Stop bashing Wall Street — it’s making America great again

There’s a perverse competition among some U.S. presidential candidates: Who can most loudly blame Wall Street for the problems of Main Street. They’ve got it wrong. Financial firms do more to assist consumers, business and industry in America compared to what they have in decades. And for the first time since the early many years of the Twenty-first century, global investors consider U.S. banks one of the world’s best.

Banks today are most willing to lend money since a minimum of 1990. Perhaps the best measure of restored confidence within the economic climate is the 63 per cent of Americans who’re within seven percentage points from the all-time-high valuation of their homes in 2006. 

All but ignored within the presidential debates this season is the record US$1.06 trillion of loans to commercial and industrial firms by the largest U.S. banks, an amount which has increased for 21 consecutive quarters. That’s a streak unequaled since 1985, when Ronald Reagan occupied the White House.

In its quarterly survey of senior loan officers, the Fed in January reported that banks happen to be willing lenders for 25 consecutive quarters, the longest duration of commitment since President George H.W. Bush was president 26 years back, based on data published by Bloomberg.

That helps explain why investors for the first time since 2004 are paying reasonably limited to purchase the shares of U.S. banks compared with their global peers on a price-to-book-value basis. The price-to-book ratio of the 24 major U.S. banks within the KBW Bank Index exceeded the comparable measure of 157 banks worldwide for the first time since President George W. Bush was re-elected.

Home mortgages now total US$9.95 trillion after bottoming in 2014 following the recession. That amount can be compared to the easy-credit times of 2006, prior to the economic crisis. Today, in comparison, the mortgage market shows no indications of the leveraged lending that precipitated the housing bust and, contrary, is poised to keep growing. 

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The average home price, up 30 per cent since 2012, reflects an ever more robust outlook for housing. U.S. homeowner equity now amounts to 93 percent of the 2006 peak.

If one excludes the period comprising the height of subprime lending, the financial crisis and ensuing recession, financing for consumers to homeowners is as good as it’s have you been and getting better. Credit-card lines are increasing steadily while household debt payments like a number of disposable income have plummeted to 10.02 percent from 13.22 per cent in 2007. The combination of healthier debtors while credit is expanding shows why banks are extremely willing to keep lending. 

Meanwhile, the 24 big banks within the KBW index had the cheapest total debt like a proportion of their assets since the data became obtainable in 2002: 15.9 percent when compared with 34 percent in 2004 and 30.6 per cent in 2008.

The convergence of U.S. banks’ propensity to keep lending and global investors favouring them as best bets is reflected in the average ratio of nonperforming loans to total loans one of the KBW Index banks. After 2015, the ratio was 0.66 percent, the lowest since 2007 and a fraction of the 2.96 percent ratio reached in 2009. Banks also have reined in many of the proprietary exchanging derivatives that brought them into conflict using their depositors. Their share of credit default swaps, for instance, is down 75 per cent to US$14.6 trillion since 2007.

If anyone wonders what all of this has to do with Main Street, the reply is revealed in the success of companies selling consumer products to Americans. Sales per share of U.S. consumer-discretionary and consumer-staples companies are in a record since data became available in 1990. The extra sales of consumer-discretionary firms such as Amazon, Nike and Netflix, when compared with consumer-staple companies including Coca-Cola, Procter & Gamble and Wal-Mart, may be the widest since 2008, based on data published by Bloomberg. That implies Americans are healthy and becoming healthier.

Warren Buffett, whose Berkshire Hathaway has increased its holdings of Wells Fargo, Visa and U.S. Bancorp the past several years, recently told his shareholders that they should ignore a lot of what they’re hearing from presidential candidates.

“As a result of this negative drumbeat, many Americans now believe that their children will not live in addition to they do themselves,” Buffett wrote. “That view is dead wrong: The babies being born in the usa today are the luckiest crop ever.”  

Bloomberg News