BAC to the Future

Well Bank of America is no longer a ward of the state. Score one for the bankers.

Bank of America announced yesterday that they are paying back the entire $45 billion in TARP funds they received from the Treasury last year. In the depths of last winter, there we some question as to whether Bank of America could survive. Now they plan to sell assets and boost their equity by selling restricted stock and senior debt.

So with America’s biggest bank no longer in-the-hole to Treasury, can we say the crisis is over? I don’t think so. While the Dubai tempest-in-a-teapot is not systemically important, it does show that there’s still a hangover from the mid-decade building boom. Seriously, indoor ski-hills in the desert just don’t make economic sense. And fallout from stupid bubblelicious building projects is likely to be with us for a while.

But the larger lesson is this: illogical pro-cyclical accounting rules combined with collective insanity turned a real-estate correction into a full-fledged financial panic. Timely intervention by the Federal Reserve and Treasury stemmed this panic and allowed the economy to stabilize. It’s no surprise that the market bottomed right around the time that the major banks submitted to a stress test. When the banks showed they were solvent, the market recovered.

As Congress now debates financial reform, it’s important to remember: hard cases make bad laws. And sometimes we all just need time to calm down.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T14:30:05+00:00 December 2nd, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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