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About Swine Flu and Bank Failures.

Some one-third to one half of Americans (or British) are expected by some to come down with swine flu. Somehow, that doesn't seem believable. That would rival some of the worst epidemics in human history, and strikes us as being off by an order of magnitude. A more believable claim is that some 3%-5% of Americans might come down with swine flu.

The big bank bears like Richard Bove and Meredith Whitney opine that something like 4%-5% of U.S. banks may fail. That also strikes us as being low by an order of magnitude. A ratio of 30%-50% seems more believable to us.

Both represent forms of contagion; the usual form, in the case of swine flu, and the financial kind, in the case of banks. But they operate in somewhat different ways.

Physical contagion actually has to go from person to person, meeting different levels of resistance along the way. It will therefore affect some people, and not others, making differing degrees of headway between people.

Financial contagion, on the other hand, can sweep right through a networked "system," affecting anything that it touches. Basically, it willl affect similar institiutions, overleveraged banks with gobs of bad real estate loans, in similar ways. The only way for a bank not to be affected is to be significantly different from the others. And very few are. There is a lot less "diversity" between banks than between human beings.

Somehow, banks could take lessons from people about maintaining individual "characters."