Edited by Joel Bowman
Sometimes less is not more; sometimes it is even less.
According to a Federal Reserve report released by the Feds this week, consumer credit contracted at an annualized rate of 10% in July.
“Non-revolving debt,” which includes loans for automobiles and mobile homes, plunged by $15.4 billion in July…even as the government’s “Cash for Clunkers” program artificially bolstered auto sales to a pace not seen since the heady days of May, 2008. Revolving debt, such as credit cards, fell by $6.1 billion over the same period.
Less really is less.
How does the situation look on the ground, we wonder? Could it be…gasp…even worse than what the Feds would have us believe? Could it be that the next round of economist forecasts will be off the mark?
Here’s what our humble, unpaid correspondents had to say…
First up, let’s hear from the Rude dentist: “I am the owner of a dental practice. I have been dealing with a bank that bought the community bank I worked with for the previous five years. I had an open 100k line of credit at the community bank that was reduced to 25k when the new bank took over. Of course, they charged doc stamps and changed the terms and this was last year in November.
“A few months later they reduced it to 10k because I was not using it. Then, this last weekend, they added an additional 25k line of credit (that i did not ask for) and because they “valued my business,” said they would only charge me one half the doc stamps and loan origination fees.
“As far as refinancing my home…forget it. It seems this bank is not loaning money, only churning existing accounts for additional fees wherever possible.
“I am looking for a new bank.”
Rude reader Charles writes with a similar story. “We have a 7 acre piece of property assessed at 1.3 million and looking to improve it by renovating an existing retail and residential operation. Current rents will cover payments for a $400K loan, which was denied because we do not have enough business experience.
“On the other hand we applied for a refinance of $125,000 on a home assessed at $210,000 and everything looked good until the bank found out we would use the money to improve this commercial property they then lowered the available money to 85K. There is money but it ain’t easy.”
Rude reader Kenny agrees, “To corroborate your private capital vs. government credit jet fuel story, my brother has several commercial buildings which he has contracts on to sell but nobody can actually get the financing to go through with the deals. Obviously no matter how bullish the end consumer is, if he cannot secure financing he can’t follow through.
“The phrase, ‘Show me the money’ comes to mind.”
“There’s no doubt about it,” writes Mike, an Agora Financial Reserve member. “[There is] absolutely NO MONEY out there to borrow for new projects unless you have the same amount of cash to back it up and no such thing as collateralization for any kind of loan. NO CASH, NO LOAN.
“As for current loans on real estate; banks are doing whatever is necessary to bleed cash out of you for principal paydowns. I came prepared and pushed all the keys across the conference table. They backed up. [The bank] essentially told me to go pound sand. So much for having loyalty to a bank, especially when it was they who were prospecting and throwing cash at me just two years ago.
“What really galls me it that people actually treat bankers as though they are intelligent. They got us into this mess and are keeping us in it. Most of them are just building up cash balances as they’ve figured out that their loan portfolios aren’t worth squat or anywhere near their current balance sheet figures and bad loan holdbacks. I’m sure this is a duplication of every note you’ve received thus far.”
Finally today, for our Rude contingent back home, a quick look at the Australian story…
“Our company is a start-up contracting company working in the electrical supply industry with work guaranteed from a large multinational company,” writes our Aussie correspondent.
“I am currently employed on wages by this multinational company as I am being trained to become a contractor for them. We have work for four years in advance with ongoing negotiations for an eight-year contract.
“After investing $60,000 of our own money to purchase some of the equipment our company requires we were advised by our accountant to purchase the remaining equipment with a bank loan for tax and operational reasons. We could buy the required equipment outright and have $120K of capital tied up which we have been advised against.
“We approached our own bank and were knocked back even though we have money to cover the loan and tangible assets of $5.00 for every $1.00 of the proposed loan.
“We have spent the last five weeks negotiating with all manner of financial businesses and, fingers crossed, may have finally found a company to assist us; but they require additional paper work to be completed.
“There is no doubt in our minds that the banks know the economic bubble is going to burst again and they (the lenders) don’t want to be burnt again. The Government-offered incentives have just been a quick fix with no real substance behind it to sustain it into the future.”
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