Open Thread

By NB Staff (Bio | Archive)
Mon, 07/27/2009 - 10:25 ET

For general discussion and debate. Possible talking point: lending by U.S. banks still on the decline.

Lending continues to slow as bankers and borrowers refrain from taking risks, in a bearish sign for the economy. The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more than half of the loan volume in April and May came from refinancing mortgages and renewing credit to businesses, not new loans, an analysis by The Wall Street Journal shows. The numbers underscore two related trends weighing on the economy. Financial institutions are clamping down on lending to conserve capital as a cushion against mounting loan losses. And loan demand is falling as companies shelve expansion plans and consumers trim spending to ride out the recession. That combination is making it harder for the U.S. economy to rebound, and some analysts predict that loan portfolios won't start growing until the second half of 2010.

How does the economy grow without growth in lending?

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Perhaps it's time to loosen

Mon, 07/27/2009 - 10:31 ET by nolotrippen

Perhaps it's time to loosen the restraints on who and who can't lend (and I'm not talking about Tony, King of the Numbers).

Why can't Apple lend? It's sitting on billions in cash. Ditto Microsoft? I'm just asking.

Re loosen restraints

Mon, 07/27/2009 - 11:06 ET by slickwillie2001

Wal-Mart has been trying to get into banking for years. Why not?

I know of millionaires who couldn't finance a car.

Mon, 07/27/2009 - 10:35 ET by supercon

He has a lot of debt but his income to debt ratio far outweighs it. His high debt gave him a credit rating below 700. His own bank wouldn't even give him the money. He finally got his loan and then he pulled every nickel he had out of that bank and went to another bank. The banks are over compensating for the bad loans they have made in the past. They are like a liquor store that got caught in an ID sting that won't sell beer to a fifty year old man becuase he doesn't have his driver's license on him.

In the end they will come around because lending money is what they do.

" if Republicans are able to stop Barack Obama on health care, 'it will be his Waterloo, it will break him...." -Sen. Jim DeMint

@supercon:

Mon, 07/27/2009 - 14:08 ET by j. frank wilson

You point out a flaw in credit scoring. I've seen real estate investors with two dozen commercial loans and "no score." Also, your millionaire friend may have positive cash flow but be paying little or no income tax due to depreciation. Many lenders don't understand a 1040 that shows that.

That's one reason many investors choose to put their income property into single-asset entities (LLC's are popular).

Bank regulators for forcing institutions to increase their loan loss reserves (ALLL). This can cripple their opportunities to make new loans - an increase of just a few basis points on their existing loan portfolio can result in sucking up the funds that could have gone to new lending.

Another reply here says most lending appears to be refinances. That's true. Many lenders have to roll their maturing loans because no one else will. If they increase the terms too much, they will force a good loan into turning bad - and that's bad for everyone.

In the coming months (and years) commercial loans are going to really start going south. Income (rents and lease payments) are declining; expenses creeping up. That means DCR/DSC coverages are reducing. Cap. rates are going up (so values are going down).

We're seeing "cash in" refinances on commercial properties. Someone has a 10-year, $1M loan maturing. They can roll it for another 10 years - just as long as they pay it down $100K, or more...

You correctly point out that lenders have to lend to say in the lending business. I agree with you - they will again lend when they can.

Dave Ramsey

Mon, 07/27/2009 - 14:20 ET by dvdaughtry

Financial Guru Dave Ramsey has the same problem.

His FICO is ZERO.

The man has no credit. He has cash, but no credit.

You can check him out at www.daveramsey.com.

You trying to say Jesus Christ can't hit a curveball?

You nailed it.

Mon, 07/27/2009 - 14:30 ET by supercon

You point out a flaw in credit scoring. I've seen real estate investors with two dozen commercial loans and "no score."

That is it exactly. The guy is loaded but has no score.

Of course he could buy the car outright but he preferred to finance it. I know the dealer. He called the bank president personally and "are you guys crazy ?"

They wouldn't budge and they lost his account.

" if Republicans are able to stop Barack Obama on health care, 'it will be his Waterloo, it will break him...." -Sen. Jim DeMint

@supercon:

Mon, 07/27/2009 - 15:03 ET by j. frank wilson

Credit scoring works by comparing one consumer's experience (history) with hundreds of thousands of others. The universe of millionaires with two dozen income property loans (or other types of credit) just isn't large enough for the Bureaus to score.

What your friend needs - and has probably found by now - is a local, "community" bank that wants his business, knows him well, and when he calls up the loan officer and asks for a loan he is told "How much? And where do we mail you the check?"

Well, given that the financial mess was caused in large part...

Mon, 07/27/2009 - 10:38 ET by Prester John

....by banks and mortgage companies loaning huge amounts of money to just about anyone, is this a bad thing?

Maybe they are actually performing some due diligence?

"The Truth is Treason in the Empire of Lies"

www.campaignforliberty.com

The folly of the public option

Mon, 07/27/2009 - 10:41 ET by KC Mulville

How will the public option keep costs down? As other competitors try to raise prices, the government option won’t have a profit built in, and will therefore offer care at a reduced price. Other insurers will be forced to restrain their own price increases to stay within range of the public option.

Well let’s take a look at that logic. It means that someone in the government has to set the government price lower than the market price. That can happen one of two ways:

The government can reckon their price as a percentage lower than the market price. But that certainly won’t work. If the government works on a percentage, then the rest of the market can “manage” the government indirectly. The first move will be to drop the price temporarily, to the point that the government can’t go any lower without losing money. That will lead to the second method …
Some government expert will “set” a bottom line price, regardless of the market, at the expert’s opinion of what the “right” price should be. Once that happens, disaster follows.

Place yourself in the shoes of a pharmaceutical company, and a government expert has set the price at a fixed bottom line, one which is, in fact, offering as low a profit as possible. Do you have any way to expect a profit? No. And, if the price is fixed, that guarantees that no matter how innovative and disciplined you are (you know, those all-American qualities that we claim to treasure), you won’t make any more than that bottom-line price. Growth becomes impossible. If there's no chance of growth, there's no motive for any investors to buy your stock. Your stock drops.

Your response? You have no choice. Go out of business. Stop dead. Either leave the game or offer only the smallest basics.

Fewer pharmaceuticals, higher price.

This is a very bad move. Strategically, nothing good can come of it. And yet, as it harms the other competitors in each industry, the economics of it will drive people to the public option automatically.

Hilarious Video: Hippies Crying Over Dead Trees

Mon, 07/27/2009 - 11:11 ET by R D Helm

http://www.youtube.com/watch?v=zSEaHyzbqTA

Yeah, its a parody, but it doesn't land far from the mark.

(h/t:Jimmyruf)

-Dave

A tree

Mon, 07/27/2009 - 12:42 ET by ckc1227

A tree responds...

http://www.youtube.com/watch?v=HIULIJxVr7A&feature=related

The banks are in a vicious

Mon, 07/27/2009 - 11:30 ET by dscott

The banks are in a vicious cycle, as more housing defaults occur they have to increase their deposit base diverted to cover the reserve requirements hence less money for lending. The same thing is happening with credit card defaults, they are going up, guess who has major shares in credit cards? That would be the banks. Guess whom the banks will be dropping from having credit cards? Your favorite group you like to screw over, the economically disadvantaged. And just to cheer you up, defaults are now increasing on commercial property loans, guess who made those loans? Why, the Banks. Why would any sane person risk capital in this economic environment?

Any more bright ideas liberals? Please keep them to yourself and let the professionals handle it. Repeal the Stimulus Bill and Drilling ban, drop all this nonsense about Crap and Tax, Faux Healthcare Reform, and illegal immigrant amnesty. Make the Bush tax cuts permanent getting us back to pre-Clinton tax rates and foreswear any new taxes period. Then watch the economy take off.

The liberals cling bitterly to their failed ideas, dreams of utopia and wealth redistribution in the vain hope if they can ignore reality long enough that it will spontaneously change. Go ahead, stick your fingers in your ears and say Lalalalalala, I can't hear you, Lalalalala. That would be consistent in your dealings with reality.

Nancy Pelosi and Harry Reid, starving the poor one gallon of ethanol at a time. Fill your tank with E85 and cull a village.

Cash for Clunkers

Mon, 07/27/2009 - 11:34 ET by ricklail

Who is finacing cars for the people that are turning in their clunkers for cash? This to me seems like a big risk. Let's face it most people drive clunkers because they can't afford a new car. They have to buy a new car don't they?

I still have my 1988 Ranger. I don't know if I could get cash for it. But I am not going to try. It still runs good. Besides it was my dad's so it holds a lot of sentimental value.

Semper suprene nitens

North Carolina now has the worst government money can buy.

Mon, 07/27/2009 - 11:54 ET by jessieH

The economy doesn't grow. That's not obama's plan. His plan is to destroy this country.

More Lies

Mon, 07/27/2009 - 12:22 ET by slickwillie2001

More lies from our ignorant demagogue and flake of a President:

Nurse Given Ultimatum: Help With Abortion or Lose Your Job: http://www.americanthinker.com/blog

Exactly

Mon, 07/27/2009 - 12:41 ET by KC Mulville

The conscience clause presents a conflict between an individual and the institution.

The individual nurse, in this case, has a right to refuse to participate in a procedure she finds objectionable.
But if a patient has a legal right to an abortion, and the health institution refuses to provide it, that leaves the institution liable.
The flaw in the "conscience clause" is if it applies to individuals but not institutions. The institutions will be forced to provide care (and will therefore pressure individual workers).
And as this episode shows, who decides whether the procedure violates the nurse's morality? Apparently, the institution does. She can state her objections, but if the hospital decides that the procedure doesn't violate those objections, they can force her to participate - even if she disagrees with their judgment.

How will the law treat a case where a woman shows up at a Catholic hospital and demands an abortion? Let's say that none of the doctors and nurses agree to perform the procedure. Is the hospital liable to provide the procedure? We have been assured that we have nothing to worry about. I doubt the assurance.

So, will it be the case that no Catholic can work at a public hospital?

Poetic justice lives: Turbo Tax Timmy can't sell NY abode

Mon, 07/27/2009 - 12:59 ET by R D Helm

http://www.abcnews.go.com/Business/story?id=8169165&page=1

All together now, "Boo Friggin' hoo!"

-Dave

Hey, my company's going

Mon, 07/27/2009 - 13:15 ET by RR GOP

Hey, my company's going bankrupt and you're probably going to be paying higher taxes before too long...can you help me out with a few mil?

One of the 34% who thinks George W. Bush was a great President. One of the 61% who wants to bring back the stock and pillory (yep...approval for Congress now at 39%...do you believe that!?).

CHECK THIS OUT!

Mon, 07/27/2009 - 13:36 ET by GregE

CHECK THIS OUT! (and our beloved Secretary of State right in full agreement)

http://www.youtube.com/watch?v=heegk07026I

Where was the MSM on this in all the death-of-Cronkite coverage?

banks and the economy

Mon, 07/27/2009 - 14:26 ET by east tennessee john

as the banks begin to write off their commercial loans, what haappens, just wondering, when the resets of the adjustables wriiten in the mortgage market2006-2008 come up later this year and through 2011? Go Comrade O go. You got to give Paulson credit though. He made sure Goldman competitor Lehman died, made sure Goldman, heavily into AIG, both survived, did with our money and like a good Democrat, made sure a Republican took the blame. Didn't that economic seer, BO, vote for the bailout, TARP? Wasn't Tiny Tim , the tax evader, also involved in its development? Elites win, we lose.

@east tennessee john:

Mon, 07/27/2009 - 15:08 ET by j. frank wilson

Adjustments to the interest rates on commercial loans shouldn't present a huge problem because the indexes off which those rates are set are, overall, quite low.

What killed so many residential borrowers was the triple whammy:

1. A "teaser" loan interest rate - unheard of in commercial lending;

2. Interest only payments - some commercial loans had these, but not a large percentage; and

3. When loans started amortizing it wasn't over 30 years but over 25 or 27 (depending on whether the interest only period was 5 or 3 years).

Those 3 factors combined could increase the monthly payment by 100% - and more!

I don't think it's adjustments to commercial loans that's going to create problems - it's maturities. Particularly the "conduit" (MBS market) loans - but that's a whole 'nother smoke...

uhmmm, I think people

Mon, 07/27/2009 - 15:28 ET by dscott

uhmmm, I think people losing their jobs had more to do than points 1, 2 & 3. Not to mention people with such loans were counting on either selling the property in a reasonable period of time OR they would get another loan. They had the bad luck of the bottom dropping out of the market and banks being burned so badly that they had no more money to make loans.

Nancy Pelosi and Harry Reid, starving the poor one gallon of ethanol at a time. Fill your tank with E85 and cull a village.

@dscott:

Mon, 07/27/2009 - 15:46 ET by j. frank wilson

No question about it: A borrower who has lost his or her job is going to have a tough time making the mortgage payment!

I was attempting to draw a comparsion between residential vs. commercial borrowers pushed sideways by interest rate adjustments. I certainly did not mean to suggest that was the only way folks got into trouble.

I absolutely agree with you there are a great many reasons borrowers have gotten into themselves - and, ultimately, everyone else (for example: You can make your mortgage payment as agreed. But if your neighbor is foreclosed out and the home sold cheap it can have a negative impact on the market value of your home, as well) into this sorry mess...

delete

Mon, 07/27/2009 - 15:28 ET by dscott

A video u have to see and

Mon, 07/27/2009 - 16:09 ET by Dan The Man 2

A video u have to see and hear, the Dirty Jobs Guy.

That's very good! Thanks

Mon, 07/27/2009 - 17:11 ET by GregE

That's very good! Thanks for posting.

Dan

Mon, 07/27/2009 - 17:34 ET by ricklail

I never pegged Mike Rowe for that type of guy. He gave the impression of a snob. He was right. There are no kids going to trade schools. It is hard dirty work. Pays good though. I think I was the happiest when I was sweaty, and filty from welding on a 36" pipe than I am today. I was happy milking cows and hauling hay. Today I am mostly stuck behind a desk directing a crew of highly skilled guys doing plant maintenance. I don't get dirty or sweaty anymore. I wish I could grab my rod pouch and shield and weld some pipe. Unfortunately there are no power plants being built. Something about the enviromental whachos stopping them.

Semper suprene nitens

North Carolina now has the worst government money can buy.

I wanna be a sheep

Mon, 07/27/2009 - 21:17 ET by Dan The Man 2

I wanna be a sheep castrater, LOL.

Plenty of "pipe" around here to weld

Tue, 07/28/2009 - 18:06 ET by SickofLibs

Plenty of "pipe" around here to weld.

St. Louis Area People!

Mon, 07/27/2009 - 16:26 ET by Karin

Claire McCaskill, the Missouri Senator whose office offered such a rude reception to protesters against the Stalinization of our healthcare system, is hosting a town hall meeting on the subject this evening at 7:00. Here's the address:

St. Louis Community College — Forest Park Campus
Highlander Lounge
5600 Oakland Ave.
St. Louis, Missouri

Marxist drones have been instructed by Daily Kos to attend. If you're anywhere near St. Louis, you should too. The media would love nothing better than a scene of unanimous full-throated support for socialism to run over and over on the evening news.

More info at Gateway Pundit.

Thaddeus McCotter...one of

Mon, 07/27/2009 - 17:00 ET by bigtimer

Thaddeus McCotter...one of my favorite conservatives in the House has this Resolution he wants to bring up on the floor.

Wonder how far he will get?

Doubling down on stupid is not a particularly good idea. ~Andrew Breitbart

Seperation of powers

Mon, 07/27/2009 - 21:21 ET by Dan The Man 2

Seperation of powers prevents this.

Howdy Dan... It's only a

Mon, 07/27/2009 - 21:30 ET by bigtimer

Howdy Dan...

It's only a floor Resolution.

Nothing more.

I still wonder how far it will get.

Doubling down on stupid is not a particularly good idea. ~Andrew Breitbart

@Dan The Man 2:

Tue, 07/28/2009 - 17:58 ET by j. frank wilson

Excellent point [because I had the same thought when I read it!].

Whale Dies

Mon, 07/27/2009 - 17:50 ET by slickwillie2001

Some dark humor for your Monday:

Whale-Watching Ship Hits, Impales Whale: http://www.cnsnews.com

Their ship struck a 70-ton, 70-foot fin whale, killed it and it got stuck on the bow. Carried it into port. No word whether Greenpeace will protest their action or not.

PETA, Greenies and all

Mon, 07/27/2009 - 18:03 ET by bigtimer

PETA, Greenies and all their ilk will be screaming for Cruise ships to be banned...trial lawyers at the ready.

Doubling down on stupid is not a particularly good idea. ~Andrew Breitbart

Sen. Jim Bunning bowing

Mon, 07/27/2009 - 17:52 ET by bigtimer

Sen. Jim Bunning bowing out.

No... he was run out, pressured, and has been for months now.... I hope the GOP big-wigs are satisfied now.

I'm disgusted, they don't come anymore conservative than this good man does.

Doubling down on stupid is not a particularly good idea. ~Andrew Breitbart

@bigtimer:

Tue, 07/28/2009 - 17:59 ET by j. frank wilson

According to this morning's report on the radio, he is the 6th GOP incumbant to decide not to run again.

Could make things tough in 2010, given the tremendous advantage incumbants have...

frankie... Time will

Tue, 07/28/2009 - 18:15 ET by bigtimer

frankie...

Time will tell...

You should just worry about your own side of the aisle....things aren't exactly looking great poll wise for them...especially your Dear Leader.

Doubling down on stupid is not a particularly good idea. ~Andrew Breitbart

How Smart is Obama?

Mon, 07/27/2009 - 20:54 ET by slickwillie2001

Let's just come out and say it folks:

Just How Smart is Obama?: http://www.americanthinker.com

From Clarice Feldman at American Thinker. The comments are as good as the article.

WHEN A DEM IS PREZ

Mon, 07/27/2009 - 21:52 ET by MrShy

Look people, aren't recessions just GRAND ?!?....

http://www.nytimes.com/2009/07/28/us/28hurricane.html

And check out how the liberal rag words it on their homepage. And this nugget:

"Even as the recession has led to reduced budgets, it is also bringing forth a class of highly skilled volunteers who agree to work for only a thank you."

Eight years of heightened recession fear-mongering. Now we're IN one under Him. And now this.

I'd laugh, if it wasn't so putrid.