The industry was "on steroids" with consumers, government and regulators all guilty. His list of 10 issues, with root causes going back at least 10 years:
1) Excessive Loan Growth (more than 2x GDP)
2) Higher yielding assets (too good to be true?)
3) Too many eggs in one basket (real estate)
4) High balance sheet leverage (10x to 40x over the last 20 years)
5) Risky exotic banking products (like a bad Sangria - you don't know what's in it even after the hangover)
6) Consumers went along (false illusion or prosperity leading to risky borrowing)
7) Accounting changes that allowed reserves to fall (1.8% to 1.2%)
8) Regulators allowing FDIC deposit insurance without premium payments (like paying your life insurance only after you die)
9) Government facilitated allocation of capital to risky borrowers (Fannie and Freddie anyone?)
10) Incentives (compensation is consistent with revenue but not with risk)
At the end Mr. Mayo commented that the crisis was primarily one of not enough capitalism, correctly regulated. Hear Hear. While liquidity must be preserved, bad choices must be met with the consequences - i.e. companies must be allowed to fail.
Even if you disagree with what he said, you have to respect the presentation. Beyond that, you have to respect the decade of research Mr. Mayo has presented. There is a reason he is ranked #1 in his field.
