At 3:03 PM 4/25/95, Jim Devine wrote: >IMHO, to a large extent, >the financial fragility has been shifted from the banks and >corporations to the 80%. The corps got out of their debt trap >partly because stagnant wages and salaries, plus down-sizing >that shifted the costs and has boosted profit rates of late. >On the other hand, the banks benefitted from the very >steep yield curve of circa 1992 that meant a big gap between >the rate we earn on deposits and what we pay on loans. > >Doug or whoever has more up-to-date info, is this perception >accurate? Household balance sheets are in better shape than they were at the end of the 1980s now, too. The steep decline in rates from 1989-92/3 plus the attack of prudence during those years helped reduce both debt stock/income and interest/income ratios dramatically for households as well as financial and nonfinanical businesses. The steep yield curve - Greenspan's greatest achievement - made for buoyant financial markets, which allowed firms to float lots of stocks & bonds, which paid off old high-coupon debt, and allowed the banks to recapitalize themselves by stiffing depositors and buying medium-term government paper paying 3-5 points above fed funds. In most cases, these healthier trends have been reversed over the last year or so; household debt is rising again, banks are making plenty of loans that will turn bad tomorrow, and short-term rates have doubled since their trough. PS: The improvement in the banking system has been amazing. I've just gotten the FDIC's FDIC Quarterly Banking Profile, 1994Q4, and it reports that banks had a return on assets of 1.15% for all of 1994, a very healthy figure - up from 0.49% in 1989. Noncurrent assets were 3.02% of the total in 1991; that's down to 1.01%. Equity was 6.21% of total capital in 1989 - it's now up to 7.78%. The industry has shrunk dramatically, though; we're down from 12,709 banks in 1989 to 10,450 at the end of 1994. Doug -- Doug Henwood [[EMAIL PROTECTED]] Left Business Observer 250 W 85 St New York NY 10024-3217 USA +1-212-874-4020 voice +1-212-874-3137 fax
