Maybe there is a credit bubble after all

Thanks to the Prudent Bear site (via Canaccord research), I came across these brilliant Bloomberg News quotes from two senior U.S. lenders:

‘We are close to a time when we’ll look back and say we did some stupid things,’ Lewis said… ‘We need a little more sanity in a period in which everyone feels invincible and thinks this is different.”
Bank of America Corp. (BAC:NYSE) Chief Executive Officer Ken Lewis

“I am not a forecaster of the future; I’m a historian. And history says this will blow up. It always has. And there will be some blood on the street.”
Wells Fargo & Co. (WFC:NYSE) CEO Richard Kovacevich

If you’ve been following our series “with” KKR co-founder Henry Kravis (“Henry Kravis on the bubble question“, May 31-07, and KKR Founder Henry Kravis on PE climate, May 29-07) you’ll know that he “doesn’t know what a bubble means”. And while he made a very strong case in his CVCA speech that he wasn’t over-levering his deals relative to historical levels, he did point out that the recent phenomenon regarding a lack of lending covenants on jumbo PE loans could be a problem down the road for all parties.

Sounds like at least two bank CEOs tend to agree. Which begs a question: where are the Boards at these banks? Why aren’t the Board Risk Committees asking their CEOs about the “stupid things” they think their staff are up to these days?

Perhaps the Sarbanes-Oxley (SOX) legislation would have been better drafted if it had included the line “thou shalt not knowlingly do stupid things with the shareholders’ money”, and gutted the stuff about internal process checks. Sounds like certain banks have a good handle on their internal processes, and that their auditors have verified same, therefore passing the SOX tests. Nevermind that the findings from those process reviews scare the CEOs just a tad.

And here we all thought that the Sarbanes legislation was indeed a law against corporate stupidity.

MRM