MACRO Term Paper

MACRO Term Paper

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• Our banks are oversold

Banks are oversold if their performance is soaring. This is to say they have the following characteristics: The banks have excess capital and reserves; the banking sector is a flush with liquidity, reserves and capital. This makes the banks the most capable of paying a high dividend yield. Another factor that contributes the overselling is that fact that the banks anticipate a high gain in the next quarters. The banks are operating at low prices to earnings multiples. They also take into account the possibilities of low expectations in terms of earnings. The banks are also experiencing improved fundamentals and earnings per share growth project. The banks are attracting value investors due to their oversold natures, the banks are better posed in the markets. This is based on the fact that the banks have a positive performance projection. This leads to the reversion of the general mean. This is based on the premise that prices will finally appreciate towards the mean (Ragan &Lipsey, 2011).

• Old rules versus new rules with respect to bank leveraging.

There are a number of rules intended to govern bank leveraging, however, these rules vary depending on the prevailing market conditions. Lahart, (2007), states that the old rules were developed to create an economic boom in major world economies; however, the new rules are geared at maintaining a stable banking system to cushion banks from the risks that are increasingly building up in the finical market.

• Given the Euro crisis and European bank leveraging, does this inspire confidence in the Euro?

In the short run; yes, in the long run; no

• Does this inspire confidence in the marginal European economies: Greece, Italy, Spain, Portugal, Ireland and now France?

This does inspire confidence in the marginal European economies in the short run, however, this is not sustainable and in the long run, the marginal European economies would have difficulties as the euro crisis ease. The banks leveraging would involve certain measures to ensure that the gearing is stable.

• The housing market in the US is leveraged. Explain the part that tax deductibility and recourse loans play.

According to Manny, (2007), when the interest rates rise and the housing prices fall, everyone would easily get access to a good home. However, the property owners would have problems paying back their mortgage loans, leading to overselling as the property owners start to panic

• What are the results of the US not requiring any down payments with respect to housing purchases?

This is one way of subprime lending, as it involves the provision of loan to those with limited capacity to payback with the intention of having an ec.............