February 13, 200916 yr Pish-posh. I'm actually not worried about the banking system per se. If there was truly a run on the bank, I'm confident the feds would nearly literally open up printing presses in the vaults of American banks and print dollars to allow folks to get their money, even if that massively expanded the likelihood of hyperinflation. Now issues of normal lending is different.
February 13, 200916 yr ^ No threat of hyperinflation. It would not take long to print enough bills to meet the 'run'. Afterall, how many people actuall have savings in a bank these days?
February 13, 200916 yr Hyper-inflation actually helps one group of people and crushes another. If you happen to have lots of debt hyper-inflation can make it go poof, because you spent expensive money and pay it off with cheap money (this is why the left likes inflation). However, hyper-inflation crushes the stakeholders in society - anyone with a fixed income, bondholders, debt-holders basically - it usually hits the middle class really hard. It is worth noting that the hyper-inflation in post-WWI Weimar Germany has been seen as a significant contributor to middle class support for the Nazi regime. That actually is the scariest part, remember the real crack-pots and native communist and fascist movement didn't really gain strength until '34 and after. The 36 election could have brought our own fascist regime in Long wasn't assassinated. Unfortunately, the nature of society and effects of 60s lead me to believe the well of American democracy and liberalism can run dry quickly if things got to awful and political class was seen as being incapable of effective response. Sadly, the bipolar nature of politics over the last 10 years only makes this worse. Euphoria can turn dark far more quickly than an even-keel - and few Americans really have the stiff-upper lip attitude toward life.
February 14, 200916 yr ^ I think there is a stronger risk of slipping into some form of extremism nowadays than back in the 1930s and there seems to be a higher degree of political soreheadness and crackpot-ism in "folk politics" nowadays than back then.
February 14, 200916 yr I'd agree that the fringes in the U.S. are probably further removed from the mainstream, but fortunately we don't have anything like a vibrant International Communism or nascent Fascism like the 30s (which isn't to say that there aren't any numbers of regimes that could abandon all pretense of a democratic society - I'm looking at Russia, Venezuela, China, any number of countries in the Middle East, South America, Africa, SE Asia). I think even Central and Eastern Europe could be susceptible and depending on how one thinks Euros will deal with their new mostly Muslim minorities that could be a whole 'nother bag of worms. Illiberal forces lost important rhetorical battles at the end of the 20C, but autocracy and its friendship totalitarianism and dictatorship can come back very quickly.
February 18, 200916 yr Author These companies just don't get it and as long as the taxpayer keeps bailing them out they won't get it. They need to change their business plan, their focus and plan for a different future (quickly). The most telling moment (for me) that they don't get it was when Obama visited Detroit the other day and as he walked off stage GM had placed one of their biggest SUVs as a display item for the media to show in the background. Sad and pathetic. Oh well, what is another 50 billion, its only paper, right? Here is an idea, take all the innovative technology that the car companies have 'bought' over time and not 'allowed' to be implemented and make a new company that puts these innovations to work and let the dinosaurs die. The new company can focus on being proactive to world markets, higher 10,000s of people and re-strenghten the American automotive industry. GM May Need Up to $30 Billion in Gov't Aid Ailing Chrysler Has Also Asked for Billions More in Government Help The country's largest automaker said it may need upwards of $30 billion in government aid and will cut 20,000 U.S. jobs to come back from the brink of bankruptcy. General Motors has received $9.4 billion in federal loans since December and received another $4 billion today. But the company said it still needs as much as $16.6 billion more in financing to survive the troubled credit market. The company also plans to cut 47,000 jobs from its global operations -- including 20,000 hourly jobs in the United States -- and to close 14 manufacturing plants by 2012. But officials stressed that slashing costs alone wouldn't be enough to return the ailing company to profitability. ... http://abcnews.go.com/Business/Economy/story?id=6898148&page=1
February 18, 200916 yr There is no way these companies will survive - does anyone even KNOW anyone who has recently purchased a new Buick, Sedan, etc? And those cars are probably having massive sales. I know we'll lose millions of jobs if these plants close, but what's the point of keeping these companies alive since they'll fold eventually anyway. Let them file Chapter 11 or 7 (the latter so we can get our loans back immediately) now instead of a year from now, and we'll deal with the fallout instead of keeping our heads in the sand. I mean, how many billions do we need to burn through before appreciating and not avoiding the reality of the situation.
February 18, 200916 yr There is no way these companies will survive - does anyone even KNOW anyone who has recently purchased a new Buick, Sedan, etc? I know several people who recently bought new GMs, including Buicks. Buicks in particular are highly sought after in China. That is one big bucket of hate to be dumping on a largely local workforce. What do you do for a living? Guess what-- I think it sucks and I think only Japanese people should do what you do. You're no good to this country so scram. It seems like every point you make about the car companies should also apply to the banks and insurance people, perhaps residential builders as well, but nobody ever says that. They just keep bashing midwest industry with all their might. Keep going, you'll be thrilled with the results.
February 18, 200916 yr State-By-State Stimulus Job Creation Estimates http://www.cbsnews.com/blogs/2009/02/17/politics/politicalhotsheet/entry4806682.shtml State Infrastructure (in dollars) Ala. 603,871,807 Alaska 240,495,117 Ariz. 648,928,995 Ark. 405,531,459 Calif. 3,917,656,769 Colo. 538,669,174 Conn. 487,480,166 Del. 158,666,838 D.C. 267,617,455 Fla. 1,794,913,566 Ga. 1,141,255,941 Hawaii 199,866,172 Idaho 219,528,313 Ill. 1,579,965,373 Ind. 836,483,568 Iowa 447,563,924 Kansas 413,837,382 Ky. 521,153,404 La. 538,575,876 Maine 174,285,111 Md. 704,863,248 Mass. 890,333,825 Mich. 1,150,282,308 Minn. 668,242,481 Miss. 415,257,720 Mo. 830,647,063 Mont. 246,599,815 Neb. 278,897,762 Nev. 270,010,945 N.H. 181,678,856 N.J. 1,335,784,100 N.M. 299,589,086 N.Y. 2,774,508,711 N.C. 909,397,136 N.D. 200,318,301 Ohio 1,335,600,553 Okla. 535,407,908 Ore. 453,788,475 Pa. 1,525,011,979 R.I. 192,902,023 S.C. 544,291,398 S.D. 213,511,174 Tenn. 701,516,776 Texas 2,803,249,599 Utah 292,231,904 Vt. 150,666,577 Va. 890,584,959 Wash. 739,283,923 W. Va. 290,479,108 Wisc. 716,457,120 Wyo. 186,111,170 U.S. Territories 238,045,760 Total 38,101,898,173
February 18, 200916 yr Spandex, hairspray and chewing gum account for the slight difference between NJ/OH. NJ supports these industries entirely by themselves.
February 18, 200916 yr Hyper-inflation actually helps one group of people and crushes another. If you happen to have lots of debt hyper-inflation can make it go poof, because you spent expensive money and pay it off with cheap money (this is why the left likes inflation). hyper-tripe Illiberal forces lost important rhetorical battles at the end of the 20C, but autocracy and its friendship totalitarianism and dictatorship can come back very quickly. Is that even a sentence??
February 19, 200916 yr I'm not saying it's right, I'm just saying they're both guilty at different points in time. Which is why I have abandoned both parties, and refrain from getting into political discussions anymore. Both parties are sending us down the wrong path and I am petrified at what the outcome is going to be...... I laugh at people who will sit their and talk til they are blue in the face DEFENDING either party!!!
February 19, 200916 yr Author I'm not saying it's right, I'm just saying they're both guilty at different points in time. Which is why I have abandoned both parties, and refrain from getting into political discussions anymore. Both parties are sending us down the wrong path and I am petrified at what the outcome is going to be...... I laugh at people who will sit their and talk til they are blue in the face DEFENDING either party!!! How true.
February 19, 200916 yr Author The next GIANT shoe to fall. Fed signals fears about commercial real estate woes 12:03 PM, February 18, 2009 "The minutes of the Federal Reserve's last meeting show a board losing hope on a housing recovery, fearful about rising problems in commercial real estate and "surprised" by the pace of economic declines overseas." http://latimesblogs.latimes.com/money_co/2009/02/fed-minutes-the.html IF OUR 'GREATEST' FINANCIAL MINDS ARE STILL BEING SURPRISED BY THIS STUFF WE ARE SO DONE. Maybe they should read a few forums and blogs and they might not be so surprised. IVORY TOWERS, IVORY TOWERS!!!!! Commercial real estate's crisis point approaching? $171 billion in loans coming due this year By Mike Freeman Union-Tribune Staff Writer 2:00 a.m. February 19, 2009 "With credit markets still shaky, about $171 billion in loans backed by offices, shopping centers, hotels and other commercial buildings are coming due this year. Experts increasingly wonder whether there's enough credit capacity in the system to refinance them. Yesterday, at a conference sponsored by the Burnham-Moores Center for Real Estate at the University of San Diego, bankers and real estate experts tried to tackle the crucial questions facing the market. ... http://www3.signonsandiego.com/stories/2009/feb/19/1b19real211833-commercial-real-estates-crisis-poin/?zIndex=55166 "Who knows?" Get out of the office and take a look around. There is so much vacant office and retail space its unreal. New office plazas and retail projects with maybe one tenant. Its simple, its just like housing, foreclosures and defaults are going to go way up. I saw a comment on this earlier that basically said, 'they are like deer in the headlights, just standing their frozen waiting to be killed.' Its like watching the housing RE industry 2 years ago. It can't happen, can it.....!!!
February 19, 200916 yr Ohio, it's pretty simple. If the auto industry goes, we go. There's no sugarcoating that. You can lie to yourself and say your schools would stay open, your fire/police can keep doing their jobs, and your bridges and sewers won't collapse, but get real. Ohio cannot survive if it loses the tax money created by auto industry related jobs in this state. We're already hanging on by a thread. The scorched earth budget may go into effect sooner than I thought... Word.
February 20, 200916 yr I should try to find the article today, but I don't have time. It basically talks about how many retail giants are not doing so well. Its expected that many of them go into bankruptcy ala Circuit City and drag on the already dire big box and mall scenes. This will be exacerbated by the commercial mortgage crisis. Hopefully with the stimulus package it will be a brief culling of big retail names.
February 20, 200916 yr I should try to find the article today, but I don't have time. It basically talks about how many retail giants are not doing so well. Its expected that many of them go into bankruptcy ala Circuit City and drag on the already dire big box and mall scenes. This will be exacerbated by the commercial mortgage crisis. Hopefully with the stimulus package it will be a brief culling of big retail names. oh dear God.
February 20, 200916 yr Author Citi, Bank of America drop on nationalization concern Banks may have to be nationalized for short time, Sen. Dodd tells Bloomberg "SAN FRANCISCO (MarketWatch) -- Bank of America Corp. shares hit a record low and Citigroup Corp.'s stock slumped to an 18-year low Friday, as the two financial giants faced investors' concerns they may be nationalized." http://www.marketwatch.com/news/story/Citi-Bank-America-fall-further/story.aspx?guid=%7B845D5D4B%2DDF85%2D4188%2D8F3D%2DF69EF77C9FE3%7D We are not the same America we were 2 years ago. When this is all said and done we may not recognized ourselves.
February 20, 200916 yr Check out what this guy is saying. I'm not saying what he says is going to happen but he does have a scary good track record at predicting events. Take what you will from it. http://smargus.com/2009/02/gerald-celente-on-glenn-beck-february-10th-2009/
February 20, 200916 yr Sandra Pianalto, president of Cleveland Federal Reserve Bank, predicts slight U.S. economic upturn Posted by Kantele Franko/Associated Press February 18, 2009 COLUMBUS — The U.S. economy likely will show signs of recovery this year, a federal reserve official said Wednesday. Sandra Pianalto, president of the Federal Reserve Bank in Cleveland, projected real gross domestic product to decline sharply in the first half of 2009, followed by a modest upturn in the second half. But she also warned that unemployment rates will likely continue to rise this year and that the economic outlook will be similar to 2008. ...SNIP... http://blog.cleveland.com/business/2009/02/sandra_pianalto_president_of_c.html
February 20, 200916 yr It's Fox, what do you expect? CNN is the only news source you kids should trust!
February 20, 200916 yr America is nothing like it was in the 1930's. We're much worse...we've lost most of our manufacturing base (and people want to kill what's left of it), ... We have lost most of our manufacturing jobs, some to imports, but a lot of the jobs were lost to automation. We are still at or near the top of the list of manufacturing output. Japan actually had a plan to lose their steel industry and shift to higher value added products like cars and electronics. (That's why they dumped TVs here for decades--to destroy Zenith, Motorola, RCA, etc). Steel was too energy intensive for them to compete in much longer.
February 20, 200916 yr ^I do only watch CNN and MSNBC, and I'm not a fan of Glen Beck at all (due to past war on terror/torture comments), but that doesn't mean his show never has good guests. Sometimes he gets people on there outside the mainstream who know what they're talking about. Gerald Celente is an example of that. The truth is though that while his thinking is unpopular in America, it's existed in other countries for quite some time. I agree with you about Beck. To me his foreign policy is the thing I dont like. I think he's starting to come around. He's the only one talking about the real problems within our monetary policy ala Federal Reserve. And I give him much props for that. What he hasnt got to yet is how our foreign policy has bankrupted our country and how it is in no way sustainable. Our 700+ overseas military bases cant be sustained and shouldnt be. Were following the paths of the British and Roman empires and we all know how that turned out.
February 20, 200916 yr America is nothing like it was in the 1930's. We're much worse...we've lost most of our manufacturing base (and people want to kill what's left of it), ... We have lost most of our manufacturing jobs, some to imports, but a lot of the jobs were lost to automation. We are still at or near the top of the list of manufacturing output. Japan actually had a plan to lose their steel industry and shift to higher value added products like cars and electronics. (That's why they dumped TVs here for decades--to destroy Zenith, Motorola, RCA, etc). Steel was too energy intensive for them to compete in much longer. Japan's market the Nikkei's value was at close to 40,000 in 1991. Today it stands at 7400. They have never recovered.
February 20, 200916 yr Author I thought I would post the following information that shows what is now starting to take place is much more than just about Wall Street, jobs or economics. It about countries around the world and their future position. I am not saying Putin is right (I think he is a very corrupt man - althought he does make some valid comments), but it does show that efforts are underway to alter the world power structure through this global crisis (with a focus on removing the current reserve currency, the US dollar). This would crush the US economy, since we rely on people buying our debt to keep going. Some things do need to change, but how that alters the world stage is of great importance to all. Putin Speaks at Davos "Good afternoon, colleagues, ladies and gentlemen, I would like to thank the forum's organisers for this opportunity to share my thoughts on global economic developments and to share our plans and proposals. The world is now facing the first truly global economic crisis, which is continuing to develop at an unprecedented pace. The current situation is often compared to the Great Depression of the late 1920s and the early 1930s. True, there are some similarities. However, there are also some basic differences. The crisis has affected everyone at this time of globalisation. Regardless of their political or economic system, all nations have found themselves in the same boat." .... http://online.wsj.com/article/SB123317069332125243.html?mod=googlenews_wsj
February 20, 200916 yr Does anyone factor in that during the first depression half the workforce we have today was at home? Women, by and large didnt work back then. None of you guys looking for jobs now had to compete with women for it. Also, when a man lost his job then, the whole household lost its income. I think the 25% of the population unemployed number is complete bullshit. I think this is another reason how this current crisis is not comparable to the depression. The dynamics are totally different. The only similarity is the Federal Reserve's response. Which didnt help then and wont now.
February 20, 200916 yr ^ Houses didn't cost 150k to 250k back then. Maybe 10k at that. ....and salaries, food/groceries, insurance, transportation, etc were not as much. so it's a wash
February 20, 200916 yr Yep and if you are out of work and no more income coming in everything is compounded. Watch your saving got ultra fast.
February 21, 200916 yr This is more from Gerald Celente about the impending commercial real estate collapse. There's lots of interesting (and scary) information in here. He also argues that if Israel lays a finger on Iran, that will start World War 3. Man, we live in scary times... This is from Russia Today and the audio is off a bit, so bear with it: I was going to post that, but I figure more people care about the outlet of the information and totally ignore the information itself and continue on bashing the source. There was already a comment about FOX from the one I posted with no response to the info itself. I find it quite amazing. I afraid though i hope not that the guy is right. We were being told this during the primaries by a certain presidential candidate as well. Nobody listened, and they laughed at him. What a shame.
February 21, 200916 yr Heres a nice collection of a congressman warning us for years about what is happening now. It might help you understand why this is happening. But the amazing thing is, is that this administration continues the same policies that have gotten us here. Were f**king doomed. http://valuefreedom.blogspot.com/2008/05/ron-paul-told-us-so-economics.html
February 21, 200916 yr There is a notion that markets and economies have an experience called capitulation. I actually find it likely we are starting that process now. The stock market probably goes down to 5600 on the Dow give or take and S&P comes down the same percentage. Housing comes down at least another 20% percent or so across the board with variation in local markets. However, I do think some demand will start to increase pressure on the economy in the second half of the year. They are spending a lot of money regardless if it is directed most effectively. I'd add that I'm only a little worried about the strongmen floating around right now. Putin is KGB and Medvedev has been distancing himself from him. Russia regularly has a night of long knives and it will interesting to see who gets in the back. Chavez actually scares me a bit since if things really start to crash (well they are but things haven't gotten really bad) then I'd expect him to come up with a reason to attack Columbia and maybe even pick a fight with Peru. Mexico seems like it could crash hard. The weird part is that the one thing we could up be if manufacturing collapsed is naked. There is practically no domestic apparel industry left. Most of the rest of our economy either has some manufacturing capacity left or could ramped up pretty quickly if necessary. Automation and computers make it far easier to shift than it was 70 years ago. It could also accelerate a internet dominated economy as it internet businesses require relatively less capital than other forms of economic activity.
February 21, 200916 yr Just because majority of apparel manufacturing is in Asia doesn't mean it all is. Also many of the automated systems that are built for apparel are made in the US or Europe. I was surprised to buy some high end under armor type shirts that were made in the US recently. I can totally see major retailers closing shop because the internet allows people to personalize their clothing
February 21, 200916 yr Not all of it is, but that is one area that has nearly completely disappeared - save American Apparel. Much of it comes from Mexico and other Latin American countries which are less likely to stop flowing into the U.S. compared to something coming from SE Asia. Saipan still does a fair bit of manufacturing of clothing. Obviously, we could ramp back up if we make the machines. One thought I had is that the reason why Ohio's banks are in such bad shape is that they essentially facilitated growth in the state that our actual wealth couldn't sustain. If they had been better managers of their money, then the accelerated sprawl of the last 10 years would never have happened. This problem was obviously writ large throughout the entire world. We were made to be richer than we actual were. This is over. That doesn't mean we will all be poor and that the economy is done, it just means that we return to something resembling the historical mean when it comes to what wealth feels like and how it's distributed.
February 23, 200916 yr Author This has been talked about several times on this thread and the previous housing thread. Nothing like having the left hand give to the right hand. It not just us, England and many other nations face the same challenge. The party is over. "Moody's credit rating agency is warning that the U.S. government's AAA credit rating is at risk, because it has taken on so much debt that there are few creditors left to underwrite it. Foreigners have bought as much as two-thirds of U.S. debt in recent years, but they could be doing much less purchasing of U.S. Treasury securities in the future, not so much out of a desire to chastise America as simply because they won't have the funds to do it. Oil prices have fallen off a cliff and the U.S. purchase of foreign exports has dried up, slashing the surpluses that those countries previously recycled back into U.S. Treasuries. And domestic buyers of securities, to the extent that they can be found, will no doubt demand substantially higher returns than the rock-bottom interest rates at which Treasuries are available now.1 Who, then, is left to buy the government's debt and fund President Obama's $900 billion stimulus package? The taxpayers are obviously tapped out, so the money will have to be borrowed; but borrowed from whom? The pool of available lenders is shrinking fast. Morever, servicing the federal debt through private lenders imposes a crippling interest burden on the U.S. Treasury. The interest tab was $412 billion in fiscal year 2008, or about one-third of the federal government's total income from personal income taxes ($1,220 billion in 2008). The taxpayers not only cannot afford the $900 billion; they cannot afford to increase their interest payments. But what is the alternative? How about turning to the lender of last resort, the Federal Reserve itself? The advantage for the government of borrowing from its own central bank is that this money is virtually free. This is because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually paid off but is just rolled over from year to year. Interest-free loans that are never paid off are basically free money. In 2008, 85% of the interest collected by the Federal Reserve (or "Fed") was returned to the Treasury. The average interest rate on Treasury securities today is only about 3%; 15% of 3% is less than 12% such a negligible interest as to make the money nearly free." http://www.thelion.com/bin/forum.cgi?tf=wall_street_pit&cmd=r&t=1&msg=672513570
February 23, 200916 yr It was interesting reading about Hillary's trip to China last weekend where she implored them to buy T-Bills. She talked about how we're all in this mess together, and that we need them to invest in us so we can buy their goods, etc etc. My question is how can China continue to buy our treasury bills when their economy is on the verge of collapsing (like everyone else's).
February 23, 200916 yr How about turning to the lender of last resort, the Federal Reserve itself? The advantage for the government of borrowing from its own central bank is that this money is virtually free. This is because the Federal Reserve rebates any interest it receives to the Treasury after deducting its costs, and the federal debt is never actually paid off but is just rolled over from year to year. Interest-free loans that are never paid off are basically free money. In 2008, 85% of the interest collected by the Federal Reserve (or "Fed") was returned to the Treasury. The average interest rate on Treasury securities today is only about 3%; 15% of 3% is less than 12% such a negligible interest as to make the money nearly free." http://www.thelion.com/bin/forum.cgi?tf=wall_street_pit&cmd=r&t=1&msg=672513570 Why don't they say PRINT money instead? I take it they don't want the dollar to be worth pennies compared to foreign currencies.
February 23, 200916 yr I guess the 'good news' of this is that if the US gov't owns the banks then it can force them to lend. Unfortunately, since we have to borrower so much to fund the stimulus, the only entity that the banks will be able to lend to will be the US Gov't. http://www.nytimes.com/2009/02/24/business/24bank.html?ref=business February 24, 2009 In Latest Plan for Banks, U.S. Could Demand a Voting Stake By EDMUND L. ANDREWS WASHINGTON — The Obama administration put the nation’s biggest banks on notice Monday that the government could become their biggest shareholder if regulators decide they are not strong enough to weather a deeper-than-expected downturn in the economy. Louise Story and Eric Dash contributed reporting from New York.
February 23, 200916 yr Author It was interesting reading about Hillary's trip to China last weekend where she implored them to buy T-Bills. She talked about how we're all in this mess together, and that we need them to invest in us so we can buy their goods, etc etc. My question is how can China continue to buy our treasury bills when their economy is on the verge of collapsing (like everyone else's). They are protecting their nearly 2 trillion in foreign reserves. They have to decide to either slowly deleverge, play the game to the end or take the plunge and blow the world economy up all at once (including their own). I think they are playing a little of option 1 and 2.
February 24, 200916 yr Forcing banks to lend would be a bad idea, especially the same folks that wrote most of the bad loans that are blowing up right now would be writing the new forced loans - and no firing the CEO and other top execs won't fix a damn thing - the folks who facilitated this are buried deep within the institution with all kinds of titles that would never show up in a Congressional committee investigation or what have you. Fix banks and tell them to only make really good loans - which of course is the problem, loans that looked great 3 years ago, now you wouldn't make for all the t-bills in China.
February 24, 200916 yr How many bad loans were made to businesses? Just from the articles I've seen, one would think the bad loans were concentrated in residential. So why cut off business lending too? If the crisis is making them refuse to do business loans as well as home loans, what role do banks still have? Collect on credit card debt? Are they not doing business loans because the home value problem has them convinced that no business has a market right now?
February 24, 200916 yr Author How many bad loans were made to businesses? Just from the articles I've seen, one would think the bad loans were concentrated in residential. So why cut off business lending too? If the crisis is making them refuse to do business loans as well as home loans, what role do banks still have? Collect on credit card debt? Are they not doing business loans because the home value problem has them convinced that no business has a market right now? Check reply 391 on page 14 of this thread. Commercial loans, which are part of the business loan system, are the next big shoe to drop.
February 24, 200916 yr I would distinguish commercial real estate from loans for specific industrial or tech ventures. The real estate aspect is secondary to them, they often just need a roof, any roof. They get loans more for equipment, payroll and basic operating funds. Seems like the most helpful thing the banks could do is try to grant as many of these loans as they can, even if real estate is hopeless.
February 24, 200916 yr Author I would distinguish commercial real estate from loans for specific industrial or tech ventures. The real estate aspect is secondary to them, they often just need a roof, any roof. They get loans more for equipment, payroll and basic operating funds. Seems like the most helpful thing the banks could do is try to grant as many of these loans as they can, even if real estate is hopeless. Agreed, but I do think the significant increase in vacancy rates in the commercial (office, industrial and retail) sectors shows that business enterprise is shrinking. Which means businesses (in general) are not expanding but are contracting. I am sure this is leading to less need for business loans and rising default rates in that sector.
February 24, 200916 yr I would distinguish commercial real estate from loans for specific industrial or tech ventures. The real estate aspect is secondary to them, they often just need a roof, any roof. They get loans more for equipment, payroll and basic operating funds. Seems like the most helpful thing the banks could do is try to grant as many of these loans as they can, even if real estate is hopeless. Agreed, but I do think the significant increase in vacancy rates in the commercial (office, industrial and retail) sectors shows that business enterprise is shrinking. Which means businesses (in general) are not expanding but are contracting. I am sure this is leading to less need for business loans and rising default rates in that sector. A few things have impeded business loans over the last 12 months: First, the credit crisis brought on by the residential meltdown created capitalization issues that have been well documented. When banks don't have sufficient levels of capital, they can't lend new money unless they either dispose of a like sized existing client, or raise more capital. Also because of the concern of counterparty risk that was prevalent throughout 2008, banks weren't lending two each other. In it's simplest form, a bank takes deposits, and then lends those deposits to borrowers. This is still true for many smaller, community level banks. Larger banks have more leveraged balance sheets and therefore have to borrower the money that they lend on new transactions. Typically this was done on an overnight basis, but sometimes banks float bonds to raise long term capital as well. What you saw in the late 3rd quarter was that banks stopped lending to each other on that overnight basis (see overnight LIBOR at over 5%), and that the availability of funds to lend to new customers froze up as well. By the time the gov't rolled out TARP, and the Fed's looser lending policies began to take effect we got to the last thing that is currently holding up lending....the recession. Right now, the issue isn't necessarily the willingness of banks to lend to companies. The reality is that many companies that wish to borrow had weaker 2008's than they would have liked, and that cash flow isn't as strong right when bank's credit standards have tightened. Cash flow is king when determining if a borrower is credit worthy. Collateral is only a secondary consideration. The fact is, once you get outside of the top 20 banks, many of the smaller banks that were well run have pretty good balance sheets, and are continuing to do business as usual. That's no comfort for the PE firm looking to find someone to finance their latest fishing expedition. But for the manufacturing company down the street, it's an option that may have previously been overlooked.
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