Good morning friends,
Banking is like business in a pressure cooker. The unusual supply and demand dynamics of credit, combined with the amount and type of leverage that’s innate in banking, leaves a bank both uniquely prone to commit errors as well as acutely vulnerable to the consequences of committed errors.
“When assets are twenty times equity, mistakes that involve only a small portion of assets can destroy a major portion of equity,” wrote Warren Buffett in his 1990 shareholder letter. “And mistakes have been the rule rather than the exception at many major banks.”
One way to minimize mistakes is to have a sense for why they happen, which is what we introduce in today’s video.
See you tomorrow,
John
