that 10 of the banks needed to raise %75 Billion by June 8, based on possible unemployment rates of 10.3% next year. What about the banks in areas with much higher unemployment? Which banks are more exposed to the higher rates of localized unemployment? Plus, The Wall Street Journal explains how the big banks got the government to bend the rules of the 'stress tests' to their advantage before the results came out.
So what do you suggest? This is more than a bit confusing to me.
ReplyDeleteIt's more of a question. I don't know. It depends on which banks did the most mortgage lending in the counties with high unemployment- or maybe to be more accurate, which banks bought the most mortgage-backed securities from banks who did the most lending in those areas. I guess the only point I'm making is that an 8.9% national unemployment rate could mean a 3% unemployment rate for a small Nebraska bank, and also a 20% unemployment rate for a bank in California. It looks like the 'stress tests' only looked at the broad, national unemployment rate- which is almost completely meaningless pertaining to the stability of individual banks, large or small.
ReplyDelete