Introduction to the credit crisis

In these midsummer weeks we are hearing a lot of commentary about the one year anniversary of the credit crisis. In 25 years of Wisconsin banking, I haven’t seen anything like the last 12 months. Many of the major financial institutions in the country have written off more than 50 % of their capital (think Citicorp and Merrill Lynch).

Bank stock values have declined even more precipitously and there have been 8 bank failures in the first 7 months of the year including the third largest failure in our history (IndyMac). Bank stocks have recovered a little in July, but most investors have very little confidence in the financial reporting of banks. It is hard to see why they should.

One of my core beliefs is that when financial matters seem complex and confusing, it is usually because someone wants it that way. In any event we really try to bring clarity and simplicity. Sometimes I can’t see through the confusion either, but I will offer a few comments meant to aid understanding.