Allow me one last word on the credit crisis of last week.
I hope by now I've demonstrated that credit and debt aren't the sole domain of green eye-shaded numbers crunchers on Wall Street.
As the green-eye shaded numbers cruncher in your own company's finance department can tell you, bad economics effects everybody.
So is the crisis over? Hardly. But banks and other lenders should get back to the business of making loans and making sure businesses just like yours have all the capital they need to grow and prosper.
Some experts even think that there is money to be made from the subprime mess. Stuart Greenbaum, an economist and former dean of the Olin School of Business at Washington University in St. Louis, says that financial institutions, believe it or not, will be at the front of the line of businesses making hay on the crisis crunch.
“Banks that don’t have a lot of bad paper in their porfolios are going to see the credit spreads widen out, and they’re going to end up making money as a result,” Greenbaum said. “The situation has created a buying opportunity, and we’re already seeing the reaction in the price of financial stocks, such as banks and insurance.”
Greenbaum adds that the subprime loan problem is a bit of toxicity that has entered the food chain. He says that although the toxicity is widespread and expansive at this point, the market is built to absorb a certain amount of default.
The reaction to the subprime loan issue is compounded by several factors: First, the market was at a historically high level; second, interest rates were low; and third, the yield curve was flat and credit spreads have been very narrow, reflecting historically low volatility.
“So the market is reacting to a somewhat exaggerated situation to begin with, and it has a particular vulnerability because credit spreads were narrow,” he said. “Volatility has been very low which has been driving the compressed interest margins. As a result, banks have been having trouble making money.”
In plain English, Greenbaum means that banks weren't making enough money to justufy lending more money out to borrowers. But he says that situation should get better, and more money should be freed up and will flow into the economy.
If you like to dabble in the financial markets, Greenbaum also says bank stocks are a great place to begin taking advantage of the credit markets right now. With stock prices low, and interest rates apparently headed lower, banks may soon find themselves in a highly favorable business environment.
You know the old Wall Street saying buy low and sell high. That's not easy to do -- people get too emotional about their money to apply the level of disciplined thinking needed to buy and sell at the right time.
But one thing is inarguable. Right now, stock prices are low. Way low.
Act accordingly.