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Author Topic: Are Banks Shutting Down Lending?  (Read 2762 times)

Silver

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Are Banks Shutting Down Lending?
« on: April 19, 2015, 09:08:07 am »

Ambrose Evans-Pritchard is a sober and reliable reporter and analyst on economics and finance.  His recent report is alarming.

The IMF warns that the amount of debt being used to drive stock purchases has reached highs not seen since the dot-com bubble of the late 1990s / early 2000s.  At the same time, negative yields on 1/3 of all European sovereign bonds are squeezing money market funds and other sources of liquid cash.

The combination of high margin (debt) used to buy stocks and limited access to cash is exactly what brought down Lehman Bros. and precipitated the Greater Depression, which grinds on.  A minor downward move in stock market prices can drive "margin calls," where the lenders force those using credit to buy stocks to put in more cash, so that the faction of debt remains below regulatory limits.  If the speculator investor greedy fool debtor can not raise the cash immediately, the stocks are sold at a loss.  This drives the prices still lower, causing more margin calls, and a nasty spiral ensues.

But it gets worse.  The IMF also reported that so-called "covenant-light loans," which offer limited or no protection to creditors, now make up  two-thirds of all new leveraged loans in the US.

Another commentator that I don't know, Gordon T. Long, presents some intriguing graphs that dovetail ominously well with this news.  If banks see what the IMF and Ambrose Evans-Pritchard sees, they must immediately halt new loans and begin hoarding cash, lest they be crushed like Lehman in the next "liquidity crisis."

Banks appear to be doing just that.  A graph based on data from the National Association of Credit Management shows that rejections of new loans just spiked to an all-time high.


Household debt is different that debt created to buy stocks on margin.  Most American households have ignored the snake oil of the FED and its presstitutes, and have been sensibly paying down their mortgages, home equity loans, and credit card debts.  The graph below shows that only auto loans (heavily subsidized by Government Motors incentives) and student loans (completely subsidized by the federal government) have increased since 2008.



Having paid off nearly $1 Trillion in mortgage debt since 2008, American homeowners are in a better position to weather the next bout of the Greater Depression.  The stock and bond markets are arguably in much worse shape than they were in 2008.

The oil price shock will eventually cause the markets to correct; oil and gas is an enormous part of the economy.  The liquidity trap and high levels of credit that have been used to drive the market higher will produce an especially vicious downward spiral.  While homeowners are in better shape, American workers who saw much of their life savings in 401(k) and IRA plans vanish 7 years ago have been counting on the stock market rally to restore their fantasies about comfortable retirement. 

The coming correction will be hard on us all. Only those with substantial assets that don't depend on debt and credit, namely precious metals like gold and silver, will have some degree of protection from the coming storm.

Peace,

Silver

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knobster

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Re: Are Banks Shutting Down Lending?
« Reply #1 on: April 29, 2015, 06:10:20 am »

Reporting from the trenches; I do hear quite a few folks paying off credit cards, making an extra house payment every year and even cashing in 401Ks from previous jobs to pay off debt.  Times are tough and getting the debt monkey off ones back is key.
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Silver

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Re: Are Banks Shutting Down Lending?
« Reply #2 on: April 29, 2015, 10:40:58 pm »

People talk to me.  Here and elsewhere, folks ask me about money, gold, stocks, business investments, etc.

In the past few years there has been a very marked increase in people paying off debt.  I get questions about which debts to pay down first.  I get messages out of the blue from people I met years ago, thanking me and telling me how great it is to be debt free.

My message hasn't changed, but there are lot more people interested in it than there used to be. 

I don't even get any taunting about the price of gold peaking at $1800 and languishing at $1200 for the past few years.  I still get a steady stream of questions about how to buy, is now a good time, which kinds, etc.

Change is happening right before our eyes.  It seems slow now, but in a few years we'll look back and marvel at how fast it all happened.

Enjoy the ride!  Whee! This investing stuff is easy!

Peace,

Silver
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Moonbeam

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Re: Are Banks Shutting Down Lending?
« Reply #3 on: May 20, 2015, 10:57:20 pm »

I realize this doesn't fit in this thread per se so feel free to ask me to remove my post...

The number two bank in Tenneessee (never even heard of them until recently) just bought the bank where my DH works. The new company will be eliminating his position. Don't know what it means when the Big Guys start gobbling up the Little Guys...
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knobster

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Re: Are Banks Shutting Down Lending?
« Reply #4 on: May 21, 2015, 06:20:35 am »

I realize this doesn't fit in this thread per se so feel free to ask me to remove my post...

The number two bank in Tenneessee (never even heard of them until recently) just bought the bank where my DH works. The new company will be eliminating his position. Don't know what it means when the Big Guys start gobbling up the Little Guys...

Yikes.  Prayers to you and your family during yet another trying time.
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StillaGhost

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Re: Are Banks Shutting Down Lending?
« Reply #5 on: May 21, 2015, 11:15:41 am »

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« Last Edit: July 04, 2015, 01:46:34 pm by StillaGhost »
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Moonbeam

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Re: Are Banks Shutting Down Lending?
« Reply #6 on: May 22, 2015, 12:16:34 pm »

Thanks Knobster. DH had a job interview last Friday. They told him he was one of the top candidates, but there's been no word. The interview was a surprise as he wants to get two certifications before putting his resume out there. We appreciate the prayers!
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I'm not where I want to be, but I'm better than where I was!

Freedom is not being able to do what you want to do; freedom is being able to NOT do what you don't want to do.

"We must not amuse ourselves with the notion that we have done something when we have only formed a good resolution. Power comes by doing and not by resolving." Charlotte Mason

"Don't hurt people and don't take their stuff." Courtesy of FreedomWorks

Silver

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Re: Are Banks Shutting Down Lending?
« Reply #7 on: May 25, 2015, 11:53:12 am »

Don't know what it means when the Big Guys start gobbling up the Little Guys...

Thank (or curse) the fed.  Their insane ZIRP (zero interest rate policy) makes marginal and even idiotic financial moves possible. 

The odds are that the #2 bank could never make the acquisition of the smaller bank show a profit if they had to borrow the necessary funds at 5% or 8% interest.  Merging two businesses is expensive, with a lot of one-time costs. But since the #2 bank can get the money essentially interest-free (negative real interest after factoring in taxes and inflation) they can plop down a little money, borrow a huge amount more, and use it to swallow the smaller bank.  The cost of the loan is close to zero or negative, depending on who is sauteing the spreadsheets.

I'm sorry for your husband and its effects on you and your family.  Hopefully he'll find another position soon.  There are always people looking to hire good, hard-working people. The trick is finding them and becoming known to them.

At your husband's level, hiring is never, ever done from resumes.  He got that interview because someone knows someone who knows him.  They told the person hiring that this was a good man. 

Good luck!

Peace,

Silver
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knobster

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Re: Are Banks Shutting Down Lending?
« Reply #8 on: May 26, 2015, 06:32:21 am »

At your husband's level, hiring is never, ever done from resumes.  He got that interview because someone knows someone who knows him.  They told the person hiring that this was a good man. 

Too true.  My current position started with a former coworker recommending me.  I walked into the interview and across the table was an old friend who I worked with at my first job after college.  My interview consisted of ten minutes of 'interviewing' and 30 minutes of small talk. 
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Moonbeam

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Re: Are Banks Shutting Down Lending?
« Reply #9 on: May 28, 2015, 03:17:12 pm »

I'm sorry for your husband and its effects on you and your family.  Hopefully he'll find another position soon.  There are always people looking to hire good, hard-working people. The trick is finding them and becoming known to them.

At your husband's level, hiring is never, ever done from resumes.  He got that interview because someone knows someone who knows him.  They told the person hiring that this was a good man. 

Good luck!

Peace,

Silver

Thanks, Silver. He didn't get that job so now he's back to studying hard to get one of the certifications he wants/needs. Some of the work others have told him about do not sound very appealing. We're hopeful though! :)
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I'm not where I want to be, but I'm better than where I was!

Freedom is not being able to do what you want to do; freedom is being able to NOT do what you don't want to do.

"We must not amuse ourselves with the notion that we have done something when we have only formed a good resolution. Power comes by doing and not by resolving." Charlotte Mason

"Don't hurt people and don't take their stuff." Courtesy of FreedomWorks
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