Banks and losses

Last year John G. Stumpf, CEO of Wells Fargo and Company which is one of the few relatively healthy large banks in the country, was quoted as saying:

"It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine."

Perhaps, in 2009, banks will return to their proper line of work: making payments, collecting deposits, and lending money to those who are reasonably likely to repay it. I am not holding my breath.

The credit crunch will last until commercial bankers stop being terrified. Once that happens, they will start lending again. But when they do, we must hope that they remember how it works: assets provide something of a safety net - but no more - against default, actual repayment can only be made out of cash flow.

And it isn't going to be different next time!