Bank of America (BAC) is down again today, after a weak performance last week on the back of ho-hum earnings.What’s going on?
David P. Goldman sums it up nicely:
Bank of America’s results showed just what the aggregate data should have made clear in advance: the collapsing loan books of banks makes them dependent on the thin gruel of the Treasury carry trade. With the collapse in yields during the past few weeks, the carry trade is harder and harder to bring off (58 basis points on 2-year Treasuries just doesn’t do very much). True, banks have shed bad loans, but they can’t find good ones, either. So the banks will continue their zombie existence indefinitely as the equivalent of public utilities, with occasional small crises to worry their shareholders. It’s just not worth being involved.
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