Since moving to felixsalmon.com, I’ve tried to lay off the metajournalism.
This is meant to be a finance and economics blog, after all, and there’s no
reason why people who are interested in finance and economics should want to
read snarky prose about financial journalists.
But maybe I can spin Dan Gross’s
latest article for Slate not as a sign of journalistic innumeracy, but rather
as a sign of why people should buy when things look bad. Because things aren’t
nearly as bad as Dan says they are.
Here’s how the article starts:
Hey Sucker Banking Corporation
How a British bank blew it in America.
On Wednesday, the giant British bank HSBC
of huge potential losses because of problems in its U.S. subprime mortgage-lending
unit. The company, the nation’s second-largest subprime lender, had to set
aside $10.6 billion in 2006 to deal with rising delinquency and default rates
in its vast portfolio of loans to American homeowners with less-than-stellar
That’s the spin. Here’s the truth: On Wednesday, the giant British bank HSBC
said that its US subprime mortgage-lending unit was on track to make $2.3 billion
in 2006, even after settting aside an extra $1.8 billion to cover loan losses
in the unit.
HSBC never warned of "huge potential losses" – not only is
the bank highly profitable overall, but even its US subprime mortgage-lending
unit is highly profitable. And the $10.6 billion in loan-loss reserves is not
just related to subprime mortgages, it’s related to all of HSBC’s lending, anywhere
in the world – and HSBC has $1.74 trillion in assets, which means
that HSBC is provisioning just 0.6% of its assets.
In other words, if you’re looking for news that the sky is falling, you’ll
find it anywhere you want. But really, it isn’t that bad at all.