Sunday, August 02, 2009

New Meaning to "Do What You Love, the Money Will Follow"

I think it was Martin Mayer (I can't put my finger on the reference--maybe here) who said that a critical sea change came over banking when bankers stopped managing assets and started managing liabilities. I think what he meant was: in the old days, you accepted deposits as they came and tried to invest them prudently. In time (I suppose he was talking about the runup to the savings and loan fiasco, i.e., talking about the mid 80s)--in time, banks started looking for hot money anywhere, with the hope that they could find a profitable use for it.'

Now, Calculated Risk (channeling others) points to a next phase: make the investment now, and pray you will be able to figure out a way to finance it somehow. The speaker here is a Chicago-area banker, quoted in the Chicago Tribune, about a Chicago-area bank failure:
"It was a bank created around the asset side of the balance sheet: 'Let's go make a lot of loans and figure out a way to fund them later,' instead of a bank that had a valuable franchise of deposit collection and was looking for a place to put those deposits."


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