Has the Credit Market Really Dried Up?
Alex Tabarrok* says maybe not. If you are an actual qualified borrower - you have a 20% down payment, solid employment history, can truly afford the expected monthly payments and are purchasing a home in an established neighborhood with reliable resale prospects - is it really a problem to get a loan?
I heard an interview on the local public station this morning (on this annoying show, to be precise) with the CEO of a business called Muddy Cup complaining that he can't get a loan to expand to new locations in his upstate NY territory despite his solid business plan and successful track record. Well, maybe that kind of business in today's environment is a bit risky? Is overpriced coffee still an expanding market, particularly when tied to the kind of clientele he's shooting for ("Our space is available to anyone who wants to share their craft whether it be a singer, writer, musician, sculptor or poet.")? If I were a bank I'd be looking real hard at this kind of business and thinking maybe he's about to expand beyond his capacity. So it could be the general business climate is not favorable to his loan prospects, and not tight credit per se. Maybe banks right now aren't willing to just throw money at anything that moves.
Could it be that, right now, the credit market is actually functioning the way it's supposed to work?
* On the other hand, Tabarrok is also responsible for this notorious bit of idiocy, attacking one of the few true prophets of the current crisis back in early 2007.
I heard an interview on the local public station this morning (on this annoying show, to be precise) with the CEO of a business called Muddy Cup complaining that he can't get a loan to expand to new locations in his upstate NY territory despite his solid business plan and successful track record. Well, maybe that kind of business in today's environment is a bit risky? Is overpriced coffee still an expanding market, particularly when tied to the kind of clientele he's shooting for ("Our space is available to anyone who wants to share their craft whether it be a singer, writer, musician, sculptor or poet.")? If I were a bank I'd be looking real hard at this kind of business and thinking maybe he's about to expand beyond his capacity. So it could be the general business climate is not favorable to his loan prospects, and not tight credit per se. Maybe banks right now aren't willing to just throw money at anything that moves.
Could it be that, right now, the credit market is actually functioning the way it's supposed to work?
* On the other hand, Tabarrok is also responsible for this notorious bit of idiocy, attacking one of the few true prophets of the current crisis back in early 2007.
posted by ziel | 9/25/2008 07:54:00 AM
6 Comments:
if you´re interested in seeing a good trainwreck in action....
http://www.youtube.com/watch?v=Vbg6hF0nShQ
No credit available for NAMs, shitty artists and hispters= Crisis.
I'm in my 20s and don't own a house. I kind of feel sorry for the duller types who didn't know what they were getting into. But lots of people knew they were gambling when they took those no money down ARMs, and I don't see why I should have to help keep them from losing their houses.
I think it's the credit markets for businesses and banks that have dried up. The banks are scared to lend to other banks because of shaky balance sheets and the consequent risk of default. Very large businesses fund operations through short term borrowing on bond markets and via huge credit lines. Prospective bond buyers are likewise spooked by poor balance sheets and the various sorts of toxic debt instruments held by the big players. The banks are timid about funding credit lines too for all of the above reasons. So, it's not really the residential mortgage market that is the problem in terms of future borrowings. Rather, it's the non-performing residential loans that were recklessly securitized that comprise many of the toxic "assets" that result in wrecked balance sheets. (Others are the mysterious credit default swaps, structured investment vehicles and credit default obligations). And the loans are non-performing because the fed-induced (as opposed to free market-induced) bubble in housing prices popped and borrowers who should have remained renters can't sell their now over-priced houses nor can they tap equity because values have plummeted to what they would have been without the ridiculous easy credit policies implemented in the Clinton years and subsequently placed on steroids by the liberal "Decider."
Today, I emailed two friends of mine back in the States about their thoughts on the bailout.
One, who works in real estate, told me he couldn't comment on the Paulson plan because he didn't understand it, and then went on to critique in quite well-informed terms the lead up to this situation in the real estate sector, including the fact that everyone has seen this coming for years, and so long as they were making money (or buying votes) they were pretty well satisfied with the general trend.
My other friend, who works in the stock market, is strongly opposed to the bailout. Just let the market work its way through the bad debt, get the pain over with, move on. That's his take, in a nutshell.
I'm starting to be of the opinion that I'll believe in the alleged depth of this crisis when I start seeing some big names jump out of some high windwos. I want proof.
I assume many senators and congressmen have much to lose in the market - hard to imagine they're all being very impartial in their deliberations.
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