WRellim
07-28-2008, 01:51 AM
From Monday morning NYT article: (http://www.nytimes.com/2008/07/28/business/economy/28credit.html?_r=2&oref=slogin&oref=slogin)
Worried Banks Sharply Reduce Business Loans
By PETER S. GOODMAN
Published: July 28, 2008
Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.
[...]
Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.
But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.
“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled. “This is why God made banks, for this kind of transaction. This is going to slow down the American economy.”
Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs. By mid-June, bank credit was declining at an annualized pace of more than 6 percent.
[...]
But if the newfound caution of American banks is prudent in the long run, the immediate impact is amplifying the troubles with the economy. The Federal Reserve has been lowering interest rates aggressively to make money flow more loosely and to spur economic activity.
The financial system is not going along: As banks hold on to their dollars, mortgage rates are climbing. So are borrowing costs for corporations.
Some suggest that the banks, spooked by enormous losses, have replaced a disastrously indiscriminate willingness to hand out money with an equally arbitrary aversion to lend — even on industries that continue to grow.
[...]
Until last summer, banks lent freely, banking experts say, because they sold most of the loans they issued, making them less concerned about whether the customer could handle the payments: If the loan went bad, that was someone else’s problem.
[...]
NOTE: BOLD & UNDERLINE emphasis added
This is a natural result of the idiocy of our system, and (IMHO) one of the causes of why recessions can easily turn into depressions... Bankers literally have forgotten how to do their jobs properly.
Likewise, most American businesses (several of the ones I know anyway) have, like consumers, gotten used to the "ez-credit" loans based on the idea of LTV (esp. regarding RE, buyouts, and hi-tech machinery), and an ever expanding market and no longer really know how to make a solid case for analyzing REAL productivity/financing cases anymore.
If the business of America is business... well the skills of running a business properly were tossed out the window for the past decade (or more) -- so it will take YEARS for a new generation to relearn (in the school of hard knocks) the REAL WORLD experience of running businesses properly, w/o easy access to credit.
Clouds on the horizon, and there is red light in the morning.
Worried Banks Sharply Reduce Business Loans
By PETER S. GOODMAN
Published: July 28, 2008
Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.
[...]
Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.
But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.
“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled. “This is why God made banks, for this kind of transaction. This is going to slow down the American economy.”
Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs. By mid-June, bank credit was declining at an annualized pace of more than 6 percent.
[...]
But if the newfound caution of American banks is prudent in the long run, the immediate impact is amplifying the troubles with the economy. The Federal Reserve has been lowering interest rates aggressively to make money flow more loosely and to spur economic activity.
The financial system is not going along: As banks hold on to their dollars, mortgage rates are climbing. So are borrowing costs for corporations.
Some suggest that the banks, spooked by enormous losses, have replaced a disastrously indiscriminate willingness to hand out money with an equally arbitrary aversion to lend — even on industries that continue to grow.
[...]
Until last summer, banks lent freely, banking experts say, because they sold most of the loans they issued, making them less concerned about whether the customer could handle the payments: If the loan went bad, that was someone else’s problem.
[...]
NOTE: BOLD & UNDERLINE emphasis added
This is a natural result of the idiocy of our system, and (IMHO) one of the causes of why recessions can easily turn into depressions... Bankers literally have forgotten how to do their jobs properly.
Likewise, most American businesses (several of the ones I know anyway) have, like consumers, gotten used to the "ez-credit" loans based on the idea of LTV (esp. regarding RE, buyouts, and hi-tech machinery), and an ever expanding market and no longer really know how to make a solid case for analyzing REAL productivity/financing cases anymore.
If the business of America is business... well the skills of running a business properly were tossed out the window for the past decade (or more) -- so it will take YEARS for a new generation to relearn (in the school of hard knocks) the REAL WORLD experience of running businesses properly, w/o easy access to credit.
Clouds on the horizon, and there is red light in the morning.